WAIS Document Retrieval

[Code of Federal Regulations]
[Title 7 Volume 11]
[Revised as of January 1, 2007]
From the U.S. Government Printing Office via GPO Access
[CITE: 7CFR1786]

[Page 1147-1177]

TITLE 7--AGRICULTURE

CHAPTER XVII--RURAL UTILITIES SERVICE, DEPARTMENT OF AGRICULTURE

PART 1786_PREPAYMENT OF RUS GUARANTEED AND INSURED LOANS TO ELECTRIC AND

TELEPHONE BORROWERS--Table of Contents

Subpart A--General [Reserved]

1786.1-1786.24 [Reserved]

Subpart B_Prepayment of RUS Guaranteed Federal Financing Bank Loans
Pursuant to Section 306(A) of the RE Act

Sec.
1786.25 Purpose.
1786.26 Policy.
1786.27 Definitions and rules of construction.
1786.28 Qualifications.
1786.29 Prepayment authority, program allocations, categories of
prepayment applications and financially distressed borrowers'
reserve.
1786.30 Processing procedure.
1786.31 Application procedure.
1786.32 Settlement procedure.
1786.33 Forms.
1786.34 Access to records of lenders, servicers, and trustees.

[[Page 1148]]

1786.35 Loss, theft, destruction, mutilation, or defacement of RUS
guarantee.
1786.36 Other prepayments.
1786.37 Application of regulation to previous prepayments.
1786.38 Judicial review.
1786.39-1786.49 [Reserved]

Subpart C_Special Discounted Prepayments on RUS Direct/Insured Loans

1786.50 Purpose.
1786.51 Definitions.
1786.52 Prepayment.
1786.53 Discounted present value.
1786.54 Eligibility criteria.
1786.55 Application procedure.
1786.56 Approval of applications.
1786.57 Prepayment agreement.
1786.58 Security.
1786.59 Loan fund audit.
1786.60 Closing.
1786.61 Other prepayments.
1786.62-1786.74 [Reserved]

Subpart D [Reserved]

Subpart E_Discounted Prepayments on RUS Notes in the Event of a Merger
of Certain RUS Electric Borrowers

1786.95 Purpose.
1786.96 Definitions.
1786.97 Prepayment.
1786.98 Discounted present value.
1786.99 Eligibility criteria.
1786.100 Application procedure.
1786.101 Approval of application.
1786.102 Prepayment agreement.
1786.103 Security.
1786.104 Loan fund audit.
1786.105 Closing.
1786.106 Other prepayments.

Appendix A to Subpart E--Listing of Eligible Borrowers
Appendix B to Subpart E--Federal Reserve Statistical Release

Subpart F_Discounted Prepayments on RUS Electric Loans

1786.150 Purpose.
1786.151 Definitions and rules of construction.
1786.152 Prepayments of RUS loans.
1786.153 Discounted present value.
1786.154 Qualified Notes.
1786.155 Eligible borrower.
1786.156 Application procedure.
1786.157 Approval of applications.
1786.158 Terms and conditions of prepayment agreement.
1786.159 Initial closing.
1786.160 Subsequent closings.
1786.161 Return of Qualified Notes and release of lien.
1786.162 Outstanding loan documents.
1786.163 Existing wholesale power contracts.
1786.164 Loan fund audit.
1786.165 Reporting.
1786.166 Approvals.
1786.167 Restrictions to additional RUS financing.
1786.168 Borrowers who prepaid under this part prior to October 21,
1992.
1786.169 Liability.
1786.170 Prepayment of loans approved after December 20, 1993.
[Reserved]
1786.171-1786.199 [Reserved]

Subpart G_Refinancing and Prepayment of RUS Guaranteed FFB Loans
Pursuant to Section 306(C) of the RE Act

1786.200 Purpose.
1786.201 Definitions and rules of construction.
1786.202 Prepayment and refinancing of RUS guaranteed FFB loans.
1786.203 Special considerations.
1786.204 Limitations.
1786.205 Application procedure.
1786.206 Refinancing note.
1786.207 Prepayment premium.
1786.208 Increased principal.
1786.209 Outstanding loan documents.
1786.210 Approvals.

Authority: 7 U.S.C. 901-950b; Title I, subtitle B, Pub. L. 99-509;
Pub. L. 101-624, 104 Stat. 4051; Pub. L. 103-354, 108 Stat. 3178, (7
U.S.C. 6941 et seq.), unless otherwise noted.

Source: 55 FR 1145, Jan. 11, 1990, unless otherwise noted.

Subpart A--General [Reserved]

Sec. Sec. 1786.1-1786.24 [Reserved]

Subpart B_Prepayment of RUS Guaranteed Federal Financing Bank Loans
Pursuant to Section 306(A) of the RE Act

Authority: 7 U.S.C. 901-950b; Title I, Subtitle B, Pub. L. 99-509;
Title I, Pub. L. 100-202; Pub. L. 100-203; Title VI, Pub. L. 100-460;
Pub. L. 103-354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.).

Source: 55 FR 1145, Jan. 11, 1990, unless otherwise noted.
Redesignated at 55 FR 49250, Nov. 27, 1990.

Sec. 1786.25 Purpose.

This subpart contains the general regulations of the Rural Utilities
Service (RUS) for implementing the provisions of (a) section 306(A) of
the Rural Electrification Act of 1936, as amended (RE Act); (b) section
633 of the Rural

[[Page 1149]]

Development, Agriculture, and Related Agencies Appropriations Act, 1988
(Pub. L. 100-202) (the continuing resolution); and (c) section 637 of
the Rural Development, Agriculture, and Related Agencies Appropriations
Act, 1989 (Pub. L. 100-460) (the 1989 Appropriations Act) which permit,
in certain circumstances, loans made by the Federal Financing Bank (FFB)
and guaranteed by the Administrator of RUS to be prepaid by RUS electric
and telephone borrowers by paying the outstanding principal balance due
on the FFB loan, using a private loan with the existing RUS guarantees
or using internally generated funds.

Sec. 1786.26 Policy.

It is the policy of RUS to facilitate the prepayment of FFB loans in
accordance with the provisions of section 306(A) of the RE Act and
section 633 of the continuing resolution as modified by section 637 of
the 1989 Appropriations Act. Furthermore, consistent with the RE Act,
the continuing resolution and the 1989 Appropriations Act, it is the
policy of RUS to implement the objectives of the prepayment program in a
manner which does not result in an increase in loan guarantee risk or an
inappropriate increase in the administrative burden on RUS.

Sec. 1786.27 Definitions and rules of construction.

(a) Definitions. For the purposes of this subpart, the following
terms shall have the following meanings:
Administrator means the Administrator of RUS.
Application Category shall have the meaning set forth in Sec.
1786.29(c).
Application period means a period during which RUS is accepting
applications to make prepayments pursuant to this subpart, and initially
means:
(1) In the case of telephone borrowers, the period commencing on
February 12, 1990 and ending on March 12, 1990;
(2) In the case of financially distressed borrowers, the period
commencing October 1, 1990 and ending on July 30, 1993; or
(3) In the case of other borrowers, the period to be announced by
RUS.
Borrower means any organization which has an outstanding FFB loan
guaranteed by RUS under the RE Act.
Business Day means any day other than a Saturday, a Sunday, a legal
public holiday under 5 U.S.C. section 6103 for the purposes of statutes
relating to pay and leave of employees, or any other day declared to be
legal holiday for the purposes of statutes relating to pay and leave of
employees by Federal statute or Federal Executive Order.
Continuing Resolution means section 633 of the Rural Development,
Agriculture, and Related Agencies Appropriations Act, 1988 (Pub. L. 100-
202).
Date Received means the date inscribed on the Notice of Intent to
Prepay the Federal Financing Bank, by an authorized official of RUS, as
the date the application was received.
Documentation means all or part of the agreements relating to a
prepayment under this part, irrespective of whether RUS is a party to
each agreement, including all exhibits to such agreements.
Electric Program Applications shall have the meaning specified in
Sec. 1786.29(c)(1).
Existing Loan Guarantee means a guarantee of payment issued by RUS
to FFB pursuant to the RE Act for an FFB loan made on or before July 2,
1986.
Fees means any fees, costs or charges, incurred in connection with
obtaining the private loan used to make the prepayment including without
limitation, accounting fees, filing fees, legal fees (including fees and
disbursements charged by counsel representing the borrower), printing
costs, recording fees, trustee fees, underwriting fees, capital stock
purchases or other equity investment requirements of the lender, and
other related transaction expenses.
Financially Distressed Borrower means an RUS-financed electric
system determined by the Administrator to be either (1) in default or
near default on interest or principal payments due on loans made or
guaranteed under the RE Act, and is making a good faith effort to
increase rates and reduce costs to avoid or mitigate default; or (2)
participating in a work out or debt restructuring plan with RUS, either
as

[[Page 1150]]

the borrower being restructured or as a borrower providing assistance as
part of the work out or restructuring.
Financially Viable Lender means:
(1) A lender (i) which has a capital and surplus of at least $50
million; (ii) is a beneficiary of an irrevocable letter of credit, in
form and substance satisfactory to the Administrator, payable to it in
the amount of $50 million; (iii) is the beneficiary of a guarantee, in
form and substance satisfactory to the Administrator, in the amount of
$50 million from a lending institution with a capital and surplus of at
least $50 million; or (iv) has other credit support, in form and
substance satisfactory to the Administrator, in the amount of $50
million; or
(2) In the event of a prepayment totalling less than $100 million, a
lender (i) which has a capital and surplus of at least $10 million; (ii)
is a beneficiary of an irrevocable letter of credit, in form and
substance satisfactory to the Administrator, payable to it in the amount
of $10 million; (iii) is the beneficiary of a guarantee, in form and
substance satisfactory to the Administrator, in the amount of $10
million from a lending institution with a capital and surplus of at
least $10 million; or (iv) has other credit support, in form and
substance satisfactory to the Administrator, in the amount of $10
million;
FFB means the Federal Financing Bank, an instrumentality and wholly
owned corporation of the United States.
FFB Loan means one or more advances, or a part of one or more
advances, made on or before July 2, 1986, by FFB on a promissory note or
notes executed by a borrower and guaranteed by RUS pursuant to section
306 of the RE Act (7 U.S.C. 936).
Guarantee means the original endorsement, in the form specified by
RUS which is executed by the Administrator and shall be an obligation
supported by the full faith and credit of the United States and
incontestable except for fraud or misrepresentation of which the holder
had actual knowledge at the time it became a holder.
Increase in Loan Guarantee Risk means the change in any of the
components of loan guarantee risk associated with the private loan which
in the judgment of RUS increases the magnitude or duration of the loan
guarantee risk currently assumed by RUS in connection with the existing
loan guarantee;
Internally Generated Funds means money belonging to the borrower
other than: (1) Proceeds of loans made or guaranteed under the RE Act or
(2) funds on deposit in the cash construction trustee account;
Lender means the organization making and servicing the private loan
which is to be guaranteed under the provisions of this subpart and used
to prepay the FFB loan. The term lender does not include the FFB, or any
other Government agency.
Loan Guarantee Agreement means the written contract by and among the
lender, the borrower, the Administrator, and such other parties that RUS
may require, setting forth the terms and conditions of a guarantee
issued pursuant to the provisions of this subpart.
Loan Guarantee Risk means the risk as determined by RUS associated
with guaranteeing a loan for a particular borrower. Components of loan
guarantee risk include the following:
(1) The outstanding principal balance of a loan;
(2) The dollar weighted average interest rate (stated as an annual
percentage rate) on a loan;
(3) The final maturity date of a loan;
(4) The annual principal amortization of the loan; and
(5) Any other factor that as determined by RUS increases the
magnitude or duration of the guarantee.
Mortgage means the mortgage and security agreements by and among the
borrower and RUS, as from time to time supplemented, amended and
restated.
1989 Appropriations Act means the Rural Development, Agriculture,
and Related Agencies Appropriations Act, 1989 (Pub. L. 100-460).
Notice of Intent to Prepay the Federal Financing Bank means the
notice in the form specified in Sec. 1786.33 hereof.
Prepayment Authority shall have the meaning specified in Sec.
1786.29(a).
Private Loan means a loan or loans to be guaranteed under the
provisions of

[[Page 1151]]

this part and used to prepay an FFB loan.
Pro-rated Percentage shall have the meaning specified in Sec.
1786.30(b)(1).
RE Act means the Rural Electrification Act of 1936 (7 U.S.C. 901-
950b), as amended.
REA means the Rural Electrification Administration formerly an
agency of the United States Department of Agriculture and predecessor
agency to RUS with respect to administering certain electric and
telephone loan programs.
RUS means the Rural Utilities Service, an agency of the United
States Department of Agriculture established pursuant to Section 232 of
the Federal Crop Insurance Reform and Department of Agriculture
Reorganization Act of 1994 (Pub. L. 103-354, 108 Stat. 3178), successor
to REA with respect to administering certain electric and telephone
programs. See 7 CFR 1700.1.
Service or Servicing means the following activities:
(1) The billing and collecting of the private loan payments from the
borrower;
(2) Notifying the Administrator promptly of any default in the
payment of principal and interest on the private loan and submitting a
report, as soon as possible thereafter, setting forth the servicer's
views as to the reasons for the default, how long the servicer expects
the borrower to be in default, and what corrective actions the borrower
states it is taking to achieve a current debt service position;
(3) Notifying the Administrator of any known violations or defaults
by the borrower under the lending agreement, loan guarantee agreement,
the mortgage, or related security instruments, or conditions of which
the servicer or the lender is aware which might lead to nonpayment,
violation or other default; and
(4) Such other activities as may be specified in the loan guarantee
agreement.
Settlement Date means the date the borrower disburses funds to the
FFB in order to complete a prepayment pursuant to this subpart, and
shall be a date agreed to by RUS, and a date on which both the FFB and
the Federal Reserve Bank of New York are open for business.
Standard Electric Program Application shall have the meaning
specified in Sec. 1786.29(c)(1).
Telephone Borrower means a borrower that provides telephone service
as defined in 7 CFR 1735.2(a).
Telephone Program Applications shall have the meaning specified in
Sec. 1786.29(c)(2).
(b) Rules of Construction. Unless the context shall otherwise
indicate, the terms defined in Sec. 1786.27(a) hereof include the
plural as well as the singular, and the singular as well as the plural.
The words ``herein,'' ``hereof'' and ``hereunder'', and words of similar
import, refer to this subpart as a whole.

[55 FR 1145, Jan. 11, 1990, as amended at 55 FR 35426, Aug. 30, 1990.
Redesignated at 55 FR 49250, Nov. 27, 1990, and amended at 59 FR 66440,
Dec. 27, 1994]

Sec. 1786.28 Qualifications.

(a) Borrowers.To qualify to prepay an FFB loan pursuant to this
subpart, the borrower must:
(1) Demonstrate that the FFB loan was outstanding on July 2, 1986;
(2) Prepay the FFB loan by:
(i) Using a private loan with the existing loan guarantee;
(ii) Using internally generated funds; or
(iii) Using a combination of a private loan with the existing loan
guarantee and internally generated funds; and
(3) Certify that any savings resulting from such prepayment will be
passed on to its customers, or used to improve the financial strength of
the borrower in cases of financial hardship.
(b) Lenders. To participate pursuant to this subpart, in a
borrower's prepayment of an FFB loan by means of a private loan, the
lender must:
(1) Be a private legally organized lender, or a lender established
pursuant to the Farm Credit Act of 1971, as amended;
(2)(i) Be subject to credit examination and supervision by either an
agency of the United States or a state and be in good standing with its
licensing authority and have met the requirements, if any, of licensing,
lending and loan servicing in the state where the collateral for the
Loan is located;
(ii) Be a financially viable lender; or

[[Page 1152]]

(iii) Be a trust administered. by an entity meeting the requirements
of paragraph (b)(2) (i) or (ii) of this section; and
(3) Have the capability to adequately service the private loan
either by using its own resources or by contracting for such resources
with a financially viable lender. Under no circumstances may the
borrower or an affiliate of the borrower service the private loan. A
qualified lender may participate out each private loan to entities other
than a Government agency, the borrower, or an affiliate of the borrower,
provided that such participation shall be on terms and conditions
satisfactory to the Administrator.
(c) Private Loans. A borrower who qualifies pursuant to Sec.
1786.28(a) may at its option elect to use a private loan to make a
prepayment, or a portion of a prepayment, pursuant to this subpart.
Private loans, the proceeds of which are used exclusively to prepay FFB
loans, shall be eligible for a guarantee under this subpart. The
Administrator shall endorse a guarantee on each note evidencing a
qualifying private loan. The private loan shall be structured in a
manner which in the judgment of RUS shall not result in an increase in
loan guarantee risk and shall comply with the following:
(1) The private loan shall provide for the periodic payment of
interest by the borrower not less frequently than annually, at either a
variable or fixed rate in a manner which shall not result in an increase
in loan guarantee risk. (i.e. The dollar weighted average interest rate
on the private loan shall be less than or equal to the dollar weighted
average interest rate on the FFB loan being prepaid, so that:
[GRAPHIC] [TIFF OMITTED] TC16SE91.024

Where,

C<INF>r</INF>=The revised interest rate cap;
C<INF>o</INF>=The original interest rate cap at the time of prepayment;
A<INF>i</INF>=The average interest rate actually charged in the ith
period;
T<INF>i</INF>=Length of the ith period expressed in years;
n=The number of years that have elapsed since the initial prepayment;
J=The initial term of the private loan, at the time of prepayment;
Subject to the constraint that A<INF>1</INF> must be less or equal to
C<INF>o</INF>).

(2) Principal payments on the private loan shall be made either
quarterly, semiannually, or annually and shall commence on or before the
last day of the calendar year during which the prepayment pursuant to
this subpart was made.
(3) With the approval of the Administrator, the lender may refund
the private loan with the proceeds of another loan from the same lender,
with the existing guarantee and under terms, conditions, and a structure
substantially similar to the private loan, on such dates as the lender,
the borrower and RUS may agree, provided however, that such a refunding
loan shall comply with the provisions of Sec. 1786.28(c) hereof.
Additionally, with the approval of the Administrator, the private loan
may be prepaid either in whole or in part at any time by the borrower
using its general funds.
(4) The private loan and the guaranteed note evidencing the private
loan shall not be directly or indirectly part of a transaction the
income of which is excluded from gross income for the purposes of
Chapter I of the Internal Revenue Code of 1986.
(5) The guaranteed note evidencing the private loan shall not be
transferable or assignable except
(i) With the written approval of the Administrator;
(ii) In the event that the guaranteed note evidencing the private
loan is held

[[Page 1153]]

by a trust, to a similar trust, in connection with a refunding loan made
by the lender pursuant to Sec. 1786.28(c)(3); or
(iii) As an undivided pro rata interest in a pool of obligations.
(6) The loan documentation shall provide RUS with the right to
accelerate the note evidencing the private loan upon the occurrence of
any ``Event of Default'' under the mortgage with the effect that all of
the unpaid principal and interest on any such note shall become
immediately due and payable to RUS, and RUS shall continue to pay under
its guarantee the principal of and interest on such note without taking
into account such acceleration. The loan documentation shall also
provide RUS with a right, upon the occurrence of such an ``Event of
Default,'' to accelerate payment on its guarantee and accelerate payment
on the note evidencing the private loan on the earlier of any date the
interest rate on the private loan is reset, without premium or penalty;
any date the borrower may prepay in accordance with the terms of the
private loan, or the tenth anniversary of the date the private loan
first bears interest at a fixed interest rate.
(7) The principal of the private loan shall not include amounts
attributable to fees associated with the private loan. At the time it
submits its application, a borrower may request that the Administrator
approve the inclusion of amounts attributable to fees as part of the
interest rate on the private loan, if the net effective interest rate
including such fees meets the test contained in Sec. 1786.28(c)(1). For
the purposes of these regulations, such financed fees shall be
considered ``interest''.
(8) Private loans and guaranteed notes evidencing private loans
shall otherwise be in form and substance satisfactory to the
Administrator.
(d) Prepayments Without a Guarantee. Qualifying borrowers may elect
to utilize internally generated funds without a guarantee to prepay an
FFB loan, or partially prepay an FFB loan, pursuant to this subpart, if
(1) The borrower notifies RUS, of its intent to prepay using
internally generated funds in accordance with the application procedures
set forth in this subpart; and
(2) The borrower submits a certification to RUS that the prepayment
does not, materially adversely affect the financial stability of the
borrower and its ability to meet all its obligations, including debt
service on all loans made, guaranteed or lien accommodated under the RE
Act which will remain outstanding after the date of the prepayment.
(e) The Use of both a Private Loan and Internally Generated Funds.
Qualifying borrowers may elect to utilize a combination of private loans
and internally generated funds without a guarantee, to prepay an FFB
loan pursuant to this subpart, if
(1) The private loans comply with the provisions of paragraph (c) of
this section, and
(2) The borrower complies with paragraph (d) of this section.
(f) FFB loans. A borrower's FFB loans that qualify to be prepaid
pursuant to this subpart are:
(1) Qualifying Borrowers. In the case of qualifying borrowers other
than financially distressed borrowers, FFB advances with long-term
maturity dates may be prepaid pursuant to this subpart; and
(2) Financially distressed borrowers. FFB loans that are eligible to
be prepaid by utilizing the financially distressed borrowers' reserve
are advances with long-term maturity dates, and which in the opinion of
the Administrator, if prepaid, would result in an economic savings to
the financially distressed borrower.

[55 FR 1145, Jan. 11, 1990, as amended at 55 FR 35426, Aug. 30, 1990.
Redesignated at 55 FR 49250, Nov. 27, 1990]

Sec. 1786.29 Prepayment authority, program allocations, categories of prepayment applications and financially distressed borrowers' reserve.

(a) Prepayment Authority. So long as the aggregate amount of
prepayments made after December 22, 1987, including prepayments made
pursuant to Sec. 1786.28(d) and Sec. 1786.28(e), under section 306(A)
of the RE Act, does not exceed $2.5 billion, the approval of the
Secretary of the Treasury is not required in order to make a prepayment
pursuant to this subpart (such amount

[[Page 1154]]

of prepayments is hereinafter called prepayment authority).
(b) Program Allocations. In accordance with the provisions of
section 637 of the 1989 Appropriations Act, $350 million of prepayment
authority is allocated to RUS-financed electric systems and $150 million
of prepayment authority is allocated to RUS-financed telephone
utilities. The amounts of prepayment authority allocated to electric
program borrowers and telephone program borrowers shall not be
transferred between programs. Borrowers may not sell, assign, or
otherwise transfer prepayment authority to another borrower.
(c) Categories of Prepayment Applications. Applications received by
RUS from borrowers desiring to prepay pursuant to this subpart will be
separated into the following two application categories:
(1) Electric Program Applications. Electric program applications are
applications to make a prepayment pursuant to this subpart from RUS-
financed electric utilities, that qualify in accordance with Sec.
1786.28(a) hereof and which are received by RUS during the application
period. Electric program applications will be further subdivided and
classified as being either (i) a financially distressed borrower's
application, or (ii) a standard electric program application.
Applications received from borrowers determined by the Administrator not
to be a financially distressed borrower will be classified and processed
as a standard electric program application;
(2) Telephone Program Applications. Telephone program applications
are applications to make a prepayment pursuant to this subpart from RUS-
financed telephone utilities that qualify in accordance with Sec.
1786.28(a) hereof and which are received by RUS during the application
period;
(d) Financially distressed borrowers' reserve.The $350 million of
prepayment authority allocated for RUS-financed electric utilities, is
initially set aside into a financially distressed borrowers' reserve.
This reserve of prepayment authority will be available for prepayments
pursuant to this subpart by financially distressed borrowers who apply
to make such a prepayment during the application period. In the event
that a portion of financially distressed borrowers' reserve remains
unsubscribed at the end of the initial application period, the
unallocated portion of the financially distressed borrowers' reserve
will be allocated to other electric borrowers having submitted
applications during an application period to be announced by RUS. Such
prepayment applications shall be classified as standard electric program
applications.

[55 FR 1145, Jan. 11, 1990, as amended at 55 FR 35427, Aug. 30, 1990.
Redesignated at 55 FR 49250, Nov. 27, 1990]

Sec. 1786.30 Processing procedure.

(a) Priority of Processing. The determination of the order or method
in which applications or portions of applications will be processed by
RUS pursuant to this subpart rests solely within the discretion of the
Administrator. RUS expects that a number of prepayment applications will
be processed simultaneously. In the event that it becomes necessary to
establish priorities of processing, prepayment applications will be
processed without regard to the date received, generally in the
following order of priority:
(1) Applications from telephone borrowers;
(2) Applications from financially distressed borrowers;
(3) Applications from all other borrowers. When assigning priority
to such applications, RUS will consider a number of factors, including
without limitation, (i) the number of prepayment applications being
processed by the area office; (ii) the novelty or complexity of the
proposed transaction; (iii) the method of prepayment; and (iv) the
availability of resources. In the event that RUS receives during the
initial application period, prepayment applications from such borrowers
in an amount less than remaining prepayment authority for each
respective program, RUS will establish a new application period and
publish a notice to that effect in the Federal Register.
(b) Pro-rated Applications. Standard electric program applications,
and telephone program applications will be

[[Page 1155]]

prorated within their respective application categories to permit
partial prepayments in the event that the aggregate amount of prepayment
applications received during the application period exceeds the amount
of prepayment authority allocated to that application category. In such
circumstances, the amount of each borrower's permitted prepayment shall
be determined within each respective application category, as follows:
(1) The principal amount of FFB advances under each individual
application, which, if prepaid pursuant to this subpart, would result in
an economic savings to the borrower, shall be divided by the aggregate
principal amount of FFB advances, under all of the applications, which,
if prepaid pursuant to this subpart, would result in an economic savings
to the borrowers, in order to determine a percentage (hereinafter called
a pro-rated percentage) for each borrower;
(2) Each borrower's share of the prepayment authority for its
application category shall be equal to the product of (i) the prepayment
authority times (ii) the respective pro-rated percentage, and may be
used to prepay a portion of any of the borrower's FFB loans listed
pursuant to Sec. 1786.31(a)(2);
(3) If any approved prepayment transaction fails to be settled
within 180 days of the date the borrower is notified by RUS of its
prepayment allocation, RUS may rescind its approval. The unused
prepayment authority represented by such a failed transaction is subject
to being included in any subsequent notice of a new application period
under this subpart; and
(4) In the event that applications from financially distressed
borrowers exceed the amount prepayment authority remaining in the
financially distressed borrowers' reserve, the Administrator at his
discretion shall select one or more of such applications and allocate
the reserve. In making such a selection and allocation, the
Administrator may consider various factors, including without
limitation, (i) the dollar amount of savings to be realized by the
proposed prepayment; (ii) the interest rates on the FFB loans proposed
to be prepaid; (iii) the magnitude of the default or potential default;
and (iv) whether the borrower has previously completed a prepayment
under section 306(A).
(c) Notification of Borrowers' Allocations. Promptly after
allocating the prepayment authority to borrowers and completing any
proration calculations that may be necessary, RUS will return to each
borrower submitting a prepayment application pursuant to this subpart, a
copy of their Notice of Intent to Prepay the Federal Financing Bank
specifying the amount of the borrower's prepayment allocation.

[55 FR 1145, Jan. 11, 1990, as amended at 55 FR 49250, Nov. 27, 1990]

Sec. 1786.31 Application procedure.

Applications to make a prepayment pursuant to this subpart shall be
submitted to RUS on such forms as RUS may prescribe in the following
manner:
(a) Application. Each borrower desiring to make a prepayment
pursuant to this subpart shall submit an application to RUS. No
application from a borrower will be accepted by RUS prior to the
commencement of the application period. An application shall not be
deemed submitted to RUS until it is received by RUS, and the ``Date
Received'' has been inscribed on the Notice of Intent to Prepay the
Federal Financing Bank by an authorized official of RUS. Incomplete
applications may be returned to the borrower at the discretion of RUS
and thereafter must be resubmitted in order to be processed. To be
considered complete, the application should include the following:
(1) ``Notice of Intent to Prepay the Federal Financing Bank'' in the
form specified in Sec. 1786.33 hereof;
(2) A listing of each FFB loan advance to be prepaid by loan
designation, RUS note number, RUS account number, advance date, maturity
date, original amount, outstanding balance, and interest rate;
(3) Evidence that the borrower meets the qualification provisions of
Sec. 1786.28(a) of these regulations;
(4) The certification set forth in part A of the Notice of Intent to
Prepay the Federal Financing Bank executed by the chief executive
officer of the borrower;
(5) In the event that a borrower submits a prepayment application
which

[[Page 1156]]

proposes to utilize a portion of the financially distressed borrowers'
reserve, a certification signed by the chief executive officer of the
system to the effect that the borrower is either (i) in default or near
default on interest or principal payments due on loans made or
guaranteed under the RE Act, and is making a good faith effort to
increase rates and reduce costs to avoid or mitigate default; or (ii)
participating in a work out or debt restructuring plan with RUS, either
as the borrower being restructured or as a borrower providing assistance
as part of the work out or restructuring and stating why the borrower is
in default or near default.
(b) Election of Method of Prepayment. Prior to requesting RUS to
schedule a settlement date, the borrower shall (1) elect whether it will
use a private loan, internally generated funds, or a combination of a
private loan and internally generated funds to make the prepayment, by
completing part C of its Notice of Intent to Prepay the Federal
Financing Bank; (2) specify in part C of the Notice of Intent to prepay
the Federal Financing Bank a date after which a prepayment closing may
be scheduled; (3) if appropriate, execute the certification set forth in
part C of the Notice of Intent to Prepay the Federal Financing Bank; and
(4) return a completed copy of the Notice of Intent to Prepay the
Federal Financing Bank to the RUS area office.
(c) Final Documentation. All documentation in connection with a
proposed prepayment made pursuant to this subpart shall have been
submitted to RUS in final form, no later than 5 business days prior to
the settlement date agreed to by the borrower and RUS. To be considered
complete, the final documentation shall include the following material:
(1) A completed copy of the Notice of Intent to Prepay the Federal
Financing Bank;
(2) In the event that a borrower proposes to utilize a private loan
in connection with a prepayment or a portion of a prepayment,
(i) Evidence, in form and substance satisfactory to RUS, that the
borrower has an irrevocable commitment from the lender to close the
private loan on the settlement date at an interest rate that meets the
requirements of Sec. 1786.28(c)(1);
(ii) Evidence that the lender meets the qualification provisions of
Sec. 1786.28(b);
(iii) Evidence that the private loan meets the qualification
provisions of Sec. 1786.28(c); and
(iv) The final documentation for the private loan;
(3) Estimate of fees, and expenses, including any taxes, in
connection with the prepayment transaction;
(4) A certified copy of a resolution of the board of directors of
the borrower approving the certification cited above and requesting RUS
approval of the prepayment.
(5) In the case of financially distressed borrowers, evidence in
form and substance satisfactory to the Administrator that the benefits
of prepayment will not be used to reduce rates and that any Federal or
state regulatory body having jurisdiction over the borrower's rates has
acknowledged its awareness of this requirement;
(6) In the event that borrower is unable to deliver final
documentation or the evidence specified in accordance with, Sec.
1786.31(c), RUS may reschedule the settlement date at its discretion.

(Approved by the Office of Management and Budget under control number
0572-0088)

Sec. 1786.32 Settlement procedure.

(a) General. Settlements in connection with prepaying FFB loans
pursuant to this subpart shall be conducted in accordance with the
provisions of this section.
(b) Settlement Date. The prepayment will be settled and if a private
loan is utilized, the guarantee will be delivered, on a settlement date
agreed upon by the borrower and RUS. Prior to scheduling a settlement
date for a borrower's prepayment pursuant to this subpart, RUS shall
have received the material specified in Sec. 1786.31(b).
(c) Place of Settlement. All settlements will take place in
Washington, DC, at a location of the borrower's choosing; provided
however, if more than one settlement is proposed for the same settlement
date, RUS reserves the right to coordinate the date and location of the
settlements with borrowers involved.

[[Page 1157]]

(d) Repayment of FFB. Prior to 1:00 p.m. prevailing local time in
New York, New York, on the settlement date, the borrower shall wire
immediately available funds to RUS through the Department of the
Treasury account at the Federal Reserve Bank of New York or shall
provide for payment to RUS in another manner acceptable to RUS and FFB,
in an amount sufficient to pay the outstanding principal of the FFB loan
being prepaid plus accrued interest from the last payment date to and
including the settlement date.
(e) Documentation. The borrower shall deliver, or cause to be
delivered to RUS and FFB, not less than 3 business days prior to the
settlement date, written notice of the settlement date and a complete
listing of each FFB loan advance to be prepaid or partially prepaid, in
the format required by Sec. 1786.31(a)(2). In the event that a private
loan is used in connection with the prepayment, the following executed
documents, opinions and material shall be delivered at the settlement:
(1) The guaranteed note evidencing the private loan.
(2) The guarantee.
(3) The loan guarantee agreement.
(4) Copy of the private loan agreement between the lender and the
borrower.
(5) Evidence that the borrower has received all approvals which are
required under Federal or state law, loan agreements, security
agreements, existing financing arrangements, or any other agreement to
which the borrower is a party.
(6) An amendment in recordable form revising the description of the
obligations secured by the mortgage including the obligation of the
borrower to reimburse RUS for any amounts that RUS may pay under the
guarantee.
(7) An approving opinion of the borrower's legal counsel to the
effect that the guaranteed note evidencing the private loan is a valid
and legally binding obligation of the borrower which is secured under
the mortgage, and the priority of the mortgage, as amended pursuant to
paragraph (e)(6) of this section, remains undisturbed.
(8) An approving opinion of the lender's legal counsel to the effect
that the loan guarantee agreement is a valid and legally binding
obligation of the lender.
(9) Such other opinions of counsel as may be required by the
Administrator.
(10) Copies of any other documentation required by the lender.
(11) Copies of any other documentation required by RUS to ensure
that the obligations of the borrower to reimburse RUS for any amounts
that RUS pays under the guarantee or may advance in connection with the
private loan are adequately secured under the mortgage.

(Approved by the Office of Management and Budget under control number
0572-0088)

Sec. 1786.33 Forms.

Guarantees and loan guarantee agreements executed by RUS pursuant to
this subpart will be on forms prescribed by RUS. Such forms will
include, without limitation, additional details on servicing, procedures
for notifying RUS of a default, the manner for requesting payment on a
guarantee. The Notice of Intent to Prepay the Federal Financing Bank
shall be substantially in the form specified by RUS. RUS may also
prescribe standard forms of certifications to be used in connection with
materials required to be furnished pursuant to Sec. 1786.31 of this
subpart.

Sec. 1786.34 Access to records of lenders, servicers, and trustees.

The lender, the servicer, or the trustee will permit representatives
of RUS (or other agencies of the U.S. Department of Agriculture
authorized by that Department) to inspect and make copies of any of
their records pertaining to RUS guaranteed loans. Such inspection and
copying may be made during regular office hours of the respective party
or any other time the party and RUS find convenient.

Sec. 1786.35 Loss, theft, destruction, mutilation, or defacement of RUS guarantee.

(a) Authorized representative. Except where the evidence of debt was
or is a bearer instrument, the RUS Administrator is authorized on behalf
of RUS to issue a replacement guarantee(s) for

[[Page 1158]]

one(s) which may have been lost, stolen, destroyed, mutilated, or
defaced. Such replacement(s) shall be issued only to the lender or
holder and only upon receipt of an acceptable certificate of loss and an
indemnity bond.
(b) Requirements. When a guarantee(s) is lost, stolen, destroyed,
mutilated, or defaced while in the custody of the lender, or holder, the
lender will coordinate the activities of the party who seeks the
replacement documents and will submit the required documents to RUS for
processing. The requirements for replacement are as follows:
(1) A certificate of loss properly notarized which includes:
(i) Legal name and present address of the owner, requesting the
replacement forms;
(ii) Legal name and address of lender of record;
(iii) Capacity of person certifying;
(iv) Full identification of the guarantee, including the name of the
borrower, date of the guarantee, face amount of the evidence of debt
purchased, date of evidence of debt and present balance of the loan. Any
existing parts of the documents to be replaced should be attached to the
certificate;
(v) A full statement of circumstances of the loss, theft, or
destruction of the guarantee; and
(vi) The lender or holder, shall present evidence demonstrating
current ownership of the guarantee and note. If the present holder is
not the same as the original lender, a copy of the endorsement of each
successive holder in the chain of transfer from the initial private
lender to present holder shall be included. If copies of the endorsement
cannot be obtained, best available records of transfer shall be
presented to RUS (e.g., order confirmation, cancelled checks, etc).
(2) An indemnity bond acceptable to RUS shall accompany the request
for replacement except when the holder is the United States, a Federal
Reserve Bank, a Federal Government Corporation, a state or territory, or
the District of Columbia. The bond may be with or without surety. The
bond shall be with surety except when the outstanding principal balance
and accrued interest due the present holder is less than $1,000,000
verified by the lender in writing in a letter of certification of
balance due. The surety shall be a qualified surety company holding a
certificate of authority from the Secretary of the Treasury and listed
in Treasury Department Circular 580.
(3) All indemnity bonds shall be issued and/or payable to the United
States of America acting through the Administrator of the Rural
Utilities Service. The bond shall be in an amount not less than the
unpaid principal and interest. The bond shall save RUS harmless against
any claim or demand which might arise or against any damage, loss,
costs, or expenses which might be sustained or incurred by reasons of
the loss or replacement of the instruments.

Sec. 1786.36 Other prepayments.

Nothing contained in this subpart shall prohibit a borrower from
making prepayments of FFB loans in accordance with the terms thereof.

Sec. 1786.37 Application of regulation to previous prepayments.

Nothing contained in this subpart shall affect the validity of
prepayments made or guarantees issued pursuant to previous regulations.
Those borrowers, however, that completed a prepayment pursuant to
section 306(A) of the RE Act and closed loans prior to February 27,
1988, may, in their discretion request RUS approval and if required by
prior regulations the concurrence of the Secretary of the Treasury, of
any amendments necessary to make the terms and conditions of such loans
consistent with, or to consolidate such loans with, loans guaranteed
under these regulations.

Sec. 1786.38 Judicial review.

This subpart is intended to set forth RUS policies and procedures
for the orderly administration of the provisions of section 306(A) of
the RE Act, section 633 of the continuing resolution, and section 637 of
the 1989 Appropriations Act and is not intended to create any right or
benefit, substantive or procedural, enforceable at law by a party
against the United States, its agencies, its officers or any person.

[[Page 1159]]

Sec. Sec. 1786.39-1786.49 [Reserved]

Subpart C_Special Discounted Prepayments on RUS Direct/Insured Loans

Authority: 7 U.S.C. 901-950b; Title I, Subtitle B, Pub. L. 99-509;
Pub. L. 103-354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.).

Source: 51 FR 46999, Dec. 29, 1986, unless otherwise noted.
Redesignated at 55 FR 49250, Nov. 27, 1990.

Sec. 1786.50 Purpose.

This subpart sets forth the policies and procedures of RUS whereby
electric and telephone borrowers may prepay outstanding RUS Notes at the
Discounted Present Value of the RUS Notes with private financing.

Sec. 1786.51 Definitions.

As used in this subpart:
Act means the Rural Electrification Act of 1936, as amended (7
U.S.C. 901 et seq.).
Administrator means the Administrator of RUS.
Discounted Present Value shall have the meaning specified in Sec.
1786.53
Fund means the Rural Electrification and Telephone Revolving Fund
established pursuant to the Act.
REA means the Rural Electrification Administration formerly an
agency of the United States Department of Agriculture and predecessor
agency to RUS with respect to administering certain electric and
telephone loan programs.
RUS means the Rural Utilities Service, an agency of the Unites
States Department of Agriculture, established pursuant to Section 232 of
the Federal Crop Insurance Reform and Department of Agriculture
Reorganization Act of 1994 (Pub. L. 103-354, 108 Stat. 3178), successor
to REA with respect to administering certain electric and telephone
programs. See 7 CFR 1700.1.
RUS Loan Agreement means the agreement between the borrower and RUS
providing for loans pursuant to the Act.
RUS Notes means those notes, bonds or other obligations evidencing
indebtedness created by loans made pursuant to Titles I, II or III of
the Act (7 U.S.C. 901-940).

[51 FR 46999, Dec. 29, 1986. Redesignated at 55 FR 49250, Nov. 27, 1990,
as amended at 59 FR 66441, Dec. 27, 1994]

Sec. 1786.52 Prepayment.

Through September 30, 1987, the Administrator may, pursuant to this
subpart, permit eligible electric and telephone borrowers to prepay all
outstanding RUS Notes issued or assumed by such borrowers and held in
the Fund, upon paying the lesser of the outstanding balance or the
Discounted Present Value.

Sec. 1786.53 Discounted present value.

The Discounted Present Value shall be calculated five business days
before prepayment is made by summing the present values of all remaining
payments by using the following formula:
[GRAPHIC] [TIFF OMITTED] TC16SE91.025

Where:

P<INF>k</INF>=Total payment including interest, due on the
kth payment date following the prepayment date.
n=Total number of remaining payments dates.
I=The discount rate, in decimals, which shall be the average rate on
utility bonds bearing a rating of ``Aa'' as set forth in that issue of
Moody's Public Utility News Reports most recently published prior to the
date on which Discounted Present Value is calculated.
D1<INF>1</INF>=Number of days in the ith payment period that
are in a non-leap year (365 day year).
D2<INF>i</INF>=Number of days in the ith payment period that
are in a leap year (366 day year).

[[Page 1160]]

Sec. 1786.54 Eligibility criteria.

To be eligible to prepay RUS Notes at the Discounted Present Value a
borrower must comply with the following criteria:
(a) The borrower must be current on all payments due on its
outstanding RUS Notes and all other payment obligations owed to RUS and
the Rural Telephone Bank.
(b) The borrower must agree to prepay all of its outstanding RUS
Notes.
(c) The borrower must identify the source of private financing that
will be used to refinance its outstanding RUS Notes, which financing may
not include obligations the income of which is exempt from taxation
under the Internal Revenue Code of 1986.
(d) The borrower must have expended all funds advanced on account of
the RUS Notes for the purposes for which such funds were advanced.
(e) The borrower must agree to a rescission of the unadvanced
balance of the RUS Notes.
(f) The borrower must agree that the borrower, its successors or
assigns, shall pay to the Government, as a condition of receiving
additional loans or loan guarantees pursuant to Titles I, II and III of
the Act, an amount equal to the aggregate of the difference with respect
to each of the RUS Notes between the amount outstanding on the RUS Note
and the Discounted Present Value of the RUS Note upon prepayment with
interest accruing quarterly; the interest rates shall be the rates
provided in the respective RUS Notes.
(g) If the borrower is a party to a wholesale power contract with a
power supplier financed pursuant to the Act, the borrower must provide
the Administrator with such assurances as the Administrator may request
that it will meet its obligations to the power supplier.

Sec. 1786.55 Application procedure.

Any borrower seeking to prepay its RUS Notes under this subpart
should apply to the appropriate RUS Area Director by submitting:
(a) A board resolution that:
(1) Requests approval of the prepayment of the borrower's
outstanding RUS Notes, and
(2) States the intent of the borrower to comply with all eligibility
criteria set forth in Sec. 1786.54 of this subpart.
(b) A list of all RUS Notes together with the outstanding amount on
such notes.
(c) Such additional information as the Administrator shall request.

Sec. 1786.56 Approval of applications.

The applications will ordinarily be reviewed and, if satisfactory,
approved, and closing schedule based on the order in which executed
prepayment agreements are received. The Administrator may limit the
number of applications approved and closings scheduled from time to time
taking into account, among other matters, the financial interests and
administrative considerations of the Government.

Sec. 1786.57 Prepayment agreement.

Upon approving an application for prepayment under this subpart, the
Administrator shall notify the borrower and deliver to the borrower for
its execution a prepayment agreement which shall set forth and provide:
(a) The RUS Notes to be prepaid and when the Discounted Present
Value will be calculated.
(b) The place and conditions for closing.
(c) Agreement that the unadvanced balance of RUS Notes shall be
rescinded.
(d) Agreement that the borrower, or its successors or assigns, shall
pay to the Government, as a condition of receiving additional loans or
loan guarantees pursuant to Titles I, II and III of the Act, an amount
equal to the aggregate of the difference with respect to each of the RUS
Notes between the amount outstanding on the RUS Note and the Discounted
Present Value of the RUS Note upon prepayment with interest accruing
quarterly; the interest rates shall be the rates provided in the
respective RUS Notes.
(e) Assurances that the borrower will meet its obligations to any
power supplier financed pursuant to the Act.
(f) Such other terms and conditions as the Administrator deems
appropriate.

[[Page 1161]]

Sec. 1786.58 Security.

If, after prepayment of RUS Notes, the Government should continue to
hold liens on the borrower's property that secure loans made or
guaranteed pursuant to the Act, the Administrator of RUS or the Governor
of the Rural Telephone Bank, as the case may be, will consider request
for the accommodation of such liens for the purpose of providing
security for loans the proceeds of which were used to prepay RUS Notes.
Such lien accommodations shall be limited in amount to the Discounted
Present Value of the RUS Notes plus such costs, as the Administrator
shall determine to be reasonable, incurred by the borrower in obtaining
such loans.

Sec. 1786.59 Loan fund audit.

Within 6 months of closing RUS shall have the right to audit
transactions involving the RUS construction fund established and
maintained by the borrower pursuant to the terms of the RUS Loan
Agreement and to inspect all books, records, accounts and other
documents and papers of the borrower. Should RUS determine that the
borrower has made disbursements of funds advanced pursuant to RUS Notes
which do not comply with the requirements of the RUS Loan Agreement, the
borrower shall be required to pay to the Government an amount equal to
the difference between the amount which the borrower prepaid on such RUS
Notes evidencing RUS loan funds which were improperly disbursed and the
amount which the borrower would otherwise have been required to return
to the Government as a result of noncompliance if the borrower had not
prepaid such RUS Notes. (See 7 CFR part 1721)

Sec. 1786.60 Closing.

(a) The borrower shall be responsible for obtaining all approvals
necessary to consummate the transaction as required by the prepayment
agreement including such approvals as may be required by regulatory
bodies and other lenders.
(b) The RUS Notes shall be prepaid at a closing to be held in
accordance with the prepayment agreement; Provided, however, That no
closing may be scheduled for after September 30, 1987. At closing, a
borrower shall prepay the RUS Notes by paying to the Government an
amount equal to the Discounted Present Value of the RUS Notes. The
closing shall otherwise be conducted as prescribed in the prepayment
agreement.

Sec. 1786.61 Other prepayments.

RUS loan documentation generally permits borrowers to prepay RUS
Notes by paying the outstanding balance due thereon. Nothing in this
subpart shall prohibit any borrower from prepaying its outstanding RUS
Notes in accordance with the terms thereof. The provisions of this
subpart shall not be applicable to such prepayment.

Sec. Sec. 1786.62-1786.74 [Reserved]

Subpart D [Reserved]

Subpart E_Discounted Prepayments on RUS Notes in the Event of a Merger
of Certain RUS Electric Borrowers

Source: 56 FR 37268, Aug. 6, 1991, unless otherwise noted.

Sec. 1786.95 Purpose.

This subpart sets forth the policies and procedures of RUS whereby
certain electric borrowers may prepay outstanding RUS Notes at the
Discounted Present Value of the RUS Notes with private financing.

Sec. 1786.96 Definitions.

As used in this subpart:
Act means the Rural Electrification Act of 1936, as amended (7
U.S.C. 901 et seq.).
Administrator means the Administrator of RUS.
Consolidation means:
(1) The combination, pursuant to state law, of two or more borrower
or nonborrower organizations into a new successor organization that
takes over the assets and assumes the liabilities of those
organizations; or
(2) Any other transaction including an acquisition which has
substantially the same effect.

[[Page 1162]]

Discounted Present Value shall have the meaning specified in Sec.
1786.98.
Fund means the Rural Electrification and Telephone Revolving Fund
pursuant to the Act.
Merger means:
(1) The combination, pursuant to state law, of two or more borrower
or nonborrower organizations into an existing survivor organization that
takes over the assets and assumes the liabilities of the merged
organizations; or
(2) Any other transaction including an acquisition which has
substantially the same effect.
REA means the Rural Electrification Administration formerly an
agency of the United States Department of Agriculture and predecessor
agency to RUS with respect to administering certain electric and
telephone loan programs.
RUS means the Rural Utilities Service, an agency of the United
States Department of Agriculture established pursuant to Section 232 of
the Federal Crop Insurance Reform and Department of Agriculture
Reorganization Act of 1994 (Pub. L. 103-354, 108 Stat. 3178), successor
to REA with respect to administering certain electric and telephone
programs. See 7 CFR 1700.1.
RUS Loan Agreement means the agreement between the borrower and RUS
providing for loans pursuant to the Act.
RUS Notes means those notes, bonds or other obligations evidencing
indebtedness created by loans made or guaranteed by RUS pursuant to
titles I and III of the Act (7 U.S.C. 901-940).

[56 FR 37268, Aug. 6, 1991, as amended at 59 FR 66440, Dec. 27, 1994]

Sec. 1786.97 Prepayment.

There were 29 former RUS electric borrowers that prepaid their
direct or insured loans under section 306B(a) of the Act prior to
October 1, 1987. (See subpart C of this part.) These borrowers are
listed in appendix A to subpart E of this part. Any RUS electric
borrower which is the result of a merger or consolidation involving any
of these 29 former borrowers and a borrower with outstanding Notes may,
after meeting all requirements of this subpart, prepay all outstanding
RUS Notes issued or assumed by the borrower upon paying the lesser of
the outstanding balance or the Discounted Present Value. Such prepayment
must be made not later than one year after the effective date of the
merger or consolidation.

Sec. 1786.98 Discounted present value.

(a) The Discounted Present Value shall be calculated by RUS before
prepayment is made by summing the present values of all remaining
payments on all outstanding notes according to the following formula to
compute the discounted present value of each note and adjusting as here
and after provided for tax exempt financing.
[GRAPHIC] [TIFF OMITTED] TC16SE91.027

Where:

P<INF>k</INF>=Total payment, including interest, due on the
kth payment date following the prepayment date. n=Total
number of remaining payment dates. I=The discount rate applied to each
transaction will be ascertained by using data specified in the ``Federal
Reserve Statistical Release'' which is published each Monday. (See
appendix B to subpart E of this part.) The specific discount rate will
be the discount rate(s) specified in the ``Treasury Constant
Maturities'' section of this publication eight working days prior to the
closing. In applying the discount rate, the 1-year Treasury rate will be
used for all notes with a remaining term of less than 2 years; the 2-
year Treasury rate for notes with maturities between 2 and 3 years; the
3-year Treasury rate for all notes with maturities between 3 and 5
years; the 5-year Treasury rate for all notes with maturities between 5
and 7 years; the 7-year Treasury rate for all notes with maturities
between 7 and 10

[[Page 1163]]

years; the 10-year Treasury rate for all notes with maturities between
10 and 30 years; and the 30-year Treasury rate for all notes with
maturities longer than 30 years.
D1<INF>i</INF>=Number of days in the ith payment period that
are in a non-leap year (365 day year).
D2<INF>i</INF>=Number of days in the ith payment period that
are in a leap year (366 day year).

(b) Notwithstanding paragraph (a) of this section, in the event that
the borrower shall elect to prepay using tax exempt financing, the
calculation of the Discounted Present Value shall be adjusted to make
the discount the equivalent of fully taxable financing.

Sec. 1786.99 Eligibility criteria.

To be eligible to prepay RUS Notes at the Discounted Present Value,
a borrower must comply with the following criteria:
(a) The borrower must be current on all payments due on its
outstanding RUS Notes and all other payment obligations owed to RUS;
(b) The borrower must agree to prepay all of its outstanding RUS
Notes;
(c) The borrower must identify the source of financing that will be
used directly or indirectly to refinance its outstanding RUS Notes. The
borrower must certify in writing whether such financing will be tax
exempt and, if so, shall furnish all information on the financing as RUS
may request to enable RUS to adjust the discount to the equivalent to
fully taxable financing;
(d) The borrower must have expended all funds advanced on account of
the RUS Notes for the purposes for which such funds were advanced or
repaid RUS for all unexpended funds;
(e) The borrower must agree to a rescission of the unadvanced
balance of any RUS Notes outstanding as of the date of its application
for prepayment;
(f) The borrower must agree that the borrower, its successors and
assigns, shall pay to the Government, as a condition of receiving
additional loans or loan guarantees pursuant to titles I and III of the
Act, an amount equal to the aggregate of the difference with respect to
each of the RUS Notes between the amount outstanding on the RUS Note and
the Discounted Present Value of the RUS Note upon prepayment with
interest accruing quarterly; the interest rates shall be the rates
provided in the respective Notes; and
(g) If the borrower is a party to a wholesale power contract with a
power supplier financed pursuant to the Act, the borrower must provide
the Administrator with such assurances as the Administrator may request
that it will meet its obligations to the power supplier. The borrower
must also specifically agree to the following limitation: The borrower
agrees that, for so long as the Wholesale Power Contract shall be in
effect between the borrower and the power supplier, the borrower will
not, without the approval in writing of the power supplier and the
Administrator, take or suffer to be taken any steps for reorganization
or to consolidate with or merge into any corporation or any other public
power district, or to sell, lease or transfer (or make any agreement
therefor) all or a substantial portion of its assets, whether now owned
or hereafter acquired. Notwithstanding the foregoing, the borrower may
take or suffer to be taken any steps for reorganization or to
consolidate with or merge into any corporation or any other public power
district, or to sell, lease or transfer (or make any agreement therefor)
all or a substantial portion of its assets, whether now owned or
hereafter acquired, so long as the borrower shall pay such portion of
the outstanding indebtedness evidenced by the power supplier's Notes at
the time outstanding as shall be determined by the power supplier with
the prior written consent of the Administrator and shall otherwise
comply with such reasonable terms and conditions as the Administrator
and the Power Supplier shall require.

Sec. 1786.100 Application procedure.

Any borrower seeking to prepay its RUS Notes under this Subpart
should apply to the appropriate RUS Area Director not less than 60 days
prior to one year after the effective date of the merger or
consolidation by submitting:
(a) A board resolution that:
(1) Requests approval of the prepayment of the borrower's
outstanding RUS Notes;
(2) States the intent of the borrower to comply with all eligibility
criteria set forth in Sec. 1786.99 of this subpart; and
(3) Identifies the source of financing.

[[Page 1164]]

(b) A list of all RUS Notes together with the outstanding amount on
such notes.
(c) An opinion of counsel as to the effective date of the merger or
consolidation.
(d) Such additional information as the Administrator will request.

Sec. 1786.101 Approval of application.

The applications will be reviewed and, if satisfactory, approved.
Closing will be scheduled upon approval.

Sec. 1786.102 Prepayment agreement.

Upon approving an application for prepayment under this subpart, the
Administrator shall notify the borrower and deliver to the borrower for
its execution a prepayment agreement which shall set forth and provide:
(a) The RUS Notes to be prepaid and when the Discounted Present
Value will be calculated.
(b) The place, date and conditions for closing.
(c) Agreement that the unadvanced balance of RUS Notes shall be
rescinded.
(d) Agreement that the borrower, or its successors or assigns, shall
pay to the Government, as a condition of receiving additional loans or
loan guarantees pursuant to titles I and III of the Act, an amount equal
to the aggregate of the difference with respect to each of the RUS Notes
between the amount outstanding on the RUS Note and the Discounted
Present Value of the prepaid RUS Note; with interest accruing quarterly.
The interest rates shall be the rates provided in the respective RUS
Notes.
(e) Assurances that the borrower will meet its obligations to any
power supplier financed pursuant to the Act.
(f) Such other terms and conditions as the Administrator deems
appropriate.

Sec. 1786.103 Security.

If, after prepayment of RUS Notes, the Government should continue to
hold liens on the borrower's property, the Administrator of RUS will
consider a request for the accommodation of such liens for the purpose
of providing security for loans the proceeds of which were used to
prepay RUS Notes. Such lien accommodations shall be limited in amount to
the Discounted Present Value of the RUS Notes plus such costs, as the
Administrator shall determine to be reasonable, incurred by the borrower
in obtaining such loans.

Sec. 1786.104 Loan fund audit.

RUS shall have the right to audit within 6 months of closing,
transactions involving the RUS construction fund established and
maintained by the borrower pursuant to the terms of the RUS Loan
Agreement and to inspect all books, records, accounts and other
documents and papers of the borrower. Should RUS determine that the
borrower has made disbursements of funds advanced pursuant to RUS Notes
which do not comply with the requirements of the RUS Loan Agreement, the
borrower shall be required to pay the Government an amount equal to the
difference between the amount which the borrower prepaid on such RUS
Notes evidencing RUS loans funds which were improperly disbursed and the
amount which the borrower would otherwise have been required to return
to the Government as a result of noncompliance if the borrower had not
prepaid such RUS Notes. (See 7 CFR part 1721, Post-Loan Policies and
Procedures for Insured Electric Loans.)

Sec. 1786.105 Closing.

(a) The borrower shall be responsible for obtaining all approvals
necessary to consummate the transaction as required by the prepayment
agreement, including such approvals as may be required by regulatory
bodies and other lenders.
(b) The RUS Notes shall be prepaid at a closing to be held in
accordance with the prepayment agreement. RUS shall designate the date
of closing which in no event shall be later than one year after the
effective date of the merger or consolidation. At closing, in addition
to paying all current interest due on the date of prepayment, a borrower
shall prepay the RUS Notes by paying to the Government an amount equal
to the lesser of the outstanding balance or the Discounted Present Value
of the RUS Notes. The closing shall otherwise

[[Page 1165]]

be conducted as prescribed in the prepayment agreement.

Sec. 1786.106 Other prepayments.

Appendix A to Subpart E of Part 1786--Listing of Eligible Borrowers

------------------------------------------------------------------------
State Borrower name and address
------------------------------------------------------------------------
Colorado............................ Colorado-Ute Electric Assn., Inc.,
Montrose.
Florida............................. Lee County Electric Coop. Inc.,
North Fort Myers.
Indiana............................. Clark County Rural Elec. Memb.
Corp., Sellersburg.
Louisiana........................... Beauregard Electric Cooperative,
Inc., Deridder.
Missouri............................ Culvre River Electric Cooperative,
Inc., Troy.
Nebraska............................ Roosevelt Public Power District,
Mitchell.
Nebraska............................ Howard Greely Rural Public Power
Dist., St. Paul.
Nebraska............................ Cuming County Public Power
District, West Point.
Nebraska............................ York County Rural Public Power
District, York.
Nebraska............................ Elkhorn Rural Public Power
District, Battle Creek.
Nebraska............................ Southern Nebraska Rural P. P. D.,
Grand Island.
Nebraska............................ McCook Public Power District,
McCook.
Nebraska............................ Niobrara Valley Electric Memb.
Corp., O'Neill.
Nebraska............................ Cornhusker Public Power District,
Columbus.
Nebraska............................ Custer Public Power District,
Broken Bow.
Nebraska............................ Northwest Rural Public Power
Dist., Hay Springs.
Nebraska............................ Southwest Public Power District,
Palisade.
Nebraska............................ Loup Valleys Rural Public Power
District, Ord.
Nebraska............................ South Central Public Power
District, Nelson.
Oklahoma............................ Peoples' Electric Cooperative,
Ada.
Texas............................... Deaf Smith County Electric Coop.
Inc., Hereford.
Texas............................... Pedernales Electric Coop. Inc.,
Johnson City.
Texas............................... Bandera Electric Cooperative,
Inc., Bandera.
Texas............................... Guadalupe Valley Electric Coop.,
Inc., Gonzales.
Texas............................... Bluebonnet Electric Cooperative,
Inc., Giddings.
Texas............................... Cap Rock Electric Cooperative,
Inc. Stanton.
Texas............................... San Bernard Electric Cooperative,
Inc., Bellville.
Washington.......................... Inland Power & Light Company,
Spokane.
Washington.......................... Pub. Util. Dist. No. 1 Grays
Harbor Co., Aberdeen.
------------------------------------------------------------------------

Appendix B to Subpart E of Part 1786--Federal Reserve Statistical
Release

Federal Reserve Statistical Release

These data are released each Monday. The availability of the release
will be announced when the information is available, on (202) 452-3206.

H. 15 (519)

For immediate release February 4, 1991.

Selected Interest Rates
[Yields in percent per annum]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1991 Jan. 1991 Jan. 1991 Jan. 1991 Jan. 1991 Feb.
Instruments 28 29 30 31 1 This week Last week 1991 Jan.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Federal Funds (effective) \1,2,3\....................... 7.61 7.16 6.96 8.18 6.30 7.46 6.88 6.91
Commercial paper \3,4,5\
1-Month............................................. 6.88 6.96 6.95 6.99 6.73 6.90 6.83 7.12
3-Month............................................. 6.92 6.96 6.94 6.95 6.67 6.89 6.92 7.10
6-Month............................................. 6.87 6.91 6.88 6.88 6.58 6.82 6.86 7.02
Finance paper placed directly \3,4,6\
1-Month............................................. 6.76 6.85 6.83 6.83 6.55 6.76 6.68 6.95
3-Month............................................. 6.75 6.83 6.83 6.76 6.46 6.73 6.77 6.92
6-Month............................................. 6.53 6.53 6.59 6.53 6.19 6.47 6.55 6.59
Bankers acceptances (top rated) \3,4,7\
3-Month............................................. 6.80 6.82 6.77 6.68 6.30 6.67 6.76 6.96
6-Month............................................. 6.67 6.70 6.65 6.55 6.15 6.54 6.63 6.84

[[Page 1166]]

CDS (secondary market) \3,8\
1-Month............................................. 6.78 6.85 6.87 6.82 6.52 6.77 6.77 7.10
3-Month............................................. 6.94 6.95 6.93 6.88 6.51 6.84 6.94 7.17
6-Month............................................. 6.95 6.98 6.95 6.88 6.51 6.85 6.97 7.17
Eurodollar deposits (London) \3,9\
1-Month............................................. 6.81 6.88 6.88 6.88 6.88 6.86 6.81 7.13
3-Month............................................. 6.94 7.06 7.00 6.94 6.94 6.98 7.01 7.23
6-Month............................................. 7.00 7.00 7.00 6.94 6.94 6.98 7.04 7.23
Bank prime loan \2,3,10\................................ 9.50 9.50 9.50 9.50 9.50 9.50 9.50 9.52
Discount window borrowing \2,11\........................ 6.50 6.50 6.50 6.50 6.00 6.50 6.50 6.50
U.S. Government securities
Treasury bills
Auction average \3,4,12\
3-Month........................................... 6.22 .......... .......... .......... .......... 6.22 6.14 6.30
6-Month........................................... 6.28 .......... .......... .......... .......... 6.28 6.21 6.34
1-Year............................................ .......... .......... .......... .......... .......... .......... .......... 6.22
Auction average (investment) \12\
3-Month........................................... 6.41 .......... .......... .......... .......... 6.41 6.32 6.49
6-Month........................................... 6.58 .......... .......... .......... .......... 6.58 6.50 6.64
Secondary market \3,4\
3-Month........................................... 6.25 6.22 6.20 6.19 6.00 6.17 6.12 6.22
6-Month........................................... 6.26 6.26 6.24 6.20 5.97 6.19 6.20 6.28
1-Year............................................ 6.24 6.20 6.17 6.13 5.91 6.13 6.19 6.25
Treasury Constant maturities \13\
1-Year............................................ 6.64 6.59 6.56 6.51 6.27 6.51 6.58 6.64
2-Year............................................ 7.12 7.10 7.07 7.05 6.83 7.03 7.09 7.13
3-Year............................................ 7.38 7.35 7.34 7.30 7.10 7.29 7.35 7.38
5-Year............................................ 7.67 7.64 7.64 7.62 7.45 7.60 7.66 7.70
7-Year............................................ 7.93 7.90 7.90 7.89 7.75 7.87 7.92 7.97
10-Year........................................... 8.06 8.05 8.05 8.03 7.91 8.02 8.04 8.09
30-Year........................................... 8.23 8.20 8.23 8.21 8.09 8.19 8.22 8.27
Composite
Over 10 years (long-term) \14\...................... 8.29 8.26 8.29 8.27 8.15 8.25 8.28 8.33
Corporate bonds
Moody's Seasoned
AAA................................................. 9.03 9.01 9.00 8.99 8.96 9.00 9.05 9.04
BAA................................................. 10.43 10.37 10.35 10.33 10.24 10.34 10.44 10.45
A-Utility \15\...................................... .......... .......... .......... .......... 9.65 9.65 9.80 9.83
State and local bonds \16\.............................. .......... .......... .......... 7.00 .......... 7.00 7.06 7.08
Conventional mortgages \17\............................. .......... .......... .......... .......... 9.56 9.56 9.61 9.64
--------------------------------------------------------------------------------------------------------------------------------------------------------
Footnotes:
\1\ The daily effective federal funds rate is a weighted average of rates on trades through N.Y. brokers.
\2\ Weekly figures are averages of 7 calendar days ending on Wednesday of the current week; monthly figures include each calendar day in the month.
\3\ Annualized using a 360-day year or bank interest.
\4\ Quoted on a discount basis.
\5\ An average of offering rates on commercial paper placed by several leading dealers for firms whose bond rating is AA or the equivalent.
\6\ An average of offering rates on paper directly placed by finance companies.
\7\ Representative closing yields for acceptances of the highest rated money center banks.
\8\ An average of dealer offering rates on nationally traded certificates of deposit.
\9\ Bid rates for Eurodollar deposits at 11 a.m. London time.
\10\ One of several base rates used by banks to price short-term business loans.
\11\ Rate for the Federal Reserve Bank of New York.
\12\ Auction date for daily data; weekly and monthly averages computed on an issue-date basis.
\13\ Yields on actively traded issues adjusted to constant maturities. Source: U.S. Treasury.

[[Page 1167]]

\14\ Unweighted average of rates on all outstanding bonds neither due nor callable in less than 10 years, including one very low yielding ``flower''
bond.
\15\ Estimate of the yield on a recently offered, A-rated utility bond with a maturity of 30 years and call protection of 5 years; Friday quotations.
\16\ Bond buyer Index, general obligation, 20 years to maturity, mixed quality; Thursday quotations.
\17\ Contract interest rates on commitments for fixed-rate first mortgages. Source: FHLMC.
Note: Weekly and monthly figures are averages of business days unless otherwise noted.

Description of the Treasury Constant Maturity Series

Yields on Treasury securities at ``constant maturity'' are
interpolated by the U.S. Treasury from the daily yield curve. This
curve, which relates the yield on a security to its time to maturity, is
based on the closing market bid yields on actively traded Treasury
securities in the over-the-counter market. These market yields are
calculated from composites of quotations reported by five leading U.S.
Government securities dealers to the Federal Reserve Bank of New York.
The constant maturity yield values are read from the yield curve at
fixed maturities, currently 1, 2, 3, 5, 7, 10, and 30 years. This method
provides a yield for a 10-year maturity, for example, even if no
outstanding security has exactly 10 years remaining to maturity.

Subpart F_Discounted Prepayments on RUS Electric Loans

Authority: 7 U.S.C. 901 et seq.; Pub. L. 103-354, 108 Stat. 3178 (7
U.S.C. 6941 et seq.).

Source: 59 FR 13620, Mar. 22, 1994, unless otherwise noted.

Sec. 1786.150 Purpose.

This subpart sets forth the policies and procedures of RUS whereby
borrowers may prepay, with private financing or internally generated
funds, outstanding RUS Notes evidencing electric loans at the Discounted
present value of the RUS Notes, pursuant to the provisions of section
306(B) of the RE Act as amended by Public Law 102-428, 106 Stat. 2183,
adopted October 21, 1992.

Sec. 1786.151 Definitions and rules of construction.

(a) Definitions. As used in this subpart:
Administrator means the Administrator of the Rural Utilities Service
(RUS).
Borrower means any organization which has an outstanding note(s)
evidencing electric loans made by RUS, or has previously prepaid such
notes under subparts C and E of this part.
Business day means any day on which both the RUS and the Federal
Reserve Bank of New York are open for business.
Construction Fund Account means the Cash--Construction Fund--Trustee
Account, maintained by the borrower pursuant to the terms of the
outstanding RUS Loan Contract.
Closing shall mean one of the several contemplated closings of the
prepayment of the Qualified Notes prescribed by the Prepayment
agreement.
Closing date shall mean any business day identified as such by the
Government in its preclosing notice delivered to the Company pursuant to
Sec. 1786.158.
Closing request shall mean a request by the borrower of the
Government to schedule a closing for certain Qualified Notes on the date
requested therein.
Direct loan means a loan made pursuant to section 4 of the RE Act.
Discounted present value shall have the meaning set forth in Sec.
1786.153.
Distribution borrower means a borrower that sells electric power and
energy at retail in rural areas.
Electric loan means a Direct loan or an Insured loan made for the
purpose of furnishing electric energy to persons in rural areas.
Final maturity means the final date on which all outstanding
principal and accrued interest on an electric loan is due and payable.
Government means the United States of America, acting through the
Administrator of the Rural Utilities Service.
Insured loan means a loan made pursuant to Section 305 of the RE
Act.
Lien accommodation means the sharing of the Government's (RUS's)
lien on property, usually all property, covered by the lien of the RUS
Mortgage.
Loan guarantee means a loan guarantee under Section 306 of the RE
Act.
Power supply borrower means a borrower that sells or intends to sell
electric power at wholesale to distribution

[[Page 1168]]

or power supply borrowers pursuant to RUS wholesale power contracts.
Preclosing notice shall mean a notice delivered by the Government to
the borrower in response to a closing request, identifying the closing
date, the Qualified Notes to be prepaid at such closing and documents to
be delivered by the borrower to the Government prior to the closing
date.
Prepayment agreement shall have the meaning set forth in Sec.
1786.158.
Qualified Notes shall have the meaning set forth in Sec. 1786.154.
RE Act means the Rural Electrification Act of 1936, as amended (7
U.S.C. 901 et seq.).
RUS means the Rural Utilities Service, an agency of the United
States Department of Agriculture.
RUS Loan Contract means the agreement, as amended, supplemented, or
restated from time to time, between a borrower and RUS providing for
loans or loan guarantees pursuant to the RE Act.
RUS Mortgage means collectively those mortgages and security
agreements made by and among the borrower, the Government, and third
parties, if any, securing indebtedness evidencing electric loans or loan
guarantees made pursuant to the RE Act.
Rural development loans means loans or grants made pursuant to Rural
development programs.
Rural development programs means loan or grant programs under the
authority of the Administrator pursuant to sections 313, 501, and 502 of
the RE Act.
Supplemental lender means a private lender whose loan to the
borrower is secured by the RUS mortgage.
Tax exempt financing means borrowing evidenced by bonds, notes and
other evidence of indebtedness the income of which is excluded from
gross income for the purposes of Chapter 1 of the Internal Revenue Code
of 1986 (26 U.S.C. ch. 1).
(b) Rules of construction. Unless the context shall otherwise
indicate, the terms defined in paragraph (a) of this section include the
plural as well as the singular, and the singular as well as the plural.

Sec. 1786.152 Prepayments of RUS loans.

An electric loan made under the RE Act shall not be sold or prepaid
at a value that is less than the outstanding principal balance, except
that, on request of a borrower, an electric loan made under the RE Act,
or a portion of such a loan, that was advanced before May 1, 1992, or
has been advanced for not less than 2 years, shall be prepaid by the
borrower at the lesser of the outstanding principal balance of the loan
or the discounted present value thereof.

Sec. 1786.153 Discounted present value.

(a) The discounted present value shall be calculated by summing the
present values of all remaining payments on all Qualified Notes to be
prepaid according to the following formula and adjusted as provided in
paragraph (b) of this section if tax exempt financing is used.
[GRAPHIC] [TIFF OMITTED] TR22MR94.016

Where:

The Greek letter, Sigma ([Sigma]) means the sum of the following terms.
The Greek letter, Pi ([Pi]) means the product of the following terms.

P<INF>k</INF>=Total payment, including interest due on the
Kth payment date following the prepayment date.
n=Total number of remaining payment dates to final maturity.
D1<INF>i</INF>=Number of days in the ith payment period that
are in a non-leap year (365-day year).
D2<INF>i</INF>=Number of days in the ith payment period that
are in a leap year (366-day year).
I=The discount rate applied to each transaction ascertained by using
data specified

[[Page 1169]]

in the ``Federal Reserve Statistical Release'' (H.15 (519)), which is
published each Monday. The availability of this Release will be
announced when the information is available by telephone on (202) 452-
3206. See adjustment for tax exempt refinancing at paragraph (b) of this
section. The specific discount rate will be based on the discount
rate(s) specified in the ``Treasury Constant Maturities'' section of
this publication 8 business days prior to the closing and will be
interpolated from that information as follows:

------------------------------------------------------------------------
Remaining final maturity of RUS loan:
-------------------------------------------------
At least But less
-------------------------------------- than Treasury constant
----------- maturities
<greek-i> years <greek-i>
years
------------------------------------------------------------------------
0.................................... 2 1-year.
2.................................... 3 2-year.
3.................................... 4 3-year.
4.................................... 5 (\1\)
5.................................... 6 5-year.
6.................................... 7 (\2\)
7.................................... 8 7-year.
8.................................... 9 (\3\)
9.................................... 10 (\3\)
10................................... 11 10-year.
11................................... 20 (\4\)
20................................... 21 20-year.
21................................... 30 (\5\)
30................................... 36 30-year.
------------------------------------------------------------------------
Notes: \1\ The arithmetic mean between the 3-year and 5-year. Treasury
Constant Maturities; i.e., if 3-year. rate is 3.00% and the 5-year.
rate is 4.00% then the rate used would be 3.5%.
\2\ The arithmetic mean between the 5-year and 7-year Treasury Constant
Maturities computed as above.
\3\ A straight line interpolated rate between the 7-year rate and the 10-
year rate. (See formula below)
\4\ A straight line interpolated rate between the 10-year note and the
20-year Bond rate. (See formula below)
\5\ A straight line interpolated rate between the 20-year bond and the
30-year bond using the following formula:

[GRAPHIC] [TIFF OMITTED] TR22MR94.017

Where:

I=The discount rate interpolated from the cost of money to the Treasury.
A=The Treasury interest rate for the most recently published maturity
(in years) that is the shortest Treasury term (in years) which is
greater than the borrower's remaining term (in years) to final maturity;
i.e., (if the note to be prepaid has a final maturity of more than 10
years then this rate is the 20-year Treasury rate)
B=The Treasury interest rate for the most recently published maturity
(in years) that is the longest Treasury term (in years) which is less
than the borrower's remaining term (in years) to final maturity; i.e.,
(if the note to be prepaid has a final maturity of more than 10 years
but less than 20 years then this term is the 10-year Treasury rate)
C=The remaining number of full years to the final maturity of the
borrower's note. Drop all fractions of a year and use the remaining full
years.
E=The published Treasury term (in years) to maturity which is the
longest term to maturity for the published term that is less than the
remaining term (in years) to final maturity of the borrower's note;
i.e., (if the note to be prepaid has remaining years to maturity between
11 and 20 years then this term would be 10 or if the note to be prepaid
has remaining years to maturity between 21 years and 30 years then this
term would be 20).
F=The published Treasury term (in years) to maturity which is the
shortest term to maturity for the published term that is greater than
the remaining term (in years) to maturity of the borrower's note; i.e.,
(if the note to be prepaid has remaining years to maturity between 11
and 20 years then this term would be 20 or if the remaining years to
maturity is between 21 and 30 years then this term would be 30).
Note: The percentage terms used in the above formula will be
truncated to two decimal places. For the purpose of the terms A, B, E,
and F above the published Treasury rate and term shall mean the Treasury
Constant Maturities from the Federal Reserve Statistical Release for 7
years, 10 years, 20 years, and 30 years.
(b)(1) In the event that the borrower prepays a loan under paragraph
(a) of this section using, directly or indirectly, tax exempt financing,
the discount shall be adjusted to ensure that the borrower receives a
benefit that is no greater than the benefit the borrower would receive
if the borrower used financing that was not tax exempt. The borrower
shall certify in writing whether the financing will be tax exempt.
(2) The discount rate established in paragraph (a) of this section
shall be adjusted for a tax exempt financing by substituting for the
``I'' term in the discount rate formula, a discount rate equal to the
interest rate(s) published pursuant to 7 CFR 1714.5, determination of
interest rates on municipal rate loans. This is the interest rate
established for the new RUS loan program which is based on municipal
interest rates for issues of comparable maturity. No interpolation or
average will be used. If a note is to be prepaid under this subpart and
is subject to this tax exempt adjustment, the discount rate will be
determined from the published

[[Page 1170]]

table in the Federal Register.For example, if the note to be discounted
matures in the year 1999 then the discount rate will be the interest
rate for the year 1999. RUS will publish a schedule of interest rates
for municipal rate loans in the Federal Register at the beginning of
each calendar quarter. The published rates in effect eight business days
prior to closing will be used for the discount rates. All notes to be
prepaid that have remaining years to maturity of more than 20 years will
be discounted at the interest rate in effect for new RUS municipal rate
loans of comparable maturity at the time of closing.

Sec. 1786.154 Qualified Notes.

An eligible borrower may prepay Qualified Notes under this subpart
at the discounted present value. A Qualified Note is a note evidencing
an RUS electric loan, all advances of which were made prior to May 1,
1992, or not less than 2 years prior to the date of prepayment closing.
See Sec. Sec. 1786.155(a)(3) and 1786.158 (h) and (j).

Sec. 1786.155 Eligible borrower.

(a) To be eligible to prepay an electric loan under this subpart,
the borrower must be in compliance with the following:
(1) The borrower shall be current on all payment obligations on
outstanding loans made or guaranteed by RUS. For the purpose of
determining eligibility for prepayment, a default by a power supply
borrower from which a distribution borrower purchases wholesale power
shall not be considered a default by the distribution borrower;
(2) There shall exist no material defaults under the borrower's RUS
Loan Contract and Mortgage;
(3) The borrower shall have expended all funds advanced pursuant to
the RUS Loan Contract for the purposes for which such funds were
advanced. A borrower will not be eligible to prepay under this subpart
if it has any funds advanced pursuant to the RUS Loan Contract in its
Construction Fund Account; and
(4) The borrower shall be current on all obligations under any
wholesale power contract with an RUS financed power supply borrower.
(b) The eligibility of borrowers that have had any indebtedness
representing loans made or guaranteed by RUS restructured shall be
determined on a case by case basis considering the terms and conditions
of the restructuring agreement.

Sec. 1786.156 Application procedure.

Any borrower seeking to prepay Qualified Notes under this subpart
should apply to the appropriate RUS Regional Director or the Director of
the Power Supply Division. The application shall provide the following:
(a) Borrower's RUS designation;
(b) Borrower's name and address;
(c) A certified copy of a resolution of the board of directors of
the borrower that the borrower wishes to enter into a prepayment
agreement providing for the prepayment of all or a portion of its
Qualified Notes;
(d) Listing of each Qualified Note to be prepaid by loan
designation, RUS account number, advance date, maturity date, original
amount, and outstanding principal balance;
(e) Evidence that the borrower has the ability to obtain the
financing necessary to prepay its Qualified Notes listed in paragraph
(d) of this section and identification of the source of financing and
the need if any of obtaining a lien accommodation from RUS; and
(f) Such additional information as the Administrator may request.

Sec. 1786.157 Approval of applications.

(a) Ordinarily, within 30 days of receipt, an application will be
reviewed and the borrower will be notified as to whether the application
has been approved. If the application has not been approved, the
borrower will be informed as to the reasons. If the application is
approved the borrower shall thereafter be provided with a prepayment
agreement for execution.
(b) The Administrator may limit the number of applications approved
and closings scheduled from time to time, taking into account, among
other matters, administrative considerations of the RUS.

[[Page 1171]]

Sec. 1786.158 Terms and conditions of prepayment agreement.

Upon receipt of a satisfactory application, RUS shall provide to the
borrower for its execution a prepayment agreement, in form and substance
satisfactory to RUS, which may include the following:
(a) Provide for the prepayment of one or more Qualified Notes from
time to time, but no more than two closings may be scheduled in any
calendar year unless a third closing is for the prepayment of all
outstanding electric loans of the borrower;
(b) Set forth procedures and forms through which the borrower will
notify the Government of each election it makes to prepay certain
Qualified Notes upon a requested closing date and the Government will
notify the borrower of the established closing date and prepayment
amount for the Qualified Notes for each closing;
(c) Reserve to the Administrator the right to reschedule closing
dates to meet administrative considerations;
(d) Set forth closing requirements identifying the location and
manner of payment, and all documentation and information to be delivered
prior to or at closing, including opinions of counsel and certificates
from the borrower;
(e) Provide for notice by either telephone or facsimile to be given
by RUS to the borrower not more than 8 nor less than 3 business days
before a scheduled closing date of the amount to be paid at closing
which shall include all accrued interest and the discounted present
value of the Qualified Notes to be prepaid;
(f) Provide for notice of the 120 month period during which the
borrower's eligibility for direct or insured loans will be restricted;
(g) Set forth representations and warranties;
(h) Require the borrower to prepay each Qualified Note specified in
full;
(i) Require the borrower to identify the source of the financing
that will be used directly or indirectly to refinance the Qualified
Notes. If the source is other than internally generated funds, the
borrower must certify in writing whether such financing will be tax
exempt, and if tax exempt financing will be used, furnish all
information on the terms and conditions of the financing as RUS may
require;
(j) Require the borrower to rescind the unadvanced balance of all
outstanding electric loans as of the date of initial closing;
(k) Require the borrower, if it is a party to a wholesale power
contract with a power supply borrower, to provide the Administrator with
such assurances as the Administrator may require that it is in
compliance with and will continue to comply with its obligation to such
power supply borrower;
(l) Provide RUS, if the Administrator determines it necessary, with
security for all outstanding rural development loans and amendments to
any outstanding rural development loan agreements in form and substance,
and on terms and conditions, satisfactory to RUS;
(m) Prescribe remedies for violating the terms and conditions of the
prepayment agreement;
(n) Provide for termination by RUS of the right for the borrower to
prepay thereunder;
(o) Provide evidence that any approvals required from any
supplemental lender have been obtained; and
(p) Set forth such other terms and conditions as the Administrator
shall deem appropriate.

Sec. 1786.159 Initial closing.

(a) Upon receipt of the prepayment agreement, the borrower may
submit, pursuant to the terms of the prepayment agreement, a closing
request which shall request a closing date no less than 30 business days
from the date of the request.
(b) The Government will respond to the borrower's closing request by
delivering a preclosing notice to the borrower not less than 10 business
days prior to the date which the Government, after reviewing the
borrower's closing request, selects as a closing date.

Sec. 1786.160 Subsequent closings.

(a) Each subsequent prepayment after the initial closing shall be
facilitated with the submission of an additional closing request by the
borrower. Each closing request must request a

[[Page 1172]]

closing date no less than 30 business days from the date of the request.
(b) The Government will respond to each subsequent closing request
by delivering a preclosing notice to the borrower not less than 10
business days prior to the date which the Government, after reviewing
the borrower's closing request, selects as a closing date in each case.

Sec. 1786.161 Return of Qualified Notes and release of lien.

Upon payment to RUS at closing of the full amount specified in the
notice delivered by RUS to the borrower pursuant to the terms of the
prepayment agreement (see Sec. 1786.158(e)), RUS will deliver to the
borrower at closing those Qualified Notes which have been paid in full
at such closing, and upon payment and discharge of all outstanding RUS
debt obligations by the borrower, RUS will deliver to the borrower at
the final closing a release of lien prepared by the borrower pursuant to
the terms of the prepayment agreement.

Sec. 1786.162 Outstanding loan documents.

(a) Except as expressly provided in this subpart, the borrower shall
comply with all provisions of its RUS Loan Contract, its outstanding
notes issued to RUS, and the RUS Mortgage.
(b) Nothing in this subpart shall affect any rights of supplemental
lenders under the RUS Mortgage, or other creditors of the borrower.
(c) Nothing in this subpart shall prohibit a borrower from making
prepayments of any loans pursuant to the RE Act in accordance with the
terms of such loans.

Sec. 1786.163 Existing wholesale power contracts.

(a) If the borrower is a party to a wholesale power contract with a
power supply borrower financed pursuant to the RE Act, the Administrator
may require that the borrower and the power supply borrower enter into a
supplement to the outstanding wholesale power contract providing
substantially as follows:

Sample Contract Terms

So long as any of the notes evidencing secured loans of the power
supply borrower are outstanding, the borrower will not, without the
approval in writing of the power supply borrower and the Administrator,
take or suffer to be taken any steps for reorganization or dissolution,
or to consolidate with or merge into any corporation, or to sell, lease
or transfer (or make any agreement therefor) all or a substantial
portion of its assets, whether now owned or hereafter acquired. The
power supply borrower will not unreasonably withhold or condition its
consent to any such, reorganization, dissolution, consolidation, or
merger, or to any such sale, lease or transfer (or any agreement
therefor) of assets. The power supply borrower will not withhold or
condition such consent except in cases where to do otherwise would
result in rate increases for the other members of the power supply
borrower or impair the ability of the power supply borrower to repay its
secured loans in accordance with their terms, or adversely affect system
performance in a material way. Notwithstanding the foregoing, the
borrower may take or suffer to be taken any steps for reorganization or
dissolution or to consolidate with or merge into any corporation or to
sell, lease or transfer (or make any agreement therefor) all or a
substantial portion of its assets, whether now owned or hereafter
acquired without the power supply borrower's consent, so long as the
borrower shall pay such portion of the outstanding indebtedness on the
power supply borrower's notes or other obligations as shall be
determined by the power supply borrower with the prior written consent
of the Administrator and shall otherwise comply with such reasonable
terms and conditions as the Administrator and power supply borrower may
require either: (1) To eliminate any adverse effect that such action
seems likely to have on the rates of the other members of the power
supply borrower, or
(2) To assure that the power supply borrower's ability to repay the
secured loans and other obligations of the power supply borrower in
accordance with their terms is not impaired.
The Administrator may require, among other things, that any payment
owed under (2) of the preceding sentence that represents a portion of
the power supply borrower's indebtedness on Notes shall be paid by the
borrower in the manner necessary to accomplish a defeasance of those
obligations in accordance with the loan documents relating thereto, or
be paid directly to the holders of the Notes for application by them as
prepayments in accordance with the provisions of such documents, or be
paid to the power supply borrower and held and invested in a manner
satisfactory to the Administrator.

[[Page 1173]]

[End of sample contract terms]

(b) The Administrator may exempt a borrower from the requirement to
enter into a supplement to its outstanding wholesale power contract if
the Administrator determines that such requirement is burdensome and
unnecessary in light of the provisions of the existing wholesale power
contract, other security arrangements of the power supply borrower, and
any other relevant facts and circumstances. Normally such exemption will
be granted only with the concurrence of the power supply borrower.

Sec. 1786.164 Loan fund audit.

In the event that a borrower shall prepay all its outstanding
electric loans RUS shall have the right to audit within six (6) months
of closing transactions involving the RUS Construction Fund Account
established and maintained by the borrower pursuant to the terms of the
RUS Loan Contract and to inspect all books, records, accounts, and other
documents and papers of the borrower. Should RUS determine that the
borrower has made disbursements of funds advanced pursuant to the RUS
Loan Contracts which do not comply with the requirements thereof, the
borrower shall be required to pay the RUS an amount equal to the
difference between the amount which the borrower prepaid under this
subpart with respect to such advances, and the amount which the borrower
would otherwise have been required to return to the RUS as a result of
noncompliance if the borrower had not prepaid such advances, plus
interest. (See 7 CFR part 1721, Post-Loan Policies and Procedures for
Insured Electric Loans.)

Sec. 1786.165 Reporting.

Borrowers that no longer have any loans made or guaranteed by RUS
and are considering applying for other financial assistance pursuant to
the RE Act are encouraged to file the end-of-year operating report, RUS
Form 7.

Sec. 1786.166 Approvals.

The borrower shall be responsible for obtaining all approvals
necessary to consummate the transaction as required by the prepayment
agreement, including such approvals as may be required by regulatory
bodies and other lenders.

Sec. 1786.167 Restrictions to additional RUS financing.

(a) No borrower that prepays an electric loan at a discount as
provided under this subpart may apply for or receive direct or insured
loans during the 120 months from the most recent closing date, except at
the discretion of the Administrator. During the 120 month period the
Administrator may consider providing an insured loan if, among other
matters, it is necessary to assure repayment of, or protect the
Government's security for any outstanding loans or loan guarantees, or
the borrower's system has suffered severe physical plant related damage
due to conditions beyond its control and the borrower is unable to
obtain financing at reasonable terms to restore the system from non-RUS
sources, including the Federal Emergency Management Agency, and from
private sources. Upon expiration of the 120 months, such borrowers may
apply for direct or insured loans in the same manner as other borrowers
provided that such borrowers may not apply for direct or insured loans
for facilities, construction of which commenced prior to the expiration
of the 120 months. Special provisions for mergers involving a borrower
that has prepaid pursuant to this subpart are in 7 CFR 1717.158.
(b) Borrowers that prepay their direct or insured RUS loans under
this subpart remain eligible for certain types of financial assistance
under the RE Act, including loan guarantees and rural development loans.

[59 FR 13620, Mar. 22, 1994, as amended at 61 FR 66874, Dec. 19, 1996]

Sec. 1786.168 Borrowers who prepaid under this part prior to October 21, 1992.

(a) A borrower that had prepaid, prior to the date of enactment of
Public Law 102-428 (106 Stat. 2183) on October 21, 1992, at a discount
rate as provided at 7 CFR part 1786, subpart C:
(1) Shall not be eligible except at the discretion of the
Administrator as stated in paragraph Sec. 1786.167(a), to apply for or
receive direct or insured loans

[[Page 1174]]

during the 180-month period beginning on the date of the prepayment; and
(2) Shall not be eligible to apply for or receive direct or insured
loans from RUS until the borrower has repaid to the RUS the sum of:
(i) The amount (if any) by which the discount the borrower received
by reason of the prepayment exceeds the discount the borrower would have
received had the discount been based on the cost of funds to the
Department of the Treasury as calculated at Sec. 1786.153 at the time
of the prepayment; and
(ii) Interest on the amount described in paragraph (a)(2)(i) of this
section for the period beginning on the date of the prepayment and
ending on the date of the repayment, at a rate equal to the average
annual cost of borrowing by the Department of the Treasury. This rate
will be calculated first on the date of prepayment and at one year
intervals from that date based on the same U.S. Treasury issues
published in the Federal Reserve Statistical Release closest to that
date. The Treasury rate of interest to be applied for each year will be
the rate for the Treasury issue of comparable maturity to the number of
years from the prepayment date to the repayment date and at one year
intervals thereafter.
(b) If a borrower and the Administrator have entered into an
agreement with respect to a prepayment occurring before October 21,
1992, this section shall supersede any provision in the agreement
relating to the restoration of eligibility for loans under the RE Act.
(c) Borrowers who prepaid prior to October 1, 1987, are eligible for
assistance under the RE Act in the same manner as other borrowers with
respect to loan guarantees and the rural development loans.
(d) During the 180 month period described in paragraph (a)(1) of
this section the Administrator may consider providing an insured loan,
if the conditions described in Sec. 1786.167(a) exist.
(e) Borrowers may not apply for direct or insured loans for
facilities, construction of which commenced prior to the expiration of
the 180 month period described in paragraph (a)(1) of this section.

Sec. 1786.169 Liability.

It is the intent of this subpart that any failure on the part of RUS
to comply with any provisions of this subpart, including without
limitation, those provisions setting forth specified timeframes for
action by RUS on applications for prepayments or closing requests, shall
not give rise to liability of any kind on the part of the Government or
any employees of the Government including, without limitation, liability
for damages, fees, expenses or costs incurred by or on behalf of a
borrower, private lender or any other party.

Sec. 1786.170 Prepayment of loans approved after December 20, 1993. [Reserved]

Sec. Sec. 1786.171-1786.199 [Reserved]

Subpart G_Refinancing and Prepayment of RUS Guaranteed FFB Loans
Pursuant to Section 306(C) of the RE Act

Authority: 7 U.S.C. 901 et seq.; Pub. L. 103-354, 108 Stat. 3178 (7
U.S.C. 6941 et seq.); sec. 1201(b) of subtitle B of title 1 of Pub. L.
103-66, 107 Stat. 312.

Source: 58 FR 51008, Sept. 30, 1993, unless otherwise noted.

Sec. 1786.200 Purpose.

This subpart sets forth the policies and procedures of RUS through
the existing FFB program, whereby borrowers may prepay and refinance,
outstanding FFB Notes evidencing electric or telephone loans with FFB,
pursuant to the provisions of section 306(C) of the RE Act as added by
Public Law 103-66, 107 Stat. 312, enacted August 10, 1993.

Sec. 1786.201 Definitions and rules of construction.

[[Page 1175]]

Business day means any such day on which both the Federal Financing
Bank and Federal Reserve Bank--New York are open for business.
Electric loan means a loan made by FFB and guaranteed by RUS under
section 306 of the RE Act for electric service.
FFB means the Federal Financing Bank, an instrumentality and wholly
owned corporation of the United States.
Government means the United States of America, acting through the
Administrator of the Rural Utilities Service.
Loan guarantee means RUS's guarantee under section 306 of the RE Act
of a loan from FFB.
Payment date means the date that payment is due and is the last day
in a calendar quarter.
Prepayment penalty means the same as prepayment premium.
Prepayment premium shall have the meaning set forth at Sec.
1786.207.
RE Act means the Rural Electrification Act of 1936, as amended (7
U.S.C. 901 et seq.).
REA means the Rural Electrification Administration formerly an
agency of the United States Department of Agriculture and predecessor
agency to RUS with respect to administering certain electric and
telephone loan programs.
Refinancing note shall have the meaning set forth at Sec. 1786.206.
RUS means the Rural Utilities Service, an agency of the United
States Department of Agriculture established pursuant to Section 232 of
the Federal Crop Insurance Reform and Department of Agriculture
Reorganization Act of 1994 (Pub. L. 103-354, 108 Stat. 3178), successor
to REA with respect to administering certain electric and telephone
programs. See 7 CFR 1700.1.
RUS loan contract means the agreement, as amended, supplemented, or
restated from time to time, between a borrower and RUS providing for
loans or loan guarantees pursuant to the RE Act.
RUS mortgage means collectively those mortgages and security
agreements made by and between the borrower and the Government, securing
indebtedness evidencing electric and telephone loans or loan guarantees
made pursuant to RE Act. The term includes such mortgages regardless
whether third parties are mortgagees with RUS.
Supplemental lender means a private lender whose loan to the
borrower is secured under an RUS mortgage.
Telephone loan means a loan made by FFB and guaranteed by RUS under
section 306 of the RE Act for telephone service.
(b) Rules of construction. Unless the context shall otherwise
indicate, the terms defined in paragraph (a) of this section include the
plural as well as the singular, and the singular as well as the plural.
The words ``herein,'' ``hereof'' and ``hereunder'', and words of similar
import, refer to this subpart as a whole.

[58 FR 51008, Sept. 30, 1993, as amended at 59 FR 66440, Dec. 27, 1994]

Sec. 1786.202 Prepayment and refinancing of RUS guaranteed FFB loans.

The borrower of an electric or telephone loan made by the FFB and
guaranteed by RUS under section 306 of the RE Act may, at the option of
the borrower, refinance or prepay a loan or an advance on the loan, or
any portion of the loan or advance in accordance with section 306C of
the RE Act, after meeting certain conditions using the procedures
prescribed in the note. After refinancing existing notes under this
section, additional prepayments or refinancings will be governed by the
terms of the refinancing note(s).

Sec. 1786.203 Special considerations.

Generally all FFB borrowers with loans guaranteed by RUS whose FFB
notes have not been accelerated are eligible to prepay or refinance
under this part. All requests for prepayment or refinancing will be
processed in accordance with this subpart except that some requests for
refinancing and prepayments are more complicated and thus will involve
special considerations. These requests will have to be handled on a case
by case basis and include:
(a) Telephone borrowers who are required to meet certain terms of
their indenture;

[[Page 1176]]

(b) Borrowers who have amended their old form note or have already
repriced prior to September 30, 1993;
(c) Borrowers that have been involved in a merger or consolidation;
(d) Borrowers whose obligations to RUS, FFB notes, or security
instruments differ from those normally used;
(e) A request to prepay or refinance an amount of less than $100,000
or an amount of less than the full amount of an advance outstanding; or
(f) A request to prepay or refinance a note that includes unadvanced
loan funds.

Sec. 1786.204 Limitations.

(a) No more than three refinancing notes will be executed for any
borrower per calendar year.
(b) The borrower may not select a term for the refinanced advance
that ends after the maturity date set for that advance.

Sec. 1786.205 Application procedure.

(a) Any borrower seeking to prepay or refinance an advance from the
FFB under this subpart should apply by letter to the appropriate RUS
Regional Director or, in the case of power supply borrowers, to the
Director of the Power Supply Division. The borrower will be required to
submit applications and elections in a digital format to be supplied by
RUS. The application letter shall provide the following:
(1) Borrower's RUS designation;
(2) Borrower's name and address;
(3) Listing of each note to be prepaid by loan designation, RUS note
number, RUS account number, advance date, maturity date, original
amount, outstanding balance, and date(s) of any substitute FFB note(s)
amending the original FFB Note;
(4) A statement of the borrower's intention to finance the premium
by an addition to principal balance or to pay the premium in cash or
with unsecured debt;
(5) A statement of the maturity options that the borrower wishes to
select;
(6) Such additional information as the Administrator may request.
(b) Requests for refinancing or prepayment will ordinarily be
processed in the order that they are received. Borrower's may withdraw
an application by notifying the appropriate RUS office in which they
filed the application.
(c) When the request for prepayment or refinancing is approved for
processing the borrower will be provided with appropriate instructions,
documents and forms which may include but are not limited to the
following:
(1) An FFB refinancing note;
(2) Resolution of Board of Directors;
(3) Legal Opinion;
(4) Certificate of Secretary;
(5) Waiver of Notice;
(6) Notice to borrower electing an effective date other than a
scheduled quarterly payment date (if applicable);
(7) Documentation of obligations secured pursuant to section
1786.208 if any; and
(8) Security instrument.

(Approved by the Office of Management and Budget under control number
0572-0032)

Sec. 1786.206 Refinancing note.

(a) RUS will issue a replacement guaranty for refinancing notes
delivered to FFB to replace and substitute for existing FFB notes in
connection with any refinancing by FFB pursuant to section 306C of the
RE Act.
(b) Generally, refinancing notes will, to the extent practicable,
consolidate all of a borrower's existing FFB notes which have been
guaranteed by RUS and containing terms and conditions as FFB may require
and RUS and the borrower may accept.
(c) Notwithstanding any contrary provision contained in this
subpart, RUS will give preference to processing refinancings that
utilize a generic form of refinancing note in the event that FFB
prescribes one.

[58 FR 51008, Sep. 30, 1993; 58 FR 58729, Nov. 3, 1993]

Sec. 1786.207 Prepayment premium.

(a) A premium shall be assessed against a borrower that refinances
or prepays a loan or loan advance, or any portion of a loan or advance,
under this section. RUS will collect the prepayment premium as
calculated by FFB. FFB will calculate this premium as described in this
section. Except as provided in paragraph (b) of this section,

[[Page 1177]]

the premium shall be equal to the lesser of:
(1) The difference between the outstanding principal balance of the
loan being refinanced and the present value of the loan discounted at a
rate equal to the then current cost of funds to the Department of the
Treasury for obligations of comparable maturity to the loan being
refinanced or prepaid;
(2) 100 percent of the amount of interest for 1 year on the
outstanding principal balance of the loan or loan advance, or any
portion of the loan or advance, being refinanced, multiplied by the
ratio that:
(i) The number of quarterly payment dates between the date of the
refinancing or prepayment and the maturity date for the loan advance;
bears to
(ii) The number of quarterly payment dates between the first
quarterly payment date that occurs 12 years after the end of the year in
which the amount being refinanced was advanced and the maturity date of
the loan advance; and
(3)(i) The present value of 100 percent of the amount of interest
for 1 year on the outstanding principal balance of the loan or loan
advance, or any portion of the loan or advance, being refinanced or
prepaid; plus
(ii) For the interval between the date of the refinancing or
prepayment and the first quarterly payment date that occurs 12 years
after the end of the year in which the amount being refinanced or
prepaid was advanced, the present value of the difference between:
(A) Each payment scheduled for the interval on the loan amount being
refinanced or prepaid; and
(B) The payment amounts that would be required during the interval
on the amounts being refinanced or prepaid if the interest rate on the
loan were equal to the then current cost of funds to the Department of
the Treasury for obligations of comparable maturity to the loan being
refinanced or prepaid.
(b)(1) Except as provided in paragraph (b)(2) of this section, the
premium provided by paragraph (a)(1) of this section shall be required
for refinancing or prepayment under this section.
(2) In the case of a loan advanced under an agreement that permits
the refinancing or prepayment of the loan advance based on the payment
of 1 year of interest on the outstanding principal balance of the loan
advance, a borrower may, in lieu of the premium required by paragraph
(a)(1) of this section, pay a premium as provided by:
(i) Paragraph (a)(2) of this section, if the loan advance has
reached the 12-year maturity required under the loan agreement for the
refinancing or prepayment; or
(ii) Paragraph (a)(3) of this section, if the loan advance has not
reached the 12-year maturity required under the loan agreement for the
refinancing or prepayment.

Sec. 1786.208 Increased principal.

A borrower can meet the premium requirements by increasing the
outstanding principal balance of the loan advance that is being
refinanced. If it does so the borrower shall make a payment at the time
of the refinancing equal to 2.5 percent of the amount of the premium
that is added to the outstanding principal balance of the loan.

Sec. 1786.209 Outstanding loan documents.

(a) Except as expressly provided in this subpart, the borrower shall
comply with all provisions of its RUS loan contract, its outstanding
notes issued to RUS, and the RUS mortgage.
(b) Nothing in this subpart shall affect any rights of supplemental
lenders under the RUS mortgage or the rights of any other creditors of
the borrower.
(c) Nothing in this subpart shall prohibit a borrower from making
prepayments on any loans pursuant to the RE Act in accordance with the
terms thereof or as may be otherwise permitted by law.

Sec. 1786.210 Approvals.

The borrower shall be responsible for obtaining all approvals
necessary to consummate the transaction as required by the refinancing
note, including such approvals as may be required by regulatory bodies
and other lenders.

[[Page 1178]]