[Title 31 CFR 25]
[Code of Federal Regulations (annual edition) - July 1, 2002 Edition]
[Title 31 - MONEY AND FINANCE: TREASURY]
[Part 25 - PREPAYMENT OF FOREIGN MILITARY SALES LOANS MADE BY THE DEFENSE SECURITY ASSISTANCE AGENCY AND FOREIGN MILITARY SALES LOANS MADE BY THE FEDERAL]
[From the U.S. Government Printing Office]
31MONEY AND FINANCE: TREASURY12002-07-012002-07-01falsePREPAYMENT OF FOREIGN MILITARY SALES LOANS MADE BY THE DEFENSE SECURITY ASSISTANCE AGENCY AND FOREIGN MILITARY SALES LOANS MADE BY THE FEDERAL25PART 25MONEY AND FINANCE: TREASURY
PART 25--PREPAYMENT OF FOREIGN MILITARY SALES LOANS MADE BY THE DEFENSE SECURITY ASSISTANCE AGENCY AND FOREIGN MILITARY SALES LOANS MADE BY THE FEDERAL
FINANCING BANK AND GUARANTEED BY THE DEFENSE SECURITY ASSISTANCE AGENCY--Table of Contents
Subpart A--General
Sec.
25.100 Definitions.
25.101 OMB control number.
Subpart B--Qualifications for Prepayment
25.200 General rules.
Subpart C--Procedures
25.300 Application procedure.
25.301 Approval procedure.
25.302 Application withdrawal; effect of approval.
25.303 Closing procedure.
Subpart D--Form of Private Loan
25.400 Loan provisions.
25.401 Fees.
25.402 Transferability.
25.403 Registration.
25.404 Non-separability.
25.405 Form of guaranty.
25.406 Savings clause.
Authority: Title III, Pub. L. 100-202; 31 U.S.C. 321.
Source: 53 FR 25426, July 6, 1988, unless otherwise noted.
Subpart A--General
Sec. 25.100 Definitions.
In this part, unless the context indicates otherwise:
(a) Act means the provisions entitled ``Foreign Military Sales Debt
Reform,'' of Title III, entitled ``Military Assistance,'' of an act
entitled ``Foreign Operations, Export Financing and Related Programs
Appropriations Act, 1988'' (Pub. L. 100-202), enacted December 22, 1987.
(b) AECA means the Arms Export Control Act, as amended (22 U.S.C.
2751 et seq.).
(c) Borrower means the obligor on an FMS Advance.
(d) Closing date means:
(1) With respect to the prepayment of the amounts permitted by this
part to be prepaid of FMS Loans held by DSAA, the date designated by the
mutual agreement of both the Borrower and DSAA on which the Guaranty
will be attached to the Private Loan Note or the Private Loan Portion
Notes, as the case may be, the Private Loan will be funded, and the
Total Permitted Prepayment Amount, or the portion thereof which the
Borrower has selected to prepay, will be prepaid; and
(2) With respect to the prepayment of the amounts permitted by this
part to be prepaid of FMS Loans held by the FFB and guaranteed by DSAA,
the date designated by the mutual agreement of the Borrower, the FFB,
and DSAA on which the Guaranty will be attached to the Private Loan Note
or the Private Loan Portion Notes, as the case may be, the Private Loan
will be funded, and the Total Permitted Prepayment Amount, or Portion
thereof which the Borrower has selected to prepay, will be prepaid.
(e) Derivative means any right, interest, instrument or security
issued or traded on the credit of the Private Loan or any Private Loan
Portion, including but not limited to:
(1) Any participation share of, or undivided ownership or other
equity interest in, the Private Loan or any Private Loan Portion;
(2) Any note, bond or other debt instrument or obligation which is
collateralized or otherwise secured by a pledge of, or secruity interest
in, the Private Loan or any Private Loan Portion; or
(3) Any such interest in such an interest or any such instrument
secured by such an instrument.
(f) DSAA means the Defense Security Assistance Agency, an agency
within the Department of Defense.
(g) Eligible FMS advance means any FMS Advance which:
(1) Was outstanding on December 22, 1987;
(2) Has principal amounts becoming due and payable after September
30, 1989; and
(3) Bears interest at a rate equal to or greater than 10 percentum
per annum.
[[Page 247]]
Eligible FMS Advance may include FMS Advances meeting the criteria of
Eligible FMS Advance which are made on account of FMS Loans even when
such FMS Loans do not, in themselves, meet the criteria of Eligible FMS
Loan.
(h) Eligible FMS loan means any FMS Loan which:
(1) Was outstanding on December 22, 1987;
(2) Has principal amounts becoming due and payable after September
30, 1989; and
(3) Bears interest pursuant to the terms of the loan agreement
relating thereto at a consolidated rate equal to or greater than 10
percentum per annum.
Eligible FMS Loans may include FMS Advances which are made on account of
FMS Loans meeting the criteria of Eligible FMS Loan even when such FMS
Advances do not, in themselves, meet the criteria of Eligible FMS
Advance.
(i) Eligible private lender means either:
(1) Any of the following entities:
(i) Any banking, savings, or lending institution, or any subsidiary
or affiliate thereof, chartered or otherwise lawfully organized under
the laws of any State, the District of Columbia, the United States or
any territory or possession of the United States, including, but not
limited to, any bank, trust company, industrial bank, investment banking
company, savings association, savings and loan association, building and
loan association, savings bank, credit union, or finance company, which
is doing business in the United States;
(ii) Any broker or dealer registered with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934;
(iii) Any company lawfully organized as an insurance company, and
which is subject to supervision by the insurance commissioner or a
similar official or agency of a State; or
(iv) Any United States pension fund; or
(2) Any trust or other special purpose financing entity which is
funded initially by an entity or entities of the type described in
paragraph (i)(1) of this section.
(j) FFB means the Federal Financing Bank, and instrumentality and
wholly-owned corporation of the United States.
(k) FMS means Foreign Military Sales.
(l) FMA advance means:
(1) A disbursement of funds made pursuant to a loan agreement
between the Borrower and DSAA, which loan agreement provides for making
of an FMS Loan; or
(2) A disbursement of funds made pursuant to a loan agreement
between the Borrower and the FFB, which loan agreement provides for the
making of an FMS Loan.
(m) FMS loan means either:
(1) A loan made directly by the Secretary of Defense pursuant to
section 23 of AECA; or
(2) A loan made by the FFB and guaranteed by the Secretary of
Defense pursuant to section 24 of AECA; and ``FMS Loans'' mean the
aggregate of such loans made to or for the account of a Borrower.
(n) Guaranteed-amount debt derivative means any note, bond or other
debt instrument or obligation which is collateralized or otherwise
secured by a pledge of, or security interest in, the Private Loan Note
or any Private Loan Portion Note or any Derivative, as the case may be,
which has an exclusive or preferred claim to the Guaranteed Loan Amount
or the respective Guaranteed Loan Portion Amount or the respective
Guaranteed-Amount Equivalent, as the case may be.
(o) Guaranteed-amount equity derivative means any participation
share of, or undivided ownership or other equity interest in, the
Private Loan or any Private Loan Portion or any Derivative, as the case
may be, which has an exclusive or preferred claim to the Guaranteed Loan
Amount or the respective Guaranteed Loan Portion Amount or the
respective Guaranteed-Amount Equivalent, as the case may be.
(p) Guaranteed-amount equivalent means:
(1) With respect to any Derivative which is equal in principal
amount to the Private Loan or any Private Loan Portion, that amount of
payment on account of such Derivative which is
[[Page 248]]
equal to the Guaranteed Loan Amount or the respective Guaranteed Loan
Portion Amount, as the case may be; or
(2) With respect to any Derivatives which in the aggregate are equal
in principal amount to the Private Loan or any Private Loan Portion,
that amount of payment on account of such derivatives which is equal to
the Guaranteed Loan Amount or the respective Guaranteed Loan Portion
Amount, as the case may be.
(q) Guaranteed loan amount means that amount of payment on account
of the Private Loan which is guaranteed under the terms of the Guaranty.
(r) Guaranteed loan portion amount means that amount of payment on
account of any Private Loan Portion which is guaranteed under the terms
of the Guaranty.
(s) Guaranty means either a new guaranty of the United States issued
by DSAA or an existing guaranty of the United States transferred by
DSAA, in the form of guaranty set forth in Sec. 25.405, which guaranty
will be attached to a Private Loan Note or Private Loan Portion Note.
(t) Interest rate difference means the difference between:
(1) The cost of funds to the Borrower for the Private Loan
(expressed in terms of the true rate of interest applicable to the
Private Loan) if paragraph (a) of Sec. 25.404 applies to the Private
Loan; and
(2) The cost of funds to the Borrower for the Private Loan
(expressed in terms of the true rate of interest applicable to the
Private Loan) if paragraph (a) of Sec. 25.404 does not apply to the
Private Loan.
(u) Non-registered obligation means a bearer obligation which does
not comply with all of the registration requirements of the Internal
Revenue Code.
(v) Permitted arrears prepayment amount means the sum of all
arrears, if any, on all FMS Loans, which arrears are outstanding on the
Closing Date.
(w) Permitted guaranty holder means:
(1) An individual domiciled in the United States;
(2) A corporation incorporated, chartered or otherwise organized in
the United States; or
(3) A partnership or other juridical entity doing business in the
United States.
(x) Permitted P&I prepayment amount means, with respect to each
Eligible FMS Loan or Eligible FMS Advance, as the case may be, the sum
of:
(1) All principal amounts which become due and payable after
September 30, 1989, on the respective Eligible FMS Loan or Eligible FMS
Advance; and
(2) All unpaid interest, if any, on the respective Eligible FMS Loan
or Eligible FMS Advance accrued as of the Closing Date.
(y) Private loan means, collectively, the loan or loans that is or
are obtained by the Borrower from an Eligible Private Lender to prepay
the Total Permitted Prepayment Amount, or the portion thereof which the
Borrower has selected to prepay.
(z) Private loan note means, collectively, the note or notes
executed and delivered by the Borrower to evidence the Private Loan.
(aa) Private loan portion means any portion of the Private Loan.
(bb) Private loan portion note means any note executed and delivered
by the Borrower to evidence a Private Loan Portion.
(cc) Total permitted prepayment amount means the sum of:
(1) The aggregate of the respective Permitted P&I Prepayment amount
for all Eligible FMS Loans and all Eligible FMS Advances on account of
FMS Loans which FMS Loans do not, in themselves, meet the criteria of
Eligible FMS Loans; and
(2) The Permitted Arrears Prepayment Amount.
(dd) Unguaranteed-amount equivalent means all amounts of payment on
account of any Derivative other than the respective Guaranteed-Amount
Equivalent.
(ee) Unguaranteed loan amount means all amounts of payment on
account of the Private Loan other than the Guaranteed Amount.
(ff) Unguaranteed loan portion amount means all amounts of payment
on account of any Private Loan Portion other than the respective
Guaranteed Loan Portion Amount.
[[Page 249]]
Sec. 25.101 OMB control number.
The reporting requirements in this part have been approved under the
Office of Management and Budget control number 1505-0109.
Subpart B--Qualifications for Prepayment
Sec. 25.200 General rules.
(a) To qualify for a loan prepayment at par pursuant to subsection
(a) of the Act, a Borrower must have an Eligible FMS Loan or an Eligible
FMS Advance.
(b) A Borrower may prepay the Total Permitted Prepayment Amount in
portions using more than one closing; however, all prepayments of the
Total Permitted Prepayment Amount must have a Closing Date that is not
later than September 30, 1991.
(c) A Borrower may prepay all or a portion of the Total Permitted
Prepayment Amount; however, if a Borrower selects to prepay any
Permitted P&I Prepayment Amount of an FMS Advance, the Borrower must
prepay the entire Permitted P&I Prepayment Amount of such FMS Advance.
(d) If the payment billings of an FMS Loan have been consolidated in
accordance with the terms of the respective loan agreement, and if any
principal payments have been made on account of the FMS Loan, then the
outstanding principal balances of any Eligible FMS Advances shall be
determined in accordance with the principal of ``first disbursed, first
repaid,'' that is, advances on account of the FMS Loan shall be deemed
to have been repaid in the chronological order in which they were
disbursed.
Subpart C--Procedures
Sec. 25.300 Application procedure.
(a) Each Borrower that wishes to prepay at par the Total Permitted
Prepayment Amount, or any portion thereof, must submit a written
prepayment application. To be considered complete, a prepayment
application must contain the following information and materials:
(1) Part I of the prepayment application shall be the identification
of each Eligible FMS Loan or Eligible FMS Advance, as the case may be,
with respect to which the Borrower has selected to prepay the amount
thereof permitted by this part to be prepaid, setting forth with respect
to each such Eligible FMS Loan or Eligible FMS Advance:
(i) The date on which the Eligible FMS Advance was made or the date
on which the Eligible FMS Loan was signed;
(ii) The original amount of the Eligible FMS Loan or Eligible FMS
Advance;
(iii) The principal and interest payment schedule of the Eligible
FMS Loan or Eligible FMS Advance; and
(iv) The maturity of the Eligible FMS Loan or Eligible FMS Advance.
(2) Part II of the prepayment application shall be the Borrower's
estimate of the Permitted Arrears Prepayment Amount calculated as of the
date of the application;
(3) Part III of the prepayment application shall be a description of
each Private Loan, 90 percent of which the Borrower seeks to have
guaranteed, setting forth with respect to each Private Loan:
(i) The total amount of the Private Loan,
(ii) The proposed principal and interest payment schedule of the
Private Loan,
(iii) The proposed maturity of the Private Loan, and
(iv) The identity of each Eligible FMS Loan or Eligible FMS Advance
with respect to which amount thereof permitted by this part to be
prepaid is to be prepaid with the proceeds of the Private Loan;
(4) Part IV of the prepayment application shall be all material
transaction documents, in substantially final form, relating to the
prepayment of the Total Permitted Prepayment Amount, or the portion
thereof which the Borrower has selected to prepay, with the proceeds of
the Private Loan; and
(5) Part V of the prepayment application shall be the name, address,
and telephone number of the Borrower's contact person with whom the FFB
or DSAA will communicate to arrange for prepayment and closing.
(b) Each prepayment application shall be submitted in triplicate to
[[Page 250]]
DSAA at the following address: Defense Security Assistance Agency, The
Pentagon, Washington, DC 20301-2800, Attention: Deputy Comptroller.
(c) A Borrower wishing to obtain preliminary, nonbinding review of a
plan to prepay at par the Total Permitted Prepayment Amount, or any
portion thereof, may, at the Borrower's option, prior to submitting a
prepayment application in accordance with paragraph (a) of this section,
submit to DSAA, at the address set forth in paragraph (b) of this
section, a written plan of prepayment. To qualify for review, a plan of
prepayment must include a detailed description of the proposed financing
structure clearly addressing the terms and conditions of the proposed
Private Loan. DSAA will review each plan of prepayment submitted by
Borrowers and may engage in informal, non-binding discussions with each
Borrower that submitted a plan of prepayment to assist such Borrower in
preparing a prepayment application.
Sec. 25.301 Approval procedure.
(a) Distribution, Review, and Processing by DSAA. (1) Upon receipt
of three copies of a completed prepayment application from a Borrower,
DSAA will promptly deliver one copy of Parts I and II of the prepayment
application to the State Department and one copy of Parts I, II, and V
of the prepayment application to the Treasury Department.
(2) DSAA will review each completed prepayment application to ensure
that the Private Loan complies with the requirements of this part,
including without limitation the requirements of Sec. 25.400. DSAA will
also review each completed prepayment application to ensure that the
provisions of subsection (d) of the Act (Purposes and Reports) are
considered. DSAA will process each completed prepayment application
within 16 days after receipt by DSAA of the respective completed
application from a Borrower.
(3) After DSAA has processed a completed prepayment application,
DSAA will either:
(i) Return the application to the Borrower; or
(ii) Deliver to the State Department written evidence of the
approval of the prepayment application by DSAA.
(b) Review and Processing by the State Department. (1) The State
Department will review Parts I and II of each prepayment application
received by the State Department from DSAA to ensure that the provisions
of subsection (d) of the Act (Purposes and Reports) are considered. The
State Department will process Parts I and II of each prepayment
application within 7 days after receipt by the State Department of
written evidence of the approval of the prepayment application by DSAA.
(2) After the State Department has processed Parts I and II of a
prepayment application, the State Department will either:
(i) Return the parts of the application to DSAA for return to the
Borrower; or
(ii) Deliver to the Treasury Department written evidence of the
approvals of the prepayment application by DSAA and the State
Department.
(c) Processing by the Treasury Department--(1) FMS Loans held by
DSAA. (i) The Treasury Department will process Parts I and II of each
prepayment application regarding an Eligible FMS Loan made by DSAA or an
Eligible FMS Advance on account of an FMS Loan made by DSAA, as the case
may be, within 7 days after receipt by the Treasury Department of
written evidence of the approvals of the prepayment application by DSAA
and the State Department;
(ii) After the Treasury Department has processed Parts I and II of a
prepayment application, the Treasury Department will return the parts of
the application to DSAA, and thereupon DSAA will commence the Closing
Procedures described in Sec. 25.303(a) with respect to the application.
(2) FMS Loans held by the FFB. (i) The Treasury Department will
process Parts I and II of each prepayment application regarding an
Eligible FMS Loan made by the FFB and guaranteed by DSAA or an Eligible
FMS Advance on account of an FMS Loan made by the FFB and guaranteed by
DSAA, as the case may be, within 7 days after receipt by the Treasury
Department from the State Department of written evidence of the
approvals of the prepayment application by DSAA and the State
Department; and
[[Page 251]]
(ii) After the Treasury Department has processed Parts I and II of a
prepayment application, the Treasury Department will commence the
Closing Procedures described in Sec. 25.303(b) with respect to the
application.
Sec. 25.302 Application withdrawal; effect of approval.
A Borrower that submits a prepayment application may withdraw the
prepayment application at any time prior to its approval. Even after a
Borrower's prepayment application has been approved, the Borrower is not
obligated to prepay its Eligible FMS Loans or Eligible FMS Advances.
Sec. 25.303 Closing procedure.
(a) FMS loans held by DSAA. (1) After the Treasury has processed
Parts I and II of a prepayment application regarding an Eligible FMS
Loan made by DSAA or an Eligible FMS Advance on account of an FMS Loan
made by DSAA, as the case may be, DSAA will communicate with the
Borrower's contact person identified in Part V of the prepayment
application to establish a Closing Date mutually agreeable to the
Borrower and DSAA. DSAA will inform the Borrower of the final amount of
the Total Permitted Prepayment Amount, or the portion thereof which the
Borrower has selected to prepay, as of the Closing Date established. The
determination by DSAA of the final amount of the Total Permitted
Prepayment Amount, or the portion thereof which the Borrower has
selected to prepay, shall be conclusive.
(2) On the Closing Date, the Guaranty will be attached to the
Private Loan Note or the Private Loan Portion Notes, as the case may be,
the Private Loan shall be funded, and the Total Permitted Prepayment
Amount, or the portion thereof which the Borrower has selected to
prepay, will be prepaid.
(3) The attachment of the Guaranty to the Private Loan Note or the
Private Loan Portion Notes, as the case may be, will take place at such
location as may be designated by the mutual agreement of the Borrower
and DSAA.
(4) Prior to 1:00 p.m. prevailing local time in New York, New York,
on the Closing Date, immediately available funds in amounts sufficient
to prepay the Total Permitted Prepayment Amount, or the portion thereof
which the Borrower has selected to prepay, shall be transferred by
electronic funds transfer to DSAA at the Treasury Department account at
the Federal Reserve Bank of New York. The funds transfer message must
include the following credit information:
United States Treasury, New York, New York, 021030004, TREAS NYC/
(5037).
For credit to the Defense Security Assistance Agency, The Pentagon,
Washington, DC 20301-2800.
This information must be exactly in this form (including spacing between
words and numbers) to insure timely receipt by the DSAA. Checks, drafts,
and other orders for payment will not be accepted.
(b) FMS Loans held by the FFB. (1) After the Treasury Department has
processed Parts I and II of a prepayment application regarding an
Eligible FMS Loan made by the FFB and guaranteed by DSAA or an Eligible
FMS Advance on account of an FMS Loan made by the FFB and guaranteed by
DSAA, as the case may be, the FFB will communicate with the Borrower's
contact person identified in Part V of the prepayment application to
establish a Closing Date mutually agreeable to the Borrower, the FFB,
and DSAA. The FFB will inform the Borrower of the final amount of the
Total Permitted Prepayment Amount, or the portion thereof which the
Borrower has selected to prepay, as of the Closing Date established. The
determination by the FFB of the final amount of the Total Permitted
Prepayment Amount, or the portion thereof which the Borrower has
selected to prepay, shall be conclusive.
(2) On the Closing Date, the Guaranty will be attached to the
Private Loan Note or the Private Loan Portion Notes, as the case may be,
the Private Loan will be funded, and the Total Permitted Prepayment
Amount, or the portion thereof which the Borrower has selected to
prepay, will be prepaid.
(3) The attachment of the Guaranty to the Private Loan Note or the
Private Loan Portion Notes, as the case
[[Page 252]]
may be, will take place at such location as may be designated by the
mutual agreement of the Borrower and DSAA.
(4) Prior to 1:00 p.m. prevailing local time in New York, New York,
on the Closing Date, immediately available funds in amounts sufficient
to prepay at par the Permitted Prepayment Amount, or the portion thereof
which the Borrower has selected to prepay, shall be transferred by
electronic funds transfer to the Treasury Department account at the
Federal Reserve Bank of New York. The funds transfer message must
include the following credit information:
United States Treasury, New York, New York, 021030004, TREAS NYC/
(20180006).
For credit to the Federal Financing Bank, Room 143, Liberty Center
Building, 401 14th Street SW., Washington, DC 20227.
This information must be exactly in this form (including spacing between
words and numbers) to insure timely receipt by the FFB. Checks, drafts,
and others for payment will not be accepted.
(c) Changes in the closing date. If a Borrower does not prepay the
Total Permitted Prepayment Amount or the portion thereof which the
Borrower has selected to prepay, on the mutually agreed upon Closing
Date, the Borrower may prepay the Total Permitted Prepayment Amount, or
the portion thereof which the Borrower has selected to prepay, on a new
Closing Date, provided that the new Closing Date is mutually agreeable
to all interested parties, and provided, further, that the Borrower
prepays such amount in accordance with the approved prepayment
application, adjusted for changes in accrued interest.
Subpart D--Form of Private Loan
Sec. 25.400 Loan provisions.
(a) Subject to the provisions of paragraph (b) of this section, the
principal and interest payment schedule and maturity of the Private Loan
must be the same as the payment schedules and maturities of the Eligible
FMS Loans or Eligible FMS Advances, as the case may be, which the
Borrower has selected to prepay with the proceeds of the Private Loan.
(b) Notwithstanding the preceding paragraph, an Eligible Private
Lender that proposes to make a Private Loan, the proceeds of which will
be used to prepay Eligible FMS Loans or Eligible FMS Advances, as the
case may be, having differing payment structures and maturities, may:
(1) Consolidate the differing payment structures of the Eligible FMS
Loans or the Eligible FMS Advances, as the case may be, into a single
payment structure which complies with the following criteria:
(i) The Private Loan shall have one set of semi-annual payment
dates;
(ii) Interest on and principal of the Private Loan shall be payable
semi-annually; and
(iii) The amount of principal to be paid each year on account of the
Private Loan shall be equal (rounded to the nearest $1,000.00 if
desired, except for the final payment) to the aggregate amount of
principal that is scheduled to be paid in such year on account of the
respective Eligible FMS Loans or Eligible FMS Advances; or
(2) Consolidate the differing payment structures and maturities of
the Eligible FMS Loans or the Eligible FMS Advances, as the case may be,
into a single payment structure and maturity complying with the
following criteria:
(i) The final maturity date of the Private Loan shall be the
approximate weighted average of the final maturity dates of the Eligible
FMS Loans or the Eligible FMS Advances with respect to which the
Borrower has selected to prepay amounts thereof permitted by this part
to be prepaid;
(ii) The initial principal payment date of the Private Loan shall
occur no later than the earliest scheduled principal payment date of the
Eligible FMS Loans or the Eligible FMS Advances with respect to which
the Borrower has selected to prepay amounts thereof permitted by this
part to be prepaid;
(iii) The Private Loan shall have one set of semi-annual payment
dates;
(iv) Interest on the Private Loan shall be payable semi-annually;
and
(v) The principal of the Private Loan shall be payable in equal
installments
[[Page 253]]
(rounded to the nearest $1,000.00 if desired, except for the final
payment) and shall be payable either semi-annually or annually.
Sec. 25.401 Fees.
The interest rate on the Private Loan may include compensation for
costs at prevailing market rates with the agreement of the Borrower and
the Eligible Private Lender selected by the Borrower.
Sec. 25.402 Transferability.
Each Private Loan Note, with the Guaranty attached, shall be fully
and freely transferable to any Permitted Guaranty Holder.
Sec. 25.403 Registration.
The Guaranty shall cease to be effective with respect to the Private
Loan or any Private Loan Portion or any Derivative to the extent that
the Private Loan or the respective Private Loan Portion or the
respective Derivative, as the case may be, is used to provide
significant support for a Non-Registered Obligation.
Sec. 25.404 Non-separability.
(a) The Guaranty shall cease to be effective with respect to any
Guaranteed Loan Amount or any Guaranteed Loan Portion Amount or any
Guaranteed-Amount Equivalent to the extent that:
(1) The Guaranteed Amount or the respective Guaranteed Loan Portion
Amount or the respective Guaranteed-Amount Equivalent, as the case may
be, is separated at any time from the Unguaranteed Loan Amount or the
respective Unguaranteed Loan Portion Amount or the respective
Unguaranteed-Amount Equivalent, as the case may be, in any way, directly
or through the issuance of any Guaranteed-Amount Equity Derivative or
any Guaranteed-Amount Debt Derivative; or
(2) Any holder of the Private Loan Note or any Private Loan Portion
Note or any Derivative, as the case may be, having a claim to payments
on the Private Loan receives more than 90 percent of any payment due to
such holder from payments made under the Guaranty at any time during the
term of the Private Loan.
(b) Notwithstanding the preceding paragraph, if any Guaranteed-
Amount Debt Derivative is issued, the Guaranty shall not cease to be
effective with respect to any Guaranteed Loan Amount or any Guaranteed
Loan Portion Amount or any Guaranteed-Amount Equivalent, as the case may
be, if both of the circumstances described in paragraphs (b)(1) and
(b)(2) of this section.
(1) A Borrower shall have delivered to the Secretary of the treasury
evidence, in form and substance satisfactory to the Secretary of the
Treasury, that the Interest Rate Difference will be substantial.
(i) To be considered, the evidence must meet the following
requirements:
(A) The Borrower must show that the Interest Rate Difference is
directly attributable to paragraph (a) of this section being applied to
the Private Loan, that is, that the Interest Rate Difference will exist
even when all other financing terms of the Private Loan, including any
collateralization of the Unguaranteed Loan Amount or the respective
Unguaranteed Loan Portion Amount or the respective Unguaranteed-Amount
Equivalent, as the case may be, are identical;
(B) When calculating the Interest Rate Difference, the Borrower must
assume that the Unguaranteed Loan Amount or the respective Unguaranteed
Loan Portion Amount or the respective Unguaranteed-Amount Equivalent, as
the case may be, will be collateralized by securities backed by the full
faith and credit of the United States, unless the Borrower is legally
prohibited from so collateralizing the Unguaranteed Loan Amount or the
respective Unguaranteed Loan Portion Amount or the respective
Unguaranteed-Amount Equivalent, as the case may be, or the Borrower has
demonstrated to the satisfaction of the Secretary of the Treasury that
the Borrower is unable to so collateralize the Unguaranteed Loan Amount
or the respective Unguaranteed Loan Portion Amount or the respective
Unguaranteed-Amount Equivalent;
(C) If the Borrower is legally prohibited from collateralizing the
Unguaranteed Loan Amount or the respective Loan Guaranteed Portion
[[Page 254]]
Amount or the respective Unguaranteed-Amount Equivalent, as the case may
be, with securities backed by the full faith and credit of the United
States or has demonstrated to the satisfaction of the Secretary of the
Treasury that the Borrower is unable to so collateralize the
Unguaranteed Loan Amount or the respective Unguaranteed Loan Portion
Amount or the respective Unguaranteed-Amount Equivalent, as the case may
be, then the Borrower may calculate the Interest Rate Difference using
whatever collateralization assumptions the Borrower elects;
(D) If the Borrower delivers evidence to the Secretary of the
Treasury respecting the Interest Rate Difference, which evidence assumes
either that the Unguaranteed Loan Amount or the respective Unguaranteed
Loan Portion Amount or the respective Unguaranteed-Amount Equivalent, as
the case may be, will not be collateralized at all or that the
Unguaranteed Loan Amount or the respective Unguaranteed Loan Portion
Amount or the respective Unguaranteed-Amount Equivalent, as the case may
be, will be collateralized, but not by securities backed by the full
faith and credit of the United States, then the Borrower must also
deliver to the Secretary of the Treasury the written agreement of the
Borrower, which agreement shall be in form and substance satisfactory to
the Secretary of the Treasury, that the Borrower will not collateralize
the Unguaranteed Loan Amount or the respective Unguaranteed Loan Portion
Amount or the respective Unguaranteed-Amount Equivalent, as the case may
be, at any time during the term of the Private Loan in any way different
from the assumptions used in calculating the Interest Rate Difference;
and
(E) The Borrower must deliver to the Secretary of the Treasury the
evidence pertaining to the Interest Rate Difference at the time that the
Borrower submits to DSAA its plan for prepayment, if any, if no plan of
prepayment is submitted, then no later than 10 days prior to the time
that the Borrower submits to DSAA its prepayment application.
(ii) If the Secretary of the Treasury determines that the evidence
submitted by the Borrower pertaining to the Interest Rate Difference is
satisfactory in form and in substance, and that the Interest Rate
Difference is substantial, a modified version of the Guaranty (deleting
therefrom the provision that the Guaranty shall cease to be effective if
any Guaranteed-Amount Debt Derivative is issued) will be attached to the
Private Loan Note or the Private Loan Portion Notes, as the case may be.
(2) The Secretary of the Treasury shall have determined, in the sole
discretion of the Secretary of the Treasury, that the respective
Borrower's loan prepayment at par pursuant to subsection (a) of the Act
through the issuance of any Guaranteed-Amount Debt Derivative is
necessary to achieve the international economic policy interests of the
United States.
Sec. 25.405 Form of guaranty.
(a) The Guaranty that will be attached to the Private Loan Note on
the Closing Date shall be in the following form (except that the
bracketed words shall be deleted if the conditions specified in
Sec. 25.404(b) shall have occurred):
For Value Received, the Defense Security Assistance Agency of the
Department of Defense (``DSAA''), hereby guarantees to (Name of Lender)
(``Lender''), incorporated under the laws of (U.S. State or other U.S.
jurisdiction) or if not so incorporated or organized, then the principal
place of doing business is (U.S. location, address, and zip code), under
the authority of Section 24 of the Arms Export Control Act, as amended
(``Act''), the due and punctual payment of ninety percent (90%) of
amounts due: (1) on the promissory note (``Note'') in the principal
amount of up to $------ dated ------ issued to the Lender by the
Government of (Name of Borrower) (``Borrower'') pursuant to the Loan
Agreement between the Lender and the Borrower dated the ----th day of --
---- (``Agreement''); and (2) the Lender from the Borrower pursuant to
the Agreement.
This Guaranty is a guaranty of payment covering all political and
credit risks of nonpayment, including any nonpayment arising out of any
claim which the Borrower may now or hereafter have against any person,
corporation, or other entity (including without limitation, the United
States, the Lender, and any supplier of defense items) in connection
with any transaction, for any reason whatsoever. This Guaranty shall
inure to the
[[Page 255]]
benefit of and shall be enforceable by the Lender and any Permitted
Guaranty Holder (as hereinafter defined). This Guaranty shall not be
impaired by any law, regulation or decree of the Borrower now or
hereafter in effect which might in any manner change any of the terms of
the Note or Agreement. The obligation of DSAA hereunder shall be binding
irrespective of the irregularity, invalidity or unenforceability under
any laws, regulations or decrees of the Borrower of the Note, the
Agreement or other instruments related thereto.
DSAA hereby waives diligence, demand, protest, presentment and any
requirement that the Lender exhaust any right or power to take any
action against the Borrower and any notice of any kind whatsoever other
than the demand for payment required to be given to DSAA hereunder in
the event of default on a payment due under the Note.
In the event of failure of the Borrower to make payment, when and as
due, of any installment of principal or interest under the Note, the
DSAA shall make payment immediately to the Lender upon demand to the
DSAA after the Borrower's failure to pay has continued for 10 calendar
days. The amount payable under this Guaranty shall be ninety percent
(90%) of the amount of the overdue installment of principal and
interest, plus ninety percent (90%) of any and all late charges and
interest thereon as provided in the Agreement. Upon payment by DSAA to
the Lender, the Lender will assign to DSAA, without recourse or
warranty, ninety percent (90%) of all of its rights in the Note and the
Agreement with respect to such payment.
In the event of a default under the Agreement or the Note by the
Borrower and so long as this Guaranty is in effect and the DSAA is not
in default hereunder:
(i) The Lender or other Permitted Guaranty Holder shall not
accelerate or reschedule payment of the principal or interest on the
Note or any other note of the Borrower guaranteed by DSAA except with
the written approval of DSAA; and
(ii) The Lender or other Permitted Guaranty Holder shall, if so
directed by DSAA, invoke the default provisions of the Agreement.
Subject to the limitations set forth below, the Lender's rights
under this Guaranty may be assigned to any ``Permitted Guaranty
Holder,'' that is: (1) An individual domiciled in the United States; (2)
a corporation incorporated, chartered or otherwise organized in the
United States; or (3) a partnership or other juridical entity doing
business in the United States. In the event of such assignment DSAA
shall be promptly notified. The Lender will not agree to any material
amendment of the Agreement or Note or consent to any material deviation
from the provisions thereof without the prior written consent of DSAA.
Permitted Guaranty Holders shall be severally bound by, and shall be
severally entitled to, the rights and obligations of the Lender under
the Note, the Agreement, and this Guaranty. The Lender shall maintain a
current, accurate written record of the names, addresses, amount of
financial interest in the Note and Agreement, and date of acquisition of
such interest of each Permitted Guaranty Holder and shall furnish DSAA a
copy of such record on its demand without charge. No assignment by the
Lender or by any Permitted Guaranty Holder shall be effective for
purposes of this Guaranty unless and until so recorded by the Lender.
The total amount of this Guaranty shall not at any time exceed
ninety percent (90%) of the outstanding principal, unpaid accrued
interest and arrearages, if any, under the Agreement and the Note,
including any portion of the Note, or any derivative of the Note or any
portion of the Note.
This Guaranty shall cease to be effective with respect to the
guaranteed amount of the total amount of the Note (the ``Guaranteed Loan
Amount'') or with respect to the guaranteed amount of any portion of the
Note (the ``Guaranteed Loan Portion Amount'') [or with respect to the
amount of any derivative or derivatives of the Note or any portion of
the Note equal, or in the aggregate equal, in principal amount to the
total amount of the Note or such portion of the Note, as the case may
be, which amount of such derivative or derivatives is equal to the
respective Guaranteed Loan Amount or Guaranteed Loan Portion Amount, as
the case may be (the ``Guaranteed-Amount Equivalent'')] to the extent
that (1) the Guaranteed Loan Amount or the respective Guaranteed Loan
Portion Amount [or the respective Guaranteed-Amount Equivalent], as the
case may be, is at any time separated from the unguaranteed amount of
the total amount of the Note or the unguaranteed amount of the
respective portion of the Note [or the amount of such derivative or
derivatives of the Note which is not the amount which is equal to the
Guaranteed Loan Amount or Guaranteed Loan Portion Amount, as the case
may be], in any way, (a) directly, or (b) through the issuance of
participation shares of, or undivided ownership or other equity
interests in, the Note, or any portion of the Note, or any derivative of
the Note or any portion of the Note, which have an exclusive or
preferred claim to the Guaranteed Loan Amount or the respective
Guaranteed Loan Portion Amount [or the respective Guaranteed-Amount
Equivalent], as the case may be [or (c) through the issuance of
[[Page 256]]
notes, bonds or other debt instruments or obligations which are
collateralized or otherwise secured by a pledge of, or security interest
in, the Note, or any portion of the Note or any derivative of the Note
or any portion of the Note, which has an exclusive or preferred claim to
the Guaranteed Loan Amount or the respective Guaranteed Loan Portion
Amount or the respective Guaranteed-Amount Equivalent, as the case may
be]; or (2) any holder of the Note, or any portion of the Note, or any
derivative of the Note or any portion of the Note, as the case may be,
having claim to payment made on the Note, receives more than ninety
percent of any payment due to such holder from payments made under this
Guaranty at any time during the term of the Note or the Agreement.
This Guaranty is fully and freely transferable to any Permitted
Guaranty Holder, except that it shall cease to be effective with respect
to the Agreement or the Note, or any portion of the Note, or any
derivative of the Note or any portion of the Note, to the extent that
the Agreement or the Note, or the respective portion of the Note, or the
respective derivative of the Note or any portion of the Note, as the
case may be, is used to provide significant support for any non-
registered obligation.
The full faith and credit of the United States is pledged to the
performance of this Guaranty. No claim which the United States may now
or hereafter have against the Lender or any Permitted Guaranty Holder
for any reason whatsoever shall affect in any way the right of the
Lender or any Permitted Guaranty Holder to receive full and prompt
payment of any amount otherwise due under this Guaranty. The United
States represents and warrants that (a) it has full power, authority and
legal right to execute, deliver and perform this Guaranty, (b) this
Guaranty has been executed in accordance with and pursuant to the terms
and provisions of section 24 of the Act, the provisions of the Foreign
Operations, Export Financing, and Related Programs Appropriations Act,
1988, under the hearing ``Foreign Military Sales Debt Reform,'' and
title 31, part 25, of the Code of Federal Regulations, (c) this Guaranty
has been duly executed and delivered by a duly authorized representative
of DSAA, and (d) this Guaranty constitutes the valid and legally binding
obligations of the United States, enforceable in accordance with the
terms hereof.
Any notice, demand, or other communication hereunder shall be deemed
to have been given if in writing and actually delivered to the
Comptroller, DSAA, the Pentagon, Washington, DC 20301-2800, or the
successor, or such other place as may be designated in writing by the
Comptroller, DSAA or the successor thereof.
By acceptance of the Note, the Lender agrees to the terms and
conditions of this Guaranty.
Dated:__________________________________________________________________
By:_____________________________________________________________________
Director, DSAA.
(b) The obligations of DSAA under the Guaranty are expressly limited
to those obligations contained in the form of Guaranty set forth in
paragraph (a) of this section. Any provisions of any agreement relating
to the Private Loan purporting to create obligations on the part of DSAA
which are inconsistent with the terms of the Guaranty or any other
provision of this part be unenforceable against DSAA.
Sec. 25.406 Savings clause.
Nothing in this rule is intended to authorize any person or entity
to engage in any activity not otherwise authorized or permitted for such
person or entity under any applicable laws of the United States, any
territory or possession of the United States, any State, or the District
of Columbia.