[Federal Register Volume 60, Number 137 (Tuesday, July 18, 1995)]
[Proposed Rules]
[Pages 36904-36924]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-16527]
[[Page 36903]]
_______________________________________________________________________
Part III
Department of Agriculture
_______________________________________________________________________
Rural Utilities Service
_______________________________________________________________________
7 CFR Part 1710, et al.
Loan Policies and Security Documents for Electric Borrowers; Proposed
Rule
Federal Register / Vol. 60, No. 137 / Tuesday, July 18, 1995 /
Proposed Rules
[[Page 36904]]
DEPARTMENT OF AGRICULTURE
Rural Utilities Service
7 CFR Parts 1710, 1717 and 1718
RIN 0572-AB06
Loan Policies and Security Documents for Electric Borrowers
AGENCY: Rural Utilities Service, USDA.
ACTION: Proposed rule.
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SUMMARY: The Rural Utilities Service (RUS) hereby proposes to establish
new policies and requirements for loan contracts ordinarily required
for loans made to electric distribution borrowers. The rule would
update and clarify the framework for loan contract provisions, conform
loan contract provisions with the new form of mortgage recently
approved, and provide greater flexibility in addressing the financial
needs of individual borrowers and the credit risks involved with
individual lending situations. Conforming amendments to RUS lien
accommodation requirements and changes to RUS operational controls are
also proposed.
DATES: Written comments must be received by RUS or carry a postmark or
equivalent by September 18, 1995.
ADDRESSES: Written comments should be addressed to Mr. F. Lamont Heppe,
Jr., Deputy Director, Program Support Staff, U.S. Department of
Agriculture, Rural Utilities Service, room 2234-S, Ag Box 1522, 14th
Street and Independence Avenue, SW., Washington, DC 20250-1500. RUS
requires a signed original and 3 copies of all comments (7 CFR 1700.30
(e)). Comments will be available for public inspection during regular
business hours (7 CFR 1.27(b)).
FOR FURTHER INFORMATION CONTACT: Mr. Alex M. Cockey, Jr., Deputy
Assistant Administrator--Electric, U.S. Department of Agriculture,
Rural Utilities Service, room 4037-S, Ag Box 1560, 14th Street &
Independence Avenue, SW., Washington, DC 20250-1500. Telephone: 202-
720-9547.
SUPPLEMENTARY INFORMATION: This rule has been determined to be not
significant for the purposes of Executive Order 12866, and therefore
has not been reviewed by the Office of Management and Budget (OMB). The
Administrator of RUS has determined that the Regulatory Flexibility Act
(5 U.S.C. 601 et seq.) does not apply to this rule. The Administrator
of RUS has determined that this rule will not significantly affect the
quality of the human environment as defined by the National
Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.). Therefore,
this action does not require an environmental impact statement or
assessment. This rule is excluded from the scope of Executive Order
12372, Intergovernmental Consultation, which may require consultation
with State and local officials. A Notice of Final Rule titled
Department Programs and Activities Excluded from Executive Order 12372
(50 FR 47034) exempts RUS electric loans and loan guarantees from
coverage under this Order. This rule has been reviewed under Executive
Order 12778, Civil Justice Reform. This rule: (1) Will not preempt any
State or local laws, regulations, or policies, unless they present an
irreconcilable conflict with this rule; (2) Will not have any
retroactive effect; and (3) Will not require administrative proceedings
before any parties may file suit challenging the provisions of this
rule.
The program described by this rule is listed in the Catalog of
Federal Domestic Assistance Programs under number 10.850 Rural
Electrification Loans and Loan Guarantees. This catalog is available on
a subscription basis from the Superintendent of Documents, the United
States Government Printing Office, Washington, DC 20402-9325.
Information Collection and Recordkeeping Requirements
The existing recordkeeping and reporting burdens contained in this
rule were approved by the Office of Management and Budget (OMB)
pursuant to the Paperwork Reduction Act of 1980 (44 U.S.C. 3501 et
seq.), under control numbers 0572-0032 and 0572-0103.
Send questions or comments regarding these burdens or any other
aspect of these collections of information, including suggestions for
reducing the burden, to the Office of Information and Regulatory
Affairs, Office of Management and Budget, NEOB, Washington, DC 20503.
Attention: Desk Officer for USDA.
Background
On September 29, 1994, at 59 FR 49594, the Rural Utilities Service
(RUS) published a proposed rule, 7 CFR 1718 Loan Security Documents for
Electric Borrowers, Subpart B Mortgage for Distribution Borrowers,
which proposed the agency's policies and requirements for mortgages
used to secure direct and guaranteed loans made to electric
distribution borrowers. The final rule for such mortgages is published
elsewhere in this issue of the Federal Register.
This proposed rule sets forth proposed amendments to RUS
regulations to update the agency's policies and requirements regarding
loan contracts with distribution borrowers. These new policies and
requirements are designed to complement the new distribution mortgage.
The changes proposed today are in four different segments:
A new Subpart C--Loan Contracts with Distribution
Borrowers, to be added to 7 CFR part 1718. This proposed subpart sets
forth agency policies and requirements regarding the scope, content,
and usage of new loan contracts with distribution borrowers.
A new Subpart M--Operational Controls, to be added to 7
CFR part 1717. This proposed new subpart outlines the main operational
controls relating to new mortgages and loan contracts of distribution
borrowers, and also modifies certain controls relating to existing
mortgages and loan contracts of distribution and/or power supply
borrowers.
Proposed revisions to 7 CFR part 1717, Subpart R--Lien
Accommodations and Subordinations for 100 Percent Private Financing.
These revisions would adapt RUS policies and requirements regarding
lien accommodations to the new loan contracts and mortgages.
A limited number of proposed changes to 7 CFR part 1710 to
conform those provisions to the new mortgages and loan contracts.
In addition to inviting written comments from the public on this
proposed rule, REA stands ready to meet with interested individuals and
organizations to discuss their comments and recommendations. Such
meetings would be open to any interested person, and they would be
``informal'', as opposed to a formal hearing. Although any such
meetings will not be transcribed, REA will include a summary of any
such meeting in the file for this rulemaking. To facilitate scheduling,
it would be better for individuals, especially the large number of
borrowers affected by this proposed rule, to form one or more groups to
represent their interests at such meetings.
7 CFR Part 1718, Subpart C--Loan Contracts With Distribution
Borrowers
This new subpart would establish agency policies and requirements
regarding the scope, content, and usage of new loan contracts with
distribution borrowers. These policies are intended to complement those
for new distribution mortgages, and to reflect changes in the electric
industry and the RUS program over the past several years.
[[Page 36905]]
Distribution borrowers that obtain a loan or loan guarantee from
RUS after the effective date of this rule would be required to execute
a new loan contract and mortgage based on the policies and requirements
established by the new rules. Distribution borrowers obtaining other
financial assistance from RUS after the effective date of this rule may
be required by RUS to execute a new mortgage and loan contract. If
there are other co-mortgagees on the borrower's existing mortgage,
which there are in most cases, the borrower would have to obtain the
approval of these co-mortgagees before executing a new mortgage.
Distribution borrowers receiving a loan during the transition
period between now and the date the new model loan contract is
published in final form in the Federal Register may opt to execute the
new model mortgage and the proposed model loan contract. Such borrowers
will have the further option of executing the final form of the model
loan contract after it is published in the Federal Register.
Distribution borrowers receiving a loan during the period after
publication of the final form of the new model loan contract but before
its effective date may opt for the final forms of both the model loan
contract and the model mortgage.
Other borrowers not obtaining a new loan from RUS could request
that a new mortgage and loan contract be executed, for example, in
connection with a lien accommodation request or if the borrower is
trying to expand its access to future private financing. RUS will
attempt to honor these requests, but may be constrained by time and
staff limitations.
The policies and requirements proposed in new Subpart C are
designed to provide flexibility in dealing with the different financial
needs, credit risks and other circumstances of individual borrowers and
individual lending situations. This is intended to enable RUS to
respond more quickly and effectively to the special and changing needs
of individual borrowers, while at the same time meeting the
government's need for loan security under different lending
circumstances.
Under this approach, RUS and borrowers would have the flexibility
to negotiate different loan contract provisions depending on individual
circumstances and needs. This would go beyond the current situation
where special needs and requirements are dealt with almost exclusively
in the ``special provisions'' section of a loan contract or contract
amendment. It is anticipated that the provisions in the model loan
contact will be suitable in most cases. Since drafting and approving
customized contract provisions would be more time consuming and could
delay approval of a loan, RUS will consider such modifications only
when they are needed to address individual needs or problems.
Proposed section 1718.103 sets forth the scope and content of loan
contracts to be used with distribution borrowers in combination with
new mortgages executed under 7 CFR Part 1718, Subpart B. The proposed
section establishes the general requirements for loan contracts, in
most cases leaving the specific language of individual provisions to be
determined in the drafting of the loan contracts. An example of such a
model loan contract is presented in Appendix A. This model represents
one example of a loan contract drafted pursuant to this proposed new
rule. Other loan contracts could vary substantially from this example
in response to the financing needs of individual borrowers and the
credit risks involved in those individual lending situations. It is
anticipated that individual provisions of the model will be refined
over time to reflect experience gained from use of the model and to
respond to the rapidly changing electric industry.
Proposed Sec. 1718.103, as reflected in the model contract in
Appendix A, attempts to streamline, simplify and clarify loan contract
provisions. A substantial number of restrictive covenants, complex
provisions, and other outdated requirements contained in the present
form of loan contract would be eliminated. Also, RUS is abandoning the
practice of using the same loan contract with a series of amendments to
cover all RUS loans throughout the lending relationship, which spans
more than 50 years in many cases. Instead, RUS intends to use the
approach followed by other lenders of using a new loan contract with
each loan. This approach is intended to simplify administration for all
parties and to guard against the use of outdated loan documentation.
Historically, RUS loan contracts have contained sweeping powers
favoring the Administrator. In the absence of any explicit rulemaking
authority in the Rural Electrification Act as originally enacted, these
contracts together with their related mortgages lay the foundation for
most RUS regulations. RUS has administered these loan documents through
a variety of methods, including case-by-case determinations, letters
from the Administrator to all borrowers or a group of borrowers, and
notice and comment rulemaking.
RUS intends to retain these flexible approaches to program
administration, including the practice of establishing the rights and
limitations of the lending relationship broadly in the loan documents
and subsequently refining them in regulations. Thus many provisions of
the proposed model contract are stated in very broad terms which can be
fully understood only in the context of the agency's regulations.
For example, most proposed covenants or ``operational controls'' in
the model contract are expressed in broad language, although in some
cases the language is narrower and more focused than in existing loan
contracts. Such language leaves room for unforeseen circumstances,
which can be addressed more specifically through RUS regulations. In
most cases RUS intends to cut back the reach of these provisions
through its regulations, as it did recently in the publication of the
final rule 7 CFR part 1726 on construction policies and procedures (at
60 FR 10151), as well as in the recent publication of proposed
revisions to controls on borrowers' investments (at 60 FR 8981). Under
today's proposed rule, several additional operational controls would be
eliminated from loan contracts, and several others would be cut back,
as described below.
Some may argue that the controls and approval rights contained in
the RUS loan contract itself ought to be more limited and more narrowly
focused than what is being proposed today. RUS recognizes that approach
may appear desirable from an individual borrower's standpoint. However,
from the standpoint of administering a program serving nearly 1,000
utility systems and responding to the diverse interests of this group,
the Congress, the Executive Branch, and other interested parties, RUS
believes that the proposed approach is administratively less costly,
less time-consuming, more flexible, and better able to respond quickly
to changing needs and circumstances.
Certain provisions that had been included in the proposed mortgage
for distribution borrowers, but deleted in the final rule, are proposed
for inclusion in the loan contract. These provisions include the rate
covenant, limitations on retirements of capital credits and other
distributions, certain tests for the issuance of debt that had been
included in sections 2.01 and 2.02 of the proposed mortgage, and
limitations on the issuance of unsecured debt. These changes are
discussed in the final rule on the mortgage published elsewhere in this
Federal Register.
[[Page 36906]]
7 CFR part 1717, Subpart M--Operational Controls
Proposed Subpart M of 7 CFR part 1717 serves several purposes.
First, it outlines the main operational controls that would apply to
distribution borrowers under the proposed new loan contacts. In many
cases, such operational controls are further defined in other RUS
regulations. Second, it establishes the circumstances under which RUS
approval is granted or an exception to a requirement is established
with respect to certain controls. Third, it extends these approvals and
exceptions to existing loan contracts and mortgages of distribution
borrowers and/or power supply borrowers.
Since proposed Subpart M would address only the main operational
controls, failure to include an operational control under Subpart M
would not invalidate operational controls contained in other RUS
regulations. Also, the approvals and exceptions that would be granted
by Subpart M would apply only to operational controls normally included
in loan contracts and mortgages. They would not apply to special
controls and requirements included in loan documents to deal with
special circumstances of individual borrowers.
Proposed Subpart M is not intended to exhaust the treatment of
operational controls. RUS is continuing to review this matter and will
be proposing further changes. For example, proposed revisions to RUS
policies and procedures regarding system design and architectural and
engineering services are currently being drafted.
Extensions and additions. Under proposed Sec. 1717.603, prior
written approval by RUS would be required before a distribution
borrower could extend or add to its electric system if the facilities
will be financed by RUS (including reimbursements). If they won't be
financed by RUS (wholly or partially), approval would not be required
except for:
Construction or procurement of generating facilities of
any size.
Acquisition of existing electric facilities or systems in
service.
Construction or procurement of electric facilities to
serve a customer whose annual kWh purchases or maximum annual kW demand
is projected to exceed 25 percent of the borrower's total kWh sales or
maximum kW demand in the year immediately preceding the acquisition or
start of construction.
Prior written approval from RUS would also be required before power
supply borrowers could extend or add to their electric systems if the
facilities will be financed by RUS. Approval requirements when the
facilities will not be financed by RUS are or will be set forth in
other RUS regulations.
Long-range engineering plans and construction work plans. Proposed
Sec. 1717.604 would continue to require all borrowers to maintain up-
to-date long-range engineering plans and construction work plans (CWP).
However, these plans would not be subject to RUS approval if the
borrower does not intend to seek RUS financing for the facilities and
other purposes covered by the plans. If requested by RUS, borrowers
would have to provide a copy of such plans for RUS review. Applications
for RUS financing would continue to be required to be supported by a
long-range engineering plan and CWP approved by RUS.
Design standards, plans and specifications, construction standards,
and list of materials. Proposed Sec. 1717.605 would continue to require
all borrowers, regardless of the source of funding, to follow
applicable RUS requirements regarding system design, plans and
specifications, construction standards, and the use of RUS accepted
materials.
Construction contracts, and engineering and architectural services
contracts. Under proposed Sec. 1717.606 borrowers would be encouraged
to use RUS standard forms of contracts for construction, materials,
equipment, engineering services, and architectural services regardless
of the source of funding. They would be required to use the standard
contract forms only if funding for the construction, procurement, or
services is provided by RUS.
Contract bidding requirements. Proposed Sec. 1717.607 would
reiterate current policy that RUS requirements regarding bidding for
construction, materials and equipment contracts apply only if the
construction or procurement will be financed by RUS.
RUS approval of contracts. Proposed Sec. 1717.608 would establish
requirements and grant RUS approval with respect to certain contracts.
This section is not complete. Further work needs to be done, and RUS
will propose additional rules updating contract approval requirements
when those decisions are made.
This proposed section would reiterate current policy in 7 CFR part
1726 that RUS approval of contracts for construction, materials,
equipment, and architectural and engineering services would be required
only if the construction, procurement or services are financed by RUS.
RUS approval of contracts to sell electric power to retail
customers would be required only if the contract is for longer than two
years and the kWh sales or kW demand for any year covered by the
contract exceeds 25 percent of the borrower's total kWh sales or
maximum kW demand for the year immediately preceding execution of the
contract.
RUS approval of power supply arrangements, including power supply
contracts, interconnection agreements, interchange agreements, wheeling
agreements, pooling agreements, and any other similar arrangements
would be granted if they have a term of two years or less. Amendments
to such arrangements would also be approved if the amendment would not
extend the term of the arrangement for more than two years beyond the
date of the amendment. The rule would also grant approval for any
amendment to a schedule or exhibit contained in any power supply
arrangement, which would have the mere effect of either altering a list
of interconnection or delivery points or changing the value of a
variable term (but not the formula itself) contained in a formulary
rate or charge.
RUS approval of contracts for the management and operation of a
borrower's electric system or for the maintenance of the electric
system would be required only if such contracts cover all or
substantially all of the electric system.
RUS approval of general manager. Most existing mortgages or loan
contracts give RUS the unconditioned right to approve a borrower's
general manager and the manager's employment contract. Proposed
Sec. 1717.609 would grant RUS approval for all borrowers that are in
compliance with all provisions of their loan documents and any other
agreements with RUS. It is further proposed that new loan contracts
generally will not give RUS unconditioned approval rights over general
managers. Under new loan contracts, RUS would have the right to replace
the manager or approve a new manager when a vacancy occurs only if the
borrower is in default under its mortgage, loan contract, or other
agreement with RUS. This should greatly reduce the times when RUS
approval of a general manager is required.
RUS approval of compensation of the board of directors. Most
existing mortgages or loan contracts require the borrower to obtain RUS
approval of any compensation provided to the members of the borrower's
board of directors.
[[Page 36907]]
Such approval requirement will not be included in new mortgages or in
the proposed loan contract, and proposed Sec. 1717.610 would waive this
requirement for existing mortgages and loan contracts.
RUS approval of expenditures for legal, engineering, and
supervisory services. Most existing mortgages or loan contracts require
borrowers to obtain RUS approval before making expenditures for legal,
engineering, and supervisory services, other than ``routine''
expenditures. Proposed Sec. 1717.611 would grant RUS approval of
expenditures for legal and supervisory services regardless of the
source of funding, and for engineering services if they are not funded
by RUS. Approval requirements for engineering services financed by RUS
are set forth in other RUS regulations.
RUS approval of borrower's bank or other depository. Most existing
mortgages or loan contracts give RUS the right to approve the bank or
other depositories used by a borrower. Proposed Sec. 1717.612 would
grant RUS approval of the borrower's bank or other depositories
provided that they are insured by the Federal Deposit Insurance
Corporation or other Federal agency acceptable to RUS. Proposed new
loan contracts would not grant RUS such authority, but would require
that funds from loans made or guaranteed by RUS be deposited in a bank
or other depository insured by the Federal Deposit Insurance
Corporation or other Federal agency acceptable to RUS, unless prior
written approval is obtained from RUS.
110 Percent Borrowers. It is recognized that the proposed changes
in operational controls applicable to borrowers in general will, if
adopted, require some changes in the exceptions to RUS controls
applicable to borrowers with a net worth of at least 110 percent of the
outstanding debt owed to RUS. The interim final rule on such exceptions
was published in the Federal Register on January 28, 1994 at 59 FR
3982. After comments are received on the proposed rule published today,
RUS will review those comments as well as those received on the interim
final rule (7 CFR 1710.7, 7 CFR 1717.860, and 7 CFR 1717.904) and then
publish both rules in final form.
7 CFR Part 1717, Subpart R--Lien Accommodations and Subordinations
for 100 Percent Private Financing
Changes are proposed to 7 CFR part 1717, subpart R, to adapt RUS
policies and requirements for lien accommodations and subordinations to
the new distribution mortgage. Most of these changes are conforming
technical changes, a few are substantive in nature.
Section 1717.850 General
Under new mortgages for distribution borrowers, borrowers will be
able to issue additional secured debt without the approval of RUS or
the other mortgagees if the borrowers meet the criteria in section 2.01
of their mortgages. Also, if they meet the criteria in section 2.02 of
their mortgages, borrowers will be able to issue secured debt to
refinance existing secured debt without approval of the mortgagees.
If borrowers meet the criteria in section 2.01 or 2.02, debt issued
under those sections will automatically be secured under the mortgage
and will not require a lien accommodation from RUS or other mortgagees.
Thus the lien accommodation regulation, 7 CFR 1717 subpart R, would not
apply to such financing. This is true even if approval from RUS is
required under the RUS loan contract due to criteria or restrictions
included in the loan contract. While the borrower would be required to
obtain prior RUS approval in such cases, a lien accommodation would not
be required if the financing met the requirements of section 2.01 or
2.02 of the new mortgage.
Several technical amendments are proposed to 1717.850. Paragraph
(a) would be revised to indicate, as discussed above, that Subpart R
applies only to the issuance of secured debt that does not meet the
criteria of section 2.01 or 2.02 of the new mortgage. Paragraph (b)
would be revised to include the four community infrastructure purposes
eligible under section 2.01 of the new mortgage as also being eligible
for a lien accommodation under Subpart R.
Paragraph (f) would be substantially revised to eliminate the
requirement that the borrower provide RUS with a written agreement that
it will: comply with the National Electric Safety Code; use only RUS
accepted materials where applicable; comply with RUS construction
standards; follow a CWP approved by RUS; and provide an engineer's
certification after completion of construction that the construction
was done in compliance with RUS requirements. While this certification
would no longer be required, the borrower would continue to be required
to comply with RUS standards regarding facility and system planning and
design, construction, procurement, and the use of materials accepted
and listed by RUS. Elimination of the certification would reduce the
administrative burden on borrowers.
A minor technical change would be made to paragraph (g)(1) to
conform with proposed changes to 7 CFR part 1710, subpart F, (discussed
later) to the effect that construction work plans would not have to be
approved by RUS unless the borrower intends to seek RUS financing for
facilities or other purposes covered by the plan. Also, a technical
change is proposed to paragraph (h)(2) to eliminate references to
sections of the mortgage and loan contract with respect to prior
approval or waiver of approval of certain borrower actions granted by
paragraphs (g)(1) and (h)(1) of this section. Such references to the
loan documents will be confusing as new mortgages and loan contracts
are executed with some borrowers, while other borrowers are still
operating under the old loan documents. Moreover, as RUS continues to
codify more and more of its regulations relating to RUS approvals and
controls, references to specific provisions of the loan documents
relating to prior approval and waivers granted by such regulations will
become less meaningful.
Finally, changes are proposed to paragraph (m) of this section to
broaden the requirements and conditions under Subpart R that may be
waived by the Administrator of RUS if it's in the financial interests
of the government. Also, the meaning of the financial interests of the
government would be clarified.
Section 1717.852 Financing Purposes
With two exceptions, all of the proposed changes to Sec. 1717.852
are basically technical changes to conform the section with the new
mortgage. A new paragraph (a)(3) would be added to add to eligible lien
accommodation purposes the four community infrastructure purposes
eligible for financing without mortgagee approval under section 2.01 of
the new mortgage. The four purposes are water and waste disposal
systems, solid waste disposal systems, telecommunication and other
electronic communication systems, and natural gas distribution systems.
Other infrastructure and other rural development projects would
continue to be eligible for a lien accommodation if the Administrator
determines its in the government's financial interests. They would also
continue to be eligible for a lien subordination under the terms of
Sec. 1717.858, to which no changes are being proposed.
Paragraph (a)(1) would be amended by adding steam power to electric
power as an eligible purpose for lien accommodations. RUS has received
lien accommodation requests from borrowers where the financing was
needed to supply both electric power and steam power to the customer.
The
[[Page 36908]]
requests have been approved after a special finding by RUS that the
accommodation of the government's lien was in the government's
financial interest. By adding steam power as an eligible purpose, the
special finding would no longer be required, which should expedite the
review of such applications.
Existing paragraph (a)(4) would be redesignated (a)(5) and the
limit on transaction costs eligible for lien accommodation would be
raised from 3.5 percent of loan proceeds to 5 percent. No other changes
are proposed to paragraph (a) other than renumbering of the
subparagraphs. Minor technical changes would be made to the wording in
paragraph (b) to reflect the addition of the four community
infrastructure purposes to the purposes generically eligible for a lien
accommodation, and to broaden the scope of purposes eligible in
connection with cogeneration projects. Also, paragraph (b)(2) would be
removed since it would be redundant with the proposed expanded scope of
Sec. 1717.850(m).
Section 1717.854 Advance Approval.
Minor technical amendments are proposed to paragraphs (a) and (b)
to reflect the proposed addition of the four community infrastructure
purposes to the purposes generically eligible for a lien accommodation,
and thus eligible for advance approval.
Changes are proposed to paragraph (c) to conform the financial
criteria for eligibility for advance approval of a lien accommodation
to those contained in section 2.01 of the new mortgage. Thus the
existing two-part interest coverage and equity tests in paragraph (c)
would be replaced with the interest coverage, equity, and net utility
plant tests contained in section 2.01 of the new mortgage. With this
change borrowers under the ``old'' existing mortgage would be subject
to the same basic financial tests in qualifying for advance approval of
a lien accommodation as borrowers under section 2.01 of the new
mortgage in issuing additional secured debt without mortgagee approval.
The latter borrowers would not require a lien accommodation, and thus
1717.854 would no longer be relevant for them.
The proposed new tests in paragraph (c) are a Times Interest Earned
Ratio (TIER) of at least 1.5 and Debt Service Coverage (DSC) of at
least 1.25 in each of the past two years, equity of at least 27 percent
after debt issuance, and a ratio of net utility plant to long-term debt
of at least 1.0 after debt issuance. In addition, the existing
limitation of variable rate debt to 15 percent of all outstanding debt
would be eliminated by removing paragraph (c)(7). This limitation on
variable rate debt would also be eliminated from advance approvals of
lien accommodations for refinancing loans by removing paragraph (a)(5)
from 1717.857.
A few minor technical changes are proposed to Sec. 1717.855 and
1717.856, primarily to conform them with the proposed addition of the
four community infrastructure purposes to the purposes generically
eligible for a lien accommodation, and to eliminate the certification
from borrowers that they will comply with RUS construction standards
and CWP requirements.
Finally, no changes are proposed to 7 CFR part 1717, Subpart S,
regarding lien accommodations for concurrent supplemental loans. Such
loans must continue to meet the same requirements as insured loans made
by RUS.
7 CFR Part 1710--General and Pre-Loan Policies and Procedures
Common to Insured and Guaranteed Electric Loans
Section 1710.103 Area coverage. A technical change is proposed to
delete the statement which could be interpreted that the loan contract
must include the exact language of Sec. 1710.103 with respect to area
coverage requirements. That never was the intent. The proposed
technical change is consistent with the general approach that the loan
contract should provide the general authority for a requirement or
control, while RUS regulations should provide the specific details and
often narrow the focus of the general authority provided in the loan
contract.
Section 1710.114 TIER, DSC, OTIER and ODSC requirements. It is
proposed that the rate covenant be shifted from the mortgage to the
loan contract, and that an Operating Times Interest Earned Ratio
(OTIER) and an Operating Debt Service Coverage (ODSC), both set at a
minimum of 1.1, be added to the existing TIER and DSC requirements for
distribution borrowers. The reasons for these changes are discussed in
the background section of the final rule on the distribution mortgage
published elsewhere in this issue of the Federal Register.
Long-range engineering plans and construction work plans. Under
section 1710.250, all borrowers would continue to be required to
maintain up-to-date long-range engineering plans and construction work
plans, but the plans would not have to be approved by RUS unless the
borrower intends to seek RUS financing. Applications for RUS financing
would continue to have to be supported by an RUS-approved long-range
engineering plan and CWP. RUS approval of these plans would be with
respect to only those facilities to be financed by RUS, and as to
whether the plans provide an acceptable basis, from a planning and
engineering standpoint, for approving the RUS financing.
A new paragraph (k) would be added to this section authorizing RUS
to waive certain requirements with respect to long-range engineering
plans and construction work plans if RUS determines that the
requirements impose a substantial burden on the borrower and that
waiving the requirements will not significantly affect the
accomplishment of the objectives of the regulation. For example, RUS
could waive certain requirements relating to load growth if the
borrower's growth is stagnant or declining.
List of Subjects
7 CFR Part 1710
Electric power, Electric utilities, Loan programs--energy, Rural
areas.
7 CFR Part 1717
Administrative practice and procedure, Electric power, Electric
utilities, Intergovernmental relations, Investments, Lien
accommodation, Lien subordination, Loan programs--energy, Operational
controls, Reporting and recordkeeping requirements, Rural areas.
7 CFR Part 1718
Administrative practice and procedure, Electric power, Electric
utilities, Loan programs--energy, Loan security documents, Reporting
and recordkeeping requirements, Rural areas.
For the reasons explained in the preamble and under the authority
of 7 U.S.C. 901 et seq., RUS proposes to amend 7 CFR Chapter XVII as
follows:
PART 1710--GENERAL AND PRE-LOAN POLICIES AND PROCEDURES COMMON TO
INSURED AND GUARANTEED ELECTRIC LOANS
1. The authority citation for part 1710 is revised to read as
follows:
Authority: 7 U.S.C. 901-950b; Public Law 99-591, 100 Stat, 3341-
16; Public Law 103-354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.).
2. Section 1710.2 is amended in paragraph (a) by adding the
following definitions in alphabetical order to read as follows:
Sec. 1710.2 Definitions and rules of construction.
(a) Definitions. * * *
* * * * *
[[Page 36909]]
Electric system means all of the borrower's interests in all
electric production, transmission, distribution, conservation, load
management, general plant and other related facilities, equipment or
property and in any mine, well, pipeline, plant, structure or other
facility for the development, production, manufacture, storage,
fabrication or processing of fossil, nuclear, or other fuel or in any
facility or rights with respect to the supply of water, in each case
for use, in whole or in major part, in any of the borrower's generating
plants, including any interest or participation of the borrower in any
such facilities or any rights to the output or capacity thereof,
together with all lands, easements, rights-of-way, other works,
property, structures, contract rights and other tangible and intangible
assets of the borrower in each case used or useful in such electric
system.
* * * * *
ODSC means Operating Debt Service Coverage of the electric system
calculated as:
[GRAPHIC][TIFF OMITTED]TP18JY95.009
where:
All amounts are for the same one-year period and are based on the
RUS system of accounts. References to line numbers in the RUS Form 7
refer to the June 1994 version of the form, and will apply to
corresponding information in future versions of the form;
A=Depreciation and Amortization Expense of the electric system,
which usually equals Part A, Line 12 of RUS Form 7;
B=Interest on Long-term Debt of the electric system, which usually
equals Part A, Line 15 of RUS Form 7, except that Interest on Long-term
debt shall be increased by \1/3\ of the amount, if any, by which the
rentals of Restricted Property of the electric system (Part M, Line 3
of RUS Form 7) exceeds 2 percent of Total Margins and Equities (Part C,
Line 36 of RUS Form 7);
C=Patronage Capital & Operating Margins of the electric system,
which usually equals Part A, Line 20 of RUS Form 7; and
D=Debt Service Billed (RUS+other) which equals all interest and
principal billed or billable during the calendar year for long-term
debt of the electric system plus \1/3\ of the amount, if any, by which
the rentals of Restricted Property of the electric system (Part M, Line
3 of RUS Form 7) exceeds 2 percent of Total Margins and Equities (Part
C, Line 36 of RUS Form 7).
* * * * *
OTIER means Operating Times Interest Earned Ratio of the electric
system calculated as:
[GRAPHIC][TIFF OMITTED]TP18JY95.000
where:
All amounts are for the same one-year period and are based on the
RUS system of accounts. References to line numbers in the RUS Form 7
refer to the June 1994 version of the form, and will apply to
corresponding information in future versions of the form;
A=Interest on Long-term Debt of the electric system, which usually
equals Part A, Line 15 of RUS Form 7, except that Interest on Long-term
debt shall be increased by \1/3\ of the amount, if any, by which the
rentals of Restricted Property of the electric system (Part M, Line 3
of RUS Form 7) exceeds 2 percent of Total Margins and Equities (Part C,
Line 36 of RUS Form 7); and
B=Patronage Capital & Operating Margins of the electric system,
which usually equals Part A, Line 20 of RUS Form 7.
* * * * *
Sec. 1710.103 [Amended]
3. Section 1710.103 is amended by removing in paragraph (b) the
sentence ``The loan contract shall contain provisions to this
effect.''.
4. Section 1710.114 is revised as follows:
Sec. 1710.114 TIER, DSC, OTIER and ODSC requirements.
(a) General. Requirements for coverage ratios are set forth in the
borrower's mortgage, loan contract, or other contractual agreements
with RUS. The requirements set forth in this section apply to borrowers
that receive a loan on or after February 10, 1992. Nothing in this
section, however, shall reduce the coverage-ratio requirements of a
borrower that has contractually agreed with RUS to a higher
requirement.
(b) Coverage ratios. (1) Distribution borrowers. The minimum
coverage ratios required of distribution borrowers, whether applied on
an annual or average basis, are a TIER of 1.50, DSC of 1.25, OTIER of
1.1, and ODSC of 1.1. OTIER and ODSC shall apply to distribution
borrowers that receive a loan on or after [the effective date of the
final rule].
(2) The minimum coverage ratios required of power supply borrowers,
whether applied on an annual or average basis, are a TIER of 1.05 and
DSC of 1.00.
(3) When new loan contracts are executed, the Administrator may,
case by case, increase the coverage ratios of distribution and power
supply borrowers above the levels cited in paragraphs (b)(1) and
(b)(2), respectively, of this section if the Administrator determines
that the higher ratios are required to ensure reasonable security for
and/or the repayment of loans made or guaranteed by RUS. Also, the
Administrator may, case by case, reduce said coverage ratios if the
Administrator determines that the lower ratios are required to ensure
reasonable security for and/or the repayment of loans made or
guaranteed by RUS.
(4) If a distribution borrower has in service or under construction
a substantial amount of generation and associated transmission plant
financed at a cost of capital substantially higher than the cost of
funds under section 305 of the RE Act, then the Administrator may
establish, in his or her sole discretion, blended levels for TIER, DSC,
OTIER, and ODSC based on the respective shares of total utility plant
represented by said generation and associated transmission plant and by
distribution and other transmission plant.
(c) Requirements for loan feasibility. To be eligible for a loan,
borrowers must demonstrate to RUS that they will, on a pro forma basis,
earn the coverage ratios required by paragraph (b) of this section in
each of the years included in the borrower's long-range financial
forecast prepared in support of its loan application, as set forth in
subpart G of this part.
(d) Requirements for maintenance of coverage ratios.--(1)
Prospective requirement. Borrowers must design and implement rates for
utility service to provide sufficient revenue (along with other revenue
available to the borrower in the case of TIER and DSC) to pay all fixed
and variable expenses, to provide and maintain reasonable working
capital and to maintain on an annual basis the coverage ratios required
by paragraph (b) of this section. Rates must be designed and
implemented to produce at least enough revenue to meet the requirements
of this paragraph under the assumption that average weather conditions
in the borrower's service territory will prevail in the future,
including average system damage and outages due to weather and the
related costs. Failure to design and implement rates pursuant to the
requirements of this paragraph shall be an event of default upon notice
provided in accordance with the terms of the borrower's mortgage or
loan contract.
[[Page 36910]]
(2) Retrospective requirement. The average coverage ratios achieved
by a borrower in the 2 best years out of the 3 most recent calendar
years must meet the levels required by paragraph (b) of this section.
If a borrower fails to achieve these average levels, it must promptly
notify RUS in writing. Within 30 days of such notification or of the
borrower being notified in writing by RUS, whichever is earlier, the
borrower, in consultation with RUS, must provide a written plan
satisfactory to RUS setting forth the actions that will be taken to
achieve the required coverage ratios on a timely basis. Failure to
develop and implement a plan satisfactory to RUS shall be an event of
default upon notice provided in accordance with the terms of the
borrower's mortgage or loan contract.
(3) Fixed and variable expenses, as used in this section, include
but are not limited to: all taxes, depreciation, maintenance expenses,
and the cost of electric power and energy and other operating expenses
of the electric system, including all obligations under the wholesale
power contract, all lease payments when due, and all principal and
interest payments on outstanding indebtedness when due.
(e) Requirements for advance of funds. (1) If a borrower applying
for a loan has failed to achieve the coverage ratios required by
paragraph (b) of this section during the latest 12 month period
immediately preceding approval of the loan, or if any of the borrower's
average coverage ratios for the 2 best years out of the most recent 3
calendar years were below the levels required in paragraph (b) of this
section, RUS may withhold the advance of loan funds until the borrower
has adopted an annual financial plan and operating budget satisfactory
to RUS and taken such other action as RUS may require to demonstrate
that the required coverage ratios will be maintained in the future and
that the loan will be repaid with interest within the time agreed. Such
other action may include, for example, increasing system operating
efficiency and reducing costs or adopting a rate design that will
achieve the required coverage ratios, and either placing such rates
into effect or taking action to obtain regulatory authority approval of
such rates. If failure to achieve the coverage ratios is due to unusual
events beyond the control of the borrower, such as unusual weather,
system outage due to a storm or regulatory delay in approving rate
increases, then the Administrator may waive the requirement that the
borrower take the remedial actions set forth in this paragraph,
provided that such waiver will not threaten loan feasibility.
(2) With respect to any outstanding loan made on or after February
10, 1992, if, based on actual or projected financial performance of the
borrower, RUS determines that the borrower may not achieve its required
coverage ratios in the current or future years, RUS may withhold the
advance of loan funds until the borrower has taken remedial action
satisfactory to RUS.
5. Section 1710.250 is amended by revising paragraphs (b) and (e)
and adding a new paragraph (k) to read as follows:
Sec. 1710.250 General.
* * * * *
(b) Generally, all borrowers are required to maintain up-to-date
long range engineering plans approved by their boards of directors.
Current CWPs approved by the borrower's board must also be developed
and maintained for distribution and transmission facilities and for
improvements and replacements of generation facilities. All such
distribution, transmission or generation facilities must be included in
the respective CWPs regardless of the source of financing.
* * * * *
(e) Applications for a loan or loan guarantee from RUS (new loans
or budget reclassifications) must be supported by a current CWP
approved by both the borrower's board of directors and RUS. RUS
approval of these plans relates only to the facilities, equipment, and
other purposes to be financed by RUS, and means that the plans provide
an adequate basis from a planning and engineering standpoint to support
RUS financing. RUS approval of the plans does not mean that RUS
approves of the facilities, equipment, or other purposes for which the
borrower is not seeking RUS financing. If RUS disagrees with a
borrower's estimate of the cost of one or more facilities for which RUS
financing is sought, RUS may adjust the estimate after consulting with
the borrower and explaining the reasons for the adjustment.
* * * * *
(k) Upon written request from a borrower, RUS may waive in writing
certain requirements with respect to long-range engineering plans and
CWPs if RUS determines that such requirements impose a substantial
burden on the borrower and that waiving the requirements will not
significantly affect the accomplishment of the objectives of this
subpart. For example, if a borrower's load is forecast to remain
constant or decline during the planning period, RUS may waive those
portions of the plans that relate to load growth.
Sec. 1710.251 [Amended]
6. Section 1710.251 is amended by removing the words ``and RUS''
from the first sentence of paragraph (a).
Sec. 1710.252 [Amended]
7. Section 1710.252 is amended by removing the words ``and RUS''
from the first sentence of paragraph (a).
PART 1717--POST-LOAN POLICIES AND PROCEDURES COMMON TO INSURED AND
GUARANTEED ELECTRIC LOANS
8. The authority citation for part 1717 continues to read as
follows:
Authority: 7 U.S.C. 901-950b; Pub. L. 103-354, 108 Stat. 3178 (7
U.S.C. 6941 et seq.), unless otherwise noted.
9. Subpart M is added to part 1717 to read as follows:
Subpart M--Operational Controls
Sec.
1717.600 General.
1717.601 Applicability.
1717.602 Definitions.
1717.603 RUS approval of extensions and additions.
1717.604 Long-range engineering plans and construction work plans.
1717.605 Design standards, plans and specifications, construction
standards, and RUS accepted materials.
1717.606 Standard forms of construction contracts, and engineering
and architectural services contracts.
1717.607 Contract bidding requirements.
1717.608 RUS approval of contracts.
1717.609 RUS approval of general manager.
1717.610 RUS approval of compensation of the board of directors.
1717.611 RUS approval of expenditures for legal, accounting,
engineering, and supervisory services.
1717.612 RUS approval of borrower's bank or other depository.
Subpart M--Operational Controls
Sec. 1717.600 General.
(a) General. The loan contract and mortgage between the Rural
Utilities Service (RUS) and electric borrowers imposes certain
restrictions and controls on the borrowers and gives RUS (and other co-
mortgagees in the case of the mortgage) the right to approve or
disapprove certain actions contemplated by the borrowers. Certain of
these controls and approval rights are referred to informally as
``operational controls'' because they pertain to decisions or actions
with respect to the operation of the borrowers' electric systems. The
approval authority granted to RUS by the loan contract or mortgage
regarding
[[Page 36911]]
each decision or action subject to controls is often stated in broad,
unlimited terms. This subpart lists the main operational controls
affecting borrowers and establishes for each area of control the
circumstances under which RUS approval of a decision or action by a
borrower is either required or not required. In some cases, only the
general principles or general circumstances pertaining to RUS approval
or control are presented in this subpart, while the details regarding
the circumstances and requirements of RUS approval or control are set
forth in other RUS regulations. Since this subpart addresses only the
main operational controls, failure to address a control or approval
right in this subpart in no way invalidates such controls or rights
established by the loan contract, mortgage, other agreements between a
borrower and RUS, and RUS regulations.
(b) Case by case amendments. Upon written notice to a borrower, RUS
may amend or annul the approvals and exceptions to controls set forth
in this subpart or other RUS regulations if the borrower is in
violation of any provision of its loan documents or any other agreement
with RUS, or if RUS determines that loan security and/or repayment is
threatened. Such amendment or annulment will apply to decisions and
actions of the borrower after said written notice has been provided by
RUS.
(c) Generic notices. By written notice to all borrowers or a group
of borrowers, RUS may grant or waive approval of decisions and actions
by the borrowers that are controlled under the loan documents and RUS
regulations. RUS may also by written notice withdraw or cut back its
grant or waiver of approval of said decisions and actions made by
previous written notice, but may not by such notice extend its
authority to approve decisions and actions by borrowers beyond the
authority granted by the loan documents and RUS regulations.
Sec. 1717.601 Applicability.
(a) The approvals and exceptions to controls conveyed by this
subpart apply only to controls and approval rights normally included in
RUS loan documents. They do not apply to special controls and approval
requirements included in the loan documents or other agreements
executed between a borrower and RUS that relate to individual problems
or circumstances specific to an individual borrower.
(b) The provisions of this subpart apply to loan documents entered
into between borrowers and RUS, regardless of whether the documents
were executed before, on, or after [the effective date of the final
rule].
(c) The approvals and exceptions to controls granted by RUS in this
subpart shall not in any way affect the rights of other co-mortgagees
under the mortgage or their loan contracts.
Sec. 1717.602 Definitions.
Terms used in this subpart have the meanings set forth in 7 CFR
part 1710. In addition, for the purposes of this subpart:
Default means an event of default as defined in the borrower's loan
documents or other agreement with RUS, and furthermore includes any
event that has occurred and is continuing which, with notice or lapse
of time and notice, would become an event of default.
Financed or funded by RUS means financed or funded wholly or in
part by a loan made or guaranteed by RUS, including concurrent
supplemental loans required by 7 CFR 1710.110, loans to reimburse funds
already expended by the borrower, and loans to replace interim
financing.
Interchange agreement means a contractual arrangement that can
include a variety of services utilities provide each other to increase
reliability and efficiency, and to avoid duplicating expenses. Some
examples are: transmission service (the use of transmission lines to
move power and energy from one area to another); emergency service (an
agreement by one utility to furnish another with power and energy to
protect it in times of emergency, such as power plant outages); reserve
sharing (contributions to a common pool of generating plant reserves so
that each individual utility's reserves can be reduced); and economic
exchanges (swapping power and energy from different plants to avoid
running the most expensive units).
Interconnection agreement means a contract governing the terms for
establishing or using one or more electrical connections between two or
more electric systems permitting a flow of power and energy among the
systems.
Loan documents means the mortgage (or other security instrument
acceptable to RUS), the loan contract, and the promissory note entered
into between the borrower and RUS.
Pooling agreement means a contract among two or more interconnected
electric systems to operate on a coordinated basis to achieve economies
and/or enhance reliability in supplying their respective loads.
Power supply contract means any contract entered into by a borrower
for the sale or purchase, at wholesale, of electric energy.
Wheeling agreement means a contract providing for the use of the
electric transmission facilities of one electric utility to transmit
power and energy of another electric utility or other entity to a third
party. Such transmission may be accomplished directly or by
displacement.
Sec. 1717.603 RUS approval of extensions and additions.
(a) Distribution borrowers. Prior written approval by RUS is
required for a distribution borrower to extend or add to its electric
system if the extension or addition will be financed by RUS. For
extensions and additions that will not be financed by RUS, approval is
hereby given to distribution borrowers to make such extensions and
additions to their electric systems, including the use of (or
commitment to use) general funds of the borrower, except for the
following:
(1) Construction, procurement, or leasing of generating facilities,
regardless of the size of the facilities;
(2) Acquisition or leasing of existing electric facilities or
systems in service; and
(3) Construction, procurement, or leasing of electric facilities to
serve a customer whose annual kWh purchases or maximum annual kW demand
in the foreseeable future is projected to exceed 25 percent of the
borrower's total kWh sales or maximum kW demand in the year immediately
preceding the acquisition or start of construction.
(b) Power supply borrowers. Prior written approval by RUS is
required for a power supply borrower to extend or add to its electric
system if the extension or addition will be financed by RUS.
Requirements for RUS approval of extensions and additions that will not
be financed by RUS are set forth in other RUS regulations.
(c) Additional details. Additional details relating to RUS approval
of extensions and additions of a borrower's electric system financed by
RUS are set forth in other RUS regulations, e.g., in 7 CFR parts 1710
and 1726.
Sec. 1717.604 Long-range engineering plans and construction work
plans.
(a) All borrowers are required to maintain up-to-date long-range
engineering plans and construction work plans (CWPs) in form and
substance as set forth in 7 CFR part 1710, subpart F.
(b) Applications for financing from RUS must be supported by a
long-range engineering plan and CWP approved by RUS.
[[Page 36912]]
(c) RUS approval is not required for long-range engineering plans
and CWPs if the borrower does not intend to seek RUS financing for any
of the facilities, equipment or other purposes included in those plans.
However, if requested by RUS, a borrower must provide an informational
copy of such plans to RUS.
Sec. 1717.605 Design standards, plans and specifications, construction
standards, and RUS accepted materials.
All borrowers, regardless of the source of funding, are required to
comply with applicable RUS requirements with respect to system design,
plans and specifications, construction standards, and the use of RUS
accepted materials. These requirements are set forth in other RUS
regulations, especially in 7 CFR parts 1724 and 1728.
Sec. 1717.606 Standard forms of construction contracts, and
engineering and architectural services contracts.
All borrowers are encouraged to use the standard forms of contracts
promulgated by RUS for construction, materials, equipment, engineering
services, and architectural services, regardless of the source of
funding for such construction and services. Borrowers are required to
use these standard forms of contracts only if the construction,
procurement or services are financed by RUS. RUS requirements with
respect to such standard forms of contract are set forth in 7 CFR part
1724 for architectural and engineering services, and in 7 CFR part 1726
for construction, materials, and equipment.
Sec. 1717.607 Contract bidding requirements.
Borrowers must follow RUS requirements regarding bidding for
contracts for construction, materials, and equipment only if financing
of the construction or procurement will be provided by RUS. These
requirements are set forth in 7 CFR part 1726.
Sec. 1717.608 RUS approval of contracts.
(a) Construction contracts and architectural and engineering
contracts. RUS approval of contracts for construction and procurement
and for architectural and engineering services is required only when
such construction, procurement or services are financed by RUS.
Detailed requirements regarding RUS approval of such contracts are set
forth in 7 CFR part 1724 for architectural and engineering services,
and in 7 CFR part 1726 for construction and procurement.
(b) Large retail power contracts. RUS approval of contracts to sell
electric power to retail customers is required only if the contract is
for longer than 2 years and the kWh sales or kW demand for any year
covered by the contract exceeds 25 percent of the borrower's total kWh
sales or maximum kW demand for the year immediately preceding execution
of the contract. This requirement applies regardless of the source of
funding of any plant extensions, additions or improvements that may be
involved in connection with the contract.
(c) Power supply arrangements. (1) Power supply contracts
(including but not limited to economy energy sales and emergency power
and energy sales), interconnection agreements, interchange agreements,
wheeling agreements, pooling agreements, and any other similar power
supply arrangements subject to approval by RUS are deemed approved if
they have a term of 2 years or less. Amendments to said power supply
arrangements are also deemed approved provided that the amendment does
not extend the term of the arrangement for more than 2 years beyond the
date of the amendment.
(2) Any amendment to a schedule or exhibit contained in any power
supply arrangement subject to RUS approval, which merely has the effect
of either altering a list of interconnection or delivery points or
changing the value of a variable term (but not the formula itself)
contained in a formulary rate or charge is deemed approved.
(3) The provisions of this paragraph apply regardless of whether
the borrower is a seller or purchaser of the services furnished by the
contracts or arrangements, and regardless of whether or not a Federal
power marketing agency is a party to any of them.
(d) System management and maintenance contracts. RUS approval of
contracts for the management and operation of a borrower's electric
system or for the maintenance of the electric system is required only
if such contracts cover all or substantially all of the electric
system.
(e) Other contracts. [Reserved]
Sec. 1717.609 RUS approval of general manager.
(a) If a borrower's mortgage or loan contract grants RUS the
unconditioned right to approve the employment and/or the employment
contract of the general manager of the borrower's system, such approval
is hereby granted provided that the borrower is in compliance with all
provisions of its loan documents and any other agreements with RUS.
(b) If a borrower is in default with respect to any provision of
its loan documents or any other agreement with RUS:
(1) Such borrower, if directed in writing by RUS, shall replace its
general manager within 30 days after the date of such written notice;
and
(2) Such borrower shall not hire a general manager without prior
written approval by RUS.
Sec. 1717.610 RUS approval of compensation of the board of directors.
If a borrower's mortgage or loan contract requires the borrower to
obtain approval from RUS for compensation provided to members of the
borrower's board of directors, such requirement is hereby waived.
Sec. 1717.611 RUS approval of expenditures for legal, accounting,
engineering, and supervisory services.
(a) If a borrower's mortgage or loan contract requires the borrower
to obtain approval from RUS before incurring expenses for legal,
accounting, supervisory (other than for the management and operation of
the borrower's electric system, see Sec. 1717.608(d)), or other similar
services, such approval is hereby granted. However, while expenditures
for accounting do not require RUS approval, the selection of a
certified public accountant by the borrower to prepare audited reports
required by RUS remains subject to RUS approval.
(b) If a borrower's mortgage or loan contract requires the borrower
to obtain approval from RUS before incurring expenses for engineering
services, such approval is hereby granted if such services will not be
financed by RUS. Approval requirements with respect to engineering
services financed by RUS are set forth in other RUS regulations.
Sec. 1717.612 RUS approval of borrower's bank or other depository.
(a) If a borrower's mortgage or loan contract gives RUS the
authority to approve the bank or other depositories used by the
borrower, such approval is hereby granted provided that the bank or
other depositories are insured by the Federal Deposit Insurance
Corporation or other Federal agency acceptable to RUS.
(b) Without the prior written approval of RUS, a borrower shall not
deposit funds from loans made or guaranteed by RUS in any bank or other
depository that is not insured by the Federal Deposit Insurance
Corporation or other Federal agency acceptable to RUS.
10. Section 1717.850 is amended by revising paragraphs (a), (b),
(f), (g)(1)(ii), (h)(2), and (m) to read as follows:
Sec. 1717.850 General.
(a) Scope and applicability. (1) This subpart R establishes
policies and
[[Page 36913]]
procedures for the accommodation, subordination or release of the
Government's lien on borrower assets, including approvals of supporting
documents and related loan security documents, in connection with 100
percent private sector financing of facilities and other purposes.
Policies and procedures regarding lien accommodations for concurrent
supplemental financing required in connection with an RUS insured loan
are set forth in subpart S of this part.
(2) This subpart and subpart S of this part apply only to debt to
be secured under the mortgage, the issuance of which is subject to the
approval of the Rural Utilities Service (RUS) by the terms of the
borrower's mortgage with respect to the issuance of additional debt or
the refinancing or refunding of debt. If RUS approval is not required
under such terms of the mortgage itself, a lien accommodation is not
required. If the loan contract or other agreement between the borrower
and RUS requires RUS approval with respect to the issuance of debt or
making additions to or extensions of the borrower's system, such
required approvals do not by themselves result in the need for a lien
accommodation.
(b) Overall policy. (1) Consistent with prudent lending practices,
the maintenance of adequate security for RUS's loans, and the
objectives of the Rural Electrification Act (RE Act), it is the policy
of RUS to provide effective and timely assistance to borrowers in
obtaining financing from other lenders by sharing RUS's lien on a
borrower's assets in order to finance electric facilities, equipment
and systems, and certain other types of community infrastructure. In
certain circumstances, RUS may facilitate the financing of such assets
by subordinating its lien on specific assets financed by other lenders.
(2) It is also the policy of RUS to provide effective and timely
assistance to borrowers in promoting rural development by subordinating
RUS's lien for financially sound rural development investments under
the conditions set forth in Sec. 1717.858.
* * * * *
(f) Safety and performance standards. (1) To be eligible for a lien
accommodation or subordination from RUS, a borrower must comply with
RUS standards regarding facility and system planning and design,
construction, procurement, and the use of materials accepted by RUS, as
required by the borrower's mortgage, loan contract, or other agreement
with RUS, and as further specified in RUS regulations.
(2) RUS ``Buy American'' requirements shall not apply.
(g) * * *
(1) * * *
(ii) Obtain a certification from a registered professional
engineer, for each year during which funds from the separate subaccount
are utilized by the borrower, that all materials and equipment
purchased and facilities constructed during the year from said funds
comply with RUS safety and performance standards, as required by
paragraph (f) of this section, and are included in an CWP or CWP
amendment approved by the borrower's board of directors;
* * * * *
(h) * * *
(2) To the extent that provisions in a borrower's loan contract or
mortgage in favor of RUS may be inconsistent with paragraphs (g)(1) and
(h)(1) of this section, paragraphs (g)(1) and (h)(1) of this section
are intended to constitute an approval or waiver under the terms of
such instruments, and in any regulations implementing such instruments,
with respect to facilities financed with debt obtained entirely from
non-RUS sources without an RUS guarantee.
* * * * *
(m) Waiver authority. Consistent with the RE Act and other
applicable laws, any requirement, condition, or restriction imposed by
this subpart, or subpart S of this part, on a borrower, private lender,
or application for a lien accommodation or subordination may be waived
or reduced by the Administrator, if the Administrator determines that
said action is in the Government's financial interest with respect to
ensuring repayment and reasonably adequate security for loans made or
guaranteed by RUS.
* * * * *
11. Section 1717.851 is amended by removing the definitions for
``ODSC'' and ``OTIER'' and by adding the following definitions in
alphabetical order to read as follows:
Sec. 1717.851 Definitions.
* * * * *
Natural gas distribution system means any system of community
infrastructure whose primary function is the distribution of natural
gas and whose services are available by design to all or a substantial
portion of the members of the community.
* * * * *
Solid waste disposal system means any system of community
infrastructure whose primary function is the collection and/or disposal
of solid waste and whose services are available by design to all or a
substantial portion of the members of the community.
Telecommunication and other electronic communication system means
any system of community infrastructure whose primary function is the
provision of telecommunication or other electronic communication
services and whose services are available by design to all or a
substantial portion of the members of the community.
* * * * *
Water and waste disposal system means any system of community
infrastructure whose primary function is the supplying of water and/or
the collection and treatment of waste water and whose services are
available by design to all or a substantial portion of the members of
the community.
* * * * *
12. In Sec. 1717.852, paragraphs (a)(1) introductory text and
(a)(1)(ii) are amended by adding the words ``and/or steam'' before the
word ``power'', paragraphs (a)(3) through (a)(7) and paragraph (b) are
revised, and paragraph (a)(8) is added to read as follows:
Sec. 1717.852 Financing purposes.
(a) * * *
(3) The following types of community infrastructure substantially
located within the electric service territory of the borrower: water
and waste disposal systems, solid waste disposal systems,
telecommunication and other electronic communications systems, and
natural gas distribution systems;
(4) Front-end costs, when and as the borrower has obtained a
binding commitment from the non-RUS lender for the financing required
to complete the procurement or construction of the facilities;
(5) Transaction costs included as part of the cost of financing
assets or refinancing existing debt, provided, however, that the amount
of transaction costs eligible for lien accommodation or subordination
normally shall not exceed 5 percent of the principal amount of
financing or refinancing provided, net of all transaction costs;
(6) The refinancing of existing debt secured under the mortgage;
(7) Interest during construction of generation and transmission
facilities if approved by RUS, case by case, depending on the financial
condition of the borrower, the terms of the financing, the nature of
the construction, the treatment of these costs by regulatory
authorities having jurisdiction, and such other factors deemed
appropriate by RUS; and
[[Page 36914]]
(8) Lien subordinations for certain rural development investments,
as provided in Sec. 1717.858.
(b) Purposes ineligible.The following financing purposes are not
eligible for a lien accommodation or subordination from RUS:
(1) Working capital, including operating funds, unless in the
judgment of RUS the working capital is required to ensure the repayment
of RUS loans and/or other loans secured under the mortgage;
(2) Facilities, equipment, appliances, or wiring located inside the
premises of the consumer, except:
(i) Certain load-management equipment (see 7 CFR 1710.251(c));
(ii) Renewable energy systems and RUS-approved programs of demand
side management and energy conservation; and
(iii) As determined by RUS on a case by case basis, facilities
included as part of certain cogeneration projects to furnish electric
and/or steam power to end-user customers of the borrower;
(3) Investments in a lender required of the borrower as a condition
for obtaining financing; and
(4) Debt incurred by a distribution or power supply borrower to
finance facilities, equipment or other assets that are not part of the
borrower's electric system or one of the four community infrastructure
systems cited in paragraph (a)(3) of this section, except for certain
rural development investments eligible for a lien subordination under
Sec. 1717.858.
* * * * *
13. Section 1717.854 is amended by revising the section heading and
paragraphs (a), (b), (c)(1) and (c)(2), removing paragraph (c)(7),
redesignating paragraphs (c)(3) through (c)(6) as paragraphs (c)(4)
through (c)(7), adding a new paragraph (c)(3), adding ``and'' at the
end of newly designated paragraph (c)(6)(vi), and removing ``; and'' at
the end of newly designated paragraph (c)(7) and adding a period in its
place to read as follows:
Sec. 1717.854 Advance approval--100 percent private financing of
distribution, subtransmission and headquarters facilities, and certain
other community infrastructure.
(a) Policy. Requests for a lien accommodation or subordination from
distribution borrowers for 100 percent private financing of
distribution, subtransmission and headquarters facilities, and for
community infrastructure listed in Sec. 1717.852(a)(3), qualify for
advance approval by RUS if they meet the conditions of this section and
all other applicable provisions of this subpart. Advance approval means
RUS will approve these requests once RUS is satisfied that the
conditions of this section and all other applicable provisions of this
subpart have been met.
(b) Eligible purposes. Lien accommodations or subordinations for
the financing of distribution, subtransmission, and headquarters
facilities and community infrastructure listed in Sec. 1717.852(a)(3)
are eligible for advance approval, except those that involve the
purchase of existing facilities and associated service territory.
(c) * * *
(1) The borrower has achieved a TIER of at least 1.5 and a DSC of
at least 1.25 for each of 2 calendar years immediately preceding, or
any 2 consecutive 12 month periods ending within 180 days immediately
preceding, the issuance of the debt;
(2) The ratio of the borrower's equity, less deferred expenses, to
total assets, less deferred expenses, is not less than 27 percent,
after adding the principal amount of the proposed loan to the total
assets of the borrower;
(3) The borrower's net utility plant as a ratio to its total
outstanding long-term debt is not less than 1.0, after adding the
principal amount of the proposed loan to the existing outstanding long-
term debt of the borrower;
* * * * *
14. Section 1717.855 is amended by revising the section heading and
paragraph (a) to read as follows:
Sec. 1717.855 Application contents: Advance approval--100 percent
private financing of distribution, subtransmission and headquarters
facilities, and certain other community infrastructure.
* * * * *
(a) A certification by an authorized official of the borrower that
the borrower and, as applicable, the loan are in compliance with all
conditions set forth in Sec. 1717.854(c) and all applicable provisions
of Secs. 1717.852 and 1717.853;
* * * * *
15. Section 1717.856 is amended by revising the section heading,
the introductory text, the introductory text of paragraph (a), and
paragraph (c)(3) to read as follows:
Sec. 1717.856 Application contents: Normal review--100 percent private
financing.
Applications for a lien accommodation or subordination for 100
percent private financing for eligible purposes that do not meet the
requirements of Sec. 1717.854 must include the following information
and documents:
(a) A certification by an authorized official of the borrower that:
* * * * *
(c) * * *
(3) The borrower has achieved the TIER and DSC and any other
coverage ratios required by its mortgage or loan contract in each of
the two most recent calendar years; and
* * * * *
Sec. 1717.857 [Amended]
16. Section 1717.857 is amended by removing paragraph (a)(5), by
adding ``and'' at the end of paragraph (a)(3), and by removing ``;
and'' at the end of paragraph (a)(4)(ii) and adding a period in its
place.
PART 1718--LOAN SECURITY DOCUMENTS FOR ELECTRIC BORROWERS
17. The authority citation for part 1718 continues to read as
follows:
Authority: 7 U.S.C. 901-950b; Pub. L. 103-354, 108 Stat. 3178 (7
U.S.C. 6941 et seq.).
18. Subpart C is added to part 1718 to read as follows:
Subpart C--Loan Contracts With Distribution Borrowers
Sec.
1718.100 General.
1718.101 Applicability.
1718.102 Definitions.
1718.103 Loan contract provisions.
1718.104 Availability of model loan contract.
Appendix A to Subpart C of Part 1718--Model Form of Loan Contract for
Electric Distribution Borrowers
Subpart C--Loan Contracts With Distribution Borrowers
Sec. 1718.100 General.
(a) Purpose. The purpose of this subpart is to set forth the
policies, requirements, and procedures governing loan contracts entered
into between the Rural Utilities Service (RUS) and distribution
borrowers or, in some cases, other electric borrowers.
(b) Flexibility for individual circumstances. The intent of this
subpart is to provide the flexibility to address the different needs
and different credit risks of individual borrowers, and other special
circumstances of individual lending situations. The model loan contract
contained in Appendix A of this subpart provides an example of what a
loan contract with an ``average'' or ``typical'' distribution borrower
may look like under ``average'' or ``typical'' circumstances. Depending
on the credit risks and other circumstances of individual loans, RUS
may execute loan contracts with
[[Page 36915]]
provisions that are substantially different than those set forth in the
model. RUS may develop alternative model loan contract provisions. If
it does, such provisions will be made available to the public.
(c) Resolution of any differences in contractual provisions. If any
provision of the loan contract appears to be in conflict with
provisions of the mortgage, the loan contract shall have precedence
with respect to the contractual relationship between the borrower and
RUS with respect to such provision. If either document is silent on a
matter addressed in the other document, the other document shall have
precedence with respect to the contractual relationship between the
borrower and RUS with respect to such matter.
(d) Loan contract provisions subject to subsequent rule making. The
provisions of all loan contracts executed pursuant to this subpart
shall be subject to amendment and modification pursuant to subsequent
rule making. Such amendments and modifications may not exceed the
authority granted to RUS in the loan contract entered into with the
borrower.
Sec. 1718.101 Applicability.
(a) Distribution borrowers. The provisions of this subpart apply to
all distribution borrowers that obtain a loan or loan guarantee from
RUS on or after [the effective date of the final rule]. Distribution
borrowers that obtain a lien accommodation or any other form of
financial assistance from RUS after [the effective date of the final
rule] may be required to execute a new loan contract and new mortgage.
Moreover, any distribution borrower may submit a request to RUS that a
new loan contract and new mortgage be executed. Within the constraints
of time and staff resources, RUS will attempt to honor such requests.
Borrowers must first obtain the concurrence of any other mortgagees on
their existing mortgage before a new mortgage can be executed.
(b) Other borrowers. Borrowers other than distribution borrowers
may also submit requests for execution of a new loan contract pursuant
to this subpart and a new mortgage pursuant to subpart B of this part.
RUS may approve such requests if it determines that it is in the
government's financial interest. If other mortgagees are on the
borrower's existing mortgage, their concurrence would be required
before a new mortgage could be executed.
Sec. 1718.102 Definitions.
For the purposes of this subpart:
Borrower means any organization that has an outstanding loan made
or guaranteed by the Rural Utilities Service (RUS) or its predecessor,
the Rural Electrification Administration, for rural electrification, or
that is seeking such financing.
Distribution borrower means a borrower that sells or intends to
sell electric power and energy at retail in rural areas, the latter
being defined in 7 CFR 1710.2.
Loan documents means the mortgage (or other security instrument
acceptable to RUS), the loan contract, and the promissory note entered
into between the borrower and RUS.
Sec. 1718.103 Loan contract provisions.
Loan contracts executed pursuant to this subpart shall contain such
provisions as RUS determines are appropriate to further the purposes of
the RE Act and to ensure that the security for the loan will be
reasonably adequate and that the loan will be repaid according to the
terms of the promissory note. Such loan contracts will contain
provisions addressing, but not necessarily limited to, the following
matters:
(a) Description of the purpose of the loan;
(b) Specification of the interest to be charged on the loan,
including the method for determining the interest rate if it is not
fixed for the entire term of the loan;
(c) Specification of the method for repaying the loan principal,
including the final maturity of the loan;
(d) The conditions under which the loan may be prepaid before its
maturity date, including but not limited to requirements regarding the
prepayment of loans made concurrently by RUS and another secured
lender;
(e) The method for making scheduled payments on the loan;
(f) Accounting principles and system of accounts, and RUS authority
to approve the accountant used by the borrower;
(g) The method and time period for advancing loan funds and the
conditions precedent to the advance of funds;
(h) Representations and warranties by the borrower as a condition
of obtaining the loan, including but not limited to: the legal
authority of the borrower to enter into the loan contract and operate
its system; that the loan documents will be a legal, valid and binding
obligation of the borrower enforceable according to their terms;
compliance of the borrower in all material respects with all federal,
state, and local laws, regulations, codes, and orders; existence of any
pending or threatened legal actions that could have a material adverse
effect on the borrower's ability to perform its obligations under the
loan documents; the accuracy and completeness of all information
provided by the borrower in the loan application and with respect to
the loan contract, and the existence of any material adverse change
since the information was provided; and the existence of any material
defaults under other agreements of the borrower;
(i) Representations, warranties, and covenants with respect to
environmental matters;
(j) Reports and notices required to be submitted to RUS, including
but not limited to: annual financial statements; notice of defaults;
notice of litigation; notice of orders or other directives received by
the borrower from regulatory authorities; notice of any matter that has
resulted in or may result in a material adverse change in the condition
or operations of the borrower; and such other information regarding the
condition or operations of the borrower as RUS may reasonably require;
(k) Annual written certification that the borrower is in compliance
with its loan contract, note, mortgage, and any other agreement with
RUS, or if there has been a default in the fulfillment of any
obligation under said agreements, specifying each such default and the
nature and status thereof;
(l) Requirement that the borrower design and implement rates for
utility services to meet certain minimum coverage of interest expense
and/or debt service obligations;
(m) Requirement that the borrower maintain and preserve its
mortgaged property in compliance with prudent utility practice and all
applicable laws, which may include certain specific actions and
certifications set forth in the borrower's loan contract or mortgage;
(n) Requirement that the borrower plan, design and construct its
electric system according to standards and other requirements
established by RUS, and if directed by the Administrator, that the
borrower follow RUS planning, design and construction standards and
requirements for other utility systems constructed by the borrower;
(o) Limitations on extensions and additions to the borrower's
electric system without approval by RUS;
(p) Limitations on contracts and contract amendments that the
borrower may enter into without approval by RUS;
(q) Limitations of the transfer of mortgaged property by the
borrower;
(r) Limitations on dividends, patronage refunds, and cash
distributions paid by the borrower;
[[Page 36916]]
(s) Limitations on investments, loans, and guarantees made by the
borrower;
(t) Authority of RUS to approve a new general manager and to
require that an existing general manager be replaced if the borrower is
in default under its mortgage, loan contract, or any other agreements
with RUS;
(u) Description of events of default under the loan contract and
the remedies available to RUS;
(v) Applicability of state and federal laws;
(w) Severability of the individual provisions of the loan
documents;
(x) Matters relating to the assignment of the loan contract;
(y) Requirements relating to federal laws and regulations,
including but not limited to the following matters: area coverage for
electric service; civil rights and equal employment opportunity; access
to buildings and other matters relating to the handicapped; design and
construction standards relating to earthquakes; the National
Environmental Policy Act of 1969 and other environmental laws and
regulations; flood hazard insurance; debarment and suspension from
federal assistance programs; and delinquency on federal debt; and
(z) Special requirements applicable to individual loans, and such
other provisions as RUS may require to ensure loan repayment and
reasonably adequate loan security.
Sec. 1718.104 Availability of model loan contract.
Single copies of the model loan contract (RUS Informational
Publication 1718 C) are available from the Administrative Services
Division, Rural Utilities Service, United States Department of
Agriculture, Washington, DC 20250-1500. This document may be
reproduced.
Appendix A to Subpart C of Part 1718--Model Form of Loan Contract for
Electric Distribution Borrowers
Loan Contract
Table of Contents
Recitals
Article I--Definitions
Article II--Representations and Warranties
Section 2.1. Representations and Warranties.
Article III--Loan
Section 3.1. Advances.
Section 3.2. Interest Rate and Payment.
Section 3.3. Prepayment.
Article IV--Conditions of Lending
Section 4.1. General Conditions.
Section 4.2. Special Conditions.
Article V--Affirmative Covenants
Section 5.1. Generally.
Section 5.2. Annual Certificates.
Section 5.3. Simultaneous Prepayment of Contemporaneous Loans.
Section 5.4. Rates to Provide Revenue Sufficient to Meet Coverage
Ratios Requirements.
Section 5.5. Depreciation Rates.
Section 5.6. Property Maintenance.
Section 5.7. Financial Books.
Section 5.8. Rights of Inspection.
Section 5.9. Area Coverage.
Section 5.10. Real Property Acquisition.
Section 5.11. ``Buy American'' Requirements.
Section 5.12. Power Requirements Studies.
Section 5.13. Long Range Engineering Plans and Construction Work
Plans.
Section 5.14. Design Standards, Plans and Specifications,
Construction Standards, and List of Materials.
Section 5.15. Construction.
Section 5.16. Standard Forms of Construction Contracts, and
Engineering and Architectural Services Contracts.
Section 5.17. Contract Bidding Requirements.
Section 5.18. Nondiscrimination.
Section 5.19. Financial Reports.
Section 5.20. Miscellaneous Reports and Notices.
Section 5.21 Special Construction Account.
Section 5.22. Additional Affirmative Covenants.
Article VI--Negative Covenants
Section 6.1. General.
Section 6.2. Limitations on System Extensions and Additions.
Section 6.3. Limitations on Expenses for Legal, Engineering and
Supervisory Services.
Section 6.4. Limitations on Employment and Retention of Manager.
Section 6.5. Limitations on Certain Types of Contracts.
Section 6.6. Limitations on Mergers and Sale, Lease or Transfer of
Capital Assets.
Section 6.7. Limitations on Acquisition, Construction or Procurement
of Generating Facilities, Existing Facilities or Utility Systems.
Section 6.8. Limitation on Distributions.
Section 6.9. Limitations on Loans, Investments and Other
Obligations.
Section 6.10. Depreciation Rates.
Section 6.11. Historic Preservation.
Section 6.12. Rate Reductions.
Section 6.13. Limitations on Additional Indebtedness.
Section 6.14. Limitations on Issuing Additional Indebtedness Secured
Under the Mortgage.
Section 6.15. Impairment of Contracts Pledged to RUS.
Section 6.16. Limitations on Using non FDIC-insured Depositories.
Section 6.17. Additional Negative Covenants.
Article VII--Default
Section 7.1. Events of Default.
Article VIII--Remedies
Section 8.1. Generally.
Section 8.2. Suspension of Advances.
Article IX--Miscellaneous
Section 9.1. Notices.
Section 9.2. Expenses.
Section 9.3. Late Payments.
Section 9.4. Filing Fees.
Section 9.5. No Waiver.
Section 9.6. Governing Law.
Section 9.7. Holiday Payments.
Section 9.8. Rescission.
Section 9.9. Successors and Assigns.
Section 9.10. Complete Agreement; Amendments.
Section 9.11. Headings.
Section 9.12. Severability.
Section 9.13. Right of Setoff.
Section 9.14. Right of RUS to Appoint Supervisor.
Section 9.15. Schedules and Exhibits.
Section 9.16. Prior Loan Documents.
Section 9.17. Term.
Schedule 1
Schedule 2--Existing Liens
Schedule 3--Additional Contracts
Exhibit A: Form of Promissory Note
Exhibit B: Equal Opportunity Contract Provisions
Exhibit C-1: Manager's Certificate Required Under Loan Contract Section
6.14 for Additional Notes
Exhibit C-2: Manager's Certificate Required Under Loan Contract Section
6.14 for Refinancing Notes
Loan Contract
AGREEMENT, dated ____________ , 199______ ,
between ______ (``Borrower''),
a corporation organized and existing under the laws of the State of
________ (the ``State'') and the UNITED STATES OF AMERICA acting by
and through the Administrator of the Rural Utilities Service
(``RUS'').
Recitals
The Borrower has applied to RUS for a loan for the purpose(s)
set forth in Schedule 1 hereto.
RUS is willing to make such a loan to the Borrower pursuant to
the Rural Electrification Act of 1936, as amended, on the terms and
conditions stated herein.
THEREFORE, for and in consideration of the premises and the
mutual covenants hereinafter contained, the parties hereto agree and
bind themselves as follows:
Article I--Definitions
Capitalized terms that are not defined herein shall have the
meanings as set forth in the Mortgage. The terms defined herein
include the plural as well as the singular and the singular as well
as the plural.
``Act'' shall mean the Rural Electrification Act of 1936 etc.
``Advance'' or ``Advances'' shall mean advances by RUS to
Borrower pursuant to the terms and conditions of this Agreement.
``Agreement'' shall mean this Loan Contract together with all
schedules and exhibits and also any subsequent supplements or
amendments.
``Business Day'' shall mean any day that RUS is open for
business.
[[Page 36917]]
``Contemporaneous Loan'' shall mean a loan made pursuant to a
loan agreement providing for a loan secured by a mortgage on which
RUS was also a mortgagee, the making of which was conditioned upon
the making of a loan, therein described, by another lender, and
shall also mean any loan which the Borrower has used to satisfy RUS
Regulations requiring that supplemental financing be obtained in
order to qualify for a loan from RUS. Any loan used to refinance or
refund a Contemporaneous Loan is also considered to be a
Contemporaneous Loan.
``Coverage Ratios'' shall mean, collectively, the following
financial ratios pertaining to the Electric System: (i) TIER of 1.5;
(ii) Operating TIER of 1.1; (iii) DSC of 1.25; and Operating DSC of
1.1.
``DSC'' shall have the meaning as defined in the Mortgage.
``Distributions'' shall mean for the Borrower to, in any
calendar year, declare or pay any dividends, or pay or determine to
pay any patronage refunds, or retire any patronage capital or make
any other cash distributions, to its members, stockholders or
consumers; provided, however, that for the purposes of this
Agreement a ``Cash Distribution'' shall be deemed to include any
general cancellation or abatement of charges for electric energy or
services furnished by the Borrower, but not the repayment of a
membership fee upon termination of a membership [and not the rebate
of an abatement of costs incurred by the Borrower, such as a
reduction of wholesale power cost previously incurred].
``Electric System'' shall have the meaning as defined in the
Mortgage.
``Equity'' shall mean the Borrower's total margins and equities
computed pursuant to RUS Accounting Requirements but excluding any
Regulatory Created Assets.
``Event of Default'' shall have the meaning as defined in
Section [7.1].
``Interest Expense'' shall mean the interest expense of the
Borrower computed pursuant to RUS Accounting requirements.
``Loan'' shall mean the loan described in Article II which is
being made pursuant to the RUS Commitment in furtherance of the
objectives of the Act.
``Loan Documents'' shall mean, collectively, this Agreement, the
Mortgage and the Note.
``Long-Term Debt'' shall mean the total of all amounts included
in the long-term debt of the Borrower pursuant to RUS Accounting
Requirements.
``Maturity Date'' shall have the meaning as defined in the Note.
``Monthly Payment Date'' shall have the meaning as defined in
the Note.
``Mortgage'' shall have the meaning as described in Schedule 1
hereto.
``Mortgaged Property'' shall have the meaning as defined in the
Mortgage.
``Net Utility Plant'' shall mean the amount constituting the
total utility plant of the Borrower, less depreciation, computed in
accordance with RUS Accounting Requirements.
``Note'' shall mean a promissory note executed by the Borrower
in the form of Exhibit A hereto, and any note executed and delivered
to RUS to refund, or in substitution for such a note.
``Operating DSC'' or ``ODSC'' shall mean Operating Debt Service
Coverage calculated as:
A+B+C
ODSC = -------------
D
where:
All amounts are for the same one-year period and are computed
pursuant to RUS Accounting Requirements;
A=Depreciation and amortization expense of the Electric System;
B=Interest Expense on all Long-term Debt of the Electric System,
except that Interest Expense shall be increased by 1/3 of the
amount, if any, by which the rentals of Restricted Property of the
Electric System exceed 2 percent of total margins and equities;
C=Patronage capital & operating margins of the Electric System,
which equals operating revenue and patronage capital of Electric
System operations, less total cost of electric service (including
Interest Expense on all Long-Term Debt of the Electric System); and
D=Debt service billed which equals all interest and principal
billed or billable to the Borrower during the year for all Long-Term
Debt of the Electric System, plus \1/3\ of the amount, if any, by
which the rentals of Restricted Property of the Electric System
exceed 2 percent of total margins and equities.
``Operating TIER'' or ``OTIER'' shall mean Operating Times
Interest Earned Ratio calculated as:
[GRAPHIC][TIFF OMITTED]TP18JY95.001
where:
All amounts are for the same one-year period and are computed
pursuant to RUS Accounting Requirements;
A=Interest Expense on all Long-term Debt of the Electric System,
except that Interest Expense shall be increased by \1/3\ of the
amount, if any, by which the rentals of Restricted Property of the
Electric System exceed 2 percent of total margins and equities; and
B=Patronage capital & operating margins of the Electric System,
which equals operating revenue and patronage capital of Electric
System operations, less total cost of electric service (including
Interest Expense on all Long-Term Debt of the Electric System).
``Payment Notice'' shall mean a notice furnished by RUS to
Borrower that indicates the precise amount of each payment of
principal and interest and the total amount of each payment.
``Permitted Debt'' shall have the meaning as defined in Section
[6.13].
``Regulatory Created Assets'' shall mean the sum of any amounts
properly recordable as unrecovered plant and regulatory study costs
or as other regulatory assets, computed pursuant to RUS Accounting
Requirements.
``RUS Accounting Requirements'' shall mean any system of
accounts prescribed by RUS Regulations as such RUS Accounting
Requirements exist at the date of applicability thereof.
``RUS Commitment'' shall have the meaning as defined in Schedule
1 hereto.
``RUS Regulations'' shall mean regulations published by RUS from
time to time in the Federal Register as they exist at the date of
applicability thereof, and shall also include any regulations of
other federal entities which RUS is required by law to implement.
``Subsidiary'' shall mean a corporation that is a subsidiary of
the Borrower and subject to the Borrower's control, as defined by
RUS Accounting Requirements.
``Termination Date'' shall have the meaning as defined in the
Note.
``TIER'' shall have the meaning as defined in the Mortgage.
``Total Assets'' shall mean an amount constituting the total
assets of the Borrower as computed pursuant to RUS Accounting
Requirements, but excluding any Regulatory Created Assets.
``Total Utility Plant'' shall mean the amount constituting the
total utility plant of the Borrower computed in accordance with RUS
Accounting Requirements.
``Utility System'' shall have the meaning as defined in the
Mortgage.
Article II--Representations and Warranties
Section 2.1. Representations and Warranties. To induce RUS to
make the Loan, and recognizing that RUS is relying hereof, the
Borrower represents and warrants as follows:
(a) Organization; Power, Etc. The Borrower: (i) is duly
organized, validly existing, and in good standing under the laws of
its state of incorporation; (ii) is duly qualified to do business
and is in good standing in each jurisdiction in which the
transaction of its business makes such qualification necessary;
(iii) has all requisite corporate and legal power to own and operate
its assets and to carry on its business and to enter into and
perform the Loan Documents; (iv) has duly and lawfully obtained and
maintained all licenses, certificates, permits, authorizations,
approvals, and the like which are material to the conduct of its
business or which may be otherwise required by law; and (v) is
eligible to borrow from RUS.
(b) Authority. The execution, delivery and performance by the
Borrower of this Agreement and the other Loan Documents and the
performance of the transactions contemplated thereby have been duly
authorized by all necessary corporate action and will not violate
any provision of law or of the Articles of Incorporation or By-Laws
of the Borrower or result in a breach of, or constitute a default
under, any agreement, indenture or other instrument to which the
Borrower is a party or by which it may be bound.
(c) Consents. No consent, permission, authorization, order, or
license of any governmental authority is necessary in connection
with the execution, delivery, performance, or enforcement of the
Loan Documents, except (i) such as have been obtained and are in
full force and effect and (ii) such as have been disclosed on
Schedule 1 hereto.
(d) Binding Agreement. Each of the Loan Documents is, or when
executed and delivered will be, the legal, valid, and binding
obligation of the Borrower,
[[Page 36918]]
enforceable in accordance with its terms, subject only to limitations
on enforceability imposed by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting creditors'
rights generally.
(e) Compliance With Laws. The Borrower is in compliance in all
material respects with all federal, state, and local laws, rules,
regulations, ordinances, codes, and orders (collectively, ``Laws''),
the failure to comply with which could have a material adverse
effect on the condition, financial or otherwise, operations,
properties, or business of the Borrower, or on the ability of the
Borrower to perform its obligations under the Loan Documents, except
as the Borrower has disclosed on Schedule 1 attached hereto.
(f) Litigation. There are no pending legal, arbitration, or
governmental actions or proceedings to which the Borrower is a party
or to which any of its property is subject which, if adversely
determined, could have a material adverse effect on the condition,
financial or otherwise, operations, properties, or business of the
Borrower, or on the ability of the Borrower to perform its
obligations under the Loan Documents, and to the best of the
Borrower's knowledge, no such actions or proceedings are threatened
or contemplated, except as the Borrower has disclosed on Schedule 1
attached hereto.
(g) Title to Property. The Borrower holds good and marketable
title to all of its real property and owns all of its personal
property free and clear of any lien or encumbrance except the liens
and encumbrances specifically identified on Schedule 2 attached
hereto (the ``Existing Liens''), and liens or other interests
permitted under the Mortgage.
(h) Financial Statements; No Material Adverse Change; Etc. All
financial statements submitted to RUS in connection with the
application for the Loan or in connections with this Agreement
fairly and fully present the financial condition of the Borrower and
the results of the Borrower's operations for the periods covered
thereby and are prepared in accordance with RUS Accounting
Requirements consistently applied. Since the dates thereof, there
has been no material adverse change in the financial condition or
operations of the Borrower. All budgets, projections, feasibility
studies, and other documentation submitted by the Borrower to RUS
are based upon assumptions that are reasonable and realistic, and as
of the date hereof, no fact has come to light, and no event or
transaction has occurred, which would cause any assumption made
therein not to be reasonable or realistic.
(i) Principal Place of Business; Records. The principal place of
business and chief executive office of the Borrower is at the
address of the Borrower shown on Schedule 1 attached hereto.
(j) Location of Properties. All property owned by the Borrower
is located in the counties identified in Schedule 1 hereto.
(k) Subsidiaries. The Borrower has no subsidiary, except as the
Borrower has disclosed on Schedule 1 attached hereto.
(l) Defaults Under Other Agreements. The Borrower is not in
default under any agreement or instrument to which it is a party or
under which any of its properties are subject that is material to
its financial condition, operations, properties, profits, or
business.
(m) Survival. All representations and warranties made by the
Borrower herein or made in any certificate delivered pursuant hereto
shall survive the making of the Advances and the execution and
delivery to RUS of the Note.
Article III--Loan
Section 3.1. Advances. RUS agrees to make, and the Borrower
agrees to request, on the terms and conditions of this Agreement,
Advances from time to time in an aggregate principal amount not to
exceed the RUS Commitment. On the Termination Date, RUS may stop
advancing funds and limit the RUS Commitment to the amount advanced
prior to such date. The obligation of the Borrower to repay the
Advances shall be evidenced by the Note in the principal amount of
the unpaid principal amount of the Advances from time to time
outstanding. The Borrower shall give RUS written notice of the date
on which each Advance is to be made.
Section 3.2. Interest Rate and Payment. The Note shall be
payable and bear interest as follows:
(a) Payments and Amortization. Principal will be amortized in
accordance with the method stated in Schedule 1 hereto and more
fully described in the form of Note attached hereto as Exhibit A.
(b) Application of Payments. Each payment shall be applied first
to any charges then due on the Note, second to interest accrued on
the principal amount to the due date of such payment on the Note,
and the balance to the reduction of principal against the Note in
inverse order of maturity.
(c) Electronic Funds Transfer. Except as otherwise prescribed by
RUS, the Borrower shall make all payments on the Note utilizing
electronic funds transfer procedures as specified by RUS.
(d) Fixed or Variable Rate. The Note will bear interest at
either a fixed or variable rate in accordance with the method stated
in Schedule 1 hereto and as more particularly described in the form
of Note attached hereto as Exhibit A.
Section 3.3. Prepayment. The Borrower has no right to prepay the
Note in whole or in part except such rights, if any, as are
expressly provided for in the Note. However, prepayment of the Note
(and any penalties) shall be mandatory under Section [5.3] hereof if
the Borrower has used a Contemporaneous Loan in order to qualify for
the RUS Commitment, and later prepays the Contemporaneous Loan.
Article IV--Conditions of Lending
Section 4.1. General Conditions. The obligation of RUS to make
any Advance hereunder is subject to satisfaction of each of the
following conditions precedent on or before the date of such
Advance:
(a) Legal Matters. All legal matters incident to the
consummation of the transactions hereby contemplated shall be
satisfactory to counsel for RUS.
(b) Loan Documents. That RUS receive duly executed originals of
this Agreement and the other Loan Documents.
(c) Authorization. That RUS receive evidence satisfactory to it
that all corporate documents and proceedings of the Borrower
necessary for duly authorizing the execution, delivery and
performance of the Loan Documents have been obtained and are in full
force and effect.
(d) Approvals. That RUS receive evidence satisfactory to it that
all consents and approvals (including without limitation the
consents referred to in Section [2.1(c)] of this Agreement) which
are necessary for, or required as a condition of, the validity and
enforceability of each of the Loan Documents have been obtained and
are in full force and effect.
(e) Event of Default. That no Event of Default specified in
Article VII and no event which, with the lapse of time or the notice
and lapse of time specified in Article VII would become such an
Event of Default, shall have occurred and be continuing or will have
occurred after giving effect to the Advance on the books of the
Borrower.
(f) Continuing Representations and Warranties. That the
representations and warranties of the Borrower contained in this
Agreement be true and correct on and as of the date of such Advance
as though made on and as of such date.
(g) Opinion of Counsel. That RUS receive an opinion of counsel
for the Borrower (who shall be acceptable to RUS) in form and
content acceptable to RUS.
(h) Mortgage Filing. The Mortgage shall have been duly recorded
as a mortgage on real property, including after-acquired real
property, and duly filed, recorded or indexed as a security interest
in personal property, including after acquired personal property,
wherever RUS shall have requested, all in accordance with applicable
law, and the Borrower shall have caused satisfactory evidence
thereof to be furnished to RUS.
(i) Wholesale Power Contract. That the Borrower shall not be in
default under the terms of, or contesting the validity of, any
contract that has been pledged by any entity to RUS as security for
the repayment of any loan made or guaranteed by RUS under the Act.
(j) Material Adverse Change. That there has occurred no material
adverse change in the business or condition, financial or otherwise,
of the Borrower and nothing has occurred which in the opinion of RUS
materially and adversely affects the Borrower's ability to meet its
obligations hereunder.
(k) Requisitions. That the Borrower will requisition all
Advances by submitting its requisition to RUS in form and substance
satisfactory to RUS. Requisitions shall be made only for the
purpose(s) set forth herein. The Borrower agrees to apply the
proceeds of the Advances in accordance with its loan application
with such modifications as may be mutually agreed.
(l) Flood Insurance. That for any Advance used in whole or in
part to finance the construction or acquisition of any building in
any area identified by the Secretary of Housing and Urban
Development pursuant to the Flood Disaster Protection Act of 1973
(the ``Flood Insurance Act'') or any rules, regulations or orders
issued to implement the Flood Insurance Act (``Rules'') as any area
[[Page 36919]]
having special flood hazards, or to finance any facilities or materials
to be located in any such building, or in any building owned or
occupied by the Borrower and located in such a flood hazard area,
the Borrower has submitted evidence, in form and substance
satisfactory to RUS, or RUS has otherwise determined, that (i) the
community in which such area is located is then participating in the
national flood insurance program, as required by the Flood Insurance
Act and any Rules, and (ii) the Borrower has obtained flood
insurance coverage with respect to such building and contents as may
then be required pursuant to the Flood Insurance Act and any Rules.
(m) RUS Regulations. That the Advance will be in accordance with
all applicable RUS Regulations.
Section 4.2. Special Conditions. The obligation of RUS to make
any Advance hereunder is also subject to satisfaction, on or before
the date of such Advance, of each of the special conditions, if any,
listed in Schedule 1 hereto.
Article V--Affirmative Covenants
Section 5.1. Generally. Unless otherwise agreed to in writing by
RUS, while this Agreement is in effect, whether or not any Advance
is outstanding, the Borrower agrees to duly observe each of the
affirmative covenants contained in this Article:
Section 5.2. Annual Certificates.
(a) Performance under Loan Documents. The Borrower will duly
observe and perform all of its obligations under each of the Loan
Documents.
(b) Annual Certification. Within ninety (90) days after the
close of each calendar year, commencing with the year following the
year in which the initial Advance hereunder shall have been made,
the Borrower shall deliver to RUS a written statement signed by its
General Manager, stating that during such year the Borrower has
fulfilled all of its obligations under the Loan Documents throughout
such year or, if there has been a default in the fulfillment of any
such obligations, specifying each such default known to said person
and the nature and status thereof.
Section 5.3. Simultaneous Prepayment of Contemporaneous Loans.
If the Borrower shall at any time prepay the Contemporaneous Loan
described on Schedule 1, it shall prepay the RUS Note
correspondingly to maintain the ratio that the Contemporaneous Loan
bears to the RUS Commitment. If the RUS Note calls for a prepayment
penalty or premium, such amount shall be paid but shall not be used
in computing the amount needed to be paid to RUS under this section
to maintain such ratio. In the case of Contemporaneous Loans and RUS
Notes existing prior to the date of this Agreement under previous
agreements, prepayments shall be treated as if governed by this
section. Provided, however, in all cases prepayments associated with
refinancing or refunding a Contemporaneous Loan pursuant to Article
II of the Mortgage are not considered to be prepayments for purposes
of this Agreement provided that the principal amount of such
refinancing or refunding loan is not less than the amount of loan
principal being refinanced, and the weighted average life of the
refinancing or refunding loan is materially equal to the weighted
average remaining life of the loan being refinanced.
Section 5.4 Rates to Provide Revenue Sufficient to Meet Coverage
Ratios Requirements.
(a) Prospective Requirement. The Borrower shall design and
implement rates for utility service furnished by it to provide
sufficient revenue (along with other revenue available to the
Borrower in the case of TIER and DSC) (i) to pay all fixed and
variable expenses when and as due, (ii) to provide and maintain
reasonable working capital, and (iii) to maintain, on an annual
basis, the Coverage Ratios. In designing and implementing rates
under this paragraph, such rates should be capable of producing at
least enough revenue to meet the requirements of this paragraph
under the assumption that average weather conditions in the
Borrower's service territory will prevail in the future, including
average Utility System damage and outages due to weather and the
related costs.
(b) Retrospective Requirement. The average Coverage Ratios
achieved by the Borrower in the 2 best years out of the 3 most
recent calendar years must be not less than any of the following:
TIER=1.5
DSC=1.25
OTIER=1.1
ODSC=1.1
(c) Prospective Notice of Change in Rates. The Borrower shall
give thirty (30) days prior written notice of any proposed change in
its general rate structure to RUS if RUS has requested in writing
that it be notified in advance of such changes.
(d) Routine Reporting of Coverage Ratios. Promptly following the
end of each calendar year, the Borrower shall report, in writing, to
RUS the TIER, Operating TIER, DSC and Operating DSC levels which
were achieved during that calendar year.
(e) Reporting Non-achievement of Retrospective Requirement. If
the Borrower fails to achieve the average levels required by
paragraph (b) of this section, it must promptly notify RUS in
writing to that effect.
(f) Corrective Plans. Within 30 days of sending a notice to RUS
under paragraph (e) of this section, or of being notified by RUS,
whichever is earlier, the Borrower in consultation with RUS, shall
provide a written plan satisfactory to RUS setting forth the actions
that will be taken to achieve the required Coverage Ratios on a
timely basis.
(g) Noncompliance. Failure to design and implement rates
pursuant to paragraph (a) of this section and failure to develop and
implement the plan called for in paragraph (f) of this section shall
constitute an Event of Default under this Agreement in the event
that REA so notifies the Borrower to that effect under section
[7.1(c)] of this Agreement.
Section 5.5. Depreciation Rates. The Borrower shall adopt as its
depreciation rates only those which have been previously approved
for the Borrower by RUS.
Section 5.6. Property Maintenance. The Borrower shall maintain
and preserve its Utility System in compliance with the provisions of
the Mortgage, RUS Regulations and all applicable laws.
Section 5.7. Financial Books. The Borrower shall at all times
keep, and safely preserve, proper books, records and accounts in
which full and true entries will be made of all of the dealings,
business and affairs of the Borrower and its Subsidiaries, in
accordance with any applicable RUS Accounting Requirements.
Section 5.8. Rights of Inspection. The Borrower shall afford
RUS, through its representatives, reasonable opportunity, at all
times during business hours and upon prior notice, to have access to
and the right to inspect the Utility System, any other property
encumbered by the Mortgage, and any or all books, records, accounts,
invoices, contracts, leases, payrolls, canceled checks, statements
and other documents and papers of every kind belonging to or in the
possession of the Borrower or in anyway pertaining to its property
or business, including its Subsidiaries, if any, and to make copies
or extracts therefrom.
Section 5.9. Area Coverage. The Borrower shall make diligent
effort to extend electric service to all unserved persons within the
service area of the Borrower who (i) desire such service and (ii)
meet all reasonable requirements established by the Borrower as a
condition of such service. To the extent required by RUS, the
Borrower shall provide electric service without a contribution in
aid of construction.
Section 5.10. Real Property Acquisition. In acquiring real
property, the Borrower shall comply with the provisions of the
Uniform Relocation Assistance and Real Property Acquisition Policies
Act of 1970 (the ``Uniform Act''), as amended by the Uniform
Relocation Act Amendments of 1987, and 49 CFR part 24, referenced by
7 CFR part 21, to the extent the Uniform Act is applicable to such
acquisition.
Section 5.11. ``Buy American'' Requirements. The Borrower shall
use or cause to be used in connection with the expenditures of funds
advanced on account of the Loan only such unmanufactured articles,
materials, and supplies as have been mined or produced in the United
States, Mexico, or Canada, and only such manufactured articles,
materials, and supplies as have been manufactured in the United
States, Mexico, or Canada substantially all from articles,
materials, and supplies mined, produced or manufactured, as the case
may be, in the United States, Mexico, or Canada, except to the
extent RUS shall determine that such use shall be impracticable or
that the cost thereof shall be unreasonable.
Section 5.12. Power Requirements Studies. The Borrower shall
prepare and use power requirements studies of its electric loads and
future energy and capacity requirements in conformance with RUS
Regulations.
Section 5.13. Long Range Engineering Plans and Construction Work
Plans. The Borrower shall develop, maintain and use up-to-date long-
range engineering plans and construction work plans in conformance
with RUS Regulations.
Section 5.14. Design Standards, Plans and Specifications,
Construction Standards, and List of Materials. The Borrower shall
use design standards, plans and specifications,
[[Page 36920]]
construction standards, and lists of acceptable materials in
conformance with RUS Regulations.
Section 5.15. Construction. The Borrower shall acquire and
construct the Electric System in conformance with RUS Regulations.
Section 5.16. Standard Forms of Construction Contracts, and
Engineering and Architectural Services Contracts. The Borrower shall
use the standard forms of contracts promulgated by RUS for
construction, procurement, engineering services and architectural
services in conformance with RUS Regulations.
Section 5.17. Contract Bidding Requirements. The Borrower shall
follow RUS contract bidding procedures in conformance with RUS
Regulations when contracting for construction or procurement.
Section 5.18. Nondiscrimination.
(a) Equal Opportunity Provisions in Construction Contracts. The
Borrower shall incorporate or cause to be incorporated into any
construction contract, as defined in Executive Order 11246 of
September 24, 1965 and implementing regulations, which is paid for
in whole or in part with funds obtained from RUS or borrowed on the
credit of the United States pursuant to a grant, contract, loan,
insurance or guarantee, or undertaken pursuant to any RUS program
involving such grant, contract, loan, insurance or guarantee, the
equal opportunity provisions set forth in Exhibit B hereto entitled
Equal Opportunity Contract Provisions.
(b) Equal Opportunity Contract Provisions Also Bind the
Borrower. The Borrower further agrees that it will be bound by such
equal opportunity clause in any federally assisted construction work
which it performs itself other than through the permanent work force
directly employed by an agency of government.
(c) Sanctions and Penalties. The Borrower agrees that it will
cooperate actively with RUS and the Secretary of Labor in obtaining
the compliance of contractors and subcontractors with the equal
opportunity clause and the rules, regulations and relevant orders of
the Secretary of Labor, that it will furnish RUS and the Secretary
of Labor such information as they may require for the supervision of
such compliance, and that it will otherwise assist the administering
agency in the discharge of RUS's primary responsibility for securing
compliance. The Borrower further agrees that it will refrain from
entering into any contract or contract modification subject to
Executive Order 11246 with a contractor debarred from, or who has
not demonstrated eligibility for, Government contracts and federally
assisted construction contracts pursuant to Part II, Subpart D of
Executive Order 11246 and will carry out such sanctions and
penalties for violation of the equal opportunity clause as may be
imposed upon contractors and subcontractors by RUS or the Secretary
of Labor pursuant to Part II, Subpart D of Executive Order 11246. In
addition, the Borrower agrees that if it fails or refuses to comply
with these undertakings RUS may cancel, terminate or suspend in
whole or in part this contract, may refrain from extending any
further assistance under any of its programs subject to Executive
Order 11246 until satisfactory assurance of future compliance has
been received from such Borrower, or may refer the case to the
Department of Justice for appropriate legal proceedings.
Section 5.19. Financial Reports. The Borrower will cause to be
prepared and furnished to RUS from time to time pursuant to RUS
Regulations, a full and complete annual report of its financial
condition and of its operations in form and substance satisfactory
to RUS, audited and certified by Independent certified public
accountants satisfactory to RUS and accompanied by a report of such
audit in form and substance satisfactory to RUS. The Borrower shall
also furnish to RUS from time to time such other reports concerning
the financial condition or operations of the Borrower, including its
Subsidiaries, as RUS may reasonably request or RUS Regulations
require.
Section 5.20. Miscellaneous Reports and Notices. The Borrower
will furnish to RUS:
(a) Notice of Default. Promptly after becoming aware thereof,
notice of: (i) the occurrence of any default; and (ii) the receipt
of any notice given pursuant to the Mortgage with respect to the
occurrence of any event which with the giving of notice or the
passage of time, or both, could become an ``Event of Default'' under
the Mortgage.
(b) Notice of Non-Environmental Litigation. Promptly after the
commencement thereof, notice of the commencement of all actions,
suits or proceedings before any court, arbitrator, or governmental
department, commission, board, bureau, agency, or instrumentality
affecting the Borrower which, if adversely determined, could have a
material adverse effect on the condition, financial or otherwise,
operations, properties or business of the Borrower, or on the
ability of the Borrower to perform its obligations under the Loan
Documents.
(c) Notice of Environmental Litigation. Without limiting the
provisions of section [5.20(b)] above, promptly after receipt
thereof, notice of the receipt of all pleadings, orders, complaints,
indictments, or other communications alleging a condition that may
require the Borrower to undertake or to contribute to a cleanup or
other response under laws relating to environmental protection, or
which seek penalties, damages, injunctive relief, or criminal
sanctions related to alleged violations of such laws, or which claim
personal injury or property damage to any person as a result of
environmental factors or conditions, or which, if adversely
determined, could have a material adverse effect on the condition,
financial or otherwise, operations, properties or business of the
Borrower, or on the ability of the Borrower to perform its
obligations under the Loan Documents.
(d) Notice of Change of Place of Business. Promptly in writing,
notice of any change in location of its principal place of business
or the office where its records concerning accounts and contract
rights are kept.
(e) Regulatory and Other Notices. Promptly after receipt
thereof, copies of any notices or other communications received from
any governmental authority with respect to any matter or proceeding,
the effect of which could have a material adverse effect on the
condition, financial or otherwise, operations, properties, or
business of the Borrower, or on the ability of the Borrower to
perform its obligations under the Loan Documents.
(f) Material Adverse Change. Promptly, notice of any matter
which has resulted or may result in a material adverse change in the
condition, financial or otherwise, operations, properties, or
business of the Borrower, or the ability of the Borrower to perform
its obligations under the Loan Documents.
(g) Other Information. Such other information regarding the
condition, financial or otherwise, or operations of the Borrower as
RUS may, from time to time, reasonably request.
Section 5.21. Special Construction Account. The Borrower shall
hold all moneys advanced to it by RUS hereunder in trust for RUS and
shall deposit such moneys promptly after the receipt thereof in a
bank or banks which meet the requirements of Section [6.16] of this
Agreement. Any account (hereinafter called ``Special Construction
Account'') in which any such moneys shall be deposited shall be
designated by the corporate name of the Borrower followed by the
words ``Trustee, Special Construction Account.'' Moneys in any
Special Construction Account shall be used solely for the
construction and operation of the Utility System and, subject to
Section [9.14] of this Agreement, may be withdrawn only upon checks,
drafts, or orders signed on behalf of the Borrower and countersigned
by an executive officer thereof.
Section 5.22. Additional Affirmative Covenants. The Borrower
also agrees to comply with any additional affirmative covenant(s)
identified in Schedule 1 hereto.
Article VI--Negative Covenants
Section 6.1. General. Unless otherwise agreed to in writing by
RUS, while this Agreement is in effect, whether or not any Advance
is outstanding hereunder, the Borrower will duly observe each of the
negative covenants set forth in this Article.
Section 6.2. Limitations on System Extensions and Additions. The
Borrower will not extend or add to its Electric System either by
construction or acquisition without the prior written approval of
RUS.
Section 6.3. Limitations on Expenses for Legal, Engineering and
Supervisory Services. If RUS shall require, the Borrower will not
incur any expenses for legal, engineering or supervisory services
without the prior written approval of RUS.
Section 6.4. Limitations on Employment and Retention of Manager.
At any time any Event of Default, or any occurrence which with the
passage of time or giving of notice would be an Event of Default,
occurs and is continuing the Borrower will not employ any general
manager of the Electric System or any person exercising comparable
authority to such a manager unless such employment shall first have
been approved by RUS. If any Event of Default, or any occurrence
which with the passage of time or giving of notice would be an Event
of Default, occurs and is continuing and RUS requests the Borrower
to terminate the employment of any such manager or person exercising
comparable
[[Page 36921]]
authority, or RUS requests the Borrower to terminate any contract for
operating the Electric System, the Borrower will do so within thirty
(30) days after the date of such notice. All contracts in respect of
the employment of any such manager or person exercising comparable
authority, or for the operation of the Electric System, shall
contain provisions to permit compliance with the foregoing
covenants.
Section 6.5. Limitations on Certain Types of Contracts. Without
the prior approval of RUS in writing, the Borrower shall not enter
into any of the following contracts:
(a) Construction Contracts. Any contract for construction or
procurement or for architectural and engineering services in
connection with its Electric System;
(b) Large retail power contracts. Any contract to sell electric
power and energy for periods exceeding two (2) years if the kWh
sales or kW demand for any year covered by such contract will exceed
25 percent of the Borrower's total kWh sales or maximum kW demand
for the year immediately preceding the execution of such contract;
(c) Wholesale power contracts. Any contract to sell electric
power or energy for resale and any contract to purchase electric
power or energy that has a term exceeding two (2) years;
(d) Power supply arrangements. Any interconnection agreement,
interchange agreement, wheeling agreement, pooling agreement or
similar power supply arrangement that has a term exceeding two (2)
years;
(e) System management and maintenance contracts. Any contract
for the management and operation of all or substantially all of its
Electric System; or
(f) Other contracts. Any contracts of the type described on
Schedule 3.
Section 6.6. Limitations on Mergers and Sale, Lease or Transfer
of Capital Assets. The Borrower shall not consolidate with, or
merge, or sell all or substantially all of its business or assets,
to another entity or person except to the extent it is permitted to
do so under the Mortgage.
Section 6.7. Limitations on Acquisition, Construction or
Procurement of Generating Facilities, Existing Facilities or Utility
Systems. The Borrower shall not acquire, construct or procure any
generating facilities, existing facilities or utility systems, or
portions thereof, without the prior written approval of RUS.
Section 6.8. Limitation on Distributions. Without the prior
written approval of RUS, the Borrower shall not in any calendar year
make any Distributions (exclusive of any Distributions to the
estates of deceased natural patrons) to its members, stockholders or
consumers except as follows:
(a) Equity above 30%. If, after giving effect to any such
Distribution, the Equity of the Borrower will be greater than or
equal to 30% of its Total Assets; or
(b) Equity above 20%. If, after giving effect to any such
Distribution, the aggregate of all Distributions made during the
calendar year when added to such Distribution will be less than or
equal to 25% of the prior year's margins.
Provided however, that in no event shall the Borrower make any
Distributions if there is unpaid when due any installment of
principal of (premium, if any) or interest on its Notes, if the
Borrower is otherwise in default hereunder or if, after giving
effect to any such Distribution, the Borrower's current and accrued
assets would be less than its current and accrued liabilities.
Section 6.9. Limitations on Loans, Investments and Other
Obligations. The Borrower shall not make any loan or advance to, or
make any investment in, or purchase or make any commitment to
purchase any stock, bonds, notes or other securities of, or
guaranty, assume or otherwise become obligated or liable with
respect to the obligations of, any other person, firm or
corporation, except as permitted by the Act and RUS Regulations.
Section 6.10. Depreciation Rates. The Borrower shall not file
with or submit for approval of regulatory bodies any proposed
depreciation rates which are inconsistent with RUS Regulations.
Section 6.11. Historic Preservation. The Borrower shall not,
without approval in writing by RUS, use any Advance to construct any
facilities which will involve any district, site, building,
structure or object which is included in, or eligible for inclusion
in, the National Register of Historic Places maintained by the
Secretary of the Interior pursuant to the Historic Sites Act of 1935
and the National Historic Preservation Act of 1966.
Section 6.12. Rate Reductions. The Borrower shall not decrease
its rates if it has failed to achieve all of the Coverage Ratios for
the calendar year prior to such reduction.
Section 6.13. Limitations on Additional Indebtedness. Except as
expressly permitted by Article II of the Mortgage and subject to the
further limitations expressed in the next section, the Borrower
shall not incur, assume, guarantee or otherwise become liable in
respect of any debt for borrowed money and Restricted Rentals
(including Subordinated Indebtedness) other than the following:
(``Permitted Debt'')
(a) Additional Notes issued in compliance with Article II of the
Mortgage;
(b) Purchase money indebtedness in non-Utility System property,
in an amount not exceeding 10% of Net Utility Plant;
(c) Restricted Rentals in an amount not to exceed 5% of Equity
during any 12 consecutive calendar month period;
(d) Unsecured lease obligations incurred in the ordinary course
of business except Restricted Rentals;
(e) Unsecured indebtedness for borrowed money, except when the
aggregate amount of such indebtedness exceeds 15% of Net Utility
Plant and after giving effect to such unsecured indebtedness the
Borrower's Equity is less than 30% of its Total Assets;
(f) Debt represented by dividends declared but not paid; and
(g) Subordinated Indebtedness approved by RUS.
PROVIDED, However, that the Borrower may incur Permitted Debt
without the consent of RUS only so long as there exists no Event of
Default hereunder and there has been no continuing occurrence which
with the passage of time and giving of notice could become an Event
of Default hereunder.
PROVIDED FURTHER, by executing this Agreement any consent of RUS
that the Borrower would otherwise be required to obtain under this
Section is hereby deemed to be given or waived by RUS by operation
of law to the extent, but only to the extent, that to impose such a
requirement of RUS consent would clearly violate federal laws or RUS
Regulations.
Section 6.14. Limitations on Issuing Additional Indebtedness
Secured Under the Mortgage. (a) The Borrower shall not issue any
Additional Notes under the Mortgage without the prior written
consent of RUS unless the following additional requirements are met
in addition to the requirements set forth in the Mortgage for
issuing Additional Notes without the prior consent of any Mortgagee:
(1) the maturity of the loan evidenced by such Notes does not
exceed the weighted average of the expected remaining useful lives
of the assets being financed;
(2) the principal of the loan evidenced by such Notes is
amortized at a rate that will yield a weighted average life that is
not greater than the weighted average life that would result from
level payments of principal and interest;
(3) the principal of the loan being evidenced by such Notes has
a maturity of not less than 5 years; or, in the case of Additional
Notes issued to refund or refinance Notes; and
(4) the weighted average life of any such Additional Notes is
not greater than the weighted remaining life of the Notes being
refinanced.
(b) Any request for consent from RUS under this section, shall
be accompanied by a certificate of the Borrower's manager
substantially in the form attached to this Agreement as Exhibit C-1
in the case of Notes being issued under Section [2.01] of the
Mortgage and C-2 in the case of Notes being issued under Section
[2.02] of the Mortgage.
Section 6.15. Impairment of Contracts Pledged to RUS. The
Borrower shall not breach any obligation to be paid or performed by
the Borrower on any contract, or take any action which is likely to
materially impair the value of any contract, which has been pledged
as security to RUS by the Borrower or any other entity.
Section 6.16. Limitations on Using non-FDIC Insured
Depositories. The Borrower shall not place any Mortgaged Property in
the custody of any banking institution or other depository, other
than a Mortgagee, unless deposits at such institution are insured by
the Federal Deposit Insurance Corporation, or other Federal agency
acceptable to RUS. Without the prior written approval of RUS, the
Borrower shall not place the proceeds of the Loan or any loan which
has been made or guaranteed by RUS in the custody of any bank or
other depository that is not insured by the Federal Deposit
Insurance Corporation or other federal agency acceptable to RUS.
Section 6.17. Additional Negative Covenants. The Borrower also
agrees to comply with any additional negative covenant(s) identified
in Schedule 1 hereto.
[[Page 36922]]
Article VII--Default
Section 7.1. Events of Default. The following shall be Events of
Default under this Agreement:
(a) Representations and Warranties. Any representation or
warranty made by the Borrower in Article II hereof or any
certificate furnished to RUS hereunder shall prove to have been
incorrect in any material respect at the time made and shall at the
time in question be untrue or incorrect in any material respect and
remain uncured;
(b) Payment. Default shall be made in the payment of or on
account of interest on or principal of the Note when and as the same
shall be due and payable, whether by acceleration or otherwise,
which shall remain unsatisfied for five (5) Business Days;
(c) Other Covenants. Default by the Borrower in the observance
or performance of any other covenant or agreement contained in any
of the Loan Documents, which shall remain unremedied for 30 calendar
days after written notice thereof shall have been given to the
Borrower by RUS;
(d) Corporate Existence. The Borrower shall forfeit or otherwise
be deprived of its corporate charter, franchises, permits,
easements, consents or licenses required to carry on any material
portion of its business;
(e) Other Obligations. Default by the Borrower in the payment of
any obligation, whether direct or contingent, for borrowed money or
in the performance or observance of the terms of any instrument
pursuant to which such obligation was created or securing such
obligation;
(f) Bankruptcy. A court having jurisdiction in the premises
shall enter a decree or order for relief in respect of the Borrower
in an involuntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official, or ordering the winding up or liquidation of its
affairs, and such decree or order shall remain unstayed and in
effect for a period of ninety (90) consecutive days or the Borrower
shall commence a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or under
any such law, or consent to the appointment or taking possession by
a receiver, liquidator, assignee, custodian or trustee, of a
substantial part of its property, or make any general assignment for
the benefit of creditors; and
(g) Dissolution or Liquidation. Other than as provided in the
immediately preceding subsection, the dissolution or liquidation of
the Borrower, or failure by the Borrower promptly to forestall or
remove any execution, garnishment or attachment of such consequence
as will impair its ability to continue its business or fulfill its
obligations and such execution, garnishment or attachment shall not
be vacated within 30 days. The term ``dissolution or liquidation of
the Borrower'', as used in this subsection, shall not be construed
to include the cessation of the corporate existence of the Borrower
resulting either from a merger or consolidation of the Borrower into
or with another corporation following a transfer of all or
substantially all its assets as an entirety, under the conditions
permitting such actions.
Article VIII--Remedies
Section 8.1. Generally. If any of the Events of Default listed
in Article VII hereof shall occur after the date of this Agreement
and shall not have been remedied, then RUS may pursue all rights and
remedies available to RUS that are contemplated by this Agreement or
the Mortgage in the manner, upon the conditions, and with the effect
provided in this Agreement or the Mortgage, including, but not
limited to, a suit for specific performance, injunctive relief or
damages. Nothing herein shall limit the right of RUS to pursue all
rights and remedies available to a creditor following the occurrence
of an Event of Default listed in Article VII hereof. Each right,
power and remedy of RUS shall be cumulative and concurrent, and
recourse to one or more rights or remedies shall not constitute a
waiver of any other right, power or remedy.
Section 8.2. Suspension of Advances. In addition to the rights,
powers and remedies referred to in the immediately preceding
section, RUS may, in its absolute discretion, suspend making
Advances hereunder if (i) any Event of Default, or any occurrence
which with the passage of time or giving of notice would be an Event
of Default, occurs and is continuing; (ii) there has occurred a
change in the business or condition, financial or otherwise, of the
Borrower which in the opinion of RUS materially and adversely
affects the Borrower's ability to meet its obligations under the
Loan Documents, or (iii) RUS is authorized to do so under RUS
Regulations.
Article IX--Miscellaneous
Section 9.1. Notices. All notices, requests and other
communications provided for herein including, without limitation,
any modifications of, or waivers, requests or consents under, this
Agreement shall be given or made in writing (including, without
limitation, by telecopy) and delivered to the intended recipient at
the ``Address for Notices'' specified below; or, as to any party, at
such other address as shall be designated by such party in a notice
to each other party. Except as otherwise provided in this Agreement,
all such communications shall be deemed to have been duly given when
transmitted by telecopier or personally delivered or, in the case of
a mailed notice, upon receipt, in each case given or addressed as
provided for herein. The Address for Notices of the respective
parties are as follows:
Rural Utilities Service, United States Department of Agriculture,
Washington, DC 20250-1500, Fax: (202) xxxxxxxx
Attention: [Administrator]
The Borrower: The address set forth in Schedule 1 hereto
Section 9.2. Expenses. To the extent allowed by law, the
Borrower will pay all costs and expenses of RUS, including
reasonable fees of counsel, incurred in connection with the
enforcement of the Loan Documents or with the preparation for such
enforcement if RUS has reasonable grounds to believe that such
enforcement may be necessary.
Section 9.3. Late Payments. If payment of any amount due
hereunder is not received at the United States Treasury in
Washington, DC, or such other location as RUS may designate to the
Borrower within five (5) Business Days after the due date thereof or
such other time period as RUS may prescribe from time to time in its
policies of general application in connection with any late payment
charge (such unpaid amount being herein called the ``delinquent
amount'', and the period beginning after such due date until payment
of the delinquent amount being herein called the ``late-payment
period''), the Borrower will pay to RUS, in addition to all other
amounts due under the terms of the Note, the Mortgage and this
Agreement, any late-payment charge as may be fixed by RUS
Regulations from time to time on the delinquent amount for the late-
payment period.
Section 9.4. Filing Fees. To the extent permitted by law, the
Borrower agrees to pay all expenses of RUS (including the fees and
expenses of its counsel) in connection with the filing or
recordation of all financing statements and instruments as may be
required by RUS in connection with this Agreement, including,
without limitation, all documentary stamps, recordation and transfer
taxes and other costs and taxes incident to recordation of any
document or instrument in connection herewith. Borrower agrees to
save harmless and indemnify RUS from and against any liability
resulting from the failure to pay any required documentary stamps,
recordation and transfer taxes, recording costs, or any other
expenses incurred by RUS in connection with this Agreement. The
provisions of this subsection shall survive the execution and
delivery of this Agreement and the payment of all other amounts due
hereunder or due on the Note.
Section 9.5. No Waiver. No failure on the part of RUS to
exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof nor shall any single or partial exercise
by RUS of any right hereunder preclude any other or further exercise
thereof or the exercise of any other right.
Section 9.6. GOVERNING LAW. EXCEPT TO THE EXTENT GOVERNED BY
APPLICABLE FEDERAL LAW, THE LOAN DOCUMENTS SHALL BE DEEMED TO BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE
[IN WHICH THE BORROWER IS INCORPORATED].
Section 9.7. Holiday Payments. If any payment to be made by the
Borrower hereunder shall become due on a day which is not a Business
Day, such payment shall be made on the next succeeding Business Day
and such extension of time shall be included in computing any
interest in respect of such payment.
Section 9.8. Rescission. The Borrower may elect not to borrow
all or any portion of the RUS Commitment in which event RUS shall
release the Borrower from its obligations hereunder, provided the
Borrower complies with such terms and conditions as RUS may impose
for such release.
Section 9.9. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the Borrower and RUS and
their respective successors and assigns,
[[Page 36923]]
except that the Borrower may not assign or transfer its rights or
obligations hereunder without the prior written consent of RUS.
Section 9.10. Complete Agreement; Amendments. Subject to RUS
Regulations, this Agreement and the other Loan Documents are
intended by the parties to be a complete and final expression of
their agreement. No amendment, modification, or waiver of any
provision hereof or thereof, and no consent to any departure of the
Borrower herefrom or therefrom, shall be effective unless approved
by RUS and contained in either a RUS Regulation or other writing
signed by or on behalf of RUS, and then such waiver or consent shall
be effective only in the specific instance and for the specific
purpose for which given.
Section 9.11. Headings. The headings and sub-headings contained
in the titling of this Agreement are intended to be used for
convenience only and do not constitute part of this Agreement.
Section 9.12. Severability. If any term, provision or condition,
or any part thereof, of this Agreement or the Mortgage shall for any
reason be found or held invalid or unenforceable by any governmental
agency or court of competent jurisdiction, such invalidity or
unenforceability shall not affect the remainder of such term,
provision or condition nor any other term, provision or condition,
and this Agreement, the Note, and the Mortgage shall survive and be
construed as if such invalid or unenforceable term, provision or
condition had not been contained therein.
Section 9.13. Right of Setoff. Upon the occurrence and during
the continuance of any Event of Default, RUS is hereby authorized at
any time and from time to time, without prior notice to the
Borrower, to exercise rights of setoff or recoupment and apply any
and all amounts held or hereafter held, by RUS or owed to the
Borrower or for the credit or account of the Borrower against any
and all of the obligations of the Borrower now or hereafter existing
hereunder or under the Note. RUS agrees to notify the Borrower
promptly after any such setoff or recoupment and the application
thereof, provided that the failure to give such notice shall not
affect the validity of such setoff, recoupment or application. The
rights of RUS under this section are in addition to any other rights
and remedies (including other rights of setoff or recoupment) which
RUS may have. Borrower waives all rights of setoff, deduction,
recoupment or counterclaim.
Section 9.14. Right of RUS to Appoint Supervisor. If the
construction of any portion of the Electric System shall not proceed
in accordance with the terms of the Loan Documents, RUS may appoint
a supervisor (hereinafter called the ``Supervisor'') for the
Electric System. Upon the appointment of a Supervisor, the
employment of all superintendents and managers of the Electric
System and of all associate and assistant superintendents and
managers thereof shall be forthwith terminated. The Borrower shall
comply with all reasonable instructions of the Supervisor incident
to the carrying out of the obligations of the Borrower hereunder.
Section 9.15. Schedules and Exhibits. Each Schedule and Exhibit
attached hereto and referred to herein is each an integral part of
this Agreement.
Section 9.16. Prior Loan Contracts. It is understood and agreed
that with respect to all loan agreements previously entered into by
and between RUS and the Borrower (hereinafter being referred to as
``Prior Loan Contracts'') the Borrower shall be required, after the
date hereof, to meet affirmative and negative covenants as set forth
in this Agreement rather than those set forth in the Prior Loan
Contracts. In addition, any remaining obligation of RUS to make
additional advances on promissory notes of the Borrower that have
been previously delivered to RUS under Prior Loan Contracts shall,
after the date hereof, be subject to the conditions set for in this
Agreement. In the event of any conflict between any provision set
forth in a Prior Loan Contract and any provision in this Agreement,
the requirements as set forth in this Agreement shall apply. In the
event of any conflict between the provisions set forth in this
Agreement and any RUS Regulations now or hereafter in effect from
time to time, the RUS Regulations apply. Nothing in this section
shall, however, eliminate or modify any special condition, special
affirmative covenant or special negative covenant, if any, unless
specifically agreed to in writing by RUS.
Section 9.17. Term. This Agreement shall remain in effect until
one of the following two events has occurred:
(a) the Borrower and RUS replace this Agreement with another
written agreement or
(b) all of the Borrower's obligations under the prior loan
contracts and this Agreement have been discharged and paid.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above
written.
----------------------------------------------------------------------
(Name of Borrower)
(SEAL)
By---------------------------------------------------------------------
President
Attest:----------------------------------------------------------------
Secretary
RURAL UTILITIES SERVICE
By---------------------------------------------------------------------
Administrator
Schedule 1
[citations subject to change]
1. The purpose of this loan is ________.
2. The Mortgage shall mean the Restated Mortgage and Security
Agreement, dated as of ________, between the Borrower and RUS, as it
may have been or shall be supplemented, amended, consolidated, or
restated from time to time.
3. The governmental authority referred to in Section [2.1(c)] is
________.
4. The exception being taken to the representations in Section
[2.1(e)] concerning material compliance with laws is as follows:
________.
5. The litigation referred to in Section [2.1(f)] is described
as follows: ________.
6. The date of the Borrower's financial information referred to
in Section [2.1(h)] is ________.
7. The principal place of business of the Borrower referred to
in Section [2.1(i)] is ________.
8. All of the property of the Borrower is located in the
counties of ________.
9. The subsidiary (or subsidiaries) referred to in Section
[2.1(k)] is (are): ________.
10. The Contemporaneous Loan referred to in Section [5.3] is
described as follows: ________.
Lender:----------------------------------------------------------------
Amount:----------------------------------------------------------------
Year of Final Maturity:------------------------------------------------
11. The RUS Commitment referred to in the definitions means a
loan in the principal amount of $______ which is being made by RUS
to the Borrower at the ____ Hardship Rate ____ Municipal Rate (CHECK
ONE) pursuant to the Rural Electrification Act and RUS Regulations.
12. Amortization of Advance shall be based upon the method
indicated below:
______ level principal
______ level debt service
______ other
13. The SPECIAL condition(s) referred
to in Section [4.2] is (are): ______.
14. The additional AFFIRMATIVE
covenant(s) referred to in
Section [5.22] is (are) as
follows: ____________.
15. The additional NEGATIVE
covenant(s) referred to in Section
[6.17] is (are) as follows: ______.
16. The address of the Borrower
referred to in Section [9.1].
is ________________.
Schedule 2--Existing Liens
The Existing Liens referred to in Section [2.1(g)] are as
follows:
[INSERT DESCRIPTION OF EXISTING LIENS, IF ANY, HERE]
Schedule 3--Additional Contracts
The additional contracts referred to in Section [6.5(e)] are
described as follows:
[INSERT LIST OF ANY ADDITIONAL CONTRACTS HERE]
Exhibit A--Form of Promissory Note
[INSERT EITHER MUNICIPAL or HARDSHIP RATE PROMISSORY NOTE FORM HERE]
Exhibit B--Equal Opportunity Contract Provisions
During the performance of this contract, the contractor agrees
as follows:
(a) The contractor will not discriminate against any employee or
applicant for employment because of race, color, religion, sex or
national origin. The contractor will take affirmative action to
ensure that applicants are employed, and that employees are treated
during employment without regard to their race, color, religion, sex
or national origin. Such action shall include, but not be limited to
the following: employment, upgrading, demotion or transfer,
recruitment or recruitment advertising; layoff or termination; rates
of pay or other forms of compensation; and selection for training,
including apprenticeship. The contractor agrees to post in
conspicuous places, available to employees and applicants for
employment, notices to be provided setting forth the provisions of
this nondiscrimination clause.
[[Page 36924]]
(b) The contractor will, in all solicitations or advertisements
for employees placed by or on behalf of the contractor, state that
all qualified applicants will receive consideration for employment
without regard to race, color, religion, sex or national origin.
(c) The contractor will send to each labor union or
representative of workers with which he has a collective bargaining
agreement or other contract or understanding, a notice to be
provided advising the said labor union or workers' representative of
the contractor's commitments under this section, and shall post
copies of the notice in conspicuous places available to employees
and applicants for employment.
(d) The contractor will comply with all provisions of Executive
Order 11246 of September 24, 1965, and of the rules, regulations and
relevant orders of the Secretary of Labor.
(e) The contractor will furnish all information and reports
required by Executive Order 11246 of September 24, 1965, and by the
rules, regulations and orders of the Secretary of Labor, or pursuant
thereto, and will permit access to his books, records and accounts
by the administering agency and the Secretary of Labor for purposes
of investigation to ascertain compliances with such rules,
regulations and orders.
(f) In the event of the contractor's noncompliance with the non-
discrimination clauses of this contract or with any of the said
rules, regulations or orders, this contract may be cancelled,
terminated or suspended in whole or in part and the contractor may
be declared ineligible for further Government contracts or federally
assisted construction contracts in accordance with procedures
authorized in Executive Order 11246 of September 24, 1965, and such
other sanctions may be imposed and remedies invoked as provided in
said Executive Order or by rule, regulation or order of the
Secretary of Labor, or as otherwise provided by law.
(g) The contractor will include the provisions of paragraphs (a)
through (g) in every subcontract or purchase order unless exempted
by rules, regulations or orders of the Secretary of Labor issued
pursuant to section 204 of Executive Order 11246, dated September
24, 1965, so that such provisions will be binding upon each
subcontractor or vendor. The contractor will take such action with
respect to any subcontract or purchase order as the administering
agency may direct as a means of enforcing such provisions, including
sanctions for noncompliance: Provided, however, that in the event a
contractor becomes involved in, or is threatened with, litigation
with a subcontractor or vendor as a result of such direction by the
agency, the contractor may request the United States to enter into
such litigation to protect the interests of the United States.
Exhibit C-1--Manager's Certificate Required Under Loan Contract Section
6.14 for Additional Notes
On behalf of [Name of Borrower] I hereby certify that the
Additional Note or Notes to be issued under Section [2.01] of the
Mortgage on or about [Date Note or Notes are to be Signed] meet all
of the requirements of Section [6.14] of the Loan Contract, namely:
(a) The maturity of the loan evidenced by such Notes (____
years) does not exceed the weighted average of the expected
remaining useful lives of the assets being financed (____ years) as
evidenced by the attached calculation of said weighted average.
(b) The principal of the loan evidenced by such Notes will
either be [check one and provide evidence in the second case]:
____ (1) repaid based on level payments of principal and
interest throughout the life of the loan, or
____ (2) amortized at a rate that will yield a weighted average
life that is not greater than the weighted average life that would
result from level payments of principal and interest throughout the
life of the loan as evidenced by the attached analysis of said
weighted average lives.
____ (3) The principal of the loan evidenced by such Notes has a
maturity of not less than 5 years.
[Signed]---------------------------------------------------------------
[Dated]----------------------------------------------------------------
[Name]-----------------------------------------------------------------
[Title]----------------------------------------------------------------
[Name and Address of Borrower]-----------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
Exhibit C-2--Manager`s Certificate Required Under Loan Contract Section
6.14 for Refinancing Notes
On behalf of [Name of Borrower] I hereby certify that the
Additional Note or Notes to be issued under Section [2.02] of the
Mortgage on or about [Date Note or Notes are to be Signed] meet the
requirement of Section [6.14] of the Loan Contract that the weighted
average life of such Notes is not greater than the weighted
remaining life of the Notes being refinanced, as evidenced by the
attached calculation of said weighted average lives.
[Signed]---------------------------------------------------------------
[Dated]----------------------------------------------------------------
[Name]-----------------------------------------------------------------
[Title]----------------------------------------------------------------
[Name and Address of Borrower]-----------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
Dated: June 29, 1995.
Michael V. Dunn,
Acting Under Secretary, Rural Economic and Community Development.
[FR Doc. 95-16527 Filed 7-17-95; 8:45 am]
BILLING CODE 3410-15-P
