06-6970. Determination of the 2005 Fiscal Year Interest Rates on Rural Telephone Bank Loans

AGENCY:

Rural Telephone Bank, USDA.

ACTION:

Notice of 2005 fiscal year interest rates determination.

SUMMARY:

In accordance with 7 CFR 1610.10, the Rural Telephone Bank (Bank) fiscal year 2005 cost of money rates have been established as follows: 6.18% and 5.00% for advances from the liquidating account and financing account, respectively (fiscal year is the period beginning October 1 and ending September 30).

All loan advances made during fiscal year 2005 under Bank loans approved in fiscal years 1988 through 1991 shall bear interest at the rate of 6.18% (the liquidating account rate). All loan advances made during fiscal year 2005 under Bank loans approved during or after fiscal year 1992 shall bear interest at the rate of 5.00% (the financing account rate).

The calculation of the Bank's cost of money rates for fiscal year 2005 for the liquidating account and the financing account are provided in Tables 1 and 2. Since the calculated rates are greater than or equal to the minimum rate (5.00%) allowed under 7 U.S.C. 938(b)(3)(A), the cost of money rates for the liquidating account and financing account are set at 6.18% and 5.00%, respectively. The methodology required to calculate the cost of money rates is established in 7 CFR 1610.10(c).

FOR FURTHER INFORMATION CONTACT:

Jonathan P. Claffey, Deputy Assistant Governor, Rural Telephone Bank, STOP 1590—Room 5151, 1400 Independence Avenue, SW., Washington, DC 20250-1590. Telephone: [phone].

SUPPLEMENTARY INFORMATION:

The Federal Credit Reform Act of 1990 (2 U.S.C. 661a, et seq.) implemented a system to reform the budgetary accounting and management of Federal credit programs. Bank loans approved on or after October 1, 1991, are accounted for in a different manner than Bank loans approved prior to fiscal year 1992. As a result, the Bank must calculate two cost of money rates: (1) The cost of money rate for advances made from the liquidating account (advances made during fiscal year 2005 on loans approved prior to October 1, 1991) and (2) the cost of money rate for advances made from the financing account (advances made during fiscal year 2005 on loans approved on or after October 1, 1991).

The cost of money rate methodology is the same for both accounts. It develops a weighted average rate for the Bank's cost of money considering total fiscal year loan advances; the excess of fiscal year loan advances over amounts received in the fiscal year from the issuance of Class A, B, and C stock, debentures and other obligations; and the costs to the Bank of obtaining funds.

During fiscal year 2005, the Bank was authorized to pay the following dividends: The dividend on Class A stock as 2.00% as established in 7 U.S.C. 946(c); no dividends were payable on Class B stock in accordance with 7 U.S.C. 946(d); and the dividend on Class C stock was established by the Bank at 5.74%.

Dissolution of the Bank

At its quarterly meeting on August 4, 2005, the Board of Directors (the “Board”) approved a resolution to dissolve the Bank. On November 10, 2005, the liquidation and dissolution process was initiated with the signing of the 2006 Agriculture Appropriations bill by President Bush, which contained a provision lifting the restriction on the retirement of more than 5 percent of the Class A stock held by the Government.

In accordance with the Board's resolution and the terms of the Loan Transfer Agreement between the Bank and the Government, dated August 4, 2005, the Bank's liquidating account loan portfolio was transferred to the Government on October 1, 2005. As a result of that transfer, there will be no more advances of liquidating account loan funds. Therefore, this is the last notice that will report an interest rate for liquidating account loan advances.

The dissolution of the Bank will not affect future advances of financing account loan funds. Requests for financing account advances will continue to be processed by employees of USDA Rural Development's Telecommunications Program, just as they were while the Bank remained in operation. The terms and conditions of the financing account loans will not change, nor will the method for determining the interest rates, including the determination of the cost of money rates after the end of the fiscal year. The only significant change to the financing account advances is that effective October 1, 2005, no Class B stock in the Bank will be purchased with a financing account loan advance.

Sources and Costs of Funds—Liquidating Account

In accordance with 7 U.S.C. 946(a), the Bank did not issue Class A stock in fiscal year 2005. There were no net issuances of Class B stock because the rescissions of loan funds advanced for Class B stock exceeded the amount of issuances. The amount received by the Bank in fiscal year 2005 from the issuance of Class C stock was $8,048.

The Bank did not issue debentures or any other obligations related to the liquidating account in fiscal year 2005. Consequently, no cost was incurred related to the issuance of debentures subject to 7 U.S.C. 948(b)(3)(D).

The excess of fiscal year 2005 loan advances from the liquidating account over amounts received from issuance of stocks, debentures, and other obligations amounted to $794,953. The cost associated with this excess is the historic cost of money rate as defined in 7 U.S.C. 948(b)(3)(D)(v). The calculation of the Bank's historic cost of money rate for advances from the liquidating account is also provided in Table 1. The methodology required to perform this calculation is described in 7 CFR 1610.10(c). The cost of the money rates for fiscal years 1974 through 1987 are defined in 7 U.S.C. 948(b) and are listed in 7 CFR 1610.10(c) and Table 1 herein.

Sources and Costs of Funds—Financing Account

In accordance with 7 U.S.C. 946(a), the Bank did not issue Class A stock in fiscal year 2005. Advances for the purchase of Class B stock and cash purchases for Class B stock were $4,570,841. There were rescissions of loan funds advanced for Class B stock in the amount of $8,967; therefore, the amount received by the Bank from the issuance of Class B stock, per 7 CFR 1610.10(c), was $4,561,874. The Bank did not receive any amounts in fiscal year 2005 from the issuance of Class C Stock.

During fiscal year 2005, issuance of debentures or any other obligations related to advances from the financing account were $91,416,689 at an interest rate of 5.250%.

The excess of fiscal year 2005 loan advances from the financing account over amounts received from issuance of stocks, debentures, and other obligations amounted to $8,967. The cost associated with this excess is the historic cost of money rate as defined in 7 U.S.C. 948(b)(3)(D)(v). The Bank's cost of money rate for advances from the financial account is provided in Table 2. The methodology required to perform this calculation is described in 7 CFR 1610.10(c).

Dated: August 11, 2006.

James M. Andrew,

Governor, Rural Telephone Bank.

Rural Telephone Bank Cost of Money Rate—Liqudating Account

FY 2005 source of bank funds	(a) Amount ($)	(b) Cost (%)	(c) (a)×(b) ($)	(c)/Advances (%)
Issuance of Class A Stock		2.00		0.0000
Issuance of Class B Stock		0.00		0.0000
Issuance of Class C Stock	8,048	5.74	462	0.0575
Issuance of Debentures and Other Obligations		0.00		0.0000
Excess of Total Advances Over Issuances	794,953	6.19	49,194	6.1263
Total FY 2005 Advances	803,001
Calculated cost of money rate =				6.18
Minimum rate allowable =				5.00

Rural Telephone Bank Historical Cost of Money Rate—Liquidating Account

Fiscal year	(a) Cost of money (%)	(b) advances ($)	(c) (a)×(b) ($)	(c)/Total Advances (%)
FY 1974	5.01	111,022,574	5,562,231	0.231
FY 1975	5.85	130,663,197	7,643,797	0.318
FY 1976	5.33	99,915,066	5,325,473	0.221
FY 1977	5.00	80,907,425	4,045,371	0.168
FY 1978	5.87	142,297,190	8,352,845	0.347
FY 1979	5.93	130,540,067	7,741,026	0.322
FY 1980	8.10	199,944,235	16,195,483	0.673
FY 1981	9.46	148,599,372	14,057,501	0.584
FY 1982	8.39	112,232,127	9,416,275	0.391
FY 1983	6.99	93,402,836	6,528,858	0.271
FY 1984	6.55	90,450,549	5,924,511	0.246
FY 1985	5.00	72,583,394	3,629,170	0.151
FY 1986	5.00	71,582,383	3,579,119	0.149
FY 1987	5.00	51,974,938	2,598,747	0.108
FY 1988	5.00	119,488,367	5,974,418	0.248
FY 1989	5.00	97,046,947	4,852,347	0.202
FY 1990	5.00	107,694,991	5,384,750	0.224
FY 1991	5.43	163,143,075	3,858,669	0.368
FY 1992	6.14	84,940,822	5,215,366	0.217
FY 1993	6.05	84,605,366	5,118,625	0.213
FY 1994	6.15	54,530,897	3,353,650	0.139
FY 1995	6.04	35,967,133	2,172,415	0.090
FY 1996	6.05	30,965,187	1,873,394	0.078
FY 1997	5.98	32,602,587	1,949,635	0.081
FY 1998	5.96	20,673,798	1,232,158	0.051
FY 1999	6.01	17,796,518	1,069,571	0.044
FY 2000	6.01	10,436,622	627,241	0.026
FY 2001	5.95	6,638,107	394,967	0.016
FY 2002	6.51	1,864,500	121,379	0.005
FY 2003	6.05	604,800	36,590	0.002
FY 2004	6.18	880,504	54,415	0.002
Total advances		2,405,995,574
Cost of money				6.19

Rural Telephone Bank Cost of Money Rate—Financing Account

FY 2005 source of bank funds	(a) Amount ($)	(b) Cost (%)	(c) (a)×(b) ($)	(c)/Advances (%)
Issuance of Class A Stock		2.00		0.0000
Issuance of Class B Stock	4,561,874	0.00		0.0000
Issuance of Class C Stock		5.740		0.0000
Issuance of Debentures and Other Obligations*	91,416,689	5.250	4,799,659	5.0003
Excess of Total Advances Over Issuances	8,967	5.956	534	0.0006
Total FY 2005 Advances	945,987,530
Calculated cost of money rate =				5.00
Minimum rate allowable =				5.00
* RTB borrowed $99,306,000 from the financing account in FY 2005; the remaining funds will be used to cover other obligations of the fund.

Rural Telephone Bank Historical Cost of Money Rate—Financing Account

Fiscal year	(a) Cost of money (%)	(b) Advances ($)	(c) (a)×(b) ($)	(c)/Total Advances (%)
FY 1992	7.38	4,056,250	299,351	0.055
FY 1993	6.35	23,839,200	1,513,789	0.278
FY 1994	6.40	56,838,902	3,637,690	0.669
FY 1995	6.88	37,161,517	2,556,712	0.470
FY 1996	6.42	44,536,621	2,859,251	0.526
FY 1997	6.54	34,368,726	2,247,715	0.413
FY 1998	5.71	34,446,458	1,966,893	0.362
FY 1999	5.54	38,685,732	2,143,190	0.394
FY 2000	6.05	31,401,867	1,899,813	0.349
FY 2001	5.17	55,405,896	2,864,485	0.527
FY 2002	6.05	60,232,919	3,644,092	0.670
FY 2003	5.67	55,835,695	3,165,884	0.582
FY 2004	5.36	67,074,751	3,595,207	0.661
Total advances		543,884,534
Cost of money				5.96