[Federal Register Volume 86, Number 234 (Thursday, December 9, 2021)]
[Notices]
[Pages 70086-70110]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-26693]
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DEPARTMENT OF AGRICULTURE
Rural Business-Cooperative Service
[Docket #: RBS-21-Business-0036]
Notice of Funding Opportunity for the Food Supply Chain
Guaranteed Loan Program
AGENCY: Rural Business--Cooperative Service, USDA.
ACTION: Notice.
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SUMMARY: The Rural Business--Cooperative Service (Agency), an agency of
the United States Department of Agriculture (USDA) Rural Development
mission area (RD) announces the availability of approximately
$1,000,000,000 in loan guarantees, applicant and application
requirements, and servicing requirements under the Food Supply Chain
(FSC) Guaranteed Loan Program for fiscal year (FY) 2022. Loan
guarantees will be made to lenders to facilitate financing to qualified
borrowers and projects for the start-up or expansion of activities in
the middle of the food supply chain, particularly the aggregation,
processing, manufacturing, storage, transportation, wholesaling, or
distribution of food, to increase capacity and help create a more
resilient, diverse, and secure U.S. food supply chain.
DATES: Completed applications may be submitted beginning December 9,
2021. Awards will be made no earlier than February 7, 2022.
Applications will be accepted until funds are exhausted.
ADDRESSES: You are encouraged to contact the Agency to discuss your
project and ask any questions about the program or application process.
Applications will only be accepted electronically by following the
directions provided at https://www.rd.usda.gov/foodsupplychainloans.
Entities wishing to apply for assistance may download the
application documents and requirements delineated in this notice from:
https://www.rd.usda.gov/foodsupplychainloans.
FOR FURTHER INFORMATION CONTACT: Jeff Hudson, Rural Business--
Cooperative Service, United States Department of Agriculture, 1400
Independence Avenue SW, Mail Stop 3201, Room 5801--South, Washington,
DC 20250-3201; [email protected], or phone 715-345-7636.
SUPPLEMENTARY INFORMATION: All applicants are responsible for any
expenses incurred in developing their applications.
The lender is responsible for assuring that all requirements for
making, securing, servicing, and collecting the loan have been met.
Whether specifically stated or not, whenever Agency approval is
required, it must be in writing. Copies of all forms and regulations
referenced in this notice may be obtained from any Agency office and
from the USDA RD website at https://www.rd.usda.gov/foodsupplychainloans.
Overview
Federal Agency Name: Rural Business--Cooperative Service.
Funding Opportunity Title: Food Supply Chain Guarantee Loan
Program.
Announcement Type: Initial Notice.
Assistance Listing Number: 10.380.
Dates: Applications will be accepted beginning December 9, 2021.
Application acceptance will continue until all funds are expended.
Administrative: Applicants are encouraged to consider projects that
will advance the following key priorities (additional information on
the key priorities is available at https://www.rd.usda.gov/priority-points):
Assisting rural communities recover economically from the
impacts of the COVID-19 pandemic, particularly disadvantaged
communities;
Ensuring all rural residents have equitable access to
Rural Development (RD) programs and benefits from RD funded projects;
and
Reducing climate pollution and increasing resilience to
the impacts of climate change through economic support to rural
communities.
In addition, the Agency highlights the importance of strengthening
resiliency of the broader food supply chain, including through
addressing current supply chain related disruptions. The Agency will
consider applications as they are submitted. If available funding is
less than what is requested by applications under consideration, the
Agency will score each eligible application based on the point system
described herein. When applications on hand have the same priority
score, the Agency will give preference to applications involving
guaranteed loans from veterans.
Hemp Related Projects: Please note that no assistance or funding
from this program can be provided to a hemp producer unless they have a
valid license issued from an approved State, Tribal or Federal plan as
per section 10113 of the Agriculture Improvement Act of 2018, Public
Law 115-334. Verification of valid hemp licenses will occur at the time
of award.
A. Program Description and Overview
(a) Purpose of the program. Food Supply Chain (FSC) guaranteed
loans are available to qualified applicants and projects to facilitate
financing for the start-up or expansion of activities in the middle of
the food supply chain, particularly the aggregation, processing,
manufacturing, storing, transporting, wholesaling, or distribution of
food, to increase capacity and help create a more resilient, diverse,
and secure U.S. food supply chain. As reflected in the public comments
to AMS-TM-21-0034, Supply Chains for the Production of Agricultural
Commodities and Food Products, 86 FR 20652 (April 21, 2021), financing
for infrastructure as a strategy to strengthen the food supply chain
was identified as a need not only for small and mid-sized meat and
poultry processors, but across other stages of the food supply chain,
including distribution and aggregation.
This program will expand access to financing for food systems
infrastructure in the near term and will serve as a pilot program to
inform the other programs authorized under Section 1001 of the American
Rescue Plan Act of 2021 (American Rescue Plan Act). This program will
facilitate access to affordable capital to address the ongoing need for
food systems enterprises in America's rural and urban communities, as
there are no geographic restrictions.
(b) Statutory authority. Section 1001(b)(4) of the American Rescue
Plan Act authorizes the Secretary of Agriculture to ``. . . make loans
and grants and provide other assistance to maintain and improve food
and
[[Page 70087]]
agricultural supply chain resiliency.'' Given this authority, and
appropriation provided for this purpose in Section 1001, Paragraph (a),
$100 million in budget authority is being made available for the Food
Supply Chain Guaranteed Loan Program.
(c) Notice overview.
(1) This notice contains general provisions for making and
servicing FSC loans guaranteed by the Agency and applies to lenders,
holders, borrowers, and other parties involved in making, guaranteeing,
holding, servicing, or liquidating such loans.
(2) The lender is responsible for assuring compliance with all
requirements for making, securing, servicing, and collecting repayment
on guaranteed loans.
(3) Whether specifically stated or not, whenever Agency approval is
required, the lender is obligated to obtain written approval from the
Agency.
(4) All forms and regulations referenced in this notice may be
obtained from the USDA Rural Development website at https://www.rd.usda.gov/foodsupplychainloans.
(d) Definitions. The following definitions are applicable to this
notice:
Administrator. The Administrator of Rural Business--Cooperative
Service within the Rural Development mission area of the U.S.
Department of Agriculture.
Affiliate. A person where one of the following circumstances
exists:
(1) The person controls or has the power to control another person,
or a third party or parties controls or has the power to control both.
Factors such as ownership, management, current and previous
relationships with or ties to another person, and contractual
relationships, shall be considered in determining whether affiliation
exists. It does not matter whether control is exercised, so long as the
power to control exists. Entities owned and controlled by Indian
Tribes, Alaska Native Corporations (ANCs), Community Development
Corporations (CDCs), Native Hawaiian Organizations (NHOs) or wholly
owned entities of Indian Tribes, ANCs, NHOs, or CDCs, are not
considered to be affiliated with other entities owned by these entities
solely because of their common ownership or common management.
(2) There is a family relationship and identical or substantially
identical business or economic interests amongst persons (such as where
an immediate family member operates entities in the same or similar
industry in the same geographic area); however, a person may rebut such
determination with evidence showing that the business or economic
interests are not identical or substantially identical.
Agency. The Rural Business--Cooperative Service or successor Agency
assigned by the Secretary of Agriculture to administer the Food Supply
Chain Guaranteed Loan Program.
Arm's-length transaction. A transaction in which the buyer and
seller act independently and have no relationship to each other. The
concept of an arm's length transaction allows the market to ensure that
both parties in the deal are acting in their own self-interest and are
not subject to any pressure or duress from the other party.
Assignment Guarantee Agreement. A signed, Agency-approved agreement
among the Agency, the lender, and the holder setting forth the terms
and conditions of an assignment of a guaranteed portion of a loan or
note from the lender to the holder.
Bond. A form of debt security in which the authorized issuer
(borrower) owes the bond holder (lender) a debt and is obligated to pay
interest at specified intervals and repay the principal at a specified
maturity date. An explanation of the type of bond and other bond
stipulations must be attached to the bond.
Borrower. The person that borrows, or seeks to borrow, money from
the lender (including any party or parties liable for the guaranteed
loan except guarantors) through a loan guaranteed under this program
notice.
Certificate of Incumbency and Signature. An Agency-approved form
used to validate authenticity of Agency representatives' signatures and
titles.
Collateral. The asset(s) pledged by the borrower to the lender to
secure the guaranteed loan.
Commercially available. A system that meets the requirements of
either paragraph (1) or (2) of this definition.
(1) A domestic or foreign system that:
(i) Has both a proven and reliable operating history and proven
performance data for at least one year specific to the use and
operation to the proposed application;
(ii) Is based on established design and installation procedures and
practices and is replicable;
(iii) Has professional service providers, trades, large
construction equipment providers, and labor who are familiar with
installation procedures and practices;
(iv) Has proprietary and balance of system equipment and spare
parts that are readily available;
(v) Has service that is readily available to properly maintain and
operate the system; and
(vi) Has an existing established warranty that is valid in the
United States for major parts and labor; or
(2) A domestic or foreign system that has been certified by a
recognized industry organization whose certification standards are
acceptable to the Agency.
Complete application. An application that contains all parts
necessary for the Agency to determine borrower and project eligibility,
and the financial feasibility and technical merit of the project and
contains sufficient information to determine a priority score for the
application, if applicable, as determined by the Agency.
Conditional Commitment. An Agency-approved form in which the Agency
agrees that, in accordance with applicable provisions of this notice
and related forms, it will execute the loan note guarantee, subject to
the conditions and requirements specified in applicable provisions of
this notice and in the conditional commitment.
Conflict of interest. A situation in which a person has personal,
professional, or financial interests that prevents, or appears to
prevent the person from acting impartially. For purposes of this
notice, conflict of interest also includes, but is not limited to:
(1) A person acting as a compensated agent of the borrower and the
lender on the same guaranteed loan;
(2) Distribution or payment of guaranteed loan funds to an
individual owner, partner, stockholder, or member of the borrower, or
to a beneficiary or immediate family member of the borrower; or
(3) Refinancing debt that is owned by a loan packager, broker, or
referral agent or its affiliates.
Cooperative. An entity that is legally chartered by the State or
Tribe in which it operates as a cooperatively-operated business, or an
entity that is not legally chartered as a cooperative but is owned and
operated for the benefit of its members, with returns of residual
earnings paid to such members on the basis of patronage.
Credit evaluation. An analysis and evaluation by the lender of the
credit factors associated with each application to ensure loan
repayment using credit documentation procedures and an underwriting
process that is consistent with industry standards and the lender's
written policy and procedures.
Debt Collection Improvement Act. The Debt Collection Improvement
Act of 1996, 31 U.S.C. 3701 et seq.
[[Page 70088]]
Debt service coverage ratio. The ratio obtained when taking
earnings before interest, taxes, depreciation, and amortization less
reasonably expected replacement capital expenditures divided by the
annual debt service (principal and interest payments) of the borrower.
Default. The condition that exists when a borrower is not in
compliance with the promissory note, the loan agreement, or other
documents relating to the loan. Default could be a monetary or non-
monetary default.
Delinquency/Delinquent loan. A loan for which a scheduled loan
payment is more than 30 days past due and cannot be cured within 30
days.
Existing business. A business that has been in operation for at
least one full year and has achieved full operational capacity or
stable operations in accordance with its executive summary, feasibility
study, historical financial records, and financial projects, as
determined by the Administrator. Mergers or changes in the business
name or legal type of entity of a business that has been in operation
for at least one full year are considered to be existing businesses as
long as there is not a significant change in operations. Newly formed
entities that are buying existing businesses will be considered an
existing business as long as the business being bought remains in
operation and there is no significant change in operations or expertise
of management.
Existing lender debt. A debt owed by a borrower to the same lender
that is applying for or has received the Agency guarantee.
Farmer or rancher cooperative. An entity that is owned and
controlled by agricultural producers and that is incorporated, or
otherwise recognized by the State or Tribe in which it operates as a
cooperatively-operated business or an entity that is not legally
chartered as a cooperative but is owned and operated for the benefit of
its members, with returns of residual earnings paid to such members on
the basis of patronage.
Federal debt. Debt owed to the Federal Government that is subject
to collection under the Debt Collection Improvement Act.
Final loss claim. The Agency's payment of a final settlement amount
with the lender after the collateral on a delinquent loan is liquidated
or after settlement and compromise actions have been completed and as
further set forth in 7 CFR 5001.521(e).
Food. For the purpose of this notice, food or food product for
human consumption except alcoholic beverages, tobacco, and dietary
supplements.
Future recovery. Funds collected by the lender after a final loss
claim is processed.
Guaranteed loan. A loan made and serviced by a lender for which the
Agency and lender have entered into a lender's agreement and for which
the Agency has issued a loan note guarantee. Unless otherwise
specified, guaranteed loan refers to a loan that the Agency has
guaranteed under this notice.
Guarantor. A person who is legally obligated to make full payment
to the Agency under an Agency-approved written agreement in the event
that the borrower fails to meet its payment obligations on its
guaranteed loan.
Holder. A person, other than the lender, who owns all or part of
the guaranteed portion of the loan with no servicing responsibilities.
Immediate family. Individuals who live in the same household or who
are closely related by blood, marriage, or adoption, including a
spouse, domestic partner, parent, child, sibling, aunt, uncle,
grandparent, grandchild, niece, nephew, or first cousin.
Indian tribe. Means the term as defined in 25 U.S.C. 5131.
In-house expenses. Expenses associated with activities that are
routinely the responsibility of a lender's internal staff, including
in-house lawyers, or its agents and that are normally incurred for
administration of the loan. In-house expenses include, but are not
limited to, employees' salaries, staff lawyers, travel, and overhead.
Inspector. A qualified consultant who has at least three years of
experience and has completed at least five inspections on similar type
projects.
Intangible asset. An asset that lacks physical substance. This
includes, but is not limited to, copyrights, patents, capitalized
franchise fees, goodwill, customer lists, software, organizational
expenses, loan closing expenses, social media assets, and bond fees.
Interest. A fee paid by a borrower to the lender as a form of
compensation for the use of money. When money is borrowed, interest is
paid as a fee over a certain period of time (typically months or years)
to the lender as a percentage of the principal amount owed. The term
interest does not include default or penalty interest or late payment
fees or charges.
Interest termination date. The date on which no further interest
will be payable by the Agency under the loan note guarantee.
Interim financing. A temporary or short-term loan made with the
clear intent when the loan is made that it will be repaid through
another loan that provides permanent financing. Interim financing is
frequently used to pay construction and other costs associated with a
planned project, with permanent financing to be obtained after
completion of project construction.
Lender. The eligible lender approved by the Agency to originate,
service, and collect payments on loans guaranteed under this notice.
Lender's agreement. The Agency-approved form of contract between
the Agency and the lender setting forth the lender's guaranteed loan
responsibilities.
Liquidation expenses. Costs directly associated with the
liquidation of collateral, including, without limitation, costs
associated with preparing collateral for sale (e.g., repairs and
transport), the sale (e.g., advertising, public notices, auctioneer
expenses, and foreclosure fees), and conducting appraisals. Legal fees
are considered liquidation expenses provided that the fees are
reasonable as determined by the Agency and cover legal issues
pertaining to the liquidation that could not be properly handled by the
lender and its in-house legal staff. Liquidation expenses do not
include in-house expenses.
Loan agreement. The agreement between the borrower and lender
containing the terms and conditions of the loan and the
responsibilities of the borrower and lender, including the terms of the
borrower's repayment of the loan.
Loan classification. The process by which loans are examined and
categorized by the probability of default and degree of potential loss
in the event of default.
Loan note guarantee. The Agency-approved form containing the terms
and conditions of the guarantee of an identified guaranteed loan.
Loan packager. A person, other than the applicant borrower or
lender, that prepares a loan application package on behalf of the
borrower or lender.
Loan-to-discounted value. The ratio of the dollar amount of a loan
to the discounted dollar value of the collateral pledged as security
for the loan.
Material adverse change. Any change in circumstance associated with
a guaranteed loan, including without limitation, any change in the
purpose of the loan, the borrower's financial condition or collateral,
that, individually or in the aggregate, has jeopardized, or could be
reasonably expected to jeopardize, the borrower's repayment of the
guaranteed loan.
[[Page 70089]]
Monetary default. A failure to make a scheduled or required payment
on a guaranteed loan.
Multi-note system. An option for the lender to provide one
promissory note for the unguaranteed portion and a separate promissory
note(s) for the guaranteed portion of the loan. All promissory notes
must reflect the same payment terms.
National Appeals Division (NAD). A division of the United States
Department of Agriculture as described in 7 CFR part 11.
Negligent loan origination. The failure of a lender to perform
those services that a reasonably prudent lender would perform in
originating its own portfolio of loans that are not guaranteed. The
term includes the concepts of failure to act, not acting in a timely
manner, or acting in a manner contrary to the manner in which a
reasonably prudent lender would act.
Negligent loan servicing. The failure of a lender to perform those
services or actions that a reasonably prudent lender would perform in
servicing (including liquidation of) its own portfolio of loans that
are not guaranteed. The term includes the concepts of failure to act,
not acting in a timely manner, or acting in a manner contrary to the
manner in which a reasonably prudent lender would act.
New business. A startup or otherwise new business that has been in
operation for less than one full year and a business that has been in
operation for at least one full year and has not achieved full
operational capacity or stable operations in accordance with its
executive summary, feasibility study, historical financial records, and
financial projects, as determined by the Administrator, including a new
enterprise or new affiliate of an existing business moving or expanding
into a new location involving new market or labor areas.
Non-monetary default. A situation where a borrower is not in
compliance with the covenants or requirements of the loan documents or
program requirements.
Parity. A lien position whereby two or more lenders or loans share
a security interest of equal priority in collateral.
Participation. Sale of an interest in a loan by the lead lender to
one or more participating lenders wherein the lead lender retains the
note, collateral securing the note, and all responsibility for managing
and servicing the loan. Participants are dependent upon the lead lender
for protection of their interests in the loan. The relationship is
typically formalized by a participation agreement. The participants and
the borrower have no rights or obligations to one another.
Passive investor. An equity investor who does not actively
participate in management and operation decisions of the borrower or
any affiliate of the borrower as evidenced by a contractual agreement.
Person. An individual or entity organized under the laws of a State
or an Indian Tribe.
Program. Program means the Food Supply Chain Guaranteed Loan
Program authorized by the American Rescue Plan Act of 2021 and
administered by the Agency.
Promissory note. The legal instrument evidencing debt executed by
the borrower to a lender with stipulated repayment terms. The term
promissory note includes bonds and other related debt instruments
issued by the lender to a borrower.
Protective advances. Advances made by the lender for the purpose of
preserving and protecting the collateral where the borrower has failed
to, and will not or cannot, meet its obligations to protect or preserve
collateral. Protective advances include, but are not limited to,
advances for property taxes, rent, hazard and flood insurance premiums,
emergency repairs and annual assessments that protect the collateral.
Legal and accounting fees are not protective advances.
Public body. A state, municipality, county, or other political
subdivision of a State; a special purpose district; an Indian tribe on
a Federal or State reservation or other federally-recognized Indian
tribe; or an organization controlled by any of the above.
Qualified consultant. An independent third-party person possessing
the knowledge, expertise, and experience to perform the specific task
required.
Socially disadvantaged group. A group whose members have been
subjected to racial, ethnic, or gender prejudice because of their
identity as members of a group without regard to their individual
qualities.
Spreadsheet. A table containing data from a series of financial
statements of a business over a specified period. A financial statement
analysis normally contains spreadsheets for balance sheet and income
statement items and includes a cash flow analysis and commonly used
ratios. The spreadsheets enable a reviewer to easily scan the data,
spot trends, and make comparisons.
State. Any of the 50 States of the United States, the Commonwealth
of Puerto Rico, the District of Columbia, the U.S. Virgin Islands,
Guam, American Samoa, the Commonwealth of the Northern Mariana Islands,
the Republic of Palau, the Federated States of Micronesia, and the
Republic of the Marshall Islands.
Subordination. An agreement among the lender, borrower, and Agency
whereby lien priorities on certain assets pledged to secure payment of
the guaranteed loan will be reduced to a position junior to, or on
parity with, the lien position of another loan.
Transfer and assumption. The Agency-approved conveyance by a
borrower to an assuming borrower of the assets, collateral, and
liabilities of the loan in return for the assuming borrower's binding
promise to pay the outstanding debt.
Veteran. For the purposes of applicant selection, a veteran is a
person who served in the active military, naval, or air service and was
discharged or released therefrom under conditions other than
dishonorable as defined in 38 U.S.C. 101(2).
5. Accounting terms. Accounting terms not otherwise defined in this
part shall have the definition ascribed to them under Generally
Accepted Accounting Principles (GAAP).
B. Federal Award Information
Type of Awards: Guarantee.
Award Amounts: The maximum, aggregate, loan amount that a borrower
may receive is $40 million. For fiscal year 2022, the Agency reserves
not less than 19 percent of the funds made available to the Food Supply
Chain Guaranteed Loan Program until June 7, 2022 for entities that
establish and facilitate the slaughter and initial processing of meat
and poultry to increase capacity and help create a more resilient,
diverse, and secure U.S. food supply chain.
Due Date for Applications: Applications will be accepted until
funds are expended.
Anticipated Award Date: Beginning not earlier than February 7,
2022.
Performance Period: None.
Type of Assistance Instrument: Loan note guarantee.
Loan guarantee limits:
(a) Loan amount. The total amount of guaranteed loans under this
notice to one borrower, including the aggregate amount of guaranteed
loans to affiliate entities dependent upon another's operations and
generation of revenue for loan repayment, (including the guaranteed and
unguaranteed portions, and for subsequent loans the outstanding
principal and interest balance of any existing FSC guaranteed loans,
and the new loan request) must not exceed $40 million.
[[Page 70090]]
(b) Percentage of guarantee. The percentage of guarantee will be 90
percent for loans with fixed interest rates on the guaranteed portion
of the loan and for which the interest rate does not exceed the current
Wall Street Journal prime rate plus 200 basis points. All other loans
shall be guaranteed at 80 percent.
C. Eligibility Information
(a) Eligible borrowers. Borrowers must meet all the following
eligibility requirements. Applications which fail to meet any of these
requirements will be deemed ineligible and will not be evaluated
further.
(1) A borrower must be a cooperative organization, corporation,
partnership, or other legal entity organized and operated on a profit
or nonprofit basis; an Indian tribe on a Federal or State reservation
or other federally recognized tribal group; a public body; or an
individual. In addition a borrower must be:
(i) A business engaged in or proposing to engage in aggregating,
processing, manufacturing, storing, transporting, wholesaling, or
distributing food; or
(ii) A business with existing or proposed contractual, lease, or
service agreements with another entity or entities, including
affiliated entities, which are engaged or proposing to engage in
aggregating, processing, manufacturing, storing, transporting,
wholesaling, or distributing food.
(2) A borrower must be a business engaged or proposing to engage in
commercial food product project(s) either directly or through
contractual, lease or service agreements with another entity or
entities including affiliated entities. A commercial food product is a
product in regular production that is routinely sold in significant
quantities to the general public or industry.
(3) Borrowers engaged or proposing to engage in processing of meat,
poultry, processed egg products, and Siluriformes either directly or
through contractual, lease or service agreements with another entity or
entities including affiliated entities, must comply with the
requirements of the U.S. Department of Agriculture (USDA) Food Safety
and Inspection Service. Borrowers engaged or proposing to engage in
processing of other foods and food ingredients either directly or
through contractual, lease or service agreements with another entity or
entities including affiliated entities, must comply with the
requirements of the Food and Drug Administration. All borrowers must
comply with requirements of state, tribal and local governments.
(4) Borrowers, including affiliates of the borrower engaged or
proposing to engage in, either directly or through contractual, lease
or service agreements with another entity or entities including
affiliated entities, beef, pork, chicken, or turkey processing must not
hold a market share greater than or equal to the entity that holds the
fourth largest share of that market for the species addressed in the
application.
(5) Individual borrowers must be citizens of the United States or
reside in the United States after being legally admitted for permanent
residence. For purposes of this subpart, citizens and residents of the
Republic of Palau, the Federated States of Micronesia, American Samoa,
Guam, the Commonwealth of the Northern Mariana Islands, and the
Republic of the Marshall Islands are considered U.S. citizens.
Individuals that reside in the United States after being legally
admitted for permanent residence must provide a permanent green card as
evidence of eligibility.
(6) All applications for assistance will be accepted and processed
without regard to the availability of credit from any other source.
(b) Eligible uses of funds. Borrowers must demonstrate, to the
Agency's satisfaction, that loan funds will remain in the United States
and the facility being financed and the uses of the loan funds will
support the start-up or expansion of activities in the middle of the
food supply chain, particularly the aggregation, processing,
manufacturing, storage, transportation, wholesaling, or distribution of
food, to increase capacity and help create a more resilient, diverse,
and secure U.S. food supply chain. Eligible uses of funds include, but
are not limited to, the following:
(1) Purchase and development of land, buildings, or infrastructure
for public or private commercial enterprises or industrial properties,
including expansion or modernization.
(2) Leasehold improvements when the lease contains no reverter
clauses or restrictive clauses that would impair the use or value of
the property as security for the loan. The term of the lease must be
equal to or greater than the term of the loan.
(3) Constructing or equipping facilities for lease to public or
private enterprises engaged in commercial or industrial operations.
Financing for mixed-use properties, involving both commercial business
and residential space, is authorized provided that at least 50 percent
of the building's projected revenue will be generated from food supply
chain related business uses.
(4) Purchase of machinery and equipment including but not limited
to manufacturing systems, information technology systems, and
commercially available new technologies that promote worker safety or
food safety.
(5) Debt refinancing when it is determined that the project is
viable and refinancing is necessary to improve cash flow or obtain
appropriate lien positions. Debt being refinanced must be debt of the
borrower reflected on its balance sheet. The lender's analysis must
document that, except for the refinancing of lines of credit, the debt
being refinanced was for an eligible loan purpose under this subpart.
Existing lender debt may be included provided that, at the time of
application, the loan being refinanced has been active and current for
at least the past 12 months (current status cannot be achieved by the
lender forgiving the borrower's debt or servicing actions that impact
the borrower's repayment schedule), and the lender is providing better
rates or terms. Unless the amount to be refinanced is owed directly to
the Federal government or is federally guaranteed, no more than 50
percent of loan funds may be used to refinance existing debt.
(6) Takeout of interim financing. Guaranteeing a loan that provides
for permanent, long-term financing after project completion to pay off
a lender's interim loan will not be treated as debt refinancing
provided that the lender submits a request for preliminary eligibility
review or application that proposes such interim financing prior to
closing the interim loan. The borrower must take no action that would
have an adverse impact on the environment or limit the range of
alternatives to be considered by the Agency during the environmental
review process. The Agency will not guarantee takeout of interim
financing loans that prevent a meaningful environmental assessment
prior to Agency loan approval. Even for projects with interim
financing, the Agency cannot approve the loan and issue a Conditional
Commitment until the environmental process is complete. The Agency
assumes no responsibility or obligation for interim loans.
(7) Purchase of membership, stocks, bonds, or debentures necessary
to obtain a loan from Farm Credit System institutions and other lenders
provided such purchase is required for all their borrowers and is the
minimum amount required.
(8) The purchase of cooperative stock by individual farmers or
ranchers in a farmer or rancher cooperative, the purchase of
transferable cooperative stock, the purchase of stock in a
[[Page 70091]]
business by employees forming an Employee Stock Ownership Plan or
worker cooperative, and loans to a fund that invests primarily in
cooperatives in accordance with the provisions of this notice.
(9) Taxable corporate bonds when the bonds will be fully amortized
over the life of the bond and comply with all provisions of (i) through
(v) below:
(i) The bond holder (lender) retains 7.5 percent of the bond.
(ii) The bonds must be fully secured with collateral.
(iii) The bonds must only provide for a trustee when the trustee is
totally under the control of the lender. The bonds must provide no
rights to bond holders other than the right to receive the payments due
under the bond. For instance, the bonds must not provide for bond
holders replacing the trustee or directing the trustee to take
servicing actions, such as accelerating the bonds. Convertible bonds
are not eligible under this paragraph due to the potential conflict of
interest of a lender having an ownership interest in the borrower.
(iv) The bond issuer (borrower) must obtain the services and
opinion of an experienced bond counsel who must present a legal opinion
stating that the bonds are legal, valid, and binding obligations of the
issuer and that the issuer has adhered to all applicable laws.
(v) The bond holder (lender) must purchase all the bonds and comply
with all Agency regulations. There must be a bond purchase agreement
between the issuer and the bond holder. The bond purchase agreement
must contain similar language to what is required to be in a loan
agreement in accordance with this notice and must be in form and
substance satisfactory to the Agency. The bond holder is responsible
for all servicing of the loan (bond), although the bond holder may
contract for servicing assistance, including contracting with a trustee
who remains under the lender's total control.
(10) Interest (including interest on interim financing) during the
period before the first principal payment becomes due or when the
facility becomes income producing, whichever is earlier.
(11) Fees and charges outlined in the Loan Guarantee Limits
section, above.
(12) Feasibility studies.
(13) Educational, innovation, and training facilities and equipment
and kitchen, business, and other multi-tenant incubator facilities and
equipment when not eligible for Rural Housing Service, Community
Facilities assistance.
(14) Pollution control and abatement as related to transportation,
waste management and other activities related to otherwise eligible
projects.
(15) Startup costs, working capital, inventory, and supplies in the
form of a permanent working capital term loan.
(c) Ineligible entities.
(1) An entity is ineligible if any of the conditions identified in
paragraphs (i) through (iv) below apply to the borrower, any owner with
more than 20 percent ownership interest in the borrower (does not
include passive investors), or any owner with control of the borrower.
(i) There is an outstanding judgment obtained by the U.S. in a
Federal Court (other than U.S. Tax Court).
(ii) There is any delinquency on payment of Federal income taxes.
(iii) There is any delinquency on a Federal Debt.
(iv) There is a debarment or suspension from receiving Federal
assistance.
(2) An entity is ineligible if it derives more than 15 percent of
its annual gross revenue (including any lease income from space or
machines) from gambling activity, excluding State-authorized lottery
proceeds or Tribal-authorized gaming proceeds, as approved by the
Agency, conducted for the purpose of raising funds for the approved
project.
(3) An entity is ineligible if it derives income from activities of
a prurient sexual nature.
(4) An entity is ineligible if it derives income from illegal
drugs, drug paraphernalia, or any other illegal product or activity as
defined under Federal statute. A borrower that intends to lease space
or enter into a power purchase agreement with a marijuana dispensary is
not eligible since the borrower would be receiving income from the
marijuana operation which is a violation of federal laws since
marijuana is a controlled substance under federal law and subject to
federal prosecution under the Controlled Substances Act (21 U.S.C.
801).
(5) An entity is ineligible if it is a charitable or fraternal
organization. For purposes of this section, an organization that
derives more than 10 percent of its annual gross revenue from tax
deductible charitable donations, based on historical financial
statements, is considered a charitable organization. Fees for services
rendered or that are otherwise ineligible for deduction under the
Internal Revenue Code are not considered tax deductible charitable
donations.
(6) An entity is ineligible if its lender or any of the lender's
officers have an ownership interest in the borrower or is an officer or
director of the borrower with management control or where the borrower
or any of its officers, directors, stockholders, or other owners have
more than a five percent ownership interest in the lender. Any of the
lender's directors, stockholders, or other owners that are officers,
directors, stockholders, or other owners of the borrower without
management control or ownership less than five percent must be recused
from any decision-making process associated with the guaranteed loan.
(7) An entity is ineligible if it is a lending institution,
investment institution, or insurance company with exception of a fund
that invests primarily in cooperatives and funds utilized in New
Markets Tax Credit (NMTC) structures.
(d) Ineligible use of loan funds and ineligible loan purposes
include:
(1) Distribution or payment to an individual or entity that will
retain an ownership interest in the borrower or distribution or payment
to a beneficiary of the borrower. Distribution or payment to a member
of the immediate family of an owner, partner, or stockholder will not
be permitted, except for a change in ownership of the business where
the selling immediate family member does not retain an ownership
interest and the Agency determines the price paid to be reasonable. As
this type of transaction is not an arm's length transaction,
reasonableness of the price paid will be based upon an appraisal. In
situations where there is common ownership or an otherwise closely
related company is being paid to do construction or installation work
for a borrower, only documented costs associated with construction or
installation can be paid with loan proceeds. Documented construction or
installation costs may not include any profit or wages to a related
person, and all work must be done at cost with no profit built into the
cost. This paragraph does not apply to transfers of ownership for
Employee Stock Ownership Plans (ESOPs) or worker cooperatives;
cooperatives where the cooperative pays the member for product or
services; or where member stock is transferred among members of the
cooperative.
(2) Guaranteeing lease payments or any lines of credit.
(3) Guaranteeing loans made by other Federal agencies.
(4) Loans on which the interest is excludable from income under
current or a successor statute of the Internal Revenue Code. Funds
generated through the issuance of tax-exempt obligations shall neither
be used to purchase the guaranteed portion of any Agency guaranteed
loan nor shall an Agency
[[Page 70092]]
guaranteed loan serve as collateral for a tax-exempt issue. The Agency
may guarantee a loan for a project that involves tax-exempt financing
only when the guaranteed loan funds are used to finance a part of the
project that is separate and distinct from the part that is financed by
the tax-exempt obligation, and the guaranteed loan has at least a
parity security position with the tax-exempt obligation.
(5) Guarantees supporting inherently religious activities, such as
worship, religious instruction, proselytization, or to pay costs
associated with acquisition, construction, or rehabilitation of
structures for inherently religious activities, including the financing
of multi-purpose facilities where religious activities will be among
the activities conducted.
(6) Research and development projects and projects that involve
technology that is not commercially available.
(7) Other than cooperative stock purchase loans and cooperative
equity security guarantees, guarantees supporting speculation,
arbitrage, or speculative real estate investment.
(8) Any business located within the Coastal Barriers Resource
System that does not qualify for an exception as defined in section 6
of the Coastal Barriers Resource Act, 16 U.S.C. 3501 et seq.
(9) Any business located in a special flood or mudslide hazard area
as designated by the Federal Emergency Management Agency in a community
that is not participating in the National Flood Insurance Program
unless the project is an integral part of a community's flood control
plan.
(10) Any project that drains, dredges, fills, levels, or otherwise
manipulates a wetland or engages in any activity that results in
impairing or reducing the flow, circulation, or reach of water, except
in the case of activity related to the maintenance of previously
converted wetlands. This does not apply to loans for utility lines.
(11) Facilities exempt from Federal inspection in accordance with 9
CFR 303.1(a), specifically Federal Meat Inspection Act custom-exempt
facilities. However, these facilities could apply as a new or expanded
business seeking to expand their operations to obtain a Federal or
equivalent seal of inspection.
(12) Any project involving alcoholic beverages, tobacco, or dietary
supplements.
(13) Projects or uses of loan funds that the Agency determines
create, directly or indirectly, a conflict of interest.
(e) Fees and Charges.
(1) Routine lender fees. The lender may establish charges and fees
for the loan provided they are similar to those normally charged other
applicants for the same type of loan in the ordinary course of
business, and these fees are an eligible use of loan proceeds. The
lender must document such routine fees on an Agency approved
application form. The lender may charge prepayment penalties and late
payment fees that are stipulated in the loan documents, as long as they
are reasonable and customary; however, the loan note guarantee will not
cover either prepayment penalties or late payment fees.
(2) Professional services. Professional services are those rendered
by persons generally licensed or certified by States or accreditation
associations, such as architects, engineers, accountants, attorneys, or
appraisers, and those rendered by loan packagers. The borrower may pay
fees for professional services needed for planning and developing a
project. Such fees are an eligible use of loan proceeds provided that
the Agency agrees that the amounts are reasonable and customary. The
lender must document these fees on the Agency approved application
form.
(f) Interest rates.
(1) The interest rate for the guaranteed loan will be negotiated
between the lender and the borrower and may be either fixed or
variable, or a combination thereof, as long as it is a legal rate.
Interest rates will not be more than those rates customarily charged
borrowers for loans without guarantees and are subject to Agency review
and approval.
(2) A variable interest rate must be a rate that is tied to a
published base rate, published in a national or regional financial
publication, agreed to by the lender and the Agency. The variable
interest rate must be specified in the promissory note and may be
adjusted at different intervals during the term of the loan, but the
adjustments may not be more often than quarterly. The lender must
incorporate, within the variable rate promissory note at loan closing,
the provision for adjustment of payment installments. The lender must
fully amortize the outstanding principal balance within the prescribed
loan maturity to eliminate the possibility of a balloon payment at the
end of the loan.
(3) It is permissible to have different interest rates on the
guaranteed and unguaranteed portions of the loan.
(4) Any change in the base rate or fixed interest rate between
issuance of the conditional commitment and loan closing must be
approved in writing by the Agency. Approval of such change must be
shown as an amendment to the conditional commitment in accordance with
this notice and must be reflected on the Guaranteed Loan Closing
Report.
(5) The lender's promissory note must not contain provisions for
default or penalty interest nor will default or penalty interest,
interest on interest, or late payment fees or charges be paid under the
Loan Note Guarantee.
(g) Loan terms.
(1) Term length. The lender, with Agency concurrence, will
establish and justify the guaranteed loan term based on the use of
guaranteed loan funds, the useful economic life of the assets being
financed and those used as collateral, and the borrower's repayment
ability. The maximum term allowable for final guaranteed loan maturity
is limited to the justified useful life of the project or assets used
as collateral but may not exceed 40 years or limitations in the
applicable State statute, whichever is less. State statutory limits on
maximum terms do not apply for projects on land under the jurisdiction
of federally recognized Tribes.
(2) Guaranteed loan schedule and repayment. The lender must
structure repayment in consideration of the borrower's cash flow and in
accordance with the provisions of this section and the loan agreement.
Scheduled guaranteed loan payments shall be made no less frequently
than annually. In addition:
(i) Both the guaranteed and unguaranteed portions of the loan must
be amortized over the same term.
(ii) Guaranteed loans must require a periodic payment schedule that
will retire the debt over the term of the loan without a balloon
payment.
(3) Interest only. If the promissory note provides for an interest-
only period, interest must be paid at least annually starting on a date
that is no more than one year from the date of the promissory note. The
first payment of principal and interest will be scheduled based on the
borrower's cash flow and whether the facility is operational and
generating adequate income. However, the first principal and interest
payment must be scheduled not more than three years after the date of
the promissory note and principal and interest payments must be
scheduled for repayment at least annually thereafter.
(4) Due on demand. There must be no ``due-on-demand'' clauses
without cause. Regardless of any ``due-on-demand'' with cause provision
in a lender's promissory note, the Agency must concur in any
acceleration of the guaranteed loan unless the basis for acceleration
is monetary default.
[[Page 70093]]
(h) Capital and equity. Borrowers are required to have sufficient
capital or equity to mitigate the ongoing financial and operational
risks of the business. Balance sheet equity will be determined based
upon current and projected borrower financial statements. Current and
projected financial statements filed with the application are reviewed
to determine if it is likely that the balance sheet equity requirement
can be met. The following capital and equity requirements must be met
at the time of lender's closing of the guaranteed loan. A balance sheet
as of loan closing is required and should reflect the new debt and use
of proceeds. If there are multiple borrowers, consolidated financial
statements should be submitted.
(1) Existing businesses must meet one of the following
requirements:
(i) A minimum of 10 percent balance sheet equity (including
subordinated debt when subject to a standstill agreement for the life
of the loan), or a maximum debt-to-balance sheet equity ratio of 9 to
1, at loan closing;
(ii) Provide 10 percent or more of total eligible project costs in
the form of borrower investment of equity or other funds into the
project including grants or subordinated debt when subject to a
standstill agreement for the life of the loan; or
(iii) Balance sheet equity includes owner-contributed capital of 10
percent or more of total fixed assets (net total fixed assets plus
depreciation).
(2) New businesses with sales contract(s) with proceeds in an
amount adequate to meet debt service and the term of the sales
contract(s) are at least equal to the term of the guaranteed loan, and
subject to Agency acceptance of the credit worthiness of the
counterparty (entity the borrower is contracting with), the borrower
must meet one of the following requirements:
(i) A minimum of 10 percent balance sheet equity (including
subordinated debt when subject to a standstill agreement for the life
of the loan), or a maximum debt-to-balance sheet equity ratio of 9 to 1
at loan closing; or
(ii) Borrower investment of equity or other funds (including grants
or subordinated debt when subject to a standstill agreement for the
life of the loan) into the project in an amount of 10 percent or more
of total eligible project cost.
(3) New businesses with a project involving construction and when
the lender will request the loan note guarantee prior to completion of
construction must meet one of the following requirements:
(i) A minimum of 25 percent balance sheet equity (including
subordinated debt when subject to a standstill agreement for the life
of the loan), or a maximum debt-to-equity ratio of 3 to 1, at
guaranteed loan closing; or
(ii) Borrower investment of equity or other funds (including grants
or subordinated debt when subject to a standstill agreement for the
life of the loan) into the project in an amount of 25 percent or more
of total eligible project cost.
(4) All other borrowers that are new businesses must meet one of
the following requirements:
(i) A minimum of 20 percent balance sheet equity (including
subordinated debt when subject to a standstill agreement for the life
of the loan), or a maximum debt-to-equity ratio of 4 to 1, at
guaranteed loan closing; or
(ii) Borrower investment of equity or other funds (including grants
or subordinated debt when subject to a standstill agreement for the
life of the loan) into the project in an amount of 25 percent or more
of total eligible project cost.
(5) Capital and equity requirements may be increased or reduced by
the Agency as follows:
(i) Increases.
(A) The Agency may increase the capital or equity requirement
specified under paragraphs (h)(1) through (4) of this section for
guaranteed loans the Agency determines carry a higher risk. In
determining whether a project or guaranteed loan carries a higher risk,
the Agency will consider the current status of the industry,
concentration of the industry in the Agency's portfolio, collateral
coverage, value of personal or corporate guarantees, cash flow, and
contractual relationships with suppliers and buyers; credit rating of
the borrower; and the strength of the feasibility study and experience
of management. The Agency may also increase the capital or equity
requirement for new businesses producing new products to sell into new
and emerging markets.
(B) The Agency will increase the capital or equity requirement
specified under paragraphs (h)(1) through (4) of this section for all
guaranteed loans in excess of $25 million.
(ii) Reductions. The Agency may reduce the minimum equity
requirement for an existing business when personal or corporate
guarantees are obtained in form and substance satisfactory to the
Agency, and all pro forma statements indicate the business to be
financed meets or exceeds the median quartile (as identified in the
Risk Management Association's Annual Statement Studies or similar
publication) for the current ratio, quick ratio, debt-to-worth ratio,
and debt service coverage ratio.
(6) The lender must certify that, as of the date the guaranteed
loan was closed, its credit analysis indicated that the borrower had
sufficient capital or equity to mitigate the financial and operational
risks of the business, and that the borrower met the minimum equity
required by the Agency in its conditional commitment, or that the
minimum borrower capital contribution toward project costs, as
applicable and required by the Agency, was met. A copy of the
borrower's loan closing balance sheet must be included with the
lender's certification.
Capital Equity Requirements Summary
----------------------------------------------------------------------------------------------------------------
Borrower must meet one of the following at the time of
the closing of the guaranteed loan:
--------------------------------------------------------
Balance sheet
Borrower equity includes
Borrower investment as owner contributed
Percent balance percent of total capital as
sheet equity: eligible project percentage of
cost: total fixed
assets:
----------------------------------------------------------------------------------------------------------------
Existing Business...................................... >=10 >=10 >=10
Borrowers that are new businesses with sales >=10 >=10 N/A
contract(s) adequate to meet debt service and the term
of the sales contract(s) are at least equal to the
term of the guaranteed loan...........................
Borrowers that are new businesses for a project >=25 >=25 N/A
involving construction and the lender will request the
loan note guarantee prior to completion of
construction..........................................
All other borrowers that are new businesses............ >=20 >=25 N/A
----------------------------------------------------------------------------------------------------------------
[[Page 70094]]
(i) Personal, partnership, and corporate guarantees. The provisions
of this section do not apply to passive investors.
(1) Except as provided in paragraph (3) of this section, Agency-
approved, unsecured personal, partnership, and corporate guarantees for
the full term of the guaranteed loan and at least equal to the
guarantor's percent interest or membership in the borrower times the
guaranteed loan amount are required from any person or entity owning a
20-percent or greater interest or membership in the borrower. In the
event a portion of the borrower's ownership interest stock is sold or
transferred, the Agency reserves the right to require personal or
corporate guarantees from the new owners of a 20-percent or more
interest in the borrower.
(2) When warranted by an Agency assessment of potential financial
risk, the Agency may require the following:
(i) Guarantees to be secured;
(ii) Guarantees from any person or entity owning less than a 20
percent interest or membership in the borrower; and
(iii) Guarantees from persons whose ownership interest in the
borrower is held indirectly through intermediate or affiliated
entities.
(3) Exceptions to the requirement for personal, partnership or
corporate guarantees may be requested by the lender. The lender must
document, to the Agency's satisfaction, that collateral, equity, cash
flow, and profitability indicate an above-average ability of the
borrower to repay the loan. The Agency will evaluate these requests on
a case-by-case basis.
(4) Each guarantor must execute an Agency-approved guarantee form
in addition to any guarantee form required by the lender.
(5) Any amounts paid by the Agency pursuant to a claim by a
guaranteed program lender will constitute a Federal debt owed to the
Agency by a guarantor of the loan, to the extent of the amount of the
guarantor's guarantee.
(j) Insurance. The lender is responsible for ensuring that the
following required insurance is maintained by the borrower.
(1) Hazard. Hazard insurance with a standard clause naming the
lender as mortgagee or loss payee, as applicable, is required for the
life of the guaranteed loan. The amount must be at least equal to the
replacement value of the collateral or the outstanding balance of the
loan, whichever is the greater amount.
(2) Life. The lender may require a collateral assignment of life
insurance to insure against the risk of death of persons critical to
the success of the business. When required, coverage must be in amounts
necessary to provide for management succession or to protect the
business. The Agency may require life insurance on key individuals for
loans where the lender has not otherwise proposed such coverage. The
cost of insurance and its effect on the applicant's working capital
must be considered, as well as the amount of existing insurance that
could be assigned without requiring additional expense.
(3) Worker compensation. Worker compensation insurance is required
in accordance with State or Tribal law.
(4) Flood. National flood insurance is required in accordance with
applicable law.
(5) Other. The lender must consider whether public liability,
business interruption, malpractice, and other insurance is appropriate
to the borrower's particular business and circumstances and must
require the borrower to obtain such insurance as is necessary to
protect the interests of the borrower, the lender, and the Agency.
(k) Financial statements.
Except for audited financial statements, the lender will determine
the type and frequency of submission of financial statements by the
borrower and any guarantors. All financial information (e.g., financial
statements, balance sheets, financial projections, and income
statements) must be prepared and submitted in accordance with
accounting practices acceptable to the Agency. Such practices can
include, but are not limited to, GAAP and the industry's standard
accounting practice. The Agency may require annual audited financial
statements. Audits will be required of any public body, nonprofit
corporation, or Indian Tribe that receives a guaranteed loan that meets
the thresholds established by 2 CFR part 200, subpart F. Any audit
provided by a public body, nonprofit corporation, or Indian Tribe
required by this paragraph will be considered adequate to meet the
audit requirements of the FSC program for that year.
(l) Cooperative stock/cooperative equity. The cooperative or
business entity assisted must be an eligible borrower under this notice
and the funds must be used for eligible uses of loan funds under this
notice.
(1) Cooperative stock purchase program.
(i) The Agency may guarantee loans for the purchase of cooperative
stock by individual farmers or ranchers in a farmer or rancher
cooperative established for the purpose of processing an agricultural
commodity. The cooperative must use the proceeds from the stock sale
for eligible uses of loan funds described in Eligible Uses of Funds
section, above. The cooperative may contract for services to process
agricultural commodities or otherwise process value-added agricultural
products during the 5-year period beginning on the operation startup
date of the cooperative in order to provide adequate time for the
planning and construction of the processing facility of the
cooperative. The full amount of the loan proceeds must be used for the
purchase of cooperative stock and cooperative must not reinvest those
funds into another entity. The Agency may also guarantee loans for the
purchase of transferable stock shares of any type of cooperative. Such
stock may provide delivery or some form of participation rights and may
only be traded among cooperative members.
(ii) The maximum term allowable for a guaranteed loan's maturity is
limited to the justified useful life of the funded project assets the
cooperative purchases with the proceeds of the stock sale not to exceed
40 years or applicable State statutory limitations, whichever is less.
The maximum term is seven years if the proceeds from the stock sale are
used by the cooperative for working capital.
(iii) The lender will, at a minimum, obtain a valid lien on the
stock, an assignment of any patronage refund, and the ability to
transfer the stock to another party, or otherwise liquidate and dispose
of the collateral in the event of a borrower default.
(iv) The lender must complete a written credit analysis of the
borrower of each stock purchase loan and a complete credit analysis of
the cooperative prior to making its first stock purchase loan.
(v) If the borrower is an agricultural producer, the borrower may
provide financial information in the manner that is generally required
by commercial agricultural lenders.
(vi) The required feasibility study should address the cooperative.
(vii) The Agency will conduct an appropriate environmental
assessment on the processing facility and will not process individual
applications for the purchase of stock until the environmental
assessment on the cooperative processing facility is completed.
Typically, an individual loan for the purchase of cooperative stock is
considered a categorical exclusion.
(2) Cooperative equity security guarantees.
(i) The Agency may guarantee loans for the purchase of preferred
stock or similar equity issued by a cooperative
[[Page 70095]]
and may guarantee loans to a fund that invests primarily in
cooperatives. In either case, the guarantee must significantly benefit
one or more entities eligible for assistance under this notice.
(ii) ``Similar equity'' is any special class of equity stock that
is available for purchase by non-members and/or members and lacks
voting and other governance rights.
(iii) A fund that invests ``primarily'' in cooperatives is
determined by its percentage share of investments in and loans to
cooperatives. A fund portfolio must have or commit at least 50 percent
of its loans and investments in cooperatives to be considered eligible
for loan guarantees for the purchase of preferred stock or similar
equity.
(iv) The maximum term of a guaranteed loan for preferred stock or
similar equity is equal to the least of the following, but will not
exceed 40 years:
(A) The justified useful life of the funded project assets;
(B) The maximum term under any applicable State statute;
(C) The specified holding period for redemption as stated by the
stock offering; or,
(D) Seven years when the proceeds are used by the cooperative for
working capital.
(v) All borrowers purchasing preferred stock or similar equity must
provide documentation of the terms of the offering that includes
compliance with State and Federal securities laws and financial
information about the issuer of the preferred stock to both the lender
and the Agency.
(vi) An issuer of preferred stock must be a cooperative
organization or a fund and must be able to issue preferred stock to the
public that, complies with applicable State and Federal securities
laws.
(vii) A fund must use a guaranteed loan under this subpart to,
either or both, make loans to cooperatives or to purchase preferred
stock that is issued by cooperatives. The cooperative must use the
proceeds from the guaranteed loan or stock sale for eligible uses of
loan funds described in the Eligible Uses of Funds section, above.
(viii) The lender will, at a minimum, obtain a valid lien on the
preferred stock, an assignment of any patronage refund, and the ability
to transfer the stock to another party, or otherwise liquidate and
dispose of the collateral in the event of a borrower default. When
recovering losses from loan defaults, lenders may take ownership of all
equities purchased with such loans, including additional shares derived
from reinvestment of dividends.
(ix) Shares of preferred stock that are purchased with guaranteed
loan proceeds cannot be converted to common or voting stock.
(x) In the absence of adequate provisions for investors' rights to
early redemption of preferred stock or similar equity, a borrower must
request from a cooperative or fund issuing such equities a contingent
waiver of the holding or redemption period in advance of share
purchases. This contingent waiver provides that in the event a borrower
defaults on a loan financed under the guaranteed loan program, the
borrower waives any ownership rights in the stock, and the lender and
Agency will then have the right to redeem the stock.
(xi) Guaranteed loans for the purchase of preferred stock must be
prepaid in the event a cooperative or fund that issued the stock
exercises an early redemption. If the cooperative enters into
bankruptcy, to the extent the cooperative can redeem the preferred
stock, the borrower is required to repay the loan from the redemption
of the stock.
(3) Employee ownership succession.
(i) The Agency may guarantee loans for conversions of businesses to
either cooperatives or ESOP within five years from the date of initial
transfer of stock.
(ii) The term of the loan shall not exceed 10 years.
(iii) The lender will, at a minimum, obtain a valid lien on the
stock, an assignment of any patronage refund, the ability to transfer
the stock to another party, or the ability to otherwise liquidate and
dispose of the collateral in the event of a borrower default. In the
event of default, the stock may not be sufficient to satisfy the debt
and the borrower is fully liable for the entire debt, regardless of the
success or failure of the cooperative or ESOP. The lender must take all
action to maximize recovery on the loan, including collection of
personal and corporate guarantees. In addition, provisions of the Debt
Collection Improvement Act of 1996 may impose significant restrictions
on delinquent Federal debtors, including eligibility for other Federal
programs.
(iv) The lender must complete a written credit analysis of each
stock purchase loan and a complete credit analysis of the cooperative
or ESOP prior to making its first stock purchase loan.
(v) If a cooperative is organized, a selling owner becomes a member
with special control rights to protect their stake in the business
while a succession plan is implemented. At the completion of the stock
transfer, selling owners may retain their membership in the cooperative
provided that their control rights are the same as all other members.
Any special covenants that selling owners may have held must be
extinguished upon completion of the transfer.
(vi) If an ESOP is organized for transferring ownership to
employees, selling owner(s) may not retain ownership in the business
after five years from the date of the initial transfer of stock.
(m) New Markets Tax Credit (NMTC) program. The NMTC program is
administered by the U.S. Department of the Treasury's (Treasury)
Community Development Financial Institutions (CDFI) Fund with NMTC
credits allocated to Treasury-certified Community Development Entities
(CDEs) across the United States to make Qualified Equity Investments
(QEIs) in low-income communities. NMTC related definitions and terms in
this section are governed by section 45(D) of the Internal Revenue Code
(26 U.S.C. 45D), and applicable Treasury regulations (26 CFR 1.45D-1).
A CDE will generally establish a new subsidiary of a CDE (sub-CDE) for
individual NMTC projects. Lenders and their borrowers with guaranteed
loan projects that include NMTC investments must comply with the
provisions in this section. To be a lender for a guaranteed loan
project that involves financing under the NMTC provisions, the lending
entity must meet the applicable eligibility criteria in Sec. 5001.130.
The Agency will not waive its servicing rights to a guaranteed loan or
be a party to any forbearance agreement in conjunction with a NMTC
project.
(1) Guaranteed loans directly to Qualified Active Low-Income
Community Businesses (QALICB).
(i) A lender that is CDE or sub-CDE under the direct control of a
regulated lender or an approved non-regulated lender does not need to
separately meet the requirements of an eligible lender under this
notice to make a guaranteed loan directly to a QALICB.
(ii) Subject to the provisions in Section C.(m)(1)(iii) of this
notice, a lender that is a CDE or sub-CDE may have an ownership
interest in the borrower provided that each condition specified in
paragraphs (A) through (C) below is met.
(A) The lender does not have an ownership interest in the borrower
prior to the application.
(B) The lender does not take a controlling interest in the
borrower.
(C) The lender does not provide equity or take an ownership
interest in a borrower at a level that would result
[[Page 70096]]
in the lender owning 20 percent or more interest in the borrower.
(iii) Notwithstanding the provisions in Section C.(d)(13) of this
notice a lender that is a CDE or sub-CDE taking an ownership interest
in the borrower does not constitute a conflict of interest. The Agency
will mitigate the potential for a conflict of interest by requiring
appropriate loan covenants establishing, at a minimum, limitations on
dividends and distributions of earnings in the loan agreement between
the lender and borrower. The Agency will also ensure that the lender
limits any waivers of loan covenants and future modifications of loan
documents in compliance with this part.
(iv) Guaranteed loans made by a lender directly to a QALICB must
meet all other program and project eligibility requirements as
specified in this notice.
(v) For purposes of calculating borrower equity, the CDE's (or sub-
CDE's) amount of the principal balance of the loan from NMTC investor
funds that is subordinated to the guaranteed loan may be considered as
equity.
(2) Guaranteed loans to a NMTC leveraged equity structure. Tax
benefits to a NMTC investor are based on the total amount of funds
utilized in the project. The tax benefit calculation includes the sum
of the investor's cash investment plus loan proceeds from a leveraged
lender into a NMTC investor fund entity. The investor fund entity is
generally a new entity established to make a QEI into one or more CDEs
or sub-CDEs to support a qualified low-income community investment
(QLICI) to a QALICB. The investor fund entity, through its investment,
has ownership rights in the sub-CDE that will be making secured QLICI
loans to the QALICB. Notwithstanding the provisions above in section
C.(a), Eligible Borrowers, either a leveraged lender entity lending to
an investor fund entity, or an investor fund entity such as an investor
partnership or investor limited liability corporation, may be an
eligible borrower for a specific NMTC project as specified in paragraph
(2)(i) of this section. For purposes of this section only, the stated
term ``borrower'' in paragraphs (2)(i) through (xiii) of this section
applies to both a leveraged lender entity and an investor fund entity
as the guaranteed loan borrower in the NMTC project. Paragraphs (2)(ii)
through (xiii) of this section identify modifications to this part that
apply when the eligible borrower is a leveraged lender entity or
investor fund entity in a NMTC project.
(i) To be an eligible borrower using the leveraged equity structure
of a NMTC project each condition identified in paragraphs (2)(i)(A)
through (E) of this section must be met.
(A) The investor fund entity must be established for a single
specific NMTC investment.
(B) The lender is not an affiliate of the borrower.
(C) When the borrower is a leveraged lender entity it must relend
one hundred percent of the guaranteed loan funds to an investor fund
entity. In all cases, one hundred percent of the guaranteed loan funds
are or will be invested by the investment fund entity in one or more
sub-CDEs that will then be loaned directly to a QALICB through a direct
tracing method, and such guaranteed loan funds are, or will be, used by
the QALICB in accordance with the eligibility requirements in this
Notice. The QALICB's project must be the ultimate use of one hundred
percent of the guaranteed loan funds.
(D) The QALICB must meet the requirements of an eligible borrower
under this notice.
(E) The sub-CDE operating agreement with the QALICB must include a
provision that the guaranteed lender has approval rights with respect
to any substantial loan servicing actions that may be taken by the sub-
CDE regarding the collateral or repayment terms of their QLICI loans to
the QALICB.
(ii) The guaranteed loan amount and percentage of guarantee
provisions found in the Loan Guarantee Limits section of this notice,
apply to the QALICB and to the investor fund entity or leveraged lender
entity, who would actually be the borrower as defined under this part.
(iii) For purposes of calculating borrower equity in compliance
with this notice, the leveraged lender entity's note from the investor
fund may be considered a tangible asset and when the lien associated
with the sub-CDE's loan is subordinated, the principal balance of the
sub-CDE's loan made to the QALICB from NMTC investor funds may be
considered as equity.
(iv) The loan terms of this notice apply to both the borrower and
the QALICB. The maturity and related payment schedule of the lender's
guaranteed loan to the borrower must be no longer than the maturity and
related payment schedule of the sub-CDE's loan to the QALICB. An Agency
approved unequal or escalating schedule of principal and interest
payments can be used for a NMTC loan. The lender may require additional
principal repayment by a co-borrower, such as an owner or principal
participant of the QALICB. Notwithstanding the provisions in Section
C.(g)(3), the Agency may consider interest-only payments by a borrower
pursuant to an interest-only term not to exceed seven years on a loan
made under an NMTC structure if the lender requires:
(A) A debt repayment reserve fund or sinking fund in an amount at
least equal to the guaranteed loan's principal amortization that would
have otherwise applied to the loan if equally amortized payments were
collected during the seven-year term; and
(B) Such reserve funds or sinking funds are applied to the
guaranteed loan as an additional payment of principal at the end of
such interest-only term.
(v) The credit factors of this notice apply to both the lender's
guaranteed loan to the borrower and the sub-CDE's loan to the QALICB.
The collateral provisions of this notice apply only to the sub-CDE's
loan to the QALICB.
(vi) The personal, partnership and corporate guarantee provisions
of this notice apply when the guaranteed loan borrower is a leveraged
lender entity in an NMTC project. Guaranteed loans made directly to an
investor fund entity as the borrower do not require a personal,
partnership, or corporate guarantee from the investor fund entity's
owner, who is the NMTC tax credit investor and considered a passive
investor. The Agency shall obtain the personal, partnership or
corporate guarantee from the QALICB ownership for a guaranteed loan to
an investor fund entity, subject to the eligibility requirements of the
NMTC program. The Agency may require additional personal, partnership
or corporate guarantees if warranted by an Agency evaluation of
potential financial risk.
(vii) The insurance provisions of this notice apply only to the
QALICB and the sub-CDE's secured loan to the QALICB.
(viii) The financial reporting provisions of this notice apply to
both the borrower and the QALICB.
(ix) The application requirements of this notice, as applicable,
apply to both the borrower and the QALICB, including the application
analysis and evaluation components. The Agency also requires submission
of the loan terms and documents between the sub-CDE and QALICB. As part
of the application completed by the lender, the documentation must
include comparable industry information and a summary of the NMTC
project's funding path and an explanation of the relationships between
all parties in the NMTC transaction (an accompanying schematic is
encouraged for complicated transactions).
(x) The environmental responsibilities specified in this notice
apply to the NMTC project.
[[Page 70097]]
(xi) For any application that the Agency assigns a priority score,
when assigning the priority score to a NMTC loan application, the
Agency will score the project based on the entire NMTC structure and
the QALICB's project as the ultimate use of guaranteed loan funds.
(xii) The lender is responsible for ensuring that the NMTC project
complies with the planning, performing, development and project
monitoring provisions of this notice and the lender is also responsible
for ensuring the NMTC project complies with all applicable Treasury
NMTC requirements.
(xiii) The interest rate and loan term provisions of this notice
apply to both the borrower and the QALICB in a NMTC transaction.
D. Application and Submission Information
(a) Address to Request Application Package.
(1) Lenders should download the application documents and
requirements delineated in this notice from: https://www.rd.usda.gov/foodsupplychainloans.
(2) Applications will only be accepted electronically as provided
at https://www.rd.usda.gov/foodsupplychainloans. Lenders may use an
existing Unique Entity Identifier (UEI) (obtained at https://sam.gov/)
and eAuthentication Customer Account to file an application. To apply
electronically:
(i) Obtain and register for a UEI at https://sam.gov/ as described
in Section H.(e)(2) of this notice;
(ii) Create a Level 2 USDA eAuthentication Customer Account at
https://www.eauth.usda.gov/eauth/b/usda/home; and,
(iii) Request access to apply electronically by emailing a written
request with a complete Account and User Creation form (available at
https://www.rd.usda.gov/foodsupplychainloans) to
[email protected].
(3) An autoreply email message will acknowledge receipt of your
request. Please allow at least two business days for its processing. If
you do not receive an email message within that timeframe, please check
your Spam folder;
(4) Upon approval, a lender's authorized/rightful users will each
receive an email from [email protected], with instructions
to access the system.
(b) Content and Form of Application Submission.
The lender may complete either a request for preliminary
eligibility review or a full application to begin the process for
obtaining a guaranteed loan. The Agency encourages, but does not
require, lenders to file requests for preliminary eligibility reviews
in order to obtain Agency comments before submitting a full
application.
(1) Preliminary eligibility review.
(i) Contents. Except as otherwise indicated, each request for a
preliminary eligibility review must contain the material identified in
paragraphs (A) and (B) of this section. This information may be
submitted in a narrative format or utilizing the lender's preliminary
lender's analysis or preliminary credit memo. The borrower's executive
summary and feasibility study should be included for a full application
under this notice.
The lender will initiate the environmental review process early in
the planning stage and should be alert for projects that may have a
significant impact on the environment.
(A) Regardless of format, the lenders must provide the following
information:
(1) Name of the proposed borrower and co-borrower(s) as applicable,
organization type, address, contact person, email address, and
telephone number and whether the proposed borrower or co-borrower is a
member of a socially disadvantaged group;
(2) Name of the proposed lender, address, telephone number, contact
person, email address;
(3) Amount of the guaranteed loan request, the percentage of
guarantee requested (if known), the proposed rates and terms of the
guaranteed loan, and the source(s) of other funding;
(4) If known, a description of collateral to be offered with
estimated value(s), identity of guarantors, and the amount and source
of equity, other capital, and matching funds to be contributed to the
project; and
(5) A brief description of the project, its location, products, or
services provided, service area, and, as applicable, availability of
raw materials and supplies, including an explanation of the impact the
project will have on increasing capacity and helping create a more
resilient, diverse, and secure U.S. food supply chain.
(B) Sufficient information and documentation to enable the Agency
to assess borrower, lender, and project eligibility, including
summaries or spreadsheets of financial statements or audits,
relationships and identity of any affiliates; copies of organizational
documents and organizational charts; and existing debt instruments.
(ii) Assessment. Based on the information submitted for the
preliminary eligibility review, the Agency will make an informal
assessment of the types of guarantee funding applicable to the request,
and the eligibility of the borrower, project, and lender. The Agency
will provide written informal comments. The assessment may change based
on subsequently submitted information, is solely advisory in nature,
does not obligate the Agency to approve a guarantee request, and is not
considered a favorable or adverse decision by the Agency.
(2) Full Applications.
The Agency will accept applications on a continuous basis. For each
loan guarantee request, the lender must submit to the Agency a complete
application as specified in paragraphs (i) through (xv) of this
section. Lenders must submit complete applications in order to be
considered for loan guarantees. Lenders are encouraged to submit a
complete application in a single package; however, the Agency may
accept the environmental information required by the Agency and
initiate and complete its environmental reviews in advance of receiving
a complete application. Materials and information submitted for a
preliminary eligibility review do not need to be resubmitted, however,
any such materials and information that have been revised or updated
must be resubmitted in full. If an application is incomplete, the
Agency will notify the lender in writing of the items necessary to
address the incomplete application. Upon receipt of a complete
application, the Agency will complete its evaluation.
(i) Agency-approved application form.
(ii) Credit evaluation, conforming to Lender's Credit Evaluation at
Section D.(c) of this notice.
(iii) Environmental information required by the Agency in
accordance with 7 CFR 1970, ``Environmental Policies and Procedures,''
to conduct its environmental reviews.
(iv) Financial statements.
(A) Current Agency-acceptable balance sheet and year-to-date income
statements of the borrower, affiliated entities with business
relationships, and any guarantor(s) dated within 90 days of submission
of the complete application.
(B) Agency-acceptable historical balance sheet, income statements,
and cash flow statements of the borrower for the lesser of the last
three fiscal years or all years of operation; and
(C) Projected balance sheets, income statements, and cash flow
statements or a financial model starting from the current financial
statements through a minimum of two years of the project performing at
full operational capacity or stable operations. Based on the type
[[Page 70098]]
of project or at the discretion of the Agency, financial projections or
models may be required from current financial statements up to the end
of the term of the guaranteed loan. Financial projections must be
supported by a list of assumptions showing the basis for the
projections. Projected financial statements must include a pro forma
balance sheet projected for guaranteed loan closing.
(D) Operational cash flow projections on a quarterly basis from the
current financial statements through start-up or occupancy for projects
involving construction when lenders are requesting the loan note
guarantee prior to completion of construction.
(E) The Agency may request additional financial statements,
financial models, cash flow information, updated financial statements,
and other related financial information to determine the financial
feasibility of a project and evaluate the credit underwriting of the
borrower, its affiliates, and any guarantors.
(v) Identify whether the borrower has a known relationship or
association with an Agency employee. If there is a known relationship,
identify each Agency employee with whom the borrower has a known
relationship.
(vi) Current credit reports or the equivalent on the borrower, any
payment guarantors and any person or entity owning greater than a 20
percent or more interest in the borrower or controls the borrower,
except for passive investors and those corporations listed on a major
stock exchange. A credit report or its equivalent are not required for
elected and appointed officials when the borrower is a public body, or
Indian Tribe, or for members of a non-profit organization. Credit
reports must be submitted to the Agency for all applications for
guaranteed loans in the amount of $200,000 or more. For lenders that
are submitting smaller requests, the lender must keep the credit report
on file with the lender's application.
(vii) Executive Summary. The executive summary must include a
description of the business and project; the names of any corporate
parent, affiliates, and subsidiaries with a description of the
relationship; description of how the project will increase the capacity
or make the food supply chain more resilient, diverse, or secure; and
address how the borrower or project, as applicable, meet the criteria
for priority scoring as described in section E.(c)(4) of this notice.
(viii) Organizational documents.
(ix) For companies listed on a major stock exchange or subject to
the Securities and Exchange Commission regulations, a copy of SEC Form
10-K, ``Annual Report Pursuant to sections 13 or 15(d) of the
Securities Exchange Act of 1934.''
(x) Intergovernmental consultation comments in accordance with RD
Instruction 1970-I and 2 CFR part 415, subpart C, or successor
regulation, unless exemptions have been granted by the State single
point of contact. Applications from Federally recognized Indian tribes
are not subject to this requirement.
(xi) Borrowers must provide evidence of compliance with applicable
authorities. Borrowers engaged in processing of meat, poultry,
processed egg products, and Siluriformes must comply with the
requirements of the U.S. Department of Agriculture (USDA) Food Safety
and Inspection Service. Borrowers engaged in processing of other foods
and food ingredients must comply with the requirements of the Food and
Drug Administration. All borrowers must also be in compliance with
requirements of state and local governments.
(xii) At the time of the loan application, the lender must submit
its loan classification and credit risk rating classification scale.
(xiii) A feasibility study of the proposed project, by a qualified
consultant, is required. At a minimum, a feasibility study must include
an evaluation of the economic, market, technical, financial, and
management feasibility and an executive summary that reaches an overall
conclusion as to the business' chance of success. The feasibility study
must consider the borrower's management experience; sources of capital;
products, services, and pricing; marketing plan; proposed use of loan
funds; availability and access to labor, raw materials including
animals and product, and supplies; availability or access to necessary
infrastructure including water and waste disposal; worker and food
safety plans; contracts in place; and distribution channels. The
feasibility study should address and quantify how the project will
increase capacity or make the food supply chain more resilient,
diverse, or secure. For proposed financing activities involving beef,
pork, chicken, or turkey processing, corroborate that the borrower
meets the borrower eligibility provisions and self-certify that the
borrowers, their affiliated entities, and entities providing processing
services through contractual, lease or service agreements with the
borrower, do not at the time of application hold a market share greater
than or equal to the entity that holds the fourth largest share of the
market for the species subject to the proposed financing.
(xiv) Appraisals of collateral are required as set forth in this
section. The lender is responsible for ensuring that appraisal values
adequately reflect the actual value of the collateral based on an arm's
length transaction. Completed appraisals should be submitted when the
application is filed. If the appraisal has not been completed when the
application is filed, the lender must submit an estimated appraised
value. Prior to the issuance of the loan note guarantee, the estimated
value must be supported with an appraisal acceptable to the agency.
(A) Newly-acquired chattel. A bill of sale may be submitted to
support the value of newly-acquired chattel.
(B) Existing chattel. The lender must obtain appraisal(s) for
existing chattel collateral when its value exceeds $250,000.
(C) Real estate. The lender must obtain appraisals for real estate
collateral when the value of the collateral exceeds $500,000 or the
current limitation established under the Financial Institutions Reform,
Recovery, and Enforcement Act (FIRREA) Public Law 101-73, 103 Stat. 183
(1989). Real estate and chattels with a value below these thresholds
must be evaluated in accordance with the lender's primary regulator's
policies relating to appraisals and evaluations or, if the lender is
not regulated, in accordance with normal banking practices and
generally accepted methods of determining value.
(D) Construction Project. For construction projects, the lender
must:
(1) Obtain the ``As Is'' market value and the ``prospective''
market value as of the date of construction completion to determine the
value of the real estate property, or
(2) Obtain an income-based appraisal as of the date of completion
to determine the value of revenues to be generated by the real estate.
(E) Appraisal standards.
(1) Each real estate appraisal must be conducted by an independent
qualified appraiser in accordance with the Uniform Standards of
Professional Appraisal Practice (USPAP) or successor standards. All
real estate appraisals must meet the requirements contained in the
FIRREA, and the appropriate guidelines contained in Standards 1 and 2
of the USPAP and be performed by a State Certified General Appraiser
licensed in the state in which the real estate is located.
(2) Chattel appraisals must be conducted by an independent
qualified appraiser and must be based on industry
[[Page 70099]]
recognized standards and reflect the age, condition, and remaining
useful life of the equipment.
(F) Interagency appraisal and evaluations guidelines.
Notwithstanding any exemption that may exist for transactions
guaranteed by a Federal Government agency, all appraisals obtained by
the lender under this part must conform to the interagency appraisal
and evaluations guidelines established by the lender's primary Federal
or State regulator, if applicable.
(G) Environmental considerations. When the Agency will take a lien
on real property, the real estate appraisals must include consideration
of the potential effects from a release of hazardous substances or
petroleum products or other environmental hazards on the market value
of the collateral, as determined in accordance with the appropriate
American Society for Testing and Materials (ASTM) International Real
Estate Assessment and Management environmental standards.
(H) Appraisal review report. The lender must submit its complete
technical review of the appraisal in an appraisal review report
prepared in compliance with USPAP Standards 3 and 4 to the Agency
before guaranteed loan closing.
(1) Appraisals must not be more than one year old. However, the
Agency may request a more recent appraisal in order to reflect more
current market conditions.
(2) The lender must provide documentation demonstrating that, in
addition to the other requirements of this section pertaining to
appraisers, the appraiser has the necessary experience and competency
to appraise collateral.
(I) Appraisal fees. Unless otherwise stated in this part, appraisal
fees or any other associated costs will not be paid by the Agency.
(xv) Any additional information required by the Agency to complete
its evaluation.
(c) Lender's Credit Evaluation
The lender is responsible for originating a guaranteed loan in
accordance with the requirements of this notice and in accordance with
its internal origination policies and procedures to the extent they do
not conflict with the requirements of this part. For each application,
the lender must prepare a credit evaluation that is consistent with
Agency standards found in this notice. The Agency reserves the right to
review the lender's credit evaluation and request additional
information. Lender approval does not constitute Agency approval.
(1) Lender's evaluation guidelines. The lender must conduct a
credit evaluation using credit documentation procedures and
underwriting processes that are consistent with generally accepted
prudent lending practices for commercial, public and project financing,
and are also consistent with the lender's own policies, procedures, and
lending practices. The underwriting process must include a review of
each loan for which a loan guarantee is being sought under this notice.
Applications involving affiliated entities must include a global credit
evaluation and if applicable a global historical and projected debt
service coverage analysis. The analysis should evaluate the
relationships between all associated parties to determine potential
risks which may affect the borrower and its ability to repay the loan.
Entities which may have an impact on the borrower or significantly
contribute to the repayment ability of the loan should provide
financials for global analysis. Applications involving guarantor(s)
must also include a global debt service coverage analysis of the
guarantor(s) including the cash flow of the guarantor(s). In addition,
the lender must review all applicable contracts, management agreements,
and leases to determine they will not adversely affect either the
borrower's repayment ability or the value of the collateral securing
the guaranteed loan. The lender's evaluation must address any financial
or other credit weaknesses of the borrower and project and discuss risk
mitigation requirements imposed by the lender.
(2) Content. The credit evaluation must be sufficiently detailed to
describe the proposed loan, business and project structures and
document that the proposed loan is feasible. The credit evaluation must
include:
(i) A written evaluation of each credit factor listed in paragraphs
(3)(i) through (v) of this section and any additional factors as
appropriate;
(ii) A written evaluation of the feasibility study, executive
summary, technical report, and engineering and architectural reports,
as applicable;
(iii) Spreadsheets and analysis of the financial statements
provided in accordance with the Application and Submission Information,
with appropriate ratios and comparisons with industry standards (such
as Dun & Bradstreet or the Risk Management Association). The
spreadsheets should enable a reviewer to easily scan the data, spot
trends, and make comparisons. The analysis should include comments on
the business' performance trends comparison to the industry averages
and steps or proposals the borrower has taken to address any financial
or industry weakness;
(iv) Analysis of any financial projections deviating from
historical financial performance and such projections must be
substantiated and documented;
(v) Analysis of projected operational cash flow on a quarterly
basis for borrowers with seasonal cyclical cash flow; and
(vi) Analysis of operational cash flow on a quarterly basis from
the current financial statements through start-up or occupancy for
projects involving construction when lenders are requesting the loan
note guarantee be issued prior to completion of construction. The
analysis should address the borrower's construction schedule and
address their projected cash flow needs as the project is being
completed. The cash flow analysis must indicate whether this cash flow
is being provided by the guaranteed loan, borrower equity, or other
sources.
(3) Credit factors. In performing its credit evaluation, the lender
must analyze all credit factors associated with each proposed
guaranteed loan and apply its professional judgment to determine that
the credit factors and guaranteed loan terms and conditions, considered
in combination, ensure guaranteed loan repayment. Credit factors to be
analyzed include, but are not necessarily limited to, those areas
identified and defined in paragraphs (3)(i) through (v) of this
section.
(i) Character. Those qualities that generally impel the borrower to
meet its obligations as demonstrated by its credit history, including
project and borrower debt structure and debt repayment ability. When
applicable, an evaluation may include the character of persons with
management control or a 20 percent or more ownership interest in the
borrower. When the borrower's credit history or character is negative,
the lender will provide the basis for the resolution of any issue and
why it is unlikely to impact future financial results. The ownership or
membership structure of the project and borrower (including membership,
sponsors, other equity investors), and the historical performance and
experience of ownership and management specific to the project and
industry. The historical performance and experience of any entities
providing management or administrative services pursuant to contract
should also be evaluated.
(ii) Capacity. A borrower's ability to produce sufficient cash to
repay the guaranteed loan as agreed, including the feasibility and
likelihood of the project and borrower to produce sufficient
[[Page 70100]]
revenues to service the project's debt obligations over the life of the
guaranteed loan and, when applicable, result in sufficient returns to
investors to ensure successful repayment of the guaranteed loan. The
lender shall address any economic safeguards of the project, including
capital expenditure budgeting or reserve funds and other contingency
reserve funds such as maintenance reserve funds or debt service reserve
funds, intended to protect and safeguard the Agency and lender in the
event of default. The lender must make all efforts to:
(A) Ensure that the borrower has adequate working capital,
operating capital and reserves for capital expenditures, debt service,
and maintenance as applicable; and
(B) Structure or restructure debt so the borrower has adequate debt
coverage, documenting as applicable the necessity of any debt
refinancing. The evaluation will be supported by a cash flow analysis.
(iii) Capital. The borrower must have the resources to adequately
capitalize the project and demonstrate the ability to generate and
maintain sufficient cash flow for its operations. The extent to which
project costs are funded by the borrower in relation to project costs
funded by the guaranteed loan or other Federal and non-Federal
governmental assistance such as grants, tax credits, or other loans
must be analyzed.
(iv) Collateral. This criterion refers to the security pledged for
the guaranteed loan. The lender is responsible for obtaining and
maintaining proper and adequate collateral for the guaranteed loan. All
collateral must secure the entire guaranteed loan. The lender is
prohibited from taking separate collateral for the guaranteed and
unguaranteed portions of the guaranteed loan or requiring compensating
balances or certificates of deposit as a means of eliminating the
lender's exposure on the unguaranteed portion of the guaranteed loan.
Collateral can include but is not limited to: General obligation bonds;
revenue bonds; pledges of taxes or assessments; assignments of facility
revenue and byproduct revenue, as well as other assets such as land,
easements, rights-of-way, water rights, buildings, machinery,
equipment, inventory; and accounts receivable, other accounts,
contracts, cash, assignments of leases and leasehold interests.
Intangible assets may serve as collateral, provided they do not serve
as primary collateral and are no more than 25 percent of the overall
collateral package being pledged as security for the guaranteed loan.
For purposes of determining compliance with this requirement, leasehold
improvements such as buildings and other structures on leased property
are considered tangible assets and can serve as primary collateral. It
is the lender's responsibility to obtain, document, file, record and
take all actions necessary to properly perfect and maintain adequate
collateral to protect the interests of the lender and the Agency.
(A) The lender must determine the market value of collateral as
established by an appraisal in accordance with Section D.(b)(2)(xiv) of
this notice.
(B) The lender should discount collateral consistent with sound
loan-to-discounted value practices which must be adequate to secure the
guaranteed loan in accordance with this section. To assess collateral
adequacy and appropriate levels of discounting, the lender should
consider the type, quality, location, marketability, and alternative
uses of the collateral and the basis for the valuation of the
collateral, e.g., collateral valued on a cost or replacement valuation,
market or comparable sales valuation may require variance of discount
factors. The lender must provide satisfactory justification of the
discounts being used.
(v) Conditions. This factor refers to the general business
environment, including the regulatory environment affecting the
business or industry, and status of the borrower's industry.
Consideration will be given to items listed below and, when applicable,
the lender should submit supporting documentation (e.g., feasibility
study, market study, preliminary architectural or engineering reports,
etc.):
(A) Availability and depth of resource or feedstock market,
strength and duration of purchase agreements and availability of
substitutes;
(B) Analysis of current and future market potential, off-take
agreements, competition, and type of project (service, product, or
commodity based);
(C) Energy infrastructure, availability and dependability,
transportation and other infrastructure, and environmental
considerations;
(D) Technical feasibility including demonstrated performance of the
technology and integrated processing equipment and systems, system
performance guarantees by the developer, and availability of technology
performance insurance;
(E) Complexity of construction and completion, terms of
construction contracts and experience and financial strength of the
construction contractor or engineering, procurement and construction
(EPC) contractor;
(F) Contracts and intellectual property rights, licenses, permits,
and state and local regulations;
(G) Creditworthiness of any counterparties, as applicable;
(H) Industry-related public policy issues; and
(I) Other criteria that the lender or Agency deems relevant to the
project.
(d) Intergovernmental Review.
Executive Order (E.O.) 12372, ``Intergovernmental Review of Federal
Programs,'' applies to this program. This E.O. requires that Federal
agencies provide opportunities for consultation on proposed assistance
with State and local governments, including, a county, municipality,
town, township, village, or other unit of general government, including
tribal governments, below the State level. Many states have established
a Single Point of Contact (SPOC) to facilitate this consultation. For a
list of States that maintain an SPOC, please see the White House
website: https://www.whitehouse.gov/omb/management/office-federal-financial-management/. If your State has an SPOC, you may submit a copy
of the application directly for review. Any comments obtained through
the SPOC must be provided as part of your application. Applications
from Federally recognized Indian tribes are not subject to this
requirement.
E. Application Review Information
(a) General. The Agency will evaluate all applications according to
the provisions of this part and may require the lender to obtain
additional assistance in those areas where the lender does not have the
necessary expertise to originate or service the guaranteed loan.
(b) Evaluation and eligibility determinations. The Agency will
review each complete application to make a formal determination as to
the eligibility of the borrower, lender, project, and guaranteed loan
purpose and proposed use of funds; whether there is a reasonable
assurance of repayment ability; whether sufficient collateral and
equity exists; whether the proposed guaranteed loan complies with all
applicable statutes and regulations; and whether the environmental
review is complete.
(1) If the Agency's evaluation and determination in accordance with
this paragraph (b) is favorable, the Agency will proceed in accordance
with paragraph (c) of this section.
(2) If the Agency's evaluation and determination in accordance with
this paragraph (b) is unfavorable, the Agency will notify the lender,
in writing, identifying the reason(s) for determining ineligibility and
any applicable appeal or review rights. No further processing of the
application will occur. If the
[[Page 70101]]
Agency determines it is unable to guarantee the loan, it will inform
the lender in writing.
(c) FSC guaranteed loan priority scoring
(1) The Agency will consider applications in the order they are
received by the Agency; however, for the purpose of assigning priority
points as described in this paragraph, the Agency will compare an
application to other pending applications that are competing for
funding.
(2) When applications on hand otherwise have equal priority, the
Agency will give preference to applications for guaranteed loans from
qualified veterans.
(3) The Agency will consider applications as they are submitted. If
available funding is less than what is requested by applications under
consideration, the Agency will score each eligible application based on
the point system described below.
(4) A maximum of 115 points can be awarded in the following
categories:
(i) Applicants receive 8 priority points if the project is located
in or serving one of the top 10% of counties or county equivalents
based upon county risk score as listed in the COVID-19 Economic Risk
Assessment Dashboard and according to guidance at https://www.rd.usda.gov/priority-points.
(ii) Applicants receive 8 priority points if the project is located
in or serving a community with score 0.75 or above on the CDC Social
Vulnerability Index and according to guidance at https://www.rd.usda.gov/priority-points.
(iii) Applicants will receive 8 priority points for either (A) or
(B), according to guidance at https://www.rd.usda.gov/priority-points.
(A) Applicants will receive points if the project is located in or
serving coal, oil and gas, and power plant communities whose economic
well-being ranks more than 80 on the Distressed Communities Index.
(B) Applicants will receive points by demonstrating through written
narrative how proposed climate-impact projects improve the livelihoods
of community residents and meet pollution mitigation or clean energy
goals.
(iv) Applicants will receive 5 priority points if the project is
located in a city or county with a current unemployment rate, as
determined by the Department of Labor, of 125 percent of the State-wide
rate or greater. Or, for projects located in certain territories that
may not have unemployment rates by localities, the applicant will
receive priority points if the applicant's proposed service area has an
unemployment rate exceeding 125 percent of the national unemployment
rate as determined by the Bureau of Labor Statistics. The national
unemployment rate may be found at https://www.bls.gov/cps.
(v) Applicants will receive 5 priority points if the project is
located within the boundaries of a federally recognized Indian Tribe's
reservation, within Tribal trust lands, or within land owned by an
Alaska Native Regional or Village Corporation as defined by the Alaska
Native Claims Settlement Act.
(vi) Applicants will receive 20 priority points if the industry is
not already present in the local community.
(vii) Applicants will receive 21 priority points if the business is
locally owned and managed. (The primary residence of the applicant must
be located within the normal commuting area of the guaranteed loan
project.)
(viii) Applicants will receive 15 priority points if the project
creates or saves a minimum of five permanent jobs with an average wage
exceeding 200 percent of the Federal minimum wage.
(ix) Applicants will receive 10 priority points if the business
offers a healthcare benefits package to all employees and pays at least
50 percent of the healthcare premium.
(x) Applicants receive 15 priority points if the borrower ensures
and certifies to the lender that all laborers and mechanics employed by
contractors or subcontractors in the performance of construction work
financed in whole or in part with guaranteed loan funds under this
Notice are paid wages at rates not less than those prevailing on
similar construction in the locality as determined by the Secretary of
Labor in accordance with sections 3141 through 3144, 3146, and 3147 of
title 40, U.S.C. Loans guaranteed under this Notice for applicants that
receive such priority points are further subject to the relevant
regulations contained in 29 CFR part 5.
F. Federal Award Administration Information
(a) Conditional commitment
(1) Approval. Upon approval of a loan guarantee the Agency will
issue a ``Conditional Commitment'' to the lender, containing conditions
under which a loan note guarantee will be issued. No conditional
commitment can be issued until the loan is obligated. If a loan note
guarantee is not issued by the conditional commitment expiration date,
the conditional commitment may be extended at the request of the lender
pending approval of the Agency and only if there has been no material
adverse change in the borrower or the borrower's financial condition
since issuance of the conditional commitment. If the conditional
commitment is not accepted, the conditional commitment may be
withdrawn, and funds may be de-obligated in accordance with F.(a)(4) of
this notice. Likewise, if the conditional commitment expires, funds may
be de-obligated in accordance with section F.(a)(5) of this notice.
(i) Upon acceptance of the conditional commitment, the lender
agrees not to modify the scope of the project, overall facility
concept, project purpose, use of guaranteed loan funds, or other terms
and conditions without Agency written concurrence in accordance with
section F.(a)(5) of this notice.
(ii) If the lender decides at any time after receiving a
conditional commitment that it no longer wants a loan guarantee, the
lender must immediately advise the Agency of the cancellation in
writing. Upon written notification from the lender, the Agency will de-
obligate the funds associated with the conditional commitment.
(2) Content. The conditional commitment will contain the terms
required for issuing a loan note guarantee, including but not limited
to:
(i) Approved use of guaranteed loan funds and all project funds
(sources and uses of funds);
(ii) Rates and terms of the loan;
(iii) Loan agreement terms including, but not limited to:
(A) Repayment terms and amortization provisions of the guaranteed
loan;
(B) Description of real property collateral, list of other
collateral and identification of the lender's lien priority in the
collateral;
(C) Identification of persons and entities guaranteeing payment of
the guaranteed loan and their percentage of guarantee;
(D) Type and frequency of the financial statements to be provided
by the borrower and guarantor during the term of the guaranteed loan
(guarantor statements must be updated at least annually);
(E) Prohibition against borrower assuming liabilities or
obligations of others;
(F) Limitations on borrower dividend payments and compensation of
officers, owners, and members of borrower;
(G) Limitations on the purchase and sale of equipment and other
fixed assets;
(H) Restrictions on mergers, consolidations, or sales of the
business, project, or guaranteed loan collateral without the
concurrence of the lender;
(I) Limitations on significant management changes without the
concurrence of the lender;
[[Page 70102]]
(J) Maximum debt-to-net worth ratio or other test for leverage as
required by lender;
(K) Minimum debt service coverage ratio or other cash coverage test
as required by the lender;
(L) Requirements imposed by the Agency in its conditional
commitment;
(M) Agency environmental requirements;
(N) Requirement for the lender and the Agency to have reasonable
access to the project including access for periodic inspections of the
project by a representative of the lender or the Agency; and
(O) Requirement for the borrower to provide the lender and the
Agency performance information during the term of the guaranteed loan.
(iv) Loan closing requirements;
(v) Lender and borrower certifications;
(vi) Collateral and lien position requirements; and
(vii) Other requirements necessary to protect the Agency.
(3) Change requests. The lender can request, in writing, changes to
the conditional commitment with justification. The Agency can deny,
solely at its discretion, changes to the conditional commitment even if
the changes are otherwise in compliance with this part. All changes to
the conditional commitment must be documented by written amendment to
the conditional commitment executed by all parties.
(4) Acceptance or withdrawal of conditional commitment. The lender
and borrower must complete and sign the conditional commitment and
return a copy to the Agency within 60 days. If the conditional
commitment is not accepted by both the lender and borrower within 60
days, the conditional commitment becomes null and void and the Agency
will withdraw the conditional commitment and de-obligate the associated
funds.
(5) Modification, and expiration of conditional commitment. The
conditional commitment issued by the Agency will be effective for a
period of one year or sufficient time to complete the guaranteed loan
project prior to loan closing. The lender must submit a written request
to the Agency to extend the conditional commitment at least 30 days
prior to its expiration date and obtain Agency approval for the
extension. The Agency will consider this request only if no material
adverse changes in the borrower or the borrower's financial condition
have occurred since issuance of the conditional commitment. If a
conditional commitment expires, the Agency will notify the lender in
writing and may de-obligate the funds. Any additions or modifications
to conditions stated in the original conditional commitment must be
agreed upon between the lender, the borrower, and the Agency.
(b) Changes prior to loan closing.
(1) Change in borrower prior to closing. Any change in borrower
ownership or organization prior to the issuance of the loan note
guarantee must meet the applicable guaranteed program's eligibility
requirements and must be approved by the Agency.
(2) Transfer to new lender prior to issuance of the loan note
guarantee. Prior to issuance of the loan note guarantee, a lender can
request a transfer of an outstanding conditional commitment to a new
lender by providing the Agency with a letter from the lender, the
borrower, and the proposed new lender. The request must include the
reason(s) the current lender no longer desires to be the lender for the
project.
(i) The Agency may approve the transfer from the current lender to
the proposed new lender provided the new proposed lender is an eligible
lender (see H.(e)(1) and (2) of this notice) and no material adverse
changes have occurred in the:
(A) Ownership, control, or legal structure of the borrower; and
(B) Borrower's written plan, scope of work, or the purpose or
intent of the project.
(ii) The Agency will determine if the proposed new lender is
eligible in accordance with this notice prior to approving the transfer
of lender. The new lender must execute a new application form and a
lender's agreement (unless the new lender already has a valid lender's
agreement with the Agency) and must complete a new credit evaluation in
accordance with this notice. The Agency may require the new lender to
provide other updated application items as specified by the Agency.
(iii) If the Agency approves the transfer to the new lender, the
Agency will issue a letter of amendment to the original conditional
commitment reflecting the new lender who must acknowledge acceptance of
the amended conditional commitment in writing.
(c) Loan closing and conditions precedent to issuance of loan note
guarantee.
(1) The lender must not close the guaranteed loan until all
conditions of the conditional commitment are met. The lender will
provide the Agency a draft of the loan agreement for pre-closing review
and may provide the Agency draft loan documents for the Agency's
concurrence that all conditions of the conditional commitment are met
or will be met.
(2) Simultaneously with or immediately after the guaranteed loan
closing, the lender must provide to the Agency the following forms and
documents:
(i) An executed lenders agreement, unless a lenders agreement
executed under this notice was previously submitted to the Agency;
(ii) An Agency-approved, ``Guaranteed Loan Closing Report'';
(iii) A copy of each executed promissory note and collateral
security documents;
(iv) A copy of the executed final loan agreement, which must
include any additional requirements imposed by the Agency in the
conditional commitment;
(v) The original, executed Agency-approved guarantee form(s) for
any required personal, partnership or corporate guarantees;
(vi) The borrower's loan closing balance sheet, if required;
(vii) For loans to public bodies, an opinion from recognized bond
counsel regarding the adequacy of the preparation, issuance, and
enforceability of the debt instruments;
(viii) Any other documents required to comply with applicable law
or required by this part, the conditional commitment, or the Agency;
and
(ix) When requesting issuance of a loan note guarantee, the lender
must certify to each condition identified in paragraphs
(c)(2)(ix)(D)(1) through (23) of this section, as applicable.
(A) In making its certification, the lender can rely on certain
written materials (e.g., certifications, evaluations, appraisals,
financial statements, and other reports) provided by the borrower or
other qualified third parties (e.g., independent engineers, appraisers,
accountants, attorneys, consultants, or other experts).
(B) If the lender is unable to provide any of the certifications
required under this section, the lender must provide an explanation
satisfactory to the Agency.
(C) The lender must certify, in accordance with this notice that
the capital/equity requirement was determined, based on a balance sheet
prepared in accordance with GAAP, and met, as of the date the
guaranteed loan was closed, giving effect to the entirety of the loan
in the calculation, whether or not the loan itself is fully advanced. A
copy of the loan closing balance sheet must be included with the
lender's certification;
[[Page 70103]]
(D) The lender may request the loan note guarantee be issued prior
to construction in accordance with this notice; however, the lender
must still certify to all applicable conditions of this notice and the
following:
(1) All requirements of the conditional commitment have been met;
and
(2) The financial criteria specified in this notice and any
financial criteria contained in the conditional commitment were:
(i) Determined in accordance with any applicable requirements in
this notice; and
(ii) Have been maintained through the issuance of the loan note
guarantee. Failure to maintain or attain the minimum financial criteria
will result in the Agency not issuing a loan note guarantee;
(3) The capital/equity requirement was determined, based on a
balance sheet prepared in accordance with GAAP, and met, as of the date
the guaranteed loan was closed, giving effect to the entirety of the
loan in the calculation, whether or not the loan itself is fully
advanced. A copy of the loan closing balance sheet must be included
with the lender's certification;
(4) No major changes have been made in the applicant, project or
lender's loan conditions or requirements since the issuance of the
conditional commitment, unless such changes have been approved by the
Agency;
(5) There has been neither any material adverse change in the
borrower's financial condition nor any other material adverse change in
the borrower during the period of time from the Agency's issuance of
the conditional commitment to issuance of the loan note guarantee
regardless of the cause or causes of the change and whether or not the
change or causes of the change were within the lender's or borrower's
control;
(6) The borrower is a legal entity in good standing with its
regulator (as applicable) and operating in accordance with the laws of
the State(s) or Tribe where the borrower was organized or has a place
of business;
(7) The borrower meets the eligibility requirements as outlined in
this notice.
(8) There is a reasonable prospect that the guaranteed loan and
other project debt will be repaid on time and in full (including
interest) from project cash flow according to the terms proposed in the
application;
(9) The guaranteed loan has been properly closed, and the required
security instruments have been properly executed and all security
interests obtained by the lender have been or will be properly
perfected in accordance with applicable law;
(10) All planned property acquisition has been or will be
completed; all development has been or will be substantially completed
in accordance with plans and specifications and conforms to applicable
Federal, Tribal, State, and local codes; all equipment required for the
project is available, can be procured and delivered within the project
development schedule, and will be installed in conformance with
manufacturer's specifications and design requirements; and costs have
not exceeded the amount approved by the lender and the Agency;
(11) The proposed project complies with all current Federal,
Tribal, State, and local laws and regulatory rules that affect the
project, the borrower, or lender activities, including, but not limited
to, equal opportunity and Fair Housing Act requirements and design and
construction requirements;
(12) All lender-required insurance policies are in effect at the
required levels;
(13) All truth-in-lending and equal credit opportunity requirements
have been met;
(14) The borrower has marketable title to the collateral then owned
by the borrower, subject to the rights of the guaranteed loan and to
any other exceptions approved in writing by the Agency;
(15) Where required, necessary or prudent, the borrower has
obtained:
(i) A legal opinion relative to the title and accessibility to any
rights-of-way and easements; and
(ii) A title opinion or title insurance showing the borrower has
good and marketable title to the real property and other collateral and
fully addressing all existing mortgages or other lien defects,
restrictions or encumbrances. In those cases where there is adequate
gap coverage, a title commitment may be acceptable;
(16) All project funds have been or will be disbursed for purposes
and in amounts consistent with the conditional commitment (or Agency-
approved amendment thereof) and the application submitted to the
Agency. Appropriate lender controls were used to ensure that all funds
were properly disbursed, including funds for working capital. A copy of
a settlement statement by the lender detailing the use of loan and
matching/equity funds must be attached to support this certification;
(17) When applicable, the entire amount of the loan for working
capital or initial operating expenses have been disbursed to the
borrower, except in cases where the Agency has approved disbursement
over an extended period of time and funds are escrowed so that the
settlement statement reflects the full amount to be disbursed;
(18) When required, personal and/or corporate guarantees have been
obtained in accordance with this notice;
(19) Lien priorities are consistent with the requirements of the
conditional commitment. No claims or liens of laborers, subcontractors,
suppliers of machinery and equipment, materialmen, or other parties
have been filed against the collateral and no suits are pending or
threatened that would adversely affect the collateral;
(20) Neither the lender nor any of the lender's officers has an
ownership interest in the borrower or is an officer or director of the
borrower, and neither the borrower nor its officers, directors,
stockholders, or other owners have more than a 5 percent ownership
interest in the lender;
(21) The loan agreement includes all borrower compliance measures
identified in the Agency's environmental review for avoiding or
reducing adverse environmental impacts of the project's construction or
operation;
(22) The lender will comply with the requirements of the Debt
Collection Improvement Act; and
(23) The lender has executed and delivered the lender's agreement,
completed registration in the Agency's electronic reporting system, and
electronically submitted the closing report for the guaranteed loan.
(d) Issuance of the loan note guarantee.
(1) Issuance. The Agency, at its sole discretion, will determine if
the conditions specified in the conditional commitment have been met
and whether to issue the loan note guarantee. When the Agency is
satisfied that all the conditions specified in the conditional
commitment have been met and it receives all the required fees plus the
executed lender's agreement from the lender, the Agency will issue the
documents identified in paragraphs (d)(1)(i) through (iii) of this
section, as appropriate.
(i) Loan note guarantee. The Agency will provide the lender the
original loan note guarantee document which the lender must attach to
the promissory note. If the lender elected to use the multi-note
system, the Agency will issue one loan note guarantee for the set of
promissory notes.
(ii) Assignment guarantee agreement. If the lender assigns any
guaranteed portion of a guaranteed loan to a holder, the lender,
holder, and the Agency will execute an assignment guarantee
[[Page 70104]]
agreement for each assignment. The lender must fully disburse loan
funds of a promissory note for the approved purposes of the loan, prior
to assigning the guaranteed portion of a note to a holder and issuance
of the Assignment of Guarantee Agreement. Disbursement to an escrow
account does not meet this requirement, except for loan funds for
working capital.
(iii) Certificate of incumbency and signature. The Agency will
provide the holder an executed certificate of incumbency form to verify
the signature and title of the Agency official who signed the Loan Note
Guarantee and the assignment guarantee agreement.
(2) Agency review of closing. The Agency will review the closing
documents submitted by the lender for completeness and if all
conditions have been met and all documents have been provided, the
Agency will issue the loan note guarantee. If the Agency determines
that it cannot issue the loan note guarantee, the Agency will notify
the lender, in writing, of the reasons and give the lender a reasonable
period within which to satisfy the objections. If the lender satisfies
the objections within the time allowed, the Agency will issue the loan
note guarantee.
(3) Cancellation of obligation. A lender can submit a written
request to the Agency for a partial cancellation. The lender must
include in this request the reason for the partial cancellation, the
effective date, and the portion to be canceled. If the Agency
conditions for issuance of the loan note guarantee are rejected, cannot
be met, or funds are, in whole or in part, no longer needed, the Agency
will cancel the obligation.
(e) Replacement of loan note guarantee and assignment guarantee
agreement.
If a loan note guarantee or assignment guarantee agreement has been
lost, stolen, destroyed, mutilated, or defaced while in the custody of
the lender or holder, the Agency may issue a replacement to the lender
or holder, as applicable under the conditions described in (1) and (2)
of this paragraph. The lender is prohibited from altering or modifying
or approving any alterations to or modifications of any loan documents
without the prior written approval of the Agency.
(1) Replacement requirements. The lender must coordinate the
activities of the party who seeks the replacement documents and must
submit the required documents to the Agency for processing. A written
statement of loss must be provided. The statement of loss must include:
(i) Legal name and present address of either the lender or the
holder who is requesting the replacement forms;
(ii) Legal name and address of the lender of record;
(iii) Capacity of person certifying;
(iv) Full identification of the loan note guarantee or assignment
guarantee agreement including the name of the borrower, the Agency's
case number, date of the loan note guarantee or assignment guarantee
agreement, face amount of the promissory note in which an interest was
purchased, date of the promissory note, present balance of the
guaranteed loan, percentage of guarantee, and, if an assignment
guarantee agreement, the original named holder and the percentage of
the guaranteed portion of the guaranteed loan assigned to that holder.
Any existing parts of the document to be replaced must be attached to
the certificate;
(v) A full statement of circumstances of the loss, theft,
destruction, defacement, or mutilation of the loan note guarantee or
assignment guarantee agreement; and
(vi) For the holder, evidence demonstrating current ownership of
the assignment guarantee agreement. If the present holder is not the
same as the original holder, the lender must include a copy of the
endorsement of each successive holder in the chain of transfer from the
initial holder to present holder. If copies of the endorsement cannot
be obtained, the lender must submit the best available records of
transfer (e.g., order confirmation, canceled checks, etc.).
(2) Indemnity bond. An indemnity bond acceptable to the Agency must
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, the District of Columbia or an
Indian Tribe. The indemnity bond must:
(i) Be issued by a qualified surety company holding a certificate
of authority from the Secretary of the Treasury and listed in Treasury
Department Circular 570, except when the outstanding principal balance
and accrued interest due the present holder is less than $1 million as
verified by the lender via a written letter of certification of balance
due;
(ii) Be issued and payable to the United States of America acting
through the Agency;
(iii) Be in an amount not less than the unpaid principal and
interest; and
(iv) Hold the Agency harmless against any claim or demand that
might arise or against any damage, loss, costs, or expenses that might
be sustained or incurred by reason of the loss or replacement of the
instruments.
(f) Other Federal, Tribal, State, and local requirements.
Beginning on the date of issuance of the loan note guarantee,
lenders and borrowers must:
(1) Coordinate with all appropriate Federal, Tribal, State and
local agencies that may have jurisdiction or involvement in each
project; and
(2) Comply with all current Federal, Tribal, State and local laws
and rules, as well as applicable regulatory commission rules, that
affect the project, borrower, or lender. Compliance activities include,
but are not limited to:
(i) Organization and borrower's authority to design, construct,
develop, operate, and maintain the proposed facilities;
(ii) Borrowers engaged in processing of meat, poultry, processed
egg products, and Siluriformes must comply with the requirements of the
U.S. Department of Agriculture (USDA) Food Safety and Inspection
Service. Borrowers engaged in processing of other foods and food
ingredients must comply with the requirements of the Food and Drug
Administration;
(iii) Borrowing money, giving security, and raising revenues for
repayment;
(iv) Land use zoning;
(v) Health, safety, and sanitation standards as well as design and
installation standards; and
(vi) Protection of the environment and consumer affairs.
(g) Planning and performing development.
In complying with the requirements of this section, the lender may
rely on written materials and other reports provided by an independent
engineer and other qualified consultants.
(1) Design requirements. The lender must ensure that all facilities
constructed with guaranteed loan funds are:
(i) Designed using accepted architectural, engineering, and design
practices, taking into consideration any Agency comments when the
facility is being designed;
(ii) Designed in conformance with applicable Federal, Tribal,
State, and local codes and requirements; and
(iii) Constructed to support operations at the level and quality
contemplated by the borrower using accepted architectural and
engineering practices.
(2) Rights-of-ways, easements, and property rights. The lender is
responsible for ensuring that the borrower has:
(i) Obtained valid, continuous, and adequate rights-of-way and
easements
[[Page 70105]]
needed for the construction, operation, and maintenance of a project;
and
(ii) Obtained and recorded such releases, consents, or
subordinations to such property rights from lienholders of outstanding
liens or other instruments as may be necessary for the construction,
operation, and maintenance of the project and to provide the required
security.
(3) Permits, agreements, and licenses. It is the lender's
responsibility to ensure the borrower obtains all permits, agreements,
and licenses that are applicable to the project.
(4) Insurance. It is the lender's responsibility to ensure the
borrower obtains and maintains borrower and project insurance in
substance and amount similar to that ordinarily required by lenders in
the industry.
(5) Construction monitoring requirements. The lender, or its
designated agent, will monitor the progress of construction of the
project and undertake the reviews and inspections necessary to ensure
that construction conforms to applicable Federal, Tribal, State, and
local code requirements and that construction proceeds in accordance
with the plans, specifications, and contract documents.
(i) Construction inspections. The lender must notify the Agency of
any scheduled field inspections during construction. The Agency may
attend any field inspections the lender may conduct. Any Agency
inspection, including those with the lender, are for the benefit of the
Agency only (and not for the benefit of other parties in interest) and
do not relieve any parties of interest of their responsibilities to
conduct necessary inspections.
(ii) Inspectors. On a case-by-case basis in the event that the
Agency determines that there is additional risk to the government, the
Agency may require the use of a qualified, independent inspector to
inspect construction to ensure the project is being adequately built to
meet the borrower's requirements of the borrower's approved project and
comply with all applicable codes and legal requirements.
(6) Issuance of loan note guarantee prior to completion of the
project's construction. The lender may request that the loan note
guarantee be issued prior to completion of a project's construction.
The lender's request will be considered by the Agency, who may require
credit risk mitigation. The lender must verify and include evidence of
the following in its request:
(i) The promissory note specifying the full term of the note and
containing the terms and conditions of each draw period;
(ii) The borrower and lender have entered into a contract with an
independent disbursement and monitoring firm with a construction
monitoring plan, acceptable to and approved by the Agency, or the
lender demonstrates and documents that it has the capacity and
experience to disburse funds and provide a monitoring plan acceptable
to the Agency;
(iii) The borrower and lender have agreed to a detailed timetable
for the project with a corresponding budget of costs setting forth the
parties responsible for payment. The timetable and budget will be
confirmed as adequate for the planned development by a qualified
independent consultant (e.g., the project architect or engineer) with
demonstrated experience relating to the project's industry.
(iv) The borrower has entered into a firm, fixed-price construction
contract with an independent general contractor with costs outlined in
detail and terms specifying change order approvals, the agreed
retainage percentage, and the disbursement schedule;
(v) Evidence the lender has properly vetted the financial
feasibility and past performance of the contractor to show they are
able to complete the project or that the lender has mitigated risk in
the event the project is never completed, such as requiring a 100-
percent performance/payment bond on the borrower's contractor to be
maintained until the contractor is released from its obligation. The
bonding agent must be listed on Treasury Circular 570;
(vi) Evidence, which the Agency at its sole discretion determines
is satisfactory, that the lender has completed the due diligence
necessary to confirm that the contractor is able to complete the
project based on information including, but not limited to, the
financial statements and past performance of the contractor;
(vii) When applicable, the borrower has entered into a contract
with an independent technology development firm guaranteeing the
following: Completion of the project with the necessary technology to
successfully run the project and system performance for projects that
utilize integrated processing equipment and systems. The intent of this
provision is to ensure that all technology proposed for the project can
be successfully integrated together to ensure successful installation
and performance of the system;
(viii) Evidence, in form and substance satisfactory to the Agency,
that sufficient contingency funding is in place to handle unforeseen
cost overruns without seeking additional guaranteed assistance.
(7) Reporting during construction. Regardless of when the loan note
guarantee is issued, all lenders must report any problems in project
development to the Agency within 15 calendar days of identifying the
problem. If the loan note guarantee has been issued prior to
construction or completion of the project, the lender must provide
monthly construction reports that contain:
(i) Certifications for each draw request as follows:
(A) Certification by the independent engineer or qualified
consultant to the lender that the work referred to in the draw has been
successfully completed; and
(B) Certification by the borrower and independent engineer or
qualified consultant that the guaranteed loan funds of the prior draw
have been applied to eligible project costs in accordance with the draw
request and that the contractors have delivered mechanics lien waivers
in connection with such draw;
(ii) List of invoices;
(iii) Details regarding the borrower's equity, other funds, and
guaranteed loan funds disbursed to date;
(iv) Status of construction and inspection reports;
(v) Inspection reports; and
(vi) Explanation of concerns, potential problems, cost overruns,
etc.
(8) Use of guaranteed loan funds. The lender must ensure that:
(i) All borrower funds are utilized prior to guaranteed loan funds;
(ii) Guaranteed loan funds are only used for eligible project costs
in accordance with the purposes approved by the Agency in the
conditional commitment and in accordance with the plans,
specifications, and contract documents; and
(iii) The project will be completed within the approved budget.
(9) Project completion. Once construction of the project is
completed, the lender must obtain and have on file all mechanics lien
waivers or releases from all contractors and materialmen. The lender
will provide to the Agency:
(i) A copy of the notice of completion or similar document issued
by the relevant jurisdiction;
(ii) Certification that all funds were used for authorized
purposes; and
(iii) A written certification that the project will be used for its
intended purpose and will meet the borrower's needs and guaranteed loan
purposes in accordance with the application approved by the Agency.
(h) Compliance with other Federal laws. Lenders and Borrowers must
[[Page 70106]]
comply with other applicable Federal laws, including Equal Employment
Opportunity Act, the Equal Credit Opportunity Act, the Fair Housing
Act, and the Civil Rights Act of 1964. Guaranteed loans that involve
the construction of or addition to facilities that accommodate the
public must comply with the Architectural Barriers Act Accessibility
Standard. The borrower and lender are responsible for ensuring
compliance with these requirements.
(i) Environmental responsibilities. The lender must ensure that the
borrower has:
(1) Provided the necessary environmental information to enable the
Agency to undertake its environmental review process in accordance with
7 CFR part 1970, ``Environmental Policies and Procedures,'' or
successor regulation, including the provision of all required Federal,
State, and local permits;
(2) Complied with any mitigation measures required by the Agency;
and
(3) Not taken any actions or incurred any obligations with respect
to the proposed project that would either limit the range of
alternatives to be considered during the Agency's environmental review
process or that would have an adverse effect on the environment.
(j) Servicing.
(1) The provisions of 7 CFR 5001 Subpart F, including applicable
definitions, will apply for servicing the loans guaranteed under this
notice, including oversight, monitoring and reporting requirements and
project completion requirements that are applicable to each guaranteed
loan made under this part, except as may be otherwise indicated.
Servicing topics covered include audits and financial reports;
collateral; loan transfers and assumptions; lender transfers; mergers;
servicing fees; subordinations of lien position; repurchases;
additional expenditures and loans; interest rate changes; lender
failures; borrower defaults; protective advances; liquidation;
bankruptcy; litigation; loss calculations and payments; future
recovery; property acquired by the lender; and termination of the loan
note guarantee.
(2) In addition to the financial reports required under 7 CFR
5001.504, commencing the first full calendar year following the year in
which project construction was completed and continuing for three full
years, the lender shall obtain from the borrower and submit to the
agency an outcome project performance report noting the project's
success in increasing capacity or contributing to the resilience,
diversity, or security of food supply chains. The project performance
metrics shall align with the information provided in the feasibility
study about how the project would increase capacity or make the food
supply chain more resilient, diverse, or secure. If the project has not
performed as intended, a report detailing the circumstances affecting
performance must be provided to the Agency. The lender must submit
project performance reports to the Agency within 120 days of the end of
the borrower's fiscal year.
G. Federal Awarding Agency Contact(s)
For general questions about this notice, please contact
[email protected] as outlined in the ADDRESSES section of
this notice or the program website at: https://www.rd.usda.gov/foodsupplychainloans.
H. Other Information
(a) Exception authority. The Administrator may, on a case-by-case
basis grant an exception to any requirement or provision of this notice
provided that such an exception is in the best financial interests of
the Federal government. Exercise of this authority cannot be in
conflict with applicable law.
(b) Appeals. Borrowers, lenders, and holders may have appeal or
review rights for Agency decisions made under this part. Agency
decisions that are adverse to the individual participant are
appealable, while matters of general applicability are not subject to
appeal; however, such decisions are reviewable for appealability by
NAD. All appeals will be conducted by NAD and will be handled in
accordance with 7 CFR part 11.
(1) The borrower, lender, and holder can appeal any Agency decision
that directly and adversely affects them.
(i) For an adverse decision that affects the borrower, the lender
and borrower must jointly execute a written request for appeal of an
adverse decision made by the Agency.
(ii) An adverse decision that affects only the lender can be
appealed by the lender only.
(iii) An adverse decision that affects only the holder can be
appealed by the holder only.
(2) In cases where the Agency has denied or reduced the amount of
final loss payment to the lender, the adverse decision can be appealed
only by the lender.
(3) A decision by a lender adverse to the interest of the borrower
is not a decision by the Agency, even if it was concurred in by the
Agency, and therefore cannot be reviewed for appealability or appealed
to NAD.
(c) General lender responsibilities.
(1) Lenders are responsible for originating and servicing loans
guaranteed by the Agency under this notice in accordance with the
provisions of this notice. Any action or inaction on the part of the
Agency does not relieve the lender of its responsibilities.
(2) Lenders can contract for services, but such contracting does
not relieve a lender from its responsibilities as identified in this
notice.
(3) If a lender fails to comply with the requirements of this
notice, the Agency may reduce any loss payment in accordance with the
lender's agreement and loan note guarantee.
(4) Lenders are responsible for becoming familiar with Federal
environmental requirements; considering, in consultation with the
prospective borrower, the potential environmental impacts of their
proposals at the earliest planning stages; and developing proposals
that minimize the potential to adversely impact the environment.
(i) Lenders must assist the borrower in providing details of the
project's impact on the environment and historic properties in
accordance with 7 CFR part 1970, ``Environmental Policies and
Procedures,'' (or successor regulation), when applicable; assist in the
collection of additional data when the Agency needs such data to
complete its environmental review of the proposal; and assist in the
resolution of environmental problems.
(ii) Lenders must ensure the borrower has:
(A) Provided the necessary environmental information to enable the
Agency to undertake its environmental review process in accordance with
7 CFR part 1970, ``Environmental Policies and Procedures,'' or
successor regulation, including the provision of all required Federal,
Tribal, State, and local permits;
(B) Complied with any mitigation measures required by the Agency;
and
(C) Not taken any actions or incurred any obligations with respect
to the proposed project that will either limit the range of
alternatives to be considered during the Agency's environmental review
process or that will have an adverse effect on the environment.
(iii) Lenders must alert the Agency to any environmental issues
related to a proposed project or items that may require extensive
environmental review.
(d) Approvals, regulations, and forms.
[[Page 70107]]
(1) When Agency approval or concurrence is required, it must be in
writing and must be obtained prior to the action for which approval or
concurrence is required is taken.
(2) All references to statutes and regulations include any and all
successor statutes and regulations.
(3) All references to forms include any and all successor forms as
specified by the Agency.
(4) Copies of all regulations and forms referenced in this notice
can be obtained through the Agency and from the Agency's website at
https://www.rd.usda.gov/foodsupplychainloans.
(e) Eligible lenders.
(1) To become a lender under this notice, the lending entity must
meet the requirements specified in 7 CFR 5001.130 Lender eligibility
requirements. Lenders approved by the Agency as an eligible lender
under 7 CFR 5001.130 and that are in compliance with 7 CFR 5001.132
``Maintenance of approved lender status'' and the requirements of this
notice, are eligible lenders under this notice. Lenders must continue
to comply with the requirements of 7 CFR 5001.132 ``Maintenance of
approved lender status.''
(2) All lenders must have a UEI which can be obtained at https://www.SAM.gov/content/home.
(i) Each lender applying for loan guarantee must (A) be registered
in the System for Award Management (SAM) before submitting its
application and (B) provide a valid UEI in its application, unless
determined exempt under 2 CFR 25.110.
(ii) Lender must maintain an active SAM registration, with current,
accurate and complete information, at all times during which it has an
active FSC guaranteed loan or an application under consideration by the
Agency.
(iii) Lender must complete the Financial Assistance General
Certifications and Representations in SAM.
(iv) The Agency will not determine lender eligibility until the
lender has complied with all applicable UEI and SAM requirements. If a
lender has not fully complied with the requirements by the time the
Agency is ready to approve the guaranteed loan application, the Agency
may determine that the lender is not eligible under this notice.
(f) Lender's agreement.
Agency approval of the lender will be evidenced by an outstanding
lender's agreement, between the Agency and the lender. When approved to
participate as a lender under this notice, the lender must execute a
lender's agreement before the Agency will issue a loan note guarantee.
(g) Access to records.
The lender must permit representatives of the Agency (or other
agencies of the United States) to inspect and make copies of any
records of the lender pertaining to Agency guaranteed loans during
regular office hours of the lender or at any other time upon agreement
between the lender and the Agency. In addition, the lender must
cooperate fully with Agency oversight and monitoring of all lenders
involved in any manner with any guarantee to ensure compliance with
this Notice. Such oversight and monitoring will include, but is not
limited to, reviewing lender records and meeting with lenders.
(h) Guarantee provisions.
(1) A loan note guarantee issued under this notice constitutes an
obligation supported by the full faith and credit of the United States
and is incontestable except for fraud or misrepresentation of which a
lender or holder has actual knowledge at the time it becomes such
lender or holder, or which a lender or holder participates in or
condones.
(2) A guaranteed loan under this notice will be evidenced by a loan
note guarantee issued by the Agency.
(3) The entire loan must be secured by the same collateral with
equal lien priority for the guaranteed and unguaranteed portions of the
loan. The unguaranteed portion of the guaranteed loan will neither be
paid first nor given any preference or priority over the guaranteed
portion. A parity or junior lien position in the guaranteed loan
collateral may be considered on a case-by-case basis and must be
approved by the Agency.
(4) The lender must remain mortgagee and secured party of record
notwithstanding the fact that another party may hold a portion of the
guaranteed loan.
(5) The lender will receive all payments of principal and interest
on account of the entire guaranteed loan and must promptly remit to
each holder and participant, if any, its pro rata share of any payment
within 30 days of the lender's receipt thereof from the borrower.
Holder or participant payments are determined according to their
respective interest in the guaranteed loan, less only the lender's
servicing fee.
(6) Any claim against a loan note guarantee or assignment guarantee
agreement that is attached to, or relating to, a promissory note that
provides for payment of interest-on-interest, default charges, penalty
interest, or late payment fees will be reduced to remove such interest,
fees, and charges.
(7) The loan note guarantee is unenforceable by the lender to the
extent that any loss is occasioned by:
(i) The violation of usury laws;
(ii) Use of guaranteed loan funds for unauthorized loan purposes in
accordance with Section C.(d) of this notice or to the extent that
those funds are used for purposes other than those specifically
approved by the Agency in its conditional commitment or amendment
thereof;
(iii) Failure to obtain, perfect, document, and or maintain the
required collateral or security position regardless of the time at
which the Agency acquires knowledge thereof; and
(iv) Negligent loan origination or negligent loan servicing as
determined and documented by the Agency.
(8) The Agency will guarantee payment as follows:
(i) To any holder, 100 percent of any loss sustained by the holder
on the guaranteed portion of the guaranteed loan it owns and on
interest due (as determined under paragraph (h)(9) of this section) on
such portion less any outstanding servicing fee.
(ii) To the lender, any loss sustained by the lender on the
guaranteed portion of the guaranteed loan, including principal and
interest (as determined under paragraph (h)(9) of this section)
evidenced by the promissory note(s) or assumption agreements entered
into in connection with an Agency approved transfer and assumption, and
secured advances for protection and preservation of collateral made
with the Agency's authorization if applicable.
(9) Accrued interest payments. The Agency will guarantee accrued
interest in accordance with paragraph (h)(9)(i) or (ii), as applicable,
of this section.
(i) If the lender owns all or a portion of the guaranteed portion
of the guaranteed loan or makes a protective advance, the Agency, in
its sole discretion, may cover interest on the guaranteed portion for
the 90 days from the most recent delinquency effective date, and up to
a total of 180 days, only if:
(A) The lender, and not the Agency, has repurchased all holder
interests in the guaranteed loan;
(B) The lender is actively engaged in a credit resolution with the
borrower to bring the account current or fully liquidate the collateral
under the terms of a liquidation plan approved by the Agency; and
(C) Concurrence for inclusion of the extended period of interest to
the lender is received from the Agency.
[[Page 70108]]
(ii) If the guaranteed loan has one or more holders, the lender
will issue an interest termination letter to each holder establishing
the termination date for interest accrual. The loan note guarantee will
not cover interest to any holder accruing after the greater of 90 days
from the date of the most recent delinquency effective date as reported
by the lender or 30 days from the date of the interest termination
letter. The Agency at its sole discretion may notify each holder of the
interest termination provisions if it is determined that lender
correspondence to holders is in-adequate.
(i) Participation or assignment of guaranteed loan.
(1) General. The lender may obtain participation in the loan or
assign all or part of the guaranteed portion of the guaranteed loan on
the secondary market subject to the conditions specified in paragraphs
(1) through (8) of this section or retain the entire guaranteed loan.
(2) Participation. The lender may obtain participation in the loan
under its normal operating procedures; however, the lender must retain
title to and possession of the promissory note(s) and retain the
lender's interest in the collateral.
(3) Assignment. Any assignment by the lender of the guaranteed
portion of the loan must be accomplished in accordance with the
conditions in the lender's agreement and the provisions of this
section. The holders and the borrower have no rights or obligations to
one another.
(4) Minimum retention by the lender. Minimum retention at all times
must be from the unguaranteed portion of the loan and cannot be
participated to another person.
(i) The lender must hold a minimum of 7.5 percent of the total loan
amount.
(ii) The lender must retain its security interest in the collateral
and retain the servicing responsibilities for the guaranteed loan.
(iii) The Agency can approve a reduction of the minimum retention
requirement below the applicable percentage on a case-by-case basis
when the lender establishes to the Agency's satisfaction that reduction
of the minimum retention percentage is necessary to meet compliance
with the lender's regulatory authority.
(5) Prohibition. The lender must not assign or participate any
amount of the guaranteed or non-guaranteed portion of the loan to the
borrower, borrower's officers, directors, stockholders, other owners,
or to members of their immediate families, or to a parent company, an
affiliate, or a subsidiary of the borrower.
(6) Secondary market. The lender must properly close its loan and
fully disburse loan funds of a promissory note for the approved
purposes of the loan prior to assignment of the guaranteed portion of
the promissory note(s) on the secondary market. The lender can assign
all or part of the guaranteed portion of the loan only if the loan is
not in default.
(7) Lender's servicing fee to holder. The assignment guarantee
agreement must clearly state the guarantee portion of loan as a
percentage and corresponding dollar amount of the guaranteed portion of
the guaranteed loan it represents and the lender's servicing fee. The
lender cannot charge the Agency a servicing fee and servicing fees are
not eligible expenses for loss claim.
(8) Distribution of proceeds. The lender must apply all loan
payments and collateral proceeds received, after payment of liquidation
expenses, to the guaranteed and unguaranteed portions of the loan on a
pro rata basis.
(9) Promissory note(s). A loan note guarantee is issued to the
lender for a specific promissory note(s) executed between the lender
and the borrower. The lender must retain title to and possession of the
guaranteed promissory note(s), retain the lender's interest in the
collateral, and retain the servicing responsibilities for the
guaranteed loan. The lender is prohibited from issuing any additional
promissory notes at a later date for the same guaranteed loan.
(i) The lender may assign all or part of the guaranteed portion of
the loan, including interest strips, to one or more holders by using an
assignment guarantee agreement for each holder. The lender must
complete and execute the assignment guarantee agreement and return it
to the Agency for execution prior to holder execution.
(ii) The lender or holder may request a certificate of incumbency
and signature from the Agency.
(iii) A holder, upon written notice to the lender and the Agency,
may reassign the unpaid guaranteed portion of the loan, in full,
assigned under the assignment guarantee agreement. Holders can only
reassign the complete block they have received and cannot subdivide or
further split their interest in the guaranteed portion of a loan or
retain an interest strip.
(iv) Upon notification and completion of the assignment through the
use of the assignment guarantee agreement, the assignee succeeds to all
rights and obligations of the holder thereunder. Subsequent assignments
require notice to the lender and Agency using any format, including
that used by the Securities Industry and Financial Markets Association
(formerly known as the Bond Market Association), together with the
transfer of the original assignment guarantee agreement.
(v) The Agency will not execute a new assignment guarantee
agreement to affect a subsequent reassignment.
(10) Rights and liabilities. When a guaranteed portion of a loan is
assigned to a holder using an assignment guarantee agreement, the
holder succeeds to all rights of the lender under the loan note
guarantee to the extent of the portion purchased. The full, legal
interest in the promissory note must remain with the lender, and the
lender remains bound to all obligations under the loan note guarantee,
lender's agreement, and Agency regulations applicable to the guarantee.
(i) A guarantee and right to require purchase in accordance with
the provisions of this Notice will be directly enforceable by a Holder
notwithstanding any fraud or misrepresentation by the lender or any
unenforceability of the loan guarantee by the lender, except for fraud
or misrepresentation of which the holder had actual knowledge at the
time it became the holder or in which the holder participates or
condones.
(ii) The lender must not represent a conditional commitment of
guarantee as a loan guarantee.
(iii) The lender must reimburse the Agency for any payments the
Agency makes to a holder on the lender's behalf under the loan note
guarantee, given the lender would not be entitled to the payments had
they retained the entire interest in the loan.
(j) Repurchase from holder.
(1) General. A holder can make written demand on either the lender
or the Agency to repurchase the unpaid guarantee portion of the loan
when the borrower is in monetary default or when the lender has failed
to pay the holder its pro-rata share of any payment made by the
borrower within 30 days of the lender's receipt thereof from the
borrower. When making written demand on the lender, the holder must
concurrently send a copy of the demand letter to the Agency.
(i) The lender is encouraged to repurchase the guarantee, upon
written demand of a holder, to facilitate the accounting of funds,
resolve any loan problem, and resolve the monetary default, where and
when reasonable. The benefit to the lender is that it may re-assign the
guaranteed portion of the loan and then continue collection of its
[[Page 70109]]
servicing fee, if any, when the monetary default is cured.
(ii) When a lender receives a written demand for repurchase from a
holder, the lender must notify any other holder and the Agency within
30 calendar days of receipt of the written demand. The lender must
inform all parties if the lender will repurchase the unpaid guaranteed
portion of the loan from the requesting holder.
(iii) Upon repurchase the holder will re-assign the assignment
guarantee agreement to the lender without recourse.
(2) Repurchase by lender for loan servicing purposes. If the
lender, borrower, and holder are unable to agree to restructuring of
loan repayment, interest rate, or loan terms to resolve any loan
problem or resolve any default and repurchase of the guaranteed portion
of the loan is necessary to adequately service the loan, the holder
must reassign the guaranteed portion of the loan to the lender. The
reassignment must be for an amount not less than the holder's portion
of unpaid principal and accrued interest on such portion less the
lender's servicing fee.
(i) Upon repurchase the holder will re-assign the assignment
guarantee agreement to the lender without recourse.
(ii) The lender must not repurchase from the holder for arbitrage
or other purposes to further its own financial gain.
(iii) Any repurchase from a holder may only be made after the
lender obtains the Agency's written approval.
(3) Agency repurchase. If the lender does not repurchase the
guaranteed portion from the holder, the Agency may, at its option,
purchase such guaranteed portion of the loan for loan servicing
purposes. A holder can submit a written demand to the Agency for
repurchase only if the lender declines to repurchase. If a prior
written demand was not made upon the lender, the Agency will notify the
lender and allow up to seven calendar days for the lender to exercise
its option to repurchase as provided in this section.
(4) Lender does not repurchase. If the lender does not repurchase
the unpaid guaranteed portion of a loan as provided in paragraph (j)(1)
of this section, the Agency will, within 30 calendar days after written
demand to the Agency from the holder, purchase from the holder the
unpaid principal balance of the guaranteed portion together with
accrued interest to date of repurchase or the interest termination
date, whichever is sooner, less the lender's servicing fee. The
guarantee will pay accrued interest to the holder on the loan as
determined under this notice.
(5) Written demand content. The holder must include in its written
demand to the Agency:
(i) A copy of the written demand made upon the lender;
(ii) A copy of the lender's denial to repurchase the unpaid
guaranteed portion of the guaranteed loan;
(iii) Evidence of the right to require payment from the Agency as
provided by the holder or duly authorized agent. Such evidence must
consist of the original assignment guarantee agreement properly
assigned to the Agency without recourse including all rights, title,
and interest in the loan;
(iv) The amount due including unpaid principal, unpaid interest to
date of demand, and interest subsequently accruing from date of demand
to proposed payment date; and
(v) When the initial holder has assigned its interest, the original
assignment guarantee agreement and an original of each Agency-approved
reassignment document in the chain of ownership, with the latest
reassignment being assigned to the Agency without recourse, including
all rights, title, and interest in the guarantee.
(6) Payment. Unless otherwise agreed upon, payment will not be
later than 30 calendar days from the date of demand.
(i) Upon request by the Agency, the lender must promptly furnish
(within 30 calendar days of such request) a current statement,
certified by an appropriate authorized officer of the lender, of the
unpaid principal and interest then owed by the borrower on the loan and
the amount then owed to any holder, along with the information
necessary for the Agency to determine the appropriate amount due the
holder.
(ii) Any discrepancy between the amount claimed by the holder and
the information submitted by the lender must be resolved between the
lender and the holder before payment will be approved. The Agency will
notify both parties and such conflict will suspend the running of the
30-calendar-day payment requirement.
(iii) If a repurchase of a guaranteed loan includes the
capitalization of interest, interest accrued on the capitalized
interest will not be paid to the holder.
(7) Subrogation. When the Agency purchases a loan from a holder it
assumes all rights that were previously held by the holder.
(8) Servicing fee. When the Agency purchases the guaranteed portion
of the loan from a holder, the lender's servicing fee will stop on the
date that interest was last paid by the borrower. The lender can
neither charge a servicing fee to the Agency nor collect such fee from
the Agency.
(9) Accrued interest. If the Agency repurchases 100 percent of the
guaranteed portion of a loan and becomes the holder, interest accrual
on the loan will cease until the lender resumes remittance of the pro
rata payments to the Agency.
(10) Establishing interest termination date. When a guaranteed loan
has been delinquent more than 60 calendar days and no holder comes
forward or when the lender has accelerated the account, and subject to
the expiration of any forbearance or workout agreement, the lender, or
the Agency at its sole discretion, must issue a letter to the holder(s)
establishing the interest termination date.
(11) Obligations and rights. Purchase by the Agency neither
changes, alters, or modifies any of the lender's obligations to the
Agency arising from the lender's agreement, guaranteed loan, or loan
note guarantee, nor does it waive any of the Agency's rights against
the lender. The Agency will have the right to set-off against the
lender all rights inuring to the Agency as the holder of the instrument
against the Agency's obligation to the lender under the loan note
guarantee.
(12) Accelerated loan. When the lender has accelerated the loan and
the lender holds all or a portion of the guaranteed loan, an estimated
loss claim must be filed by the lender with the Agency within 60
calendar days from the date the loan was accelerated.
(13) Interest termination during bankruptcy. When a borrower files
a Chapter 7 liquidation plan, the lender shall immediately notify the
Agency and submit a liquidation plan. The Agency will establish an
interest termination date based on the date Interest was last paid to
the lender. When a borrower files either a Chapter 9 or Chapter 11
bankruptcy restructuring plan, the Agency and lender shall meet to
discuss the bankruptcy procedure, the ability of the borrower to meet
their restructuring plan, the lender's treatment of accruing interest,
and potentially establish an interest termination date for the
guaranteed loan. If the restructuring bankruptcy Chapter 9 or Chapter
11 is converted to a liquidation bankruptcy Chapter 7 by court order,
the interest termination date will be the date of such conversion.
I. Statutory and Executive Order Reviews
(a) Paperwork Reduction Act.
[[Page 70110]]
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
chapter 35), USDA requested that the Office of Management and Budget
(OMB) conduct an emergency review of a new information collection that
contains the Information Collection and Recordkeeping requirements
contained in this notice.
In addition to the emergency clearance, the regular clearance
process is hereby being initiated to provide the public with the
opportunity to comment under a full comment period, as the Agency
intends to request regular approval from OMB for this information
collection. Comments from the public on new, proposed, revised, and
continuing collections of information help the Agency assess the impact
of its information collection requirements and minimize the public's
reporting burden. Comments may be submitted regarding this information
collection through the Federal eRulemaking Portal at https://www.regulations.gov. In the ``Search for Rules, Proposed Rules, Notices
or Supporting Documents'' box, type ``RBS-21-BUSINESS-0036'' to submit
or view public comments and to view supporting and related materials
available electronically. Information on using Regulations.gov,
including instructions for accessing documents, submitting comments,
and viewing the docket after the close of the comment period, is
available through the site's ``FAQ'' link. Comments on this information
collection must be received by February 7, 2022.
Title: Food Supply Chain Guaranteed Loan Program.
OMB Control Number: 0570-NEW.
The following estimates are based on the average over the first 3
years the program is in place.
Estimate of Burden: Public reporting burden for this collection of
information is estimated to average 2.542 hours per response.
Respondents: Institutions of higher education, private entities,
governmental entities, nonprofits, Indian Tribes, district
organizations.
Estimated Number of Respondents: 300.
Estimated Number of Responses per Respondent: 22.6.
Estimated Number of Responses: 6,782.
Estimated Total Annual Burden (hours) on Respondents: 17,241.
Copies of this information collection may be obtained from Susan
Woolard, Regulatory Division, Rural Development Innovation Center, U.S.
Department of Agriculture, 1400 Independence Ave. SW, Stop 1522,
Washington, DC 20250; telephone: 202-720-9631; email:
[email protected]. All responses to this information collection
and recordkeeping notice will be summarized and included in the request
for OMB approval. All comments will also become a matter of public
record.
(b) Congressional Review Act
Pursuant to Subtitle E of the Small Business Regulatory Enforcement
Fairness Act of 1996 (also known as the Congressional Review Act or
CRA), 5 U.S.C. 801 et seq., the Office of Information and Regulatory
Affairs in the Office of Management and Budget designated this action
as a major rule, as defined by 5 U.S.C. 804(2), because it is likely to
result in an annual effect on the economy of $100,000,000 or more.
Accordingly, there is a 60-day delay in the effective date of this
action. Application selection will not begin until after February 7,
2022. Therefore, the 60-day delay required by the CRA is not expected
to have a material impact upon the administration and/or implementation
of the FSC program.
(c) National Environmental Policy Act.
All recipients under this notice are subject to the requirements of
7 CFR part 1970. The Agency will review each guaranteed loan
application to determine its compliance with 7 CFR part 1970. The
applicant may be asked to provide additional information or
documentation to assist the Agency with this determination.
(d) Non-Discrimination Statement.
In accordance with Federal civil rights laws and U.S. Department of
Agriculture (USDA) civil rights regulations and policies, USDA, its
Mission Areas, agencies, staff offices, employees, and institutions
participating in or administering USDA programs are prohibited from
discriminating based on race, color, national origin, religion, sex,
gender identity (including gender expression), sexual orientation,
disability, age, marital status, family/parental status, income derived
from a public assistance program, political beliefs, or reprisal or
retaliation for prior civil rights activity, in any program or activity
conducted or funded by USDA (not all bases apply to all programs).
Remedies and complaint filing deadlines vary by program or incident.
Program information may be made available in languages other than
English. Persons with disabilities who require alternative means of
communication to obtain program information (e.g., Braille, large
print, audiotape, American Sign Language) should contact the
responsible Mission Area, agency, or staff office; the USDA TARGET
Center at (202) 720-2600 (voice and TTY); or the Federal Relay Service
at (800) 877-8339.
To file a program discrimination complaint, a complainant should
complete a Form AD-3027, USDA Program Discrimination Complaint Form,
which can be obtained online at https://www.ocio.usda.gov/document/ad-3027, from any USDA office, by calling (866) 632-9992, or by writing a
letter addressed to USDA. The letter must contain the complainant's
name, address, telephone number, and a written description of the
alleged discriminatory action in sufficient detail to inform the
Assistant Secretary for Civil Rights (ASCR) about the nature and date
of an alleged civil rights violation. The completed AD-3027 form or
letter must be submitted to USDA by:
(1) Mail: U.S. Department of Agriculture, Office of the Assistant
Secretary for Civil Rights, 1400 Independence Avenue SW, Washington, DC
20250-9410; or
(2) Fax: (833) 256-1665 or (202) 690-7442; or
(3) Email: [email protected].
USDA is an equal opportunity provider, employer, and lender.
Karama Neal,
Administrator, Rural Business--Cooperative Service, Rural Development.
[FR Doc. 2021-26693 Filed 12-8-21; 8:45 am]
BILLING CODE 3410-XY-P