[Federal Register Volume 64, Number 97 (Thursday, May 20, 1999)]
[Proposed Rules]
[Pages 27488-27499]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-12542]
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DEPARTMENT OF TRANSPORTATION
Federal Railroad Administration
49 CFR Part 260
[Docket No. FRA 1999-5663]
RIN 2130-AB26
Railroad Rehabilitation and Improvement Financing Program;
Proposed Revisions
AGENCY: Federal Railroad Administration (FRA), Department of
Transportation (DOT).
ACTION: Notice of Proposed Rulemaking (NPRM).
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SUMMARY: Section 7203 of the Transportation Equity Act for the 21st
Century (``TEA 21'') amends Title V of the Railroad Revitalization and
Regulatory Reform Act of 1976, as amended (``Act'') by replacing the
railroad financing programs (the purchase of preference shares and the
issuance of loan guarantees) with a new loan and loan guarantee
program. Section 7203 authorizes the Secretary of Transportation
(``Secretary'') to provide direct loans and loan guarantees to State
and local governments, government sponsored authorities and
corporations, railroads, and joint ventures that include at least one
railroad. The Secretary has delegated his authority to the FRA
Administrator. The following types of projects are eligible for
financing under Title V, as revised: acquisition, improvement or
rehabilitation of intermodal or rail equipment or facilities (including
tracks, components of tracks, bridges, yards, buildings, and shops),
refinancing outstanding debt incurred for these purposes, or
development or establishment of new intermodal or railroad facilities.
The aggregate unpaid principal amounts of obligations cannot exceed
$3.5 billion at any one time and not less that $1 billion is to be
available solely for projects benefiting freight railroads other than
Class I carriers.
The NPRM would strike the language in existing part 260 (the Title
V loan guarantee program), and replace it with new procedures and
requirements to cover applications of financial assistance in the form
of direct loans and loan guarantees consistent with the changes in
Title V made by section 7203.
DATES: (1) Written comments: Written comments must be received no later
than June 21, 1999. Comments received after that date will be
considered to the extent possible without incurring additional expense
or delay.
(2) Hearing: Because the NPRM tracks the statutory language, FRA
does not intend to schedule a public hearing.
(3) Proposed effective date: The revisions to part 260 are proposed
to become effective thirty days after date of publication of the final
rule.
ADDRESSES: The public is invited to submit written comments on the
NPRM. The proposals contained in the NPRM may be changed in light of
the comments received. Written comments should refer to the docket
number of this notice and be submitted in duplicate to: DOT Central
Docket Management Facility located in room PL-401 at the Plaza level of
the Nassif Building, 400 Seventh Street, S.W., Washington, D.C. 20590.
All docket material will be available for inspection at this address
and on the Internet at http://dms.dot.gov. Docket hours at the Nassif
Building are Monday-Friday, 10 a.m. to 5 p.m., excluding Federal
holidays. Those desiring notification of receipt of comments must
include a self-addressed, stamped envelope or postcard.
FOR FURTHER INFORMATION CONTACT: JoAnne M. McGowan, Chief of Freight
Programs Division, RDV-12, Office of Passenger and Freight Services,
FRA, 1120 Vermont Avenue, NW, Mailstop 20, Washington, D.C. 20590
(telephone 202-493-6336), or Joseph R. Pomponio, Senior Attorney,
Office of Chief Counsel, FRA, 1120 Vermont Avenue, NW, Mailstop 10,
Washington, D.C. 20590 (telephone 202-493-6336).
SUPPLEMENTARY INFORMATION:
Background
Prior to the enactment of TEA 21, Title V of the Act, 45 U.S.C. 821
et seq., authorized FRA to provide railroad financial assistance
through the purchase of preference shares (45 U.S.C. 825), and the
issuance of loan guarantees (45 U.S.C. 831). The FRA regulations
implementing the preference share program were eliminated on February
9, 1996, due to the fact that the authorization for the program expired
(28 FR 4937). The FRA regulations implementing the loan guarantee
provisions of Title V of the Act are contained in 49 CFR Part 260.
Section 7203 of TEA 21, Pub. L. No. 105-178 (June 9, 1998),
replaces the existing Title V financing programs.
[[Page 27489]]
This NPRM strikes the language in existing part 260 and replaces it
with new procedures and requirements to cover applications of financial
assistance in the form of direct loans and loan guarantees consistent
with the changes made to Title V of the Act by section 7203 of TEA 21.
The revised program is referred to in TEA 21 as the Railroad
Rehabilitation and Improvement Financing (``RRIF Program''). The RRIF
Program authorizes the Secretary to provide direct loans and loan
guarantees to State and local governments, government sponsored
authorities and corporations, railroads, and joint ventures that
include at least one railroad. The following type of projects are
eligible for financing: (1) Acquisition, improvement or rehabilitation
of intermodal or rail equipment or facilities (including tracks,
components of tracks, bridges, yards, buildings, and shops), (2)
refinancing outstanding debt incurred for these purposes; or (3)
development or establishment of new intermodal or railroad facilities.
The term ``intermodal'' means of or relating to the connection between
rail service and other modes of transportation, including all parts of
facilities at which such connection is made. Loans and loan guarantees
cannot be used for railroad operating expenses. The aggregate unpaid
principal amounts of obligations cannot exceed $3.5 billion at any one
time, and not less that $1 billion is to be available solely for
projects benefitting freight railroads (e.g., other than Class I
carriers).
The Secretary has delegated his authority under the RRIF Program to
the FRA Administrator. In granting applications, FRA is required to
give priority to projects that: (1) Enhance public safety; (2) enhance
the environment; (3) promote economic development; (4) enable United
States companies to be more competitive in international markets; (5)
are endorsed by plans prepared under 23 U.S.C. 135 by the State or
States in which they are located; or (6) preserve or enhance rail or
intermodal service to small communities or rural areas.
Prerequisites to granting financial assistance under the RRIF
Program include:
(1) The financial assistance is required to be repaid within a term
of not more than 25 years;
(2) The financial assistance is justified by the present and
probable future demand for rail services or intermodal facilities;
(3) The applicant has given reasonable assurances that the
facilities or equipment to be acquired, rehabilitated, improved,
developed, or established with the proceeds of the financial assistance
will be economically and efficiently utilized;
(4) The obligation can reasonably be repaid, using an appropriate
combination of credit risk premiums, and collateral offered by the
applicant to protect the Federal Government; and
(5) The purposes of the direct loan or loan guarantee are
consistent with the eligible purposes for which funding can be provided
under the RRIF Program.
The RRIF Program is intended to be a lender of last resort for
railroad applicants. Therefore, all railroad applicants must provide
evidence that financing for the proposed project is not available to
them from lenders in the private sector. This will be done by the
applicants submitting two letters of refusal of financing for the
proposal from commercial lenders and any other lending institution that
has provided credit to the applicant in the past five years.
The Federal Credit Reform Act of 1990, 2 U.S.C. 661 (``Reform
Act''), requires that before making any loan or loan guarantee,
agencies of the Federal Government must have received an appropriation
of funds from Congress adequate to cover the cost to the Government of
making that loan or loan guarantee. Section 502(f) provides that a
source of the subsidy cost may be either appropriated Federal funds,
funds from a non-Federal source, or any combination thereof. For Fiscal
Year 1999, the Administration has not requested, and Congress has not
appropriated funds to provide the subsidy cost for borrowers, and in
the absence of such an appropriation, the Credit Risk Premium
associated with any direct loan or loan guarantee must be provided by
the project applicant or infrastructure partner, which includes any
participant in the project. The Administration has also not requested
appropriated funds to provide the subsidy cost for Fiscal Year 2000.
If an appropriation is ever received for this program, funding
decisions, including the split between appropriations and credit risk
premiums, will be based on the repayability as well as the statutory
priorities. Section 502(c) directs the Secretary to give priority to
projects that: (1) Enhance public safety; (2) enhance the environment;
(3) promote economic development; (4) enable United States companies to
be more competitive in international markets; (5) are endorsed by the
plans prepared under section 134 of title 23, United States code, by
the State or States in which they are located; or preserve or enhance
rail or intermodal service to small communities or rural areas. FRA
will evaluate each project request and allocate appropriated funds
based on the contribution of a project to the statutory priorities.
Under the RRIF Program, FRA is to determine the amount of the
Credit Risk Premium on the basis of: (1) The circumstances of the
applicant, including the amount of collateral offered; (2) the proposed
schedule of loan disbursements; (3) historical data on the repayment
history of similar borrowers; (4) consultation with the Congressional
Budget Office; and (5) any other factors FRA considers relevant. The
Credit Risk Premium must be paid before disbursement of any loan or
loan guarantee proceeds. FRA has determined that it will require
collateral, to the extent available, in connection with any loan or
loan guarantee.
Under the provisions of the RRIF Program and of the Office of
Management and Budget (OMB) Circular A-11, FRA is required to group its
direct loans and loan guarantees into cohorts and periodically prepare
an evaluation of loan performance by cohort and a re-estimation of the
funds needed to cover the estimated losses of a cohort. Consistent with
Circular A-11, FRA will establish a separate cohort of loans for each
fiscal year, and each loan or guarantee obligated during the fiscal
year will be placed in that year's cohort. When all obligations in a
cohort have been satisfied or liquidated, the amount of Credit Risk
Premiums remaining in the cohort, after deductions made to mitigate
losses from any loan or loan guarantee in the cohort, together with
interest accrued thereon, will be repaid on a pro rata basis to each
original payor of a Credit Risk Premium for any obligation which was
fully satisfied. The Credit Risk Premium for each direct loan or loan
guarantee is established by estimating the total long-term cost to the
Government of that direct loan or loan guarantee. Therefore, if the
estimates are accurate, all the Credit Risk Premiums in each cohort
will be used to cover losses and none will remain to be returned.
Should losses exceed the total amount of credit risk premiums paid for
each cohort, the losses will be covered by the Government as provided
in the Reform Act.
The RRIF Program provides that FRA must, before granting financial
assistance, require the applicant to agree to such terms and conditions
as are sufficient, in FRA's judgment, to ensure that, as long as any
principal or interest is due and payable on such obligation, the
applicant, and any railroad or
[[Page 27490]]
railroad partner for whose benefit the assistance is intended--
(1) Will not use any funds or assets from railroad or intermodal
operations for purposes not related to such operations, if such use
would impair the ability of the applicant, railroad, or railroad
partner to provide rail or intermodal services in an efficient and
economic manner, or would adversely affect the ability of the
applicant, railroad, or railroad partner to perform any obligation
entered into by the applicant under the RRIF Program;
(2) Will, consistent with its capital resources, maintain its
capital program, equipment, facilities, and operations on a continuing
basis; and
(3) Will not make any discretionary dividend payments that
unreasonably conflict with the eligible purposes for which loan or loan
guarantees can be made under the RRIF Program.
As can be seen from the foregoing discussion, the RRIF Program
provides for loan and loan guarantees for a wide variety of projects,
including safety improvements such as the rehabilitation of rail
freight lines and bridges as well as the elimination of grade
crossings.
While any railroad is eligible for financial assistance for a
project under the RRIF Program, a key component of the program is the
$1 billion dollars reserved for railroad projects benefitting non-Class
I freight railroads. The more than 650 shortline and regional railroads
connect rural and small communities to the economic mainstream of North
America. Collectively, these railroads operate more than 47,000 miles
of track. Their mileage exceeds the 46,000 mile Interstate Highway
System. Congress directed the RRIF program to make available loans and
loan guarantees to support these small railroads.
From 1986 through 1991, small railroads experienced over 3 track-
related accidents for every million miles operated. During the same
period, major railroads had only 1.45 track-related accidents for every
million miles operated. Since 1991, the situation has worsened. From
1992 through 1996, shortline and regional railroads experienced more
than 5 track-related accidents per million miles operated while major
railroads had only 1.28.
A recent survey by the American Short Line and Regional Rail
Association found that 100 small railroads need $950 million in
external financing to upgrade their track to safely accommodate the
286,000 pound cars that major carriers are now using. Shortline and
regional railroads that cannot safely handle these heavier cars will
lose traffic critical to their viability and continued operation.
Moreover, if these railroads cease to exist, rail traffic will be
diverted to highways accelerating their deterioration and increasing
their reconstruction costs, and adversely affecting the environment.
Without this financing, some track operated by small railroads may be
abandoned and the freight traffic moved by less energy efficient
trucks. This will result in additional air pollution and fuel
consumption, as well as significantly increased highway maintenance
costs. RRIF funding will strengthen the linkage between transportation
and environmental policy by helping to ensure the continuation of
energy efficient rail freight service. In addition to their track
needs, small railroads require financing for equipment. Approximately,
87 percent of the locomotives used by shortline and regional railroads
are more than 20 years old and only 1 percent is less than 10 years
old. In comparison, 31 percent of the locomotives used by major
railroads are less than 10 years old. Only 32 percent are more than 20
years old.
A 1993 study conducted by FRA entitled ``Small Railroad Investment
Goals and Financial Options'' (``FRA Study'') found that small
railroads face unique problems and difficulties in securing private
financing: ``According to the banking industry, it takes an inordinate
amount of work to prepare a small railroad loan package, compared to a
similar-sized loan for other businesses. Unlike many similar-sized
businesses that need short-term loans for inventory or working-capital,
small railroads need long-term financing for long-lived assets such as
track materials and equipment. Even when private financing could be
obtained, these railroads felt that the terms offered were
unsatisfactory. In particular, loans were usually offered for not more
than 8 years, too short a term for railroad investments that have a
much longer productive life.'' (FRA Study at pg. iii and iv.) The study
also confirmed that because differences in bankruptcy law treatment of
railroads make it more difficult to recover the proceeds of a railroad
loan after a bankruptcy or default than a debt owed by a non-railroad
borrower, lending to small railroads has been more restrictive than to
Class I railroads or similarly sized entities in other industries. FRA
Study at page v.
Shortline and regional railroad access to private financing has not
improved since FRA's 1993 study. The small railroad's lack of access to
private financing is reflected in their increasing rate of track-
related derailments and the age of their equipment.
Tax Status of Loan Guarantees
TEA-21 did not amend the provisions in section 149(b) of the
Internal Revenue Code that prohibits the use of direct or indirect
Federal guarantees of tax-exempt obligations. Accordingly, the interest
income on any project loan that is directly or indirectly Federally
guaranteed under section 502 of the Act shall not be exempt from
Federal income taxation.
Regulatory Impact
E.O. 12866 and DOT Regulatory Policies and Procedures
This NPRM has been evaluated in accordance with existing regulatory
policies and is considered to be significant within the meaning of
Executive Order 12866 and is a significant rule under the DOT
regulatory policies and procedures (44 FR, February 26, 1979). This
determination is based on a finding that the rule may have an annual
effect on the economy of $100 million or more until the outstanding
principal cap of $3.5 billion is reached.
The financing being made available through the regulatory action
will provide economic, safety, and environmental benefits. Of the $3.5
billion, $1 billion is reserved for projects benefitting small
railroads. Shortline and regional railroads are one of the
transportation modes that connect rural America and small communities
to the national railroad system.
Prospective borrowers will normally have available the information
needed to prepare applications for funding so these costs also will be
minimal. While successful applicants will be required to provide Credit
Risk Premiums, the amount of financing obtained will substantially
exceed the costs of the Credit Risk Premiums.
On this basis, the DOT has concluded that the RRIF program will
generate both direct and indirect benefits, including reduced
congestion, improved safety, an enhanced environment, and greater
economic growth. These benefits are anticipated to far surpass the
minimal combined direct costs to the Federal Government and to the
entities that elect to participate in the program. Because of the
voluntary nature of participation in the RRIF program, this regulatory
action is not anticipated to impose any direct costs upon non-
participants.
The DOT requests comments, information, and data from the public
and potential users concerning the
[[Page 27491]]
economic impact of implementing this rule and the RRIF program.
Regulatory Flexibility Act
The Regulatory Flexibility Act of 1980 (5 U.S.C. 601 et seq.)
requires a review of rules to assess their impact on small entities.
FRA is not able to certify that this proposed rule would not have a
significant impact on a substantial number of small entities and seeks
comments from the public. FRA has conducted a regulatory flexibility
assessment of this rule's impact on small entities and has found that
this action benefits small entities such as governments and railroads.
The financing being made available through this rule will provide
economic, safety, and environmental benefits. Moreover, participation
in the RRIF program is voluntary.
For government entities the definition of small entities is based
on population served. As defined by the Small Business Administration
(SBA) this term means governments of cities, counties, towns,
townships, villages, school districts, or special districts with a
population of less than fifty thousand. It is not possible to determine
the number of small government entities that may be involved in
applications seeking financial assistance under the RRIF program.
However, it is not likely that small governmental entities will
seek financial assistance under the RRIF Program. In response to a
public notice on the enactment of the Program, only large metropolitan
areas, like the City of Indianapolis and the Memphis and Shelby County
Port Commission, indicated an interest in RRIF financing. At the same
time, small governmental entities will likely benefit from the economic
opportunities resulting from infrastructure improvements to small
railroads that connect small governmental entities to the national
railroad system. The cost to governmental entities of applying for the
program would be minimal since borrowers will normally have available
the information needed to prepare applications for funding.
In addition to small governmental entities, the small entities
directly affected by this rule are class III railroads. ``Small
entity,'' is defined in 5 U.S.C. 601 as a small business concern that
is independently owned and operated, and is not dominant in its field
of operation. The SBA considers a railroad to be small if it has fewer
than 1,500 employees of ``line-Haul Operating'' Railroads, and 500
employees for ``Switching and Terminal Establishment.'' Table of Size
Standards,'' U.S. Small Business Administration, January 31, 1996, 13
CFR part 121.
Because FRA does not have information regarding the number of
people employed by the railroads, it cannot determine exactly how many
small railroads, by SBA definition, are in operation within the United
States.
Prior to the SBA regulations establishing size categories, the
Interstate Commerce Commission (ICC), developed a classification system
for freight railroads as class I, II, or III, based on annual operating
revenues. A class II railroad has annual operating revenues greater
than or equal to $40 million but less than $255.9 million and a class
III railroad has annual operating revenues less than $40 million. The
Department of Transportation's Surface Transportation Board, which
succeeded the ICC, has not changed these classifications. The ICC
classification system has been used pervasively by FRA and the railroad
industry to identify railroads by size. After consultation with the
Office of Advocacy of the SBA and as explained in detail in the
``Interim Policy Statement Concerning Small Entities Subject to the
Railroad Safety Laws,'' published August 11, 1997 at 62 FR 43024, FRA
has decided to define ``small entity'' on an interim basis to include
only those entities whose revenues would bring them within the class
III definition. As this is still an alternative definition, FRA
requests comments from interested parties on its use.
About 550 of the approximately 700 railroads in the United States
are probably Class III railroads and would be considered small
businesses by FRA. Small railroads that would be affected by the
proposed rule provide less than 10 percent of the industry's
employment, own about 10 percent of the track, and operate less than 10
percent of the ton-miles.
A recent survey by the American Short Line and Regional Railroad
Association found that 100 small railroads need $950 million in
external financing to upgrade their track to safely handle the 286,000
pound cars that the Class I carriers are now using. The amount of need
identified is consistent with the statutory reserve of $1 billion for
non-class I railroads.
While these 100 railroads may seek RRIF financing, the cost will be
minimal since the information needed to complete applications will
normally be available. Moreover, participation in the RRIF Program is
strictly voluntary.
Written public comments that will clarify the number of affected
small entities and what the impacts will be for the affected small
entities are requested. FRA especially encourages small railroads and
governmental jurisdictions that are considered to be small entities to
participate in the comment process and submit written comments to the
docket.
Paperwork Reduction Act
The information collection requirements in this proposed rule will
be submitted for approval to OMB under the Paperwork Reduction Act of
1995, 44 U.S.C. 3501 et seq. The DOT has not yet determined the exact
burden-hour impact of the information collection requirements that will
be an integral part of the program application process. The PRA
approval request to OMB will include our estimate of the information
collection burden associated with the requirements in this proposed
rule. The Department expects to submit a paperwork package to OMB and
provide notice in the Federal Register shortly. DOT is committed to
minimizing any paperwork burden imposed on program applicants. An OMB
control number, when assigned, will be published in the Federal
Register. FRA is not authorized to impose a penalty on persons for
violating information requirements which do not display a current OMB
control number.
Environmental Impact
FRA has evaluated this regulation in accordance with its procedures
for ensuring full consideration of the potential environmental impacts
of FRA actions, as required by the National Environmental Policy Act
(42 U.S.C. 4321 et seq.), other environmental statutes, Executive
Orders, and related directives. This regulation meets the criteria that
establish this as a non-major action for environmental purposes.
Federalism Implications
This rule will not have a substantial effect on the States, on the
relationship between the Federal Government and the States, or on the
distribution of power and responsibilities among the various levels of
government. Thus, in accordance with Executive Order 12612, preparation
of a Federalism Assessment is not warranted.
Electronic Access
Internet users can access all comments received by the U.S. DOT
Dockets, Room PL-401, by using the universal resource locator (URL):
http://dms.dot.gov. It is available 24 hours each day, 365 days each
year. Please follow the instructions online for more information and
help.
[[Page 27492]]
An electronic copy of this document may be downloaded using a modem
and suitable communication software from the Government Printing Office
Electronic Bulletin Board Service at (202) 512-1661. Internet users may
reach the Federal Register's home page at: http://www.nara.gov/fedreg
and the Government Printing Office's database at: http://
www.access.gpo.gov/nara.
List of Subjects in 49 CFR Part 260
Federal Railroad Administration, Grant programs--transportation,
Railroads.
The Proposed Rule
In consideration of the foregoing, FRA proposes revising part 260
of title 49, Code of Federal Regulations, to read as follows:
PART 260--REGULATIONS GOVERNING LOANS AND LOAN GUARANTEES UNDER THE
RAILROAD REHABILITATION AND IMPROVEMENT FINANCING PROGRAM
Subpart A--Overview
Sec.
260.1 Program authority.
260.3 Definitions.
260.5 Eligible purposes.
260.7 Priority consideration.
260.9 Loan terms.
260.11 Investigation charge.
260.13 Credit reform.
260.15 Credit risk premium.
Subpart B--FRA Policies and Procedures for Evaluating Applications for
Financial Assistance
260.17 Credit risk premium analysis.
260.19 Preapplication meeting.
Subpart C--Applications for Financial Assistance
260.21 Eligibility.
260.23 Form and content of application generally.
260.25 Additional information for applicants not having a credit
rating.
260.27 Additional information for loan guarantees.
260.29 Required exhibits.
260.31 Execution and filing of application.
260.33 Information requests.
260.35 Environmental assessment.
260.37 Waivers and modifications.
Subpart D--Standards for Maintenance of Facilities Involved in the
Project
260.39 Applicability.
260.41 Maintenance standards.
260.43 Inspection and reporting.
260.45 Impact on other laws.
Subpart E--Procedures To Be Followed in the Event of Default
260.47 Events of default for guaranteed loans.
260.49 Events of default for direct loans.
260.51 Avoiding defaults.
Subpart F--Loan Guarantees--Lenders
260.53 Conditions of guarantees.
260.55 Lender's functions and responsibilities.
260.57 Lender's loan servicing.
Authority: 45 U.S.C. 821, 822, 823; 49 CFR 1.49.
Subpart A--Overview
Sec. 260.1 Program authority.
Section 502 of the Railroad Revitalization and Regulatory Reform
Act of 1976, as amended, 45 U.S.C. 821 et seq., authorizes the
Secretary of Transportation to provide direct loans and loan guarantees
to State and local governments, government sponsored authorities and
corporations, railroads, and joint ventures that include at least one
railroad. The Secretary's authority has been delegated to the
Administrator of the Federal Railroad Administration, an agency of the
Department of Transportation.
Sec. 260.3 Definitions.
As used in this part--
(a) Act means the Railroad Revitalization and Regulatory Reform Act
of 1976, as amended, 45 U.S.C. 821 et seq.
(b) Administrator means the Federal Railroad Administrator, or her
or his representative.
(c) Applicant means any State or local government, government
sponsored authority or corporation, railroad, or group of two or more
entities, at least one of which is a railroad, participating in a joint
venture, that submits an application to the Administrator for a direct
loan or the guarantee of an existing obligation under which it is an
obligor or for a commitment to guarantee a new obligation.
(d) Borrower means an Applicant that has been approved for, and has
received, financial assistance under this part.
(e) Credit risk premium means that portion of the total subsidy
cost to the Government of a direct loan or loan guarantee that is not
covered by Federal appropriations and which must be paid by Applicant
or its non-Federal infrastructure partner before that direct loan can
be disbursed or loan guarantee can be issued.
(f) Direct loan means a disbursement of funds by the Government to
a non-federal borrower under a contract that requires the repayment of
such funds.
(g) FRA means the Federal Railroad Administration.
(h) Financial assistance means a direct loan, or a guarantee of a
new loan issued under this part.
(i) Holder means the current owner of an obligation or the entity
retained by the owner to service and collect an obligation which is
guaranteed under the provisions of this part.
(j) Including means including but not limited to.
(k) Infrastructure partner means any non-Federal source of the
Credit Risk Premium which must be paid to the Administrator in lieu of,
or in combination with, an appropriation in connection with financial
assistance provided under this part.
(l) Intermodal means of or relating to the connection between rail
service and other modes of transportation, including all parts of
facilities at which such connection is made.
(m) Lender means the non-Federal entity making a loan to an
Applicant for which a loan guarantee under this part is sought.
(n) Loan guarantee means any guarantee, insurance, or other pledge
with respect to the payment of all or a part of the principal or
interest on any debt obligation of a non-Federal borrower to a non-
Federal lender, but does not include the insurance of deposits, shares,
or other withdrawable accounts in financial institutions.
(o) Obligation means a bond, note, conditional sale agreement,
equipment trust certificate, security agreement, or other obligation.
(p) Obligor means the debtor under an obligation, including the
original obligor and any successor or assignee of such obligor.
(q) Project means the purpose for which financial assistance is
provided.
(r) Railroad means an entity providing common carrier railroad
transportation for compensation, including the National Railroad
Passenger Corporation, but not including street, suburban, or
interurban electric railways not operated as part of the general system
of rail transportation.
(s) Subsidy cost of a direct loan means the net present value, at
the time when the direct loan is disbursed, of the following estimated
cash flows:
(1) Loan disbursements;
(2) Repayments of principal; and
(3) Payments of interest and other payments by or to the Government
over the life of the loan after adjusting for estimated defaults,
prepayments, fees, penalties, and other recoveries; including the
effects of changes in loan terms resulting from the exercise by the
borrower of an option included in the loan contract.
(t) Subsidy cost of a loan guarantee means the net present value,
at the time when the guaranteed loan is disbursed, of the following
estimated cash flows:
(1) Payments by the Government to cover defaults and delinquencies,
[[Page 27493]]
interest subsidies, or other payments; and
(2) The payments to the Government including origination and other
fees, penalties and recoveries.
Sec. 260.5 Eligible purposes.
(a) Financial assistance under this part is available solely to:
(1) Acquire, improve, or rehabilitate intermodal or rail freight or
passenger equipment or facilities, including track, components of
track, bridges, yards, buildings, and shops;
(2) Refinance outstanding debt incurred for purposes described in
paragraph (a)(1) of this section; or
(3) Develop or establish new intermodal or railroad facilities.
(b) Financial assistance under this part cannot be used for
railroad operating expenses.
Sec. 260.7 Priority consideration.
When evaluating applications, the Administrator will give priority
consideration (but not necessarily in the following order) to projects
that:
(a) Enhance public safety;
(b) Enhance the environment;
(c) Promote economic development;
(d) Enable United States companies to be more competitive in
international markets;
(e) Are endorsed by the plans prepared under section 135 of title
23, United States Code, by the State or States in which they are
located; or
(f) Preserve or enhance rail or intermodal service to small
communities or rural areas.
Sec. 260.9 Loan terms.
The maximum repayment period for direct loans and guaranteed loans
under this part is 25 years from the date of initial disbursement. In
general, the financial assistance provided will be required to be
repaid prior to the end of the useful life of the project it is used to
fund.
Sec. 260.11 Investigation charge.
(a) Applicants for financial assistance under this part may be
required to pay an investigation charge of one-half of one percent of
the principal amount of the direct loan or the loan to be guaranteed.
(b) When an investigation charge is assessed, one-half of the
investigation charge shall be paid by Applicant at the time a formal
application is submitted to FRA.
(c) Within 60 days after the date of filing of the application,
Applicant shall pay to the Administrator the balance of the
investigation charge.
Sec. 260.13 Credit reform.
(a) The Federal Credit Reform Act of 1990, 2 U.S.C. 661, requires
Federal agencies to set aside the subsidy cost of new credit assistance
provided in the form of direct loans or loan guarantees. The subsidy
cost will be the estimated long term cost to the Government of the loan
or loan guarantee. The subsidy cost associated with each direct loan or
loan guarantee, which the Administrator must set aside, may be funded
by Federal appropriations, direct payment of a Credit Risk Premium by
the Applicant or a non-Federal infrastructure partner on behalf of the
Applicant, or any combination thereof.
Sec. 260.15 Credit risk premium.
(a) Where available Federal appropriations are inadequate to cover
the subsidy cost, a non-Federal infrastructure partner may pay to the
Administrator a Credit Risk Premium adequate to cover that portion of
the subsidy cost not covered by Federal appropriations. Where there is
no Federal appropriation, the Credit Risk Premium must cover the entire
subsidy cost.
(b) The amount of the Credit Risk Premium required for each direct
loan or loan guarantee, if any, shall be established by the
Administrator. The Credit Risk Premium shall be determined based on the
credit risk and anticipated recovery in the event of default, including
the recovery of collateral.
(c) The Credit Risk Premium must be paid before the disbursement of
a direct or guaranteed loan. Where the borrower draws down the direct
or guaranteed loan in several increments, the borrower may pay a
portion of the total Credit Risk Premium for each increment equal to
the proportion of that increment to the total amount of the direct or
guaranteed loan.
(d) Each direct loan and loan guarantee made by the Administrator
will be included in the single cohort of direct loans and loan
guarantees made during that same fiscal year. When all obligations in a
cohort have been satisfied or liquidated, the amount of Credit Risk
Premiums, paid by applicants or infrastructure partners, remaining in
the cohort, after deductions made to mitigate losses from any loan or
loan guarantee in the cohort, together with interest accrued thereon,
will be repaid on a pro rata basis to each original payor of a Credit
Risk Premium for any obligation which was fully satisfied. If the
Administrator's estimate of the default risk cost of each loan is
accurate, the aggregate of Credit Risk Premiums associated with each
cohort of loans will fully offset all losses in the cohort and none
will remain to be returned to the payees.
Subpart B--FRA Policies and Procedures for Evaluating Applications
for Financial Assistance
Sec. 260.17 Credit Risk Premium analysis.
(a) When Federal appropriations are not available to cover the
total subsidy cost, the Administrator will determine the Credit Risk
Premium necessary for each direct loan or loan guarantee by estimating
the credit risk and the potential recovery in the event of a default of
each project evaluating the factors described in paragraphs (b) and (c)
of this section.
(b) Establishing the credit risk. (1) Where an Applicant has
received a recent credit rating from one or more nationally recognized
rating agencies, that rating will be used to estimate the credit risk.
(2) Where Applicant has not received a credit rating from a credit
rating agency, the Administrator will determine the credit risk based
on an evaluation of the following factors:
(i) Business risk, based on Applicant's:
(A) Industry outlook;
(B) Market position;
(C) Management and financial policies;
(D) Capital expenditures; and
(E) Operating efficiency.
(ii) Financial risk, based on Applicant's past and projected:
(A) Profitability;
(B) Liquidity;
(C) Financial strength;
(D) Size; and
(E) Level of capital expenditures; and
(iii) Project risk, based on the proposed project's:
(A) Potential for improving revenues, profitability and cash flow
from operations; and
(B) Reliance on third parties for success;
(c) The potential recovery in the event of a default will be based
on:
(1) Nature of the Applicant's assets; and
(2) Liquidation value of the collateral offered, including the
terms and conditions of the lien securing the collateral.
Sec. 260.19 Preapplication meeting.
Potential Applicants may request a meeting with the FRA Assistant
Administrator for Railroad Development to discuss the nature of the
project being considered. Applicants must be prepared to provide at
least the following information:
[[Page 27494]]
(a) Applicant's name, address, and contact person;
(b) Name of the proposed infrastructure partner(s), if any,
including the identification of potential amounts of funding from each;
(c) Amount of the direct loan or loan guarantee request, and a
description of the technical aspects of the project including a map of
the existing railroad lines with the location of the project indicated;
(d) Brief description and estimate of the economic impact,
including future demand for service, improvements that can be achieved,
the project's relation to the priorities listed in Sec. 260.5, along
with any feasibility, market or other studies that may have been done
as attachments;
(e) Amount of Applicant's equity and a description of collateral
offered, with estimated values, including the basis of such, to be
offered as security for the loan;
(f) If applicable, the names and addresses of the Applicant's
parent, affiliates, and subsidiary corporations, if any, and a
description of the ownership relationship and the level of guarantee,
if any, to be offered;
(g) For existing companies, a current balance sheet and an income
statement not more than 90 days old and financial statements for the
borrower and any parent, affiliates, and subsidiaries for at least the
four most recent years; and
(h) Information relevant to the potential environmental impacts of
the project in the context of applicable Federal law.
Subpart C--Applications for Financial Assistance
Sec. 260.21 Eligibility.
(a) The Administrator may make a direct loan to an Applicant, or
guarantee the payment of the principal balance and any interest of an
obligation of an Applicant prior to, on, or after the date of execution
or the date of disbursement of such obligation, if the proceeds of such
direct loan or obligation shall be, or have been, used by the Applicant
for the eligible purposes listed in Sec. 260.3(a) (1) and (2).
(b) The Administrator may also make a direct loan to an Applicant,
or guarantee a new obligation of an Applicant prior to, or on the date
of execution of such obligation, if the proceeds shall be used for the
eligible purposes listed in Sec. 260.3(b).
Sec. 260.23 Form and content of application generally.
Each application shall include, in the order indicated and
identified by applicable paragraph numbers and letters corresponding to
those used in this section, the following information:
(a) Full and correct name and principal business address of the
Applicant;
(b) Date of Applicant's incorporation, or organization if not a
corporation, and name of the government, State or territory under the
laws of which it was incorporated or organized. If Applicant is a
partnership, association, or other form of organization other than a
corporation, a full description of the organization should be
furnished;
(c) Name, title, and address of the person to whom correspondence
regarding the application should be addressed;
(d) A statement of whether the project involves another railroad or
other participant, through joint execution, coordination, or otherwise;
if so, description of the relative participation of Applicant and such
other railroad or participant, including financial statements (if
applicable) and financing arrangements of each participant, portion of
the work to be performed by each participant, and anticipated level of
usage of the equipment or facility of each participant when the work is
completed, along with a statement by a responsible officer or official
of the other railroad or participant that the information provided
reflects their agreement on these matters;
(e) A detailed description of the amount and timing of the
financial assistance that is being requested and its purpose or
purposes, including:
(1) Detailed description of the project and its purpose or
purposes;
(2) A description of all facilities or equipment and the physical
condition of such facilities or equipment included in or directly
affected by the proposed project;
(3) Each part or sub-part into which the project may reasonably be
divided and the priority and schedule of expenditure for each part or
sub-part; and
(4) Proposed dates of commencement and completion of the project
and estimated timing of the expenditure of the proceeds of the
obligation;
(f) A listing and description of the collateral to be offered the
Administrator in connection with any financial assistance provided;
Applicant's opinion of the value of this security and the basis for
such opinion; in the case of leased equipment to be rehabilitated or
improved with the proceeds of the obligation proposed to be guaranteed,
Applicant shall State, in addition to the above, whether the lease
provides for, or the lessor will permit, encumbrance of the leasehold
or subordination of the lessor's interest in the equipment to the
Administrator;
(g) A statement, in summary form, showing financial obligations to
or claims against the United States or obligations for which the United
States is guarantor, if any, by Applicant or any affiliated corporate
entity of the Applicant or the Applicant's parent as of the date of the
application, including:
(1) Status of any claims under litigation; and
(2) Any other debits or credits existing between the Applicant and
the United States, showing the department or agency involved in such
loans, claims and other debts;
(h) An analysis that includes:
(1) A statement, together with supporting evidence including copies
of all market analyses and studies that have been performed to
determine present and future demand for rail services or facilities,
that the financing is justified by present and future probable demand
for rail services or facilities, will meet existing needs for such
services or facilities, and will provide shippers or passengers with
improved service;
(2) Description of the impact of the project upon the projected
freight or passenger traffic to be originated, terminated, or carried
by the Applicant for at least the five years immediately following
completion of the project;
(3) Explanation of the manner in which the project will increase
the economical and efficient utilization of equipment and facilities;
and
(4) Description of cost savings or any other benefit which would
accrue to the Applicant from the project;
(i) A statement as to how the project will contribute to, or
enhance, the safe operation of the railroad, considering such factors
as the occupational safety and health of the employees and the
improvement of the physical and other conditions that have caused or
may cause serious injury or loss of life to the public;
(j) A statement of Applicant's maintenance program for its entire
rail system and planned maintenance program for the equipment or
facilities financed by the proceeds of the financial assistance;
(k) A certified statement in the form contained in Sec. 260.31(a)
that Applicant will pay to the Administrator, in accordance with
Sec. 260.11, the investigation charge with respect to the application;
(l) Information relevant to the potential environmental impacts of
the project in the context of applicable Federal laws;
[[Page 27495]]
(m) Any additional information that the Applicant deems appropriate
to convey a full and complete understanding of the project, the
project's relations to the priorities listed in Sec. 260.5, and its
impact or to assist the Administrator in making the statutorily
prescribed findings; and
(n) Any other information which the Administrator may deem
necessary concerning an application filed under this part;
(o) Railroad applicants must also submit copies of applications for
financing for the project in the private sector, including terms
requested, from at least two commercial lenders who regularly provide
funding to U.S. corporations and any lending institution that has
provided credit to the railroad applicant within 5 years prior to the
date the application is submitted, and their responses refusing to
provide such financing.
Sec. 260.25 Additional information for Applicants not having a credit
rating.
Each application submitted by Applicants not having a recent credit
rating from one or more nationally recognized rating agencies shall
include, in the order indicated and identified by applicable numbers
and letters corresponding to those used in this section, the following
information:
(a) A narrative statement detailing management's business plan to
enhance Applicant's ability to provide rail services including a
discussion of the following:
(1) Applicant's current and prospective traffic base, including by
commodity and geographic region, major markets served, major
interchange points, and market development plans;
(2) Applicant's current operating patterns, and plans, if any, to
enhance its ability to serve its current and prospective traffic base;
(3) System-wide plans to maintain equipment and rights-of-way at
current or improved levels; and
(4) Specific plans for rationalization of marginal or uneconomic
services;
(b) Detailed financial information, including:
(1) Audited financial statements, certified by Applicant's
independent public accountants, for the four calendar years immediately
preceding the date of filing of the application, including:
(i) A copy of Applicant's most recent year-end general balance
sheet and a copy of Applicant's most recent unaudited general balance
sheet as of a date no less recent than the end of the third month
preceding the date of filing of the application; and
(ii) Applicant's most recent annual income statement certified by
Applicant's independent public accountants and a spread sheet showing
unaudited monthly and year-to-date income statement data for the
calendar year in which the application is filed. For those months
preceding the date of the application, the income statement data shall
be reported on an actual basis and so noted. For those months between
the date of the application and the end of the year, the income
statement data shall be presented on a forecasted basis and so noted
and shall be submitted in conjunction with a forecasted balance sheet
as of the year end;
(2) Projected financial statements, including:
(i) Spread sheets showing for each of the four years subsequent to
the year in which the application is filed, both before and after
giving effect to the proceeds of the assistance requested in the
application:
(A) Forecasted annual income statement;
(B) Forecasted year-end balance sheets. These spread sheets shall
be accompanied by a statement setting forth the bases for such
forecasts; and
(C) A spread sheet showing changes in financial position for the
year in which the application is filed, including the period ending on
the date of the application based upon actual data and the period from
the date of the application to the end of the year, based upon
estimated and forecasted data;
(c) A narrative description of Applicant's operations, management's
financial policies, and financial performance goals;
(d) Capital spending plans for the next five years;
(e) Cash flow projections;
(f) Contingency plans for termination of the project before
completion, if necessary; and
(g) A narrative description of Applicant's management team,
including:
(1) Rail experience of top management;
(2) Management's plans for achieving growth and its long-term
capital spending plan; and
(3) A narrative description of Applicant's workforce and the
historical rate of employee turnover.
Sec. 260.27 Additional information for loan guarantees.
Applications for a loan guarantee shall also include in the order
indicated and identified by applicable numbers and letters
corresponding to those used in this section, the following information:
(a) With respect to each existing obligation to be refinanced or
proposed obligation:
(1) A certified copy of proposed or executed obligation agreements;
(2) A detailed description of the obligation, and a description of
the series or issue of which the obligation is, or will be a part,
including:
(i) Effective date, or anticipated effective date;
(ii) Where a guarantee is sought for an outstanding obligation
being refinanced, actual effective rate of interest; or where the
obligation is new, the terms of the proposed obligation including the
proposed effective rate of interest; and
(iii) All related documents, whether executed or proposed; and
(b) With respect to each existing holder or prospective lender, a
statement as to:
(1) Full and correct name and principal business address;
(2) Reference to applicable provisions of law and the charter or
other governing instruments conferring authority on the holder of the
obligation or prospective lender;
(3) Brief statement of the circumstances and negotiations leading
to the agreement by the holder or prospective lender to make the loan;
(4) Brief statement of the nature and extent of any affiliation or
business relationship between the holder or prospective lender and the
Applicant or any of Applicant's directors, partners, or principal
executive officers; and
(5) Full and complete statement of all sums to be provided by the
holder or to be provided by the prospective lender in connection with
the proposed obligation including:
(i) Name and address of each person to whom the payment has been
made or will be made and nature of any affiliation, association, or
prior business relationship between any person named in this paragraph
and the holder or prospective lender or any of its directors, partners,
or officers; and
(ii) Amount of the cash payment, or the nature and value of other
consideration.
Sec. 260.29 Required exhibits.
There shall be filed with and made a part of each application and
copy thereof the following exhibits. While the application is pending,
when actual data become available in place of the estimated or
forecasted data required in the exhibits under this part, such actual
data must be reported promptly to the Administrator in the form
required in the appropriate exhibit. All forecasted data required in
the exhibits under this part must be based on the assumption that the
project will be funded on the January 1 next following the date of the
application.
[[Page 27496]]
(a) Exhibit A. Map of Applicant's existing railroad with location
of project indicated, if appropriate;
(b) Exhibit B. With respect to equipment proposed to be
rehabilitated, improved, maintained, or acquired in the application, a
statement indicating number of units and in-service or out-of-service
status and, as appropriate:
(1) For locomotives, service type, age, size, horsepower, name of
builder, description of work, and unit cost of proposed work; and
(2) For freight and passenger cars or intermodal equipment,
information as to service type (box, gondola, flat, etc.), age,
capacity, description of work, and unit costs of proposed work; and
(c) Exhibit C. With respect to the maintenance, rehabilitation,
improvement, acquisition, or construction of facilities proposed in the
application, a statement showing the track class, as defined by the FRA
Track Safety Standards in part 213 of this chapter, and maximum
allowable speed under which each line on which maintenance,
rehabilitation, improvement, acquisition or construction is proposed
has been and is being operated and the reasons therefor, the track
class, maximum allowable speed, and signal requirements necessary in
the judgment of the railroad to provide safe, reliable and competitive
rail services over such lines, and the highest track class and maximum
allowable speed at which each such line will be designated when the
proposed project is completed.
Sec. 260.31 Execution and filing of the application.
(a) The original application shall bear the date of execution, be
signed in ink by or on behalf of the Applicant, and shall bear the
corporate seal in the case of an Applicant which is a corporation.
Execution shall be by all partners if a partnership, unless
satisfactory evidence is furnished of the authority of a partner to
bind the partnership, or if a corporation, an association or other
similar form of organization, by its president or other executive
officer having knowledge of the matters therein set forth. Persons
signing the application on behalf of the Applicant shall also sign a
certificate in form as follows:
(Name of official) certifies that he or she is the (Title of
official) of the (Name of Applicant); that he or she is authorized
on the part of the Applicant to sign and file with the Administrator
this application and exhibits attached thereto; that the consent of
all parties whose consent is required, by law or by binding
commitment of the Applicant, in order to make this application has
been given; that he or she has carefully examined all of the
statements contained in such application and the exhibits attached
thereto and made a part thereof relating to the aforesaid (Name of
Applicant); that he or she has knowledge of the matters set forth
therein and that all such statements made and matters set forth
therein are true and correct to the best of his or her knowledge,
information, and belief; and that Applicant will pay the balance of
the investigation charge in accordance with Sec. 260.11.
(Name of official)
(Date)
(b) There shall be made a part of the original application the
following certificate by the Chief Financial Officer or equivalent
officer of the Applicant:
(Name of officer) certifies that he or she is (Title of officer)
of (Name of Applicant); that he or she has supervision over the
books of accounts and other financial records of the affected
Applicant and has control over the manner in which they are kept;
that such accounts are maintained in good faith in accordance with
the effective accounting practices; that such accounts are adequate
to assure that proceeds from the financing being requested will be
used solely and specifically for the purposes authorized; that he or
she has examined the financial statements and supporting schedules
included in this application and to the best of his or her knowledge
and belief those statements accurately reflect the accounts as
stated in the books of account; and that, other than the matters set
forth in the exceptions attached to such statements, those financial
statements and supporting schedules represent a true and complete
statement of the financial position of the Applicant and that there
are no undisclosed assets, liabilities, commitments to purchase
property or securities, other commitments, litigation in the courts,
contingent rental agreements, or other contingent transactions which
might materially affect the financial position of the Applicant.
(Name of official)
(Date)
(c) The Applicant shall pay the investigation charge in accordance
with Sec. 260.11.
(d) The application shall be accompanied by a transmittal letter in
the following form:
Re Application for financial assistance under the Railroad
Rehabilitation and Improvement Financing.
Federal Railroad Administrator,
c/o the Associate Administrator for Railroad Development of the
Federal Railroad Administration, Department of Transportation,
Washington, D.C.
Dear Sir or Madam: Being duly authorized by (jointly and
severally/if more than one) (the ``Applicant'') to convey the
understandings hereinafter set forth, I respectfully submit this
application and remit its investigation fee in the amount equal to
one-quarter of one percent of the principal amount of the (direct
loan/loan guarantee) sought. By this filing, Applicant requests the
Administrator to investigate the application and make the necessary
findings upon which Applicant's eligibility for a direct loan or
loan guarantee may be determined.
Applicant understands that neither the acceptance of this
filing, the deposit of the investigation charge, nor the
commencement of an investigation acknowledges the sufficiency of the
application's form, content or merit. Furthermore, Applicant
understands that the Administrator will incur numerous expenses by
this filing with respect to the investigation of the application,
the appraisal of security being offered, and the making of the
necessary determinations and findings, and promises to pay, within
60 days, an additional investigation fee in the amount equal to one-
quarter of one percent of the principal amount of the direct loan or
guarantee sought.
Applicant understands that the Administrator will establish the
amount of Credit Risk Premium due from Applicant, if any, as
provided in Sec. 260.15. Applicant agrees to pay such Credit Risk
Premium prior to the disbursement of direct or guaranteed loan, as
appropriate. Such Credit Risk Premium may be refunded as provided in
Sec. 260.15.
Respectfully submitted.
Applicant(s)
Seal(s)
by Its (Their).
(e) The original application and supporting papers, and five copies
thereof for the use of the Administrator, shall be filed with the
Associate Administrator for Railroad Development of the Federal
Railroad Administration, 1120 Vermont Ave., N.W., Stop 21, Washington,
D.C. 20590. Each copy shall bear the dates and signatures that appear
in the original and shall be complete in itself, but the signatures in
the copies may be stamped or typed.
Sec. 260.33 Information requests.
If an Applicant desires that any information submitted in its
application or any supplement thereto not be released by the
Administrator upon request from a member of the public, the Applicant
must so state and must set forth any reasons why such information
should not be released, including particulars as to any competitive
harm which would probably result from release of such information. The
Administrator will keep such information confidential to the extent
permitted by law.
Sec. 260.35 Environmental assessment.
(a) The provision of financial assistance by the Administrator
under this Part is subject to a variety of environmental and historic
preservation statutes and implementing regulations including the
National Environmental Policy Act (``NEPA'') (42 U.S.C. 4332 et
[[Page 27497]]
seq.), Section 4(f) of the Department of Transportation Act (49 U.S.C.
303(c)), the National Historic Preservation Act (16 U.S.C. 470(f)), the
Coastal Zone Management Act (16 U.S.C. 1451), and the Endangered
Species Act (16 U.S.C. 1531). Appropriate environmental/historic
preservation documentation must be completed and approved by the
Administrator prior to a decision by the Administrator on the
applicant's financial assistance request. FRA's ``Procedures for
Considering Environmental Impacts'' (``FRA's Environmental
Procedures'') (45 FR 40854 (June 16, 1980)) or any replacement
environmental review procedures that the FRA may later issue and the
NEPA regulation of the Council on Environmental Quality (``CEQ
Regulation'') (40 CFR 1500) will govern the FRA's compliance with
applicable environmental/historic preservation review requirements.
(b) The Administrator, in cooperation with the applicant, has the
responsibility to mange the preparation of the appropriate
environmental document. The role of the applicant will be determined by
the Administrator in accordance with the CEQ regulations and section 7
of FRA's environmental procedures.
(c) Depending on the type, size and potential environmental impact
of the project for which the applicant is seeking financial assistance,
FRA will need to (1) prepare an Environmental Impact Statement (EIS) or
(2) prepare or have prepared an Environmental Assessment leading to a
Finding of No Significant Impact or (3) conclude that the project is
categorically excluded from detailed environmental review under section
4 of FRA's environmental procedures. At the discretion of the
Administrator, Applicants may be required to prepare and submit an
environmental assessment of the proposed project or to submit adequate
documentation to support a finding that the project is categorically
excluded from detailed environmental review. If the applicant is a
public agency that has statewide jurisdiction or is a local unit of
government acting through a statewide agency, and meets the
requirements of section 102(2)(D) of NEPA, the applicant may be
requested to prepare the EIS and other environmental documents under
the Administrator's guidance.
(d) Applicants are strongly urged to consult with the Associate
Administrator for Railroad Development at the earliest possible stage
in project development in order to assure that the environmental/
historic preservation review process can be completed in a timely
manner.
(e) Applicants may not initiate any activities that would have an
adverse environmental impact or limit the choice of reasonable
alternatives in advance of the completion of the environmental review
process. This does not preclude development by applicants of plans or
designs or performance of other work necessary to support the
application for financial assistance.
Sec. 260.37 Waivers and modifications.
The Administrator may, upon good cause shown, waive or modify any
requirement of this part not required by law or make any additional
requirements the Administrator deems necessary.
Subpart D--Standards for Maintenance of Facilities Involved in the
Project
Sec. 260.39 Applicability.
This subpart prescribes standards governing the maintenance of
facilities that are being, or have been, acquired, rehabilitated,
improved, or constructed with the proceeds of a direct loan or a
guaranteed loan issued under this part for the period during which any
portion of the principal or interest of such obligation remains unpaid.
Sec. 260.41 Maintenance standards.
(a) When the proceeds of a direct loan or an obligation guaranteed
by the Administrator under this part are, or were, used to acquire,
rehabilitate, improve or construct track, roadbed, and related
structures, Borrower shall, as long as any portion of the principal or
interest of such obligation remains unpaid, maintain such facilities in
at least the highest track class, as defined by FRA Track Safety
Standards in part 213 of this chapter, specified in the Application at
which the rehabilitated, improved, acquired, or constructed track is to
be operated upon completion of the project unless a waiver is granted
in accordance with Sec. 260.37.
(b) When the proceeds of a direct loan or an obligation guaranteed
by the Administrator under this part are, or were, used for equipment
or facilities, the Borrower shall, during the period in which any
portion of the principal or interest in such obligation remains unpaid,
maintain such equipment or facilities in a manner consistent with sound
engineering and maintenance practices and in a condition that will
permit the level of use that existed upon completion of the
acquisition, rehabilitation, improvement or construction of such
equipment or facilities unless a waiver is granted in accordance with
Sec. 260.37.
Sec. 260.43 Inspection and reporting.
(a) Equipment or facilities subject to the provisions of this
subpart may be inspected at such times as the Administrator deems
necessary to assure compliance with the standards set forth in
Sec. 260.41. Each Borrower shall permit representatives of the FRA to
enter upon its property to inspect and examine such facilities at
reasonable times and in a reasonable manner. Such representatives shall
be permitted to use such testing devices as the Administrator deems
necessary to insure that the maintenance standards imposed by this
subpart are being followed.
(b) Each Borrower shall submit to the Administrator annually
financial records and other documents detailing the maintenance
performed and the inspections conducted which demonstrate that the
Borrower has complied with the standards in Sec. 260.41.
Sec. 260.45 Impact on other laws.
Standards issued under this subpart shall not be construed to
relieve the Borrower of any obligation to comply with any other
Federal, State, or local law or regulation.
Subpart E--Procedures To Be Followed in the Event of Default
Sec. 260.47 Events of default for guaranteed loans.
(a) If the Borrower is more than 30 days past due on a payment or
is in violation of any covenant or condition of the loan documents and
such violation constitutes a default under the provisions of the loan
documents, Lender must notify the Administrator in writing and must
continue to submit this information to the Administrator each month
until such time as the loan is no longer in default; and the
Administrator will pay the holder of the obligation, or the holders's
agent, an amount equal to the past due interest on the guaranteed
portion of the defaulted loan. This payment will in no way reduce the
Borrower's obligation to the holder to make all payments of principal
and interest in accordance with the note. If the loan is brought
current, the holder will repay to the Agency any interest payments made
by the Agency, plus accrued interest at the note rate.
(b) If the default has continued for more than 90 days, the
Administrator will pay to the holder of the obligation, or the holder's
agent, 90 percent of the unpaid guaranteed principal. If,
[[Page 27498]]
subsequent to this payment being made, the default is cured and
liquidation is no longer appropriate, the holder will repay such funds
to the Administrator, plus interest at the note rate.
(c) After the default has continued for more than 90 days, the
holder shall expeditiously submit to the Administrator, in writing, its
proposed detailed plan to resolve the default by liquidating the
collateral or by any other means.
If the resolution will require the liquidation of the collateral,
then the holder's plan shall include:
(1) Proof adequate to establish that the holder is legally in
possession of the obligation and a statement of the current loan
balance and accrued interest to date and the method of computing the
interest;
(2) A full and complete list of all collateral, including any
personal and corporate guarantees;
(3) The recommended liquidation methods for making the maximum
collection possible and the justification for such methods, including
recommended action for acquiring and disposing of all collateral and
collecting from any guarantors;
(4) Necessary steps for preservation of the collateral;
(5) Copies of the Borrower's latest available financial statements;
(6) Copies of any guarantor's latest available financial
statements;
(7) An itemized list of estimated liquidation expenses expected to
be incurred along with justification for each expense;
(8) A schedule to periodically report to the Agency on the progress
of liquidation;
(9) Proposed protective bid amounts on collateral to be sold at
auction and a breakdown to show how the amounts were determined;
(10) If a voluntary conveyance is considered, the proposed amount
to be credited to the guaranteed debt;
(11) Legal opinions, as appropriate;
(12) The holder will obtain an independent appraisal on all
collateral securing the loan which will reflect the fair market value
and potential liquidation value. In order to formulate a liquidation
plan that maximizes recovery, the appraisal shall consider the presence
of hazardous substances, petroleum products, or other environmental
hazards, which may adversely impact the market value of the collateral;
and
(13) The anticipated expenses associated with the liquidation will
be considered a cost of liquidation.
(d) The Administrator will inform the lender in writing whether the
Administrator concurs in the lender's liquidation plan. Should the
Administrator and the lender not agree on the liquidation plan,
negotiations will take place between the Administrator and the lender
to resolve the disagreement. When the liquidation plan is approved by
the Administrator, the lender will proceed expeditiously with
liquidation. The liquidation plan may be modified when conditions
warrant. All modifications must be approved in writing by the
Administrator prior to implementation.
(e) Lender will account for funds during the period of liquidation
and will provide the Administrator with reports at least quarterly on
the progress of liquidation including disposition of collateral,
resulting costs, and additional procedures necessary for successful
completion of the liquidation.
(f) Within 30 days after final liquidation of all collateral, the
lender will prepare and submit to the Administrator a final report in
which the lender must account for all funds during the period of
liquidation, disposition of the collateral, all costs incurred, and any
other information necessary for the successful completion of
liquidation. Upon receipt of the final accounting and report of loss,
the Administrator may audit all applicable documentation to confirm the
final loss. The lender will make its records available and otherwise
assist the Administrator in making any investigation.
(g) The Administrator shall be subrogated to all the rights of the
holder with respect to the Borrower to the extent of the
Administrator's payment to the holder under this section.
(h) When the Administrator finds the final report to be proper in
all respects:
(1) All amounts recovered in liquidation shall be paid to the
Administrator; and
(2) The remaining obligation of the Administrator to the holder
under the guarantee, if any, will be paid directly to holder by the
Administrator.
(i) The Administrator shall not be required to make any payment
under paragraphs (a) and (b) of this section if the Administrator
finds, before the expiration of the periods described in such
subsections, that the default has been remedied.
(j) The Administrator shall have the right to charge Borrower
interest, penalties and administrative costs, including all of the
United States' legally assessed or reasonably incurred expenses of its
counsel and court costs in connection with any proceeding brought or
threatened to enforce payment or performance under applicable loan
documents, in accordance with OMB Circular A-129, as it may be revised
from time to time.
Sec. 260.49 Events of default for direct loans.
(a) Upon the Borrower's failure to make a scheduled payment, or
upon the Borrower's violation of any covenant or condition of the loan
documents which constitutes a default under the provisions of the loan
documents, the Administrator, at the Administrator's discretion may:
(1) Exercise any and all remedies available under the provisions of
the loan agreement and other loan documents, including any guarantees,
or inherent in law or equity;
(2) Terminate further borrowing of funds;
(3) Take possession of assets pledged as collateral; and
(4) Liquidate pledged collateral.
(b) The Administrator shall have the right to charge Borrower
interest, penalties and administrative costs, including all of the
United States' legally assessed or reasonably incurred expenses of its
counsel and court costs in connection with any proceeding brought or
threatened to enforce payment or performance under applicable loan
documents, in accordance with OMB Circular A-129, as it may be revised
from time to time.
Sec. 260.51 Avoiding defaults.
Borrowers are encouraged to contact the Administrator prior to the
occurrence of an event of default to explore possible avenues for
avoiding such an occurrence.
Subpart F--Loan Guarantees--Lenders
Sec. 260.53 Conditions of guarantee.
(a) The percentage of the obligation for which Applicant seeks a
guarantee is a matter of negotiation between the Lender and the
Applicant, subject to the Administrator's approval. The maximum
percentage of the total obligation that the Administrator will
guarantee is 80 percent. The amount of guarantee allowed will depend on
the total credit quality of the transaction and the level of risk
believed to be assumed by the Administrator.
(b) A guarantee under this part constitutes an obligation supported
by the full faith and credit of the United States and is incontestable
except for fraud or misrepresentation of which a lender or holder has
actual knowledge at the time it becomes such lender or holder or which
a lender or holder participates in or condones. In addition,
[[Page 27499]]
the guarantee will be unenforceable by the lender to the extent any
loss is occasioned by the violation of usury laws, negligent servicing,
or failure to obtain the required security regardless of the time at
which the Administrator acquires knowledge thereof. Any losses
occasioned will be unenforceable to the extent that loan funds are used
for purposes other than those specifically approved by FRA in its
guarantee.
(c) The Administrator may guarantee an Applicant's obligation to
any lender provided such lender can establish to the satisfaction of
the Administrator that it has the legal authority and sufficient
expertise and financial strength to operate a successful lending
program. Loan guarantees will only be approved for lenders with
adequate experience and expertise to make, secure, service, and collect
the loans.
(d) The lender may sell all of the guaranteed portion of the loan
on the secondary market, provided the loan is not in default, or retain
the entire loan.
(e) When a guaranteed portion of a loan is sold to a holder, the
holder shall succeed to all rights of the lender under the loan
guarantee to the extent of the portion purchased. The lender will
remain bound to all obligations under the loan guarantee and the
provisions of this part. In the event of material fraud, negligence or
misrepresentation by the lender or the lender's participation in or
condoning of such material fraud, negligence or misrepresentation, the
lender will be liable for payments made by the Agency to any holder.
Sec. 260.55 Lenders' functions and responsibilities.
Lenders have the primary responsibility for the successful delivery
of the program consistent with the policies and procedures outlined in
this part. All lenders obtaining or requesting a loan guarantee from
the Administrator are responsible for:
(a) Loan processing. Lender shall be responsible for all aspects of
loan processing, including:
(1) Processing applications for the loan to be guaranteed;
(2) Developing and maintaining adequately documented loan files;
(3) Recommending only loan proposals that are eligible and
financially feasible;
(4) Obtaining valid evidence of debt and collateral in accordance
with sound lending practices;
(5) Supervising construction, where appropriate;
(6) Distributing loan funds;
(7) Servicing guaranteed loans in a prudent manner, including
liquidation if necessary; and
(8) Obtaining the Administrator's approval or concurrence as
required in the loan guarantee documentation;
(b) Credit evaluation. Lender must analyze all credit factors
associated with each proposed loan and apply its professional judgment
to determine that the credit factors, considered in combination, ensure
loan repayment. The lender must have an adequate underwriting process
to ensure that loans are reviewed by other than the originating
officer. There must be good credit documentation procedures;
(c) Environmental responsibilities. Lender has a responsibility to
become familiar with Federal environmental requirements; to consider,
in consultation with the prospective borrower, the potential
environmental impacts of their proposals at the earliest planning
stages; and to develop proposals that minimize the potential to
adversely impact the environment. Lender must alert the Administrator
to any controversial environmental issues related to a proposed project
or items that may require extensive environmental review. Lender must
assist borrowers as necessary to comply with the environmental
requirements outlined in this part. Additionally, lender will assist in
the collection of additional data when the Agency needs such data to
complete its environmental review of the proposal; and assist in the
resolution of environmental problems;
(d) Loan closing. The lender will conduct or arrange for loan
closings; and
(e) Fees and Charges. The lender may establish charges and fees for
the loan provided they are similar to those normally charged other
Applicants for the same type of loan in the ordinary course of
business.
Sec. 260.57 Lender's loan servicing.
(a) The lender is responsible for servicing the entire loan and for
taking all servicing actions that are prudent. This responsibility
includes but is not limited to the collection of payments, obtaining
compliance with the covenants and provisions in the loan documents,
obtaining and analyzing financial statements, verification of tax
payments, and insurance premiums, and maintaining liens on collateral.
(b) The lender must report the outstanding principal and interest
balance on each guaranteed loan semiannually.
(c) At the Administrator's request, the lender will periodically
meet with the Administrator to ascertain how the guaranteed loan is
being serviced and that the conditions and covenants of the loan
documents are being enforced.
(d) The lender must obtain and forward to the Administrator the
Borrower's annual financial statements within 120 days after the end of
the Borrower's fiscal year and the due date of other reports as
required by the loan documents. The lender must analyze the financial
statements and provide the Agency with a written summary of the
lender's analysis and conclusions, including trends, strengths,
weaknesses, extraordinary transactions, and other indications of the
financial condition of the Borrower.
(e) Neither the lender nor the holder shall alter, nor approve any
amendments of, any loan instrument without the prior written approval
of the Administrator.
Issued in Washington, D.C. on May 13, 1999.
Donald M. Itzkoff,
Acting Administrator.
[FR Doc. 99-12542 Filed 5-19-99; 8:45 am]
BILLING CODE 4910-06-P
