Issuance of Additional Secured Debt by Electric Distribution Borrowers

The Rural Utilities Service (RUS) makes and guarantees loans for electric facilities to serve consumers in rural areas pursuant to the Rural Electrification Act of 1936, as amended (7 U.S.C. 901 et seq.) (RE Act). These loans are ordinarily secured through the use of a common mortgage with RUS and at least one supplemental lender. Under the form of common mortgage RUS used from the early 1970's until early 1996 (Old Mortgage), the borrower could not issue additional secured debt without first obtaining the approval of RUS. RUS exercised broad discretion in exercising its right to approve additional secured debt case-by-case. The exercise of rights in these cases is sometimes referred to as approving a ``lien accommodation,'' (although that broad term also encompasses many other similar actions by RUS that are not

covered by this notice). As the RUS program matured, this case-by-case approach to approving all additional secured debt became less workable for RUS, its borrowers, and supplemental lenders. On July 18, 1995, at 60 FR 36881, RUS published 7 CFR Part 1718, Loan Security Documents for Electric Borrowers, that issued a new model form of mortgage (New Mortgage) for electric distribution borrowers. In a related action, on December 29, 1995, at 60 FR 67395, RUS amended 7 CFR Part 1718 to issue a new model form of loan contract (New Loan Contract) for electric distribution borrowers. The New Mortgage and New Loan Contract went into use for all electric distribution loans or guarantees approved by RUS after January 29, 1996. Among other things, these new forms of loan documents replaced many subjective standards and practices that required RUS, as mortgagee, to review borrower requests for routine additional financings case-by- case. Sections 2.01 and 2.02 of the New Mortgage and Secs. 6.13 and 6.14 of the New Loan Contract establish objective tests for the issuance of new debt that qualifies as secured under the borrower's mortgage. No lien accommodations are required for additional financing that complies. Because of the success of the objective approach, RUS is extending it to those electric distribution borrowers still operating under the Old Mortgage. RUS expects that this action will also eliminate the confusion associated with maintaining two different standards for the routine issuance of electric distribution debt during the period the RUS program transitions from the Old Mortgage form to the New Mortgage form. This Federal Register Notice is a generic notice of approval, under 7 CFR 1717.600(c), allowing electric distribution borrowers operating under the Old Mortgage to issue additional debt without prior RUS approval under the same terms and conditions as borrowers with the New Mortgage and New Loan Contract. Specifically, an electric distribution borrower with an Old Mortgage may now, without first obtaining any RUS approval, issue additional debt to refinance or refund existing secured debt or to acquire, procure, or construct eligible property additions if the borrower satisfies the terms and conditions for the issuance of such debt contained in the New Mortgage and New Loan Contract. The model forms of the New Mortgage and New Loan Contract are published in RUS regulations as appendices to 7 CFR 1718, subparts B and C, respectively. The applicable provisions in the New Mortgage are Secs. 1.01, 2.01 and 2.02 and Exhibit A. The applicable provisions in the New Loan Contract are Article I--Definitions, Secs. 6.13 and 6.14 of Article VI--Negative Covenants, and Exhibits C-1 and C-2 (forms of certifications). The regulation, including appendices, is available on the RUS homepage at www.usda.gov/rus. RUS may, upon written notice to a borrower, prospectively amend or annul this approval as set forth in 7 CFR 1717.600. Nothing in this notice of approval is intended to affect the rights of any other lender. Any electric distribution borrower that does not qualify for the approval contained in this notice, must continue to refer to its existing mortgage and RUS loan contract and RUS regulations including 7 CFR 1717, subparts R and S for the terms and conditions for issuing additional secured debt.

Authority: 7 U.S.C. 901 et seq.

Dated: August 21, 1998. Christopher A. McLean, Acting Administrator, Rural Utilities Service. [FR Doc. 98-22932 Filed 8-25-98; 8:45 am] BILLING CODE 3410-15-P