[Federal Register Volume 62, Number 41 (Monday, March 3, 1997)]
[Proposed Rules]
[Pages 9382-9387]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-5137]
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DEPARTMENT OF AGRICULTURE
Rural Utilities Service
7 CFR Part 1717
RIN 0572-AB26
Settlement of Debt Owed by Electric Borrowers
AGENCY: Rural Utilities Service.
ACTION: Proposed rule.
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SUMMARY: The Administrator of the Rural Utilities Service (RUS) hereby
proposes to establish policies and standards for the settlement of
debts and claims owed by rural electric borrowers. In addition to
proposing policies and standards for debt settlement, the rule proposes
RUS policy on subsequent loans to borrowers whose debt has been
restructured.
DATES: Written comments must be received by RUS or carry a postmark or
equivalent by May 2, 1997.
ADDRESSES: Written comments should be addressed to Monte Heppe, Jr.,
Director, Program Support and Regulatory Analysis, U.S. Department of
Agriculture, Rural Utilities Service, Stop 1522, 1400 Independence Ave.
SW., Washington, DC 20250-1522. RUS requires, in hard copy, a signed
original and 3 copies of all comments (7 CFR 1700.30(e)). Comments will
be available for public inspection during regular business hours (7 CFR
1.27(b)).
FOR FURTHER INFORMATION CONTACT: Mr. Blaine D. Stockton, Jr., Assistant
Administrator--Electric, U.S. Department of Agriculture, Rural
Utilities Service, Stop 1560, 1400 Independence Avenue, SW.,
Washington, DC 20250-1560. Telephone: 202-720-9545.
SUPPLEMENTARY INFORMATION: This regulatory action has been determined
to be significant for the purposes of Executive Order 12866, Regulatory
Planning and Review, and therefore has been reviewed by the Office of
Management and Budget (OMB). The Administrator of the Rural Utilities
Service (RUS) has determined that a rule relating to the RUS electric
loan program is not a rule as defined in the Regulatory Flexibility Act
(5 U.S.C. 601 et seq.), and, therefore, the Regulatory Flexibility Act
does not apply to this proposed rule. The Administrator of RUS has
determined that this rule will not significantly affect the quality of
the human environment as defined by the National Environmental Policy
Act of 1969 (42 U.S.C. 4321 et seq.). Therefore, this action does not
require an environmental impact statement or assessment. This proposed
rule is excluded from the scope of Executive Order 12372,
Intergovernmental Consultation, which may require consultation with
State and local officials. A Notice of Final Rule titled Department
Programs and Activities Excluded from Executive Order 12372 (50 FR
47034) exempts RUS electric loans and loan guarantees from coverage
under this Order. This proposed rule has been reviewed under Executive
Order 12988, Civil Justice Reform. RUS has determined that this
proposed rule meets the applicable standards provided in Sec. 3 of the
Executive Order.
The program described by this rule is listed in the Catalog of
Federal Domestic Assistance Programs under number 10.850 Rural
Electrification Loans and Loan Guarantees. This catalog is available on
a subscription basis from the Superintendent of Documents, the United
States Government Printing Office, Washington, DC 20402-9325.
Background
On April 4, 1996, P.L. 104-127 amended section 331(b) of the
Consolidated Farm and Rural Development Act (Con Act) to extend to RUS
loans and loan guarantees the Secretary of Agriculture's authority to
compromise, adjust, reduce, or charge-off debts or claims owed to the
government (collectively, debt settlement). The amendment also extended
to the security instruments, leases, contracts, and agreements
administered by RUS, the Secretary's authority to adjust, modify,
subordinate, or release the terms of those documents. The Secretary of
Agriculture, in 7 CFR 2.47, has delegated authority under section
331(b) to the Administrator of RUS, with respect to loans made or
guaranteed by RUS.
This proposed regulation proposes the policies, standards, and
procedures the Administrator would use in settling (restructuring)
debts and claims owed by rural electric borrowers.
Section 1717.1202 General Policy
This section proposes general policies for settling debts and
claims. Four general policies are proposed:
1. Wherever possible, all debt and claims will be collected in full
in accordance with its terms.
2. The rule by itself contains nothing that modifies or forgives
debt or claims owed by a borrower. Any debt
[[Page 9383]]
settlement will require the explicit written approval of the
Administrator.
3. The Administrator's authority to settle debts and claims will
apply to cases where a borrower is unable to pay its debts and claims
in accordance with their terms, and where settlement will maximize the
recovery of debts and claims owed to the government.
4. The Administrator will consider several factors in structuring
debt settlements and determining the amount of debt recovery that is
possible. Among those factors are the Rural Electrification Act of
1936, the National Energy Policy Act of 1992, the policies and
regulations of the Federal Energy Regulatory Commission (FERC), and
other market and nonmarket forces that affect competition in the
electric utility industry and, in particular, the rural electric
segment of the industry.
Section 1717.1203 Relationship Between RUS and Department of Justice
The Administrator is required to notify the Attorney General
whenever the Administrator intends to use his or her settlement
authority. The Attorney General retains the authority under existing
law to settle debts and claims against a borrower that is in bankruptcy
or is otherwise involved in litigation with the government. In
addition, any debt or claim that has been referred in writing to the
Attorney General would not be settled under the Administrator's own
authority.
Section 1717.1204 Policies and Conditions Applicable to Settlements
This section proposes specific policies, standards, and conditions
applicable to debt settlements. These are in addition to the general
principles proposed in Sec. 1717.1202. The specific policies,
standards, and conditions include the following:
Documentation, analyses, and other actions would be
required of the borrower to demonstrate that it is unable to pay its
debts or claims in accordance with their terms, or that it will be
unable to meet such obligations sometime within the 24 months following
the borrower's application for relief, and that such default is likely
to continue beyond the 24-month period.
RUS could contract with an independent consultant of its
choice to provide an analysis of the efficiency and effectiveness of
the borrower's organization and operations, and those of its member
systems in the case of a power supply borrower. The borrower (and its
member systems in the case of a power supply borrower) could be
required to share in the costs of the consultant. The scope of work of
the independent consultant, reporting relationships, and the
consultant's access to the borrower's records and staff are spelled out
in Sec. 1717.1204(b)(3).
Debt settlement measures that could be used under proposed
Sec. 1717.1204 would include, but not be limited to, reamortization of
debt; extension of debt maturity; reduction in the interest rate
charged; forgiveness of interest accrued, penalties, and the
government's cost of collection; and with the concurrence of the Under
Secretary for Rural Development, forgiveness of loan principal. They
would also include restructuring a borrower's obligations under a loan
guaranteed by RUS, by RUS acquiring and restructuring the guaranteed
loan, by restructuring the loan guarantee obligation and/or the
borrower's reimbursement obligations, or by other means, subject to any
consents or approvals required by the third party lenders.
The borrower or the independent consultant could be
required to solicit competitive bids for the borrower's system. The
Administrator could use the competitive bids received as a basis for
requiring the sale of all or part of the borrower's system as a
condition of settlement of the borrower's debt. The Administrator could
also consider the bids in evaluating alternative settlement measures.
The Administrator would not grant debt relief unless
similar relief, on a pro rata basis, is granted by other secured
creditors of the borrower, or they provide other benefits or value to
the restructuring. Unsecured creditors would also be expected to
contribute to the restructuring. If it is not possible to obtain the
expected contributions from other creditors, the Administrator could
proceed to settle a borrower's debt if that would maximize recovery by
the government and would not result in material benefits accruing to
other creditors at the expense of the government.
The Administrator could consider several methods for
determining the value of a borrower's assets. In no case would the
Administrator settle a debt or claim for less than the value (after
considering collection costs) of the borrower's system and other
collateral securing the debt or claim. In the case of a power supply
borrower, the value of the wholesale power contracts between the
borrower and its member systems would be considered. The valuation of
the wholesale power contracts would take into account, among other
matters, the rights of the government, and/or third parties, to assume
the rights and obligations of the borrower under such contracts, to
charge reasonable rates for service provided under the contracts, and
to otherwise enforce the contracts in accordance with their terms.
The Administrator would consider the rates charged for
electric service by the borrower and, in the case of a power supply
borrower, by its members, taking into account, among other factors, the
practices of the Federal Energy Regulatory Commission (FERC), as
adapted to the cooperative structure of borrowers, and, where
applicable, FERC treatment of any investments by co-owners in projects
jointly owned by the borrower.
The Administrator would consider whether a settlement is
favorable to the government in comparison with what can be recovered by
enforced collection procedures.
Before any settlement is approved, the borrower would be
required to obtain all approvals required of regulatory bodies that are
needed for the borrower to fulfill its obligations under the
settlement.
As a condition of debt settlement, the borrower, and in
the case of a power supply borrower, its members, would be required to
implement changes in management, operations, and performance if
requested by the Administrator. The borrower could be required to
undertake a corporate restructuring and/or sell a portion of its plant,
facilities, or other assets. The borrower could also be required to
replace senior management and/or hire outside experts acceptable to the
Administrator. This could include a commitment by the borrower's board
of directors to restructure and/or obtain new members on the board. The
borrower could be required to accept controls on general funds, as well
as on any investments, loans or guarantees, notwithstanding any
limitations on RUS' control rights in the borrower's loan documents or
RUS regulations. Certain actions could also be required of the borrower
to perfect and protect the government's lien on cash deposits,
securities, and other assets. In the case of a power supply borrower,
the borrower could be required to obtain credit support as well as
pledges and action plans from its members regarding changes in
operations, management, and organizational structure to reduce the
member's operating costs, improve their efficiency, and/or expand their
markets and revenues.
As a condition of debt settlement, a borrower could be
required to convey some or all of its assets to the government.
Finally, RUS will require that the borrower warrant and
agree that no
[[Page 9384]]
bonuses or similar extraordinary compensation has been or will be
provided, for reasons related to the settlement of government debt, to
any officer or employee of the borrower or to other persons or entities
identified by RUS. RUS may impose such other terms and conditions of
debt settlement as RUS deems to be in the government's interests.
Section 1717.1205 Waiver of Existing Conditions on Borrowers
This section would allow the Administrator to waive or otherwise
reduce conditions and requirements imposed on a borrower by its loan
documents if the Administrator determines that that would enhance the
recovery of debt by the government. Such waivers and reductions might
include a variety of actions, but could not include the debt settlement
measures proposed in paragraph (c) of Sec. 1717.1204, which would be
subject to all of the requirements of Sec. 1717.1204.
Section 1717.1206 Loans Subsequent to Settlement
Under this section, in considering any loan request subsequent to a
debt settlement, the Administrator would presume that credit support
for the full amount of the requested loan is needed. The credit support
could be in a number of forms, provided that they are acceptable to the
Administrator.
Section 1717.1207 RUS Obligations Under Loan Guarantees
This section would clarify that RUS' obligations under loan
guarantee commitments to the Federal Financing Bank (FFB) and other
lenders are not affected by the proposed rule. For example, if RUS
settles a guaranteed loan of the FFB, RUS' obligation under its
guarantee to the FFB to make up any shortfall in payments on that loan
would remain in force.
Section 1717.1208 Government's Rights Under Loan Documents
This section would clarify that the proposed rule does not limit,
modify, or otherwise affect the rights of the government under the loan
documents executed with borrowers, or under law or equity.
Information Collection and Recordkeeping Requirements
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
Chapter 35, as amended) RUS is requesting comments on the information
collection incorporated in this proposed rule.
Comment on this information collection must be received by May 2,
1997.
Comments are invited on: (a) Whether the proposed collection of
information is necessary for the proper performance of the functions of
the agency, including whether the information will have practical
utility; (b) The accuracy of the agency's estimate of the burden of the
proposed collection of information; (c) Ways to enhance the quality,
utility and clarity of the information to be collected; and (d) Ways to
minimize the burden of the collection of information on respondents,
including through the use of automated collection techniques or other
forms of information technology.
FOR FURTHER INFORMATION CONTACT: Dawn Wolfgang, Program Support and
Regulatory Analysis, U.S. Department of Agriculture, Rural Utilities
Service, Ag Box 1522, 1400 Independence Avenue, SW., Washington, DC
20250-1522. Telephone: 202-720-0812. FAX: 202-720-4120. E-mail:
[email protected].
Title: 7 CFR 1717 subpart Y, Settlement of Debt Owed by Electric
Borrowers.
Type of request: New information collection.
Abstract: The information collection required by this proposed rule
stems from passage of Pub. L. 104-127, which amended section 331(b) of
the Consolidated Farm and Rural Development Act (7 U.S.C. 1921 et seq.)
to extend to RUS loans and loan guarantees the Secretary of
Agriculture's authority to settle debts. Only those electric borrowers
that are unable to fully repay their debts to the government and who
apply to RUS for relief will be affected by this proposed information
collection.
The proposed collection will require only that information which is
essential for determining the need for debt settlement, the amount of
debt the borrower can repay, the future scheduling of debt repayment,
and the range of opportunities for enhancing the amount of debt that
can be recovered. The information to be collected will be similar to
that which any prudent lender would require to determine whether debt
settlement is required and the amount of relief that is needed. Since
the need for relief is expected to vary substantially from case to
case, so will the required information collection.
Estimate of burden: Public reporting burden for this collection of
information is estimated to average 3,000 hours per response.
Respondents: Businesses, including not for profit cooperatives and
others.
Estimated number of respondents each year: 2.
Estimated number of responses per respondent: 1.
Estimated total annual burden on respondents: 6,000 hours.
Copies of this information collection can be obtained from Dawn
Wolfgang, Program Support and Regulatory Analysis, Rural Utilities
Service. Phone: 202-720-0812.
Send comments regarding this information collection requirement to
the Office of Information and Regulatory Affairs, Office of Management
and Budget, ATTN: Desk Officer, USDA, Room 10102 New Executive Office
Building, Washington, DC 20503, and to Dawn Wolfgang, Program Support
and Regulatory Analysis, U.S. Department of Agriculture, Rural
Utilities Service, 1400 Independence Ave, SW, Ag Box 1522, Washington,
DC 20250-1522.
Comments are best assured of receiving fullest consideration if OMB
receives them within 30 days of publication in the Federal Register.
All comments will become a matter of public record.
List of Subjects in 7 CFR Part 1717
Administrative practice and procedure, Claims, Electric power,
Electric utilities, Intergovernmental relations, Investments, Lien
accommodation, Lien subordination, Loan programs--energy, Reporting and
recordkeeping requirements, Rural areas.
For reasons explained in the preamble, RUS proposes to amend 7 CFR
chapter XVII by amending part 1717 as follows:
PART 1717--POST-LOAN POLICIES AND PROCEDURES COMMON TO INSURED AND
GUARANTEED ELECTRIC LOANS
1. The authority citation for part 1717 is revised to read as
follows:
Authority: 7 U.S.C. 901-950b, 1981; Pub. L. 99-591, 100 Stat.
3341-16; Pub. L. 103-354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.),
unless otherwise noted.
2. Subparts T through X are added and reserved and subpart Y is
added to read as follows:
Subpart T--[Reserved]
Sec.
1717.950--1717.999 [Reserved]
Subpart U--[Reserved]
Sec.
1717.1000--1717.1049 [Reserved]
[[Page 9385]]
Subpart V--[Reserved]
Sec.
1717.1050--1717.1099 [Reserved]
Subpart W--[Reserved]
Sec.
1717.1100--1717.1149 [Reserved]
Subpart X--[Reserved]
Sec.
1717.1150--1717.1199 [Reserved]
Subpart Y--Settlement of Debt
Sec.
1717.1200 Purpose and scope.
1717.1201 Definitions.
1717.1202 General policy.
1717.1203 Relationship between RUS and Department of Justice.
1717.1204 Policies and conditions applicable to settlements.
1717.1205 Waiver of existing conditions on borrowers.
1717.1206 Loans subsequent to settlement.
1717.1207 RUS obligations under loan guarantees.
1717.1208 Government's rights under loan documents.
Subpart T--[Reserved]
Secs. 1717.950--1717.999 [Reserved]
Subpart U--[Reserved]
Secs. 1717.1000--1717.1049 [Reserved]
Subpart V--[Reserved]
Secs. 1717.1050--1717.1099 [Reserved]
Subpart W--[Reserved]
Secs. 1717.1100--1717.1149 [Reserved]
Subpart X--[Reserved]
Secs. 1717.1150--1717.1199 [Reserved]
Subpart Y--Settlement of Debt
Sec. 1717.1200 Purpose and scope.
(a) Section 331(b) of the Consolidated Farm and Rural Development
Act (Con Act), as amended on April 4, 1996 by Public Law 104-127 (7
U.S.C. 1981), grants authority to the Secretary of Agriculture to
compromise, adjust, reduce, or charge-off debts or claims arising from
loans made or guaranteed under the Rural Electrification Act of 1936,
as amended (RE Act). Section 331(b) of the Con Act also authorizes the
Secretary of Agriculture to adjust, modify, subordinate, or release the
terms of security instruments, leases, contracts, and agreements
entered into or administered by the Rural Utilities Service (RUS). The
Secretary, in 7 CFR 2.47, has delegated authority under section 331(b)
of the Con Act to the Administrator of the RUS, with respect to loans
made or guaranteed by RUS.
(b) This subpart sets forth the policy and standards of the
Administrator of RUS with respect to the settlement of debts and claims
arising from loans made or guaranteed to rural electric borrowers under
the RE Act. Nothing in this subpart limits the Administrator's
authority under section 12 of the RE Act.
Sec. 1717.1201 Definitions.
Terms used in this subpart that are not defined in this section
have the meanings set forth in 7 CFR part 1710. In addition, for the
purposes of this subpart:
Attorney General means the Attorney General of the United States of
America.
Claim means any claim of the government arising from loans made or
guaranteed under the RE Act.
Con Act means the Consolidated Farm and Rural Development Act (7
U.S.C. 1921 et seq.).
Debt means outstanding debt of a rural electric borrower (including
principal, accrued interest, penalties, and the government's costs of
debt collection) owed to the government and arising from loans made or
guaranteed under the RE Act.
Enforced collection procedures means any procedures available to
the Administrator for the collection of debt that are authorized by
law, in equity, or under the borrower's loan documents or other
agreements with RUS.
Loan documents means the mortgage (or other security instrument
acceptable to RUS), the loan contract, and the promissory note entered
into between the borrower and RUS.
RE Act means the Rural Electrification Act of 1936, as amended (7
U.S.C. 901-950b).
Restructure means to settle a debt or claim.
Settle means to reamortize, adjust, compromise, reduce, or charge-
off debt or claims owed to the government by rural electric borrowers.
Sec. 1717.1202 General policy.
(a) It is the policy of the Administrator that, wherever possible,
all debt owed shall be collected in full in accordance with the terms
of the borrower's loan documents.
(b) Nothing in this subpart by itself modifies, reduces, waives, or
eliminates any obligation of a borrower under its loan documents. Any
such modifications regarding the debt owed by a borrower may be granted
under the authority of the Administrator only by means of the explicit
written approval of the Administrator in each case.
(c) The Administrator's authority to settle debts and claims will
apply to cases where a borrower is unable to pay its debts and claims
in accordance with their terms, and where settlement will maximize the
recovery of debts and claims owed to the government.
(d) In structuring settlements and determining the amount of debt
recovery that is possible, the Administrator will consider, among other
factors, the RE Act, the National Energy Policy Act of 1992 (Public Law
102-486, 106 Stat. 2776), the policies and regulations of the Federal
Energy Regulatory Commission, and other market and nonmarket forces as
to their effects on competition in the electric utility industry and on
rural electric systems in particular.
Sec. 1717.1203 Relationship between RUS and Department of Justice.
(a) The Attorney General will be notified by the Administrator
whenever the Administrator intends to use his or her authority under
section 331(b) of the Con Act to settle a debt or claim.
(b) If a claim has been referred in writing to the Attorney
General, the Administrator will not use his or her own authority to
settle the claim.
Sec. 1717.1204 Policies and conditions applicable to settlements.
(a) General. Settlement of debts and claims shall be subject to the
policies, requirements, and conditions set forth in this section and in
Sec. 1717.1202.
(b) Need for debt settlement. (1) The Administrator will not settle
any debt or claim unless the Administrator has determined that the
borrower is unable to meet its financial obligations under its loan
documents according to the terms of those documents, or that the
borrower will not be able to meet said obligations sometime within the
period of 24 months following the borrower's application for relief,
and such default is likely to continue beyond the 24 month period. The
determination of a borrower's ability to meet its financial obligations
will be based on analyses and documentation by RUS of the borrower's
historical, current, and projected costs, revenues, cash flows, assets,
and other factors that may be relevant on a case by case basis.
(2) The borrower must provide to RUS, in form and substance
satisfactory to RUS, an in-depth analysis supporting the borrower's
contention that it is unable or will not be able to meet its financial
obligations as described in paragraph (b)(1) of this section. The
analysis must include:
[[Page 9386]]
(i) An explanation and analysis of the causes of the borrower's
inability to meet its financial obligations;
(ii) A thorough review and analysis of the opportunities available
or potentially available to the borrower to reduce administrative
overhead and other costs, improve efficiency and effectiveness, and
expand markets and revenues, including but not limited to opportunities
for sharing services, merging, and/or consolidating. In the case of a
power supply borrower, the study shall include such opportunities among
the members of the borrower;
(iii) Documentation of the actions taken, in progress, or planned
by the borrower (and its member systems, if applicable) to take
advantage of the opportunities cited in paragraph (b)(2)(ii) of this
section; and
(iv) Other analyses and documentation prescribed by RUS on a case
by case basis.
(3) RUS may require that an independent consultant provide an
analysis of the efficiency and effectiveness of the borrower's
organization and operations, and those of its member systems in the
case of a power supply borrower. The following conditions will apply:
(i) RUS will select the independent consultant taking into account,
among other matters, the consultant's experience and expertise in
matters relating to electric utility operations, finance, and
restructuring;
(ii) The contract with the consultant shall be to provide services
to RUS on such terms and conditions as RUS deems appropriate. The
consultant's scope of work may include, but shall not be limited to, an
analysis of the following:
(A) How to maximize the value of the government's collateral, such
as through mergers, consolidations, or sales of all or part of the
collateral;
(B) The viability of the borrower's system, taking into account
such matters as system size, service territory and markets, asset base,
physical condition of the plant, operating efficiency, competitive
pressures, industry trends, and opportunities to expand markets and
improve efficiency and effectiveness;
(C) The feasibility and the potential benefits and risks to the
borrower and the government of corporate restructuring, including
aggregation and disaggregation;
(D) In the case of a power supply borrower, the retail rate mark-up
by member systems and the potential benefits to be achieved by member
restructuring through mergers, consolidations, shared services, and
other alliances;
(E) The quality of the borrower's management, management advisors,
consultants, and staff;
(F) Opportunities for reducing overhead and other costs, for
realizing economies through marketing, and for improving the borrower's
existing and prospective contractual arrangements for the purchase and
sale of power and the operation of plant and facilities; and
(G) The accuracy and completeness of the borrower's analysis
provided under paragraph (b)(2) of this section;
(iii) RUS and, as appropriate, other creditors, will determine the
extent to which the borrower and third parties (including the members
of a power supply borrower) will be required to participate in funding
the costs of the independent consultant;
(iv) The borrower will be required to make available to the
consultant all corporate documents, files, and records, and to provide
the consultant with access to key employees. The borrower will also
normally be required to provide the consultant with office space
convenient to the borrower's operations and records; and
(v) All analyses, studies, opinions, memoranda, and other documents
and information produced by the independent consultant shall be
provided to RUS on a confidential basis for consideration in evaluating
the borrower's application for debt settlement. Such documents and
information may be made available to the borrower and other appropriate
parties if authorized in writing by RUS.
(4) The borrower may be required to employ a temporary or permanent
manager acceptable to the Administrator, to manage the borrower's
operations to ensure that all actions are taken to avoid or minimize
the need for debt settlement. The employment could be on a temporary
basis to manage the system during the time the debt settlement is being
considered, and possibly for some time after any debt settlement, or it
could be on a permanent basis.
(c) Debt settlement measures. (1) If the Administrator determines
that debt settlement is appropriate, the debt settlement measures the
Administrator will consider under this subpart with respect to direct,
insured, or guaranteed loans include, but are not limited to, the
following:
(i) Reamortization of debt;
(ii) Extension of debt maturity, provided that the weighted average
life of the restructured debt shall not exceed the weighted average of
the expected remaining useful lives of the assets pledged as security
for said debt;
(iii) Reduction of the interest rate charged on the borrower's
debt, provided that the interest rate on any portion of the
restructured debt shall not be reduced to less than 5 percent;
(iv) Forgiveness of interest accrued, penalties, and costs incurred
by the government to collect the debt; and
(v) With the concurrence of the Under Secretary for Rural
Development, forgiveness of loan principal.
(2) In the event that RUS has, under section 306 of the RE Act,
guaranteed loans made by the Federal Financing Bank or other third
parties, the Administrator may restructure the borrower's obligations
by acquiring and restructuring the guaranteed loan, by restructuring
the loan guarantee obligation, by restructuring the borrower's
reimbursement obligations, or by such means as the Administrator deems
appropriate, subject to such consents and approvals, if any, that may
be required by the third party lender.
(d) Debt owed by other creditors. The Administrator will not grant
relief on debt owed to the government unless similar relief, on a pro
rata basis, is granted with respect to other secured debt owed by the
borrower, or the other secured creditors provide other benefits or
value to the debt restructuring. Unsecured creditors will also be
expected to contribute to the restructuring. If it is not possible to
obtain the expected contributions from other creditors, the
Administrator may proceed to settle a borrower's debt if that will
maximize recovery by the government and will not result in material
benefits accruing to other creditors at the expense of the government.
(e) Competitive bids for system assets. If requested by RUS, the
borrower or the independent consultant provided for in paragraph (b)(3)
of this section shall solicit competitive bids from potential buyers of
the borrower's system or parts thereof. The bidding process must be
conducted in consultation with RUS and use standards and procedures
acceptable to RUS. The Administrator may use the competitive bids
received as a basis for requiring the sale of all or part of the
borrower's system as a condition of settlement of the borrower's debt.
The Administrator may also consider the bids in evaluating alternative
settlement measures.
(f) Valuation of system. (1) The Administrator will consider the
value of the borrower's system, including, in the case of a power
supply borrower, the wholesale power contracts between the borrower and
its member systems. The
[[Page 9387]]
valuation of the wholesale power contracts shall take into account,
among other matters, the rights of the government, and/or third
parties, to assume the rights and obligations of the borrower under
such contracts, to charge reasonable rates for service provided under
the contracts, and to otherwise enforce the contracts in accordance
with their terms. In no case will the Administrator settle a debt or
claim for less than the value (after considering collection costs) of
the borrower's system and other collateral securing the debt or claim.
(2) RUS may use such methods, analyses, and assessments as the
Administrator deems appropriate to determine the value of the
borrower's system.
(g) Rates. The Administrator will consider the rates charged for
electric service by the borrower and, in the case of a power supply
borrower, by its members, taking into account, among other factors, the
practices of the Federal Energy Regulatory Commission (FERC), as
adapted to the cooperative structure of borrowers, and, where
applicable, FERC treatment of any investments by co-owners in projects
jointly owned by the borrower.
(h) Collection action. The Administrator will consider whether a
settlement is favorable to the government in comparison with the amount
that can be recovered by enforced collection procedures.
(i) Regulatory approvals. Before the Administrator will approve a
settlement, the borrower must provide satisfactory evidence that it has
obtained all approvals required of regulatory bodies that are needed to
implement rates or other provisions of the settlement, or that are
needed in any other way for the borrower to fulfill its obligations
under the settlement.
(j) Conditions regarding management and operations. As a condition
of debt settlement, the borrower, and in the case of a power supply
borrower, its members, will be required to implement those changes in
structure, management, operations, and performance deemed necessary by
the Administrator. Those changes may include, but are not limited to,
the following:
(1) The borrower may be required to undertake a corporate
restructuring and/or sell a portion of its plant, facilities, or other
assets;
(2) The borrower may be required to replace senior management and/
or hire outside experts acceptable to the Administrator. Such changes
may include a commitment by the borrower's board of directors to
restructure and/or obtain new membership to improve board oversight and
leadership;
(3) The borrower may be required to agree to:
(i) Controls by RUS on the general funds of the borrower, as well
as on any investments, loans or guarantees by the borrower,
notwithstanding any limitations on RUS' control rights in the
borrower's loan documents or RUS regulations; and
(ii) Requirements deemed necessary by RUS to perfect and protect
its lien on cash deposits, securities, equipment, vehicles, and other
items of real or non-real property; and
(4) In the case of a power supply borrower, the borrower may be
required to obtain credit support from its member systems, as well as
pledges and action plans by the members to change their operations,
management, and organizational structure (e.g., shared services,
mergers, or consolidations) in order to reduce operating costs, improve
efficiency, and/or expand markets and revenues.
(k) Conveyance of assets. As a condition of a settlement, a
borrower may be required to convey some or all its assets to the
government.
(l) Additional conditions. The borrower will be required to warrant
and agree that no bonuses or similar extraordinary compensation has
been or will be provided, for reasons related to the settlement of
government debt, to any officer or employee of the borrower or to other
persons or entities identified by RUS. The Administrator may impose
such other terms and conditions of debt settlement as the Administrator
determines to be in the government's interests.
Sec. 1717.1205 Waiver of existing conditions on borrowers.
Pursuant to section 331(b) of the Con Act, the Administrator, at
his or her sole discretion, may waive or otherwise reduce conditions
and requirements imposed on a borrower by its loan documents if the
Administrator determines that such action will contribute to
enhancement of the government's recovery of debt. Such waivers or
reductions in conditions and requirements under this section shall not
include the exercise of any of the debt settlement measures set forth
in Sec. 1717.1204(c), which are subject to all of the requirements of
Sec. 1717.1204.
Sec. 1717.1206 Loans subsequent to settlement.
In considering any future loan requests from a borrower whose debt
has been restructured (settled), it will be presumed that credit
support for the full amount of the requested loan will be required.
Such support may be in a number of forms, provided that they are
acceptable to the Administrator on a case by case basis. They may
include, but need not be limited to, equity infusions and guarantees of
debt repayment, either from the applicant's members (in the case of a
power supply borrower), or from a third party.
Sec. 1717.1207 RUS obligations under loan guarantees.
Nothing in this subpart affects the obligations of RUS under loan
guarantee commitments it has made to the Federal Financing Bank or
other lenders.
Sec. 1717.1208 Government's rights under loan documents.
Nothing in this subpart limits, modifies, or otherwise affects the
rights of the government under loan documents executed with borrowers,
or under law or equity.
Dated: February 24, 1997.
Jill Long Thompson,
Under Secretary, Rural Development.
[FR Doc. 97-5137 Filed 2-28-97; 8:45 am]
BILLING CODE 3410-15-P