99-12542. Railroad Rehabilitation and Improvement Financing Program; Proposed Revisions  

  • [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,
    
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    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;
    
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        (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
    
    
    

Document Information

Published:
05/20/1999
Department:
Federal Railroad Administration
Entry Type:
Proposed Rule
Action:
Notice of Proposed Rulemaking (NPRM).
Document Number:
99-12542
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.
Pages:
27488-27499 (12 pages)
Docket Numbers:
Docket No. FRA 1999-5663
RINs:
2130-AB26: Amendment of Regulations Governing Railroad Rehabilitation and Improvement Financing
RIN Links:
https://www.federalregister.gov/regulations/2130-AB26/amendment-of-regulations-governing-railroad-rehabilitation-and-improvement-financing
PDF File:
99-12542.pdf
CFR: (29)
49 CFR 260.1
49 CFR 260.3
49 CFR 260.5
49 CFR 260.7
49 CFR 260.9
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