[Federal Register Volume 75, Number 73 (Friday, April 16, 2010)]
[Proposed Rules]
[Pages 20044-20073]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-8274]
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Part II
Department of Agriculture
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Rural Business-Cooperative Service
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7 CFR Parts 4279, 4287 and 4288
Biorefinery Assistance Guaranteed Loans; Repowering Assistance Payments
to Eligible Biorefineries; Subpart B--Advanced Biofuel Payment Program;
Proposed Rules
Federal Register / Vol. 75 , No. 73 / Friday, April 16, 2010 /
Proposed Rules
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DEPARTMENT OF AGRICULTURE
Rural Business-Cooperative Service
7 CFR Parts 4279 and 4287
RIN 0570-AA73
Biorefinery Assistance Guaranteed Loans
AGENCY: Rural Business-Cooperative Service, USDA.
ACTION: Proposed rule.
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SUMMARY: Rural Business-Cooperative Service, a mission area within the
U.S. Department of Agriculture, is proposing a guaranteed loan program
for biorefineries. The proposed rule will establish guaranteed loan
regulations for the development and construction of commercial-scale
biorefineries and for the retrofitting of existing facilities using
eligible technology for the development of advanced biofuels.
DATES: Comments on the proposed rule must be received on or before June
15, 2010. The comment period for the information collection under the
Paperwork Reduction Act of 1995 continues through June 15, 2010.
ADDRESSES: You may submit comments to this rule by any of the following
methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Mail: Submit written comments via the U.S. Postal Service
to the Branch Chief, Regulations and Paperwork Management Branch, U.S.
Department of Agriculture, STOP 0742, 1400 Independence Avenue, SW.,
Washington, DC 20250-0742.
Hand Delivery/Courier: Submit written comments via Federal
Express Mail or other courier service requiring a street address to the
Branch Chief, Regulations and Paperwork Management Branch, U.S.
Department of Agriculture, 300 7th Street, SW., 7th Floor, Washington,
DC 20024.
All written comments will be available for public inspection during
regular work hours at the 300 7th Street, SW., 7th Floor address listed
above.
FOR FURTHER INFORMATION CONTACT: Energy Branch, Biorefinery Assistance
Program, U.S. Department of Agriculture, 1400 Independence Avenue, SW.,
Stop 3225, Washington, DC 20250-3201; telephone (202) 720-1400.
SUPPLEMENTARY INFORMATION:
Executive Order 12866
This proposed rule has been reviewed under Executive Order (EO)
12866 and has been determined to be economically significant by the
Office of Management and Budget. The EO defines a ``significant
regulatory action'' as one that is likely to result in a rule that may:
(1) Have an annual effect on the economy of $100 million or more or
adversely affect, in a material way, the economy, a sector of the
economy, productivity, competition, jobs, the environment, public
health or safety, or State, local, or Tribal governments or
communities; (2) create a serious inconsistency or otherwise interfere
with an action taken or planned by another agency; (3) materially alter
the budgetary impact of entitlements, grants, user fees, or loan
programs or the rights and obligations of recipients thereof; or (4)
Raise novel legal or policy issues arising out of legal mandates, the
President's priorities, or the principles set forth in this EO.
The Agency conducted a benefit-cost analysis to fulfill the
requirements of Executive Order 12866. In this analysis, the Agency
identifies potential benefits and costs of the Section 9003 program to
lenders, borrowers, and the Agency. The analysis contains both
quantitative estimates and qualitative descriptions of the expected
benefits and costs of the Biorefinery Assistance guaranteed loan
program. The environmental and energy impacts associated with the
Section 9003 program were qualitatively assessed.
Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act 1995 (UMRA) of Public
Law 104-4 establishes requirements for Federal agencies to assess the
effects of their regulatory actions on State, local, and Tribal
governments and the private sector. Under section 202 of the UMRA,
Rural Development generally must prepare a written statement, including
a cost-benefit analysis, for proposed and final rules with ``Federal
mandates'' that may result in expenditures to State, local, or Tribal
governments, in the aggregate, or to the private sector of $100 million
or more in any one year. When such a statement is needed for a rule,
section 205 of UMRA generally requires Rural Development to identify
and consider a reasonable number of regulatory alternatives and adopt
the least costly, more cost-effective, or least burdensome alternative
that achieves the objectives of the rule.
This proposed rule contains no Federal mandates (under the
regulatory provisions of Title II of the UMRA) for State, local, and
Tribal governments or the private sector. Thus, this rule is not
subject to the requirements of sections 202 and 205 of the UMRA.
Environmental Impact Statement
This renewable energy program under Title IX of the 2008 Farm Bill
has been operated on an interim basis through the issuance of a Notice
of Funds Availability (NOFA). During this initial round of
applications, the Agency conducted National Environmental Policy Act
(NEPA) reviews on each individual application for funding. No
significant environmental impacts were reported, and Findings of No
Significant Impact (FONSI) were issued for each approved application.
Taken collectively, the applications show no potential for significant
adverse cumulative effects.
The Agency is preparing a programmatic environmental assessment
(PEA), pursuant to 7 CFR subpart 1940-G, to analyze the environmental
effects to air, water, and biotic resources; land use; historic and
cultural resources, and greenhouse gas emissions affected by the
Section 9003 proposed rule. The purpose of the PEA is to assess the
overall environmental impacts of the programs related to the goals of
the Administration for advancing biofuels production for the purposes
of energy independence and greenhouse gas emission reductions. The
environmental analyses will be national in scope and will be supported
by site by site analysis per each application to the program. Site-
specific NEPA documents prepared for those facilities funded under
Sections 9003 and 9004 in FY 2008 and/or 2009 will be utilized, to
forecast likely environmental impacts under the proposed rules. The
draft PEA will be made available to the public for comment on the USDA
Rural Business Service's Web site by May 3, 2010, and all comments will
be addressed as part of any revision of the PEA, or prior to the
publication of any Finding of No Significant Impact (FONSI).
Executive Order 12988, Civil Justice Reform
This proposed rule has been reviewed under Executive Order 12988,
Civil Justice Reform. In accordance with this rule: (1) All State and
local laws and regulations that are in conflict with this rule will be
preempted; (2) no retroactive effect will be given this rule; and (3)
administrative proceedings in accordance with the regulations of the
Department of Agriculture's National Appeals Division (7 CFR part 11)
must be exhausted before bringing suit in court challenging action
taken under this rule unless those regulations specifically allow
bringing suit at an earlier time.
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Executive Order 13132, Federalism
It has been determined, under Executive Order 13132, Federalism,
that this proposed rule does not have sufficient federalism
implications to warrant the preparation of a Federalism Assessment. The
provisions contained in the proposed rule will not have a substantial
direct effect on States or their political subdivisions or on the
distribution of power and responsibilities among the various government
levels.
Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601-602) (RFA) generally
requires an agency to prepare a regulatory flexibility analysis of any
rule subject to notice and comment rulemaking requirements under the
Administrative Procedure Act or any other statute unless the agency
certifies that the rule will not have an economically significant
impact on a substantial number of small entities. Small entities
include small businesses, small organizations, and small governmental
jurisdictions.
In compliance with the RFA, Rural Development has determined that
this action will not have an economically significant impact on a
substantial number of small entities. The burden for applying for a
Biorefinery Assistance Guaranteed loan to any one borrower is estimated
to be less than 0.1 percent of the estimated cost of the average
reconstruction project funded under this program. Further, this
regulation only impacts those who choose to participate in the program.
Executive Order 13211, Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use
The regulatory impact analysis conducted for this proposed rule
meets the requirements for Actions Concerning Regulations That
Significantly Affect Energy Supply Distribution and Use, Executive
Order No. 13211, which states that an agency undertaking regulatory
actions related to energy supply, distribution, or use is to prepare a
Statement of Energy Effects. This analysis does not find that this
proposed rule will have any adverse impacts on energy supply,
distribution or use.
Executive Order 12372, Intergovernmental Review of Federal Programs
Rural Development guaranteed loans are subject to the Provisions of
Executive Order 12372, which require intergovernmental consultation
with State and local officials. Rural Development will conduct
intergovernmental consultation in the manner delineated in RD
Instruction 1940-J, ``Intergovernmental Review of Rural Development
Programs and Activities,'' available in any Rural Development office,
on the Internet at http://www.rurdev.usda.gov/regs, and in 7 CFR part
3015, subpart V.
Executive Order 13175, Consultation and Coordination With Indian Tribal
Governments
This executive order imposes requirements on Rural Development in
the development of regulatory policies that have Tribal implications or
preempt Tribal laws. Rural Development has determined that the proposed
rule does not have a substantial direct effect on one or more Indian
Tribe(s) or on either the relationship or the distribution of powers
and responsibilities between the Federal Government and the Indian
Tribes. Thus, the proposed rule is not subject to the requirements of
Executive Order 13175.
Programs Affected
The Catalog of Federal Domestic Assistance Program numbers assigned
to affected program is: 10.865, Biorefinery Assistance Program.
Paperwork Reduction Act
The collection of information requirements contained in the notice
have received temporary emergency clearance by the Office of Management
and Budget (OMB) under control Number 0570-0055. However, in accordance
with the Paperwork Reduction Act of 1995, USDA Rural Development will
seek OMB approval of the reporting and recordkeeping requirements
contained in this Notice and hereby opens a 60-day public comment
period.
Title: Biorefinery Assistance Guaranteed Loans.
Type of Request: New collection.
Abstract: Rural Development is providing guaranteed loans to assist
in the development and construction of commercial-scale biorefineries
and the retrofitting of existing facilities using eligible technology
for the development of advanced biofuels. Consistent with Congressional
intent, preference will be given to projects where first-of-a-kind
technology will be deployed at the commercial scale. To that end, the
program will promote the development of the first commercial scale
biorefineries that do not rely on corn kernel starch as the feedstock
or standard biodiesel technology.
The collection of information is vital to Rural Development to make
wise decisions regarding the eligibility of projects and borrowers in
order to ensure compliance with the regulations and to ensure that the
funds obtained from the Government are used appropriately (i.e., being
used for the purposes for which the guaranteed loans were awarded).
Persons seeking loan guarantees under this program will have to submit
applications that include specified information including, but not
limited to, the lender's analysis and credit evaluation, financial
statements on the borrower, a feasibility study, a business plan, a
technical assessment, an economic analysis, and a description of the
borrower's bioenergy experience. The information included in
applications for loan guarantee will be used to determine applicant and
project eligibility and to ensure that funds are used for projects that
are likely to be financially sound.
Once a project has been approved and the loan has been guaranteed,
lenders must submit certain reports. Some of these reports are
associated with the performance of the lender's loan portfolio and
include both periodic reports on the status of that portfolio and, when
applicable monthly default reports. Other reports are associated with
individual projects and include quarterly construction reports and,
once a project has been completed, annual reports through the life of
the guaranteed loan. In addition, lenders are required to conduct
annual inspections of each completed project.
The following estimates are based on the average over the first
three years the program is in place.
Estimate of Burden: Public reporting burden for this collection of
information is estimated to average 4.6 hours per response.
Respondents: Individuals, entities, Indian Tribes, units of State
or local government, corporations, farm cooperatives, farmer
cooperative organizations, associations of agricultural producers,
National Laboratories, institutions of higher education, rural electric
cooperatives, public power entities, and consortia of any of these
entities.
Estimated Number of Respondents: 23.
Estimated Number of Responses per Respondent: 27.4.
Estimated Number of Responses: 630.
Estimated Total Annual Burden (hours) on Respondents: 2,920.
Copies of this information collection may be obtained from Cheryl
Thompson, Regulations and Paperwork Management Branch, Support Services
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Division, U.S. Department of Agriculture, Rural Development, STOP 0742,
1400 Independence Ave., SW., Washington, DC 20250-0742 or by calling
(202) 692-0043.
Comments
Comments are invited on: (a) Whether the proposed collection of
information is necessary for the proper performance of the functions of
Rural Development, including whether the information will have
practical utility; (b) the accuracy of the new Rural Development
estimate of the burden of the proposed collection of information,
including the validity of the methodology and assumptions used; (c)
ways to enhance the quality, utility, and clarity of the information to
be collected; and (d) ways to minimize the burden of the collection of
information on those who are to respond, including through the use of
appropriate automated, electronic, mechanical, or other technological
collection techniques or other forms of information technology.
Comments may be sent to Cheryl Thompson, Regulations and Paperwork
Management Branch, U.S. Department of Agriculture, Rural Development,
STOP 0742, 1400 Independence Ave., SW., Washington, DC 20250. All
responses to this proposed rule will be summarized and included in the
request for OMB approval. All comments will also become a matter of
public record.
E-Government Act Compliance
Rural Development is committed to complying with the E-Government
Act, to promote the use of the Internet and other information
technologies to provide increased opportunities for citizen access to
Government information and services, and for other purposes.
I. Background
Rural Development administers a multitude of Federal programs for
the benefit of rural America, ranging from housing and community
facilities to infrastructure and business development. Its mission is
to increase economic opportunity and improve the quality of life in
rural communities by providing the leadership, infrastructure, venture
capital, and technical support that enables rural communities to
prosper.
To achieve its mission, Rural Development provides financial
support (including direct loans, grants, and loan guarantees) and
technical assistance to help enhance the quality of life and provide
the foundation for economic development in rural areas. Section 9003 of
the Food, Conservation, and Energy Act of 2008 (2008 Farm Bill)
provides financial assistance in the form of grants and guaranteed
loans to assist in the development of new and emerging technologies for
the development of advanced biofuels.
The following types of financial assistance under section 9003 are
authorized:
Grants for the development and construction of
demonstration-scale biorefineries to demonstrate the commercial
availability of one or more processes for converting renewable biomass
to advanced biofuels.
Guaranteed loans for the development, construction or the
retrofitting of commercial biorefineries using eligible technology,
where eligible technology is defined as:
(a) Any technology that is being adopted in a viable commercial-
scale operation of a biorefinery that produces an advanced biofuel, and
(b) Any technology not described in paragraph (a) above that has
been demonstrated to have technical and economic potential for
commercial application in a biorefinery that produces an advanced
biofuel.
Overview of Section 9003. Section 9003 of the Farm Security and
Rural Investment Act of 2002 as added by the Food Conservation and
Energy Act of 2008, authorizes the Secretary of Agriculture to
establish the Biorefineries Assistance Loan Guarantee Program to
provide loan guarantees for the construction of biorefineries to
``assist in the development of new and emerging technologies for the
development of advanced biofuels''.
Under the proposed rule, the Agency will establish a rolling
process for the consideration of loan guarantee requests for the
development and construction of commercial-scale biorefineries or for
the retrofitting of existing facilities using eligible technology for
the development of advanced biofuels. Consistent with the authorizing
legislation, the proposed rule defines the term ``advanced biofuel'' as
a ``fuel derived from renewable biomass, other than corn kernel
starch.'' The Agency is proposing that the maximum percentage of the
loan guarantee be 80 percent of loan and the maximum amount of the loan
guarantee be $250 million.
Consistent with the authorizing legislation, the goal of this
program is to encourage the development of commercial scale
biorefineries that produce advanced biofuels. To help meet this goal,
the program proposes to be open to all feasible technologies. At this
stage in the development of biofuels industry, it is impossible to know
what technologies will become the most effective. Further, the Agency
believes that unlike other Rural Development renewable energy programs,
this program should be conducted on a rolling application acceptance
basis. The Agency's experiences with its Business and Industry Loan
Guarantee Program has taught the Agency that the development of
financing arrangements between lenders and borrowers frequently do not
fit within pre-prescribed application windows. Once these arrangements
are agreed upon, the Agency needs to be able to make a decision within
a relatively short period of time or the deal will likely collapse.
With respect to all of these points, the Agency welcomes feedback from
the public during the comment period.
The Agency views this program in conjunction with its other
renewable energy programs in the context of an overall Federal
renewable energy strategy. The goal of this strategy is to foster the
development of a strong, expanding, and economically sustainable group
of renewable energy industries in the United States to supply an
increasing share of the country's energy needs. The success of these
industries will depend on their ability to produce energy sources that
meet the demands of the country's energy markets. These markets are
driven by a number of factors including the price of oil and other
fossil fuels, developments in technologies, the acceptance of the
public, the capacity of distribution systems, and the impact of
government regulation such as the renewable fuels standard.
The Biorefinery Assistance Loan Guarantee Program is one part of
Rural Development's contribution to the Department of Agriculture's
renewable energy efforts that support the overall Federal renewable
energy strategy. This program provides critical assistance to the
development of biorefineries in the United States by facilitating the
financing of a number of biorefineries through the leveraging of
Federal government biorefinery assistance loan guarantees and private
capital sources.
Over time, the Agency believes that these private capital sources
will look at the Federal government investments in biorefineries under
this program more generally as a sign that these facilities are worth
financing, even without the Federal government, which will further
support the development of the renewable energy industries of in the
U.S. The Agency believes that this program will provide examples of how
private capital can successfully invest in biorefineries that adopt new
and more effective technologies that will enable energy from renewable
sources to
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supply an increasing share of the energy needs of the country.
Notice of Funds Availability. Rural Development published a Notice
of Funds Availability (NOFA) for the section 9003 guaranteed loan
program on November 20, 2008 [73 FR 70544] (referred to in this notice
as the Section 9003 NOFA) and an Advanced Notice of Proposed Rulemaking
(ANPRM) on the same day [73 FR 70542]. The ANPRM requested comments in
several areas including definitions and terms (established a market,
by-products, co-products, area, local market); oversight and monitoring
(reporting requirements once the project is established and stabilized;
evaluation of project performance); eligible borrowers (National
laboratories); loan applications (technical reports, private sector
credit rating); evaluation of guaranteed loan applications (scoring
criteria); origination responsibilities (credit evaluation and equity);
and basic guarantee and loan provisions (project costs and issuance of
the loan note guarantee). The Agency received nine comment letters in
response to the ANPRM, and has considered the comments in developing
this proposed rule.
The following section describes the proposed Biorefinery Assistance
program.
II. Discussion of Proposed Rule for Biorefinery Assistance Guaranteed
Loans
In this section of the Notice, the proposed rule for Biorefinery
Assistance Guaranteed loans is described. The Agency is adding a new
subpart to 7 CFR part 4279, Guaranteed Loanmaking, and a new subpart to
7 CFR part 4287, Servicing, which taken together represent the
regulatory provisions for the Biorefinery Assistance program. This
approach is consistent with the Agency's intent to use the structure of
its B&I program when the Agency withdrew 7 CFR part 5001 on September
21, 2009 (74 FR 48005).
A. Background
In developing the Biorefinery Assistance program, the Agency
considered two primary factors:
Statutory requirements. The authorizing statute requires
the Agency to include certain provisions when implementing the
Biorefinery Assistance program.
The nature of the program. The Biorefinery Assistance
program is a new program for the Agency. With the exception of the
Rural Energy for America Program, the type of technologies associated
with biorefineries will be very different than those associated with
other Business Programs currently being run by Rural Development. This
led the Agency to consider whether new and more detailed requirements
than found in the B&I regulation were needed for biorefinery guaranteed
loans. Furthermore, the size of the loans that will be involved (up to
$250 million) is substantially larger than under other Business
programs, including the Rural Energy for America Program. This also
results in the Agency's consideration for additional requirements for
Biorefinery Assistance Guaranteed loans.
A third factor considered by the Agency is comments submitted in
response to the ANPRM. In the ANPRM, the Agency requested comments
specific to several areas for consideration in developing the
guaranteed loan program for biorefinery assistance. The Agency received
nine public comment letters. The Agency reviewed each comment letter
and, where the Agency determined it appropriate, incorporated
recommendations into the proposed rule.
As noted above, the Agency is proposing to add new subparts to 7
CFR part 4279, Guaranteed Loanmaking, and 7 CFR part 4287, Servicing,
as discussed in Section II.B of this preamble.
B. The Biorefinery Assistance Program
The following paragraphs discuss the proposed Biorefinery
Assistance program. Conceptually, the Agency is proposing to add a new
subpart C to 7 CFR part 4279 and a new subpart D to 7 CFR part 4287,
with extensive incorporation of many of the B&I guaranteed loan
provisions.
The new 7 CFR part 4279, subpart C, identifies the purpose and
scope of the Biorefinery Assistance program, identifies the
relationship of this program to the general B&I provisions found in 7
CFR part 4279, subpart A, and identifies the loan processing
requirements for Biorefinery Assistance guaranteed loans. While many of
the loan processing requirements are the same as for B&I guaranteed
loans, there are significant loan processing provisions being proposed
that are specific to Biorefinery Assistance Guaranteed loans.
The new 7 CFR part 4287, subpart D, identifies the servicing
requirements for Biorefinery Assistance Guaranteed loans. Most of the
servicing requirements being proposed are the same as found in the
servicing regulation (7 CFR part 4287) for the B&I guaranteed loans.
Purpose and Scope (Sec. 4279.201)
This section describes the purpose and scope of the Biorefinery
Assistance program.
Compliance With Sec. Sec. 4279.1 Through 4279.99 (Sec. 4279.202)
In general, the B&I provisions found in Sec. Sec. 4279.1 through
4279.99 will be applicable to Biorefinery Assistance Guaranteed loans.
There are several areas where there are exceptions or additions. These
areas are:
1. Definitions. This paragraph presents the definitions applicable
to the Biorefinery Assistance program. Many of the applicable
definitions are incorporated by reference from the B&I regulations
(Sec. 4279.2). Other definitions are specific to the Biorefinery
Assistance program. The following paragraphs present many of the
definitions required for the implementation of the Biorefinery
Assistance program. Two of these definitions are statutorily driven,
while the others are being proposed by the Agency in order to implement
the program more clearly.
Statutorily-driven terms. The 2008 Farm Bill defines ``advanced
biofuel'' and ``eligible technology.'' Because these two terms are
statutorily defined, the Agency must use them as defined in the 2008
Farm Bill.
Other terms. The Agency identified a number of terms that are
needed in order to implement the Biorefinery Assistance program. These
terms are:
Biofuel;
Biorefinery;
By-product;
Farm cooperative;
Farmer Cooperative Organization;
Immediate family;
Indian Tribe;
Institution of higher education;
Local owner;
Offtake agreement;
Regulated or supervised lender;
Renewable biomass; and
Total project costs.
The 2008 Farm Bill provides a definition for biorefinery, which is
included in the proposed rule. With the exception of renewable energy
and renewable energy system, these terms are being defined because they
are associated with implementing the Biorefinery Assistance program.
With the exception of farm cooperative, farm cooperative
organization, by-product, and local owner these terms and their
definitions are the same, or essentially the same, as found in the
Section 9003 NOFA. With regard to farm cooperative, the definition is
being revised to reflect the
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structure of the farm cooperative, rather than its operational aspects.
Therefore, the Agency revised the definition to track the one used in
the Value Added Producer Grant program, which requires the applicant to
be incorporated as a cooperative. As a result, the program will require
the cooperative to comply with State law. The NOFA did not state that
the cooperative had to be incorporated as a cooperative.
With regard to farm cooperative organization, the definition is
being revised to make it clearer as to what constitutes a farm
cooperative organization.
With regard to by-product, a definition for by-product is being
added in response to comments received on the ANPRM. The Section 9003
NOFA did not have a definition for by-product. The term biorefinery is
defined in the statute, and includes language concerning products other
than the biofuel. By-products are an important revenue source for many
biorefineries. The definition requires that they be typical to the
operation, and measurable. The Agency wanted to ensure for the
technical and financial analysis, that a standard for a byproduct is
established and that the applicant can document the same.
With regard to local owner, the Agency is proposing the method for
determining local ownership under the scoring criteria by looking at
the percent of local owners whose primary residence is within 20 miles
of the area supplying feedstock to the biorefinery (see
4279.265(d)(9)). Thus, it is necessary to define ``local owner.''
The Agency also identified a number of terms associated with the
definition of ``eligible technology'', with project eligibility, or
with lender eligibility:
Retrofitting;
Semi-work scale;
Technical and economic potential;
Tier 1 capital;
Tier 2 capital;
Tier 1 leverage capital ratio;
Tier 1 risk-based capital ratio;
Total qualifying capital;
Total risk-based capital ratio; and
Viable commercial-scale operation.
The proposed definition for retrofitting is the same as found in
the Section 9003 NOFA.
The definition of technical and economic potential is essentially
the same as found in the Section 9003 NOFA, but has been modified, in
paragraph (ii), to refer to the demonstration of the ``potential
success of the project'' rather than to the demonstration of the
``success of the project.'' In addition, to clarify paragraph (iii) of
this definition, the Agency is adding a definition for ``semi-work
scale.''
The Section 9003 NOFA provided a definition for ``viable
commercial-scale.'' The Agency believes that it is clearer to define
``viable commercial-scale operation'' and, thus, has revised the term
being defined. The definition is the same as found in the Section 9003
NOFA for ``viable commercial-scale,'' but with minor editing.
Two of the other terms are agricultural producer and association of
agricultural producers. The definition of association of agricultural
producer is very similar to the definition of the term as found in the
Section 9003 NOFA. The Agency is adding the definition of
``agricultural producer'' to further clarify the term ``association of
agricultural producers.''
Lastly, the Agency also identified a number of terms used in making
guaranteed loans that have not been previously defined for the B&I
Guaranteed Loan program and that will be applicable to the Biorefinery
Assistance program. These terms are:
Business plan;
Default;
Eligible project costs;
Existing business;
Feasibility study;
Future recovery;
Loan classification;
Market value;
Material adverse change;
Negligent loan origination;
Project;
Protective advance;
Startup business;
Surety;
Tangible net worth; and
Working capital.
The Agency believes that providing definitions for these terms will
be beneficial to the Section 9003 guaranteed loan program.
Approximately one-half of these terms are based on the definitions
found in the Section 9003 NOFA. Most of the other terms are based on
the definitions found in the withdrawn Rural Development Guaranteed
Loans rule.
2. Exception authority (Sec. 4279.202(b)). This section identifies
those conditions under which the Administrator may make, on a case-by-
case basis, exceptions to any requirement or provision of this subpart.
The proposed provisions are the same as found in 7 CFR part 4280,
subpart B, for the renewable energy systems and energy efficiency
improvements program. These provisions are very similar to those
currently found in Sec. 4279.15.
3. Lender eligibility requirements (Sec. 4279.202(c)). This
paragraph presents the requirements for lenders to participate in the
Biorefinery Assistance program. Consistent with the Section 9003 NOFA,
only lenders that are regulated or supervised will be eligible to
originate and service Biorefinery Assistance Guaranteed loans. The
Agency is not allowing lending entities that are not regulated or
supervised to participate in order to manage Agency risk associated
with this program.
Although the lenders eligible for participation in the Biorefinery
Assistance program are regulated or supervised, the Agency is proposing
additional requirements associated with minimum acceptable level of
capital requirements that are not being required for lenders
participating in other Rural Development guaranteed loan programs. The
additional level of capital requirements, which are the same as found
in the Section 9003 NOFA, are being proposed because of the size of
projects under the Biorefinery Assistance program. The Agency believes
these additional requirements are necessary to limit Agency risk.
Lastly, under this section, the Agency will approve loan guarantees
under this subpart only for lenders with adequate experience (as
determined by the Agency) with similar projects and the expertise to
make, secure, service, and collect loans approved under this subpart.
The Agency believes this provision is necessary to further limit Agency
risk.
4. Independent credit risk analysis (Sec. 4279.202(d)). Under this
paragraph, the Agency will require an independent credit risk analysis
from a nationally-recognized rating agency for loans of $100 million or
more. The threshold level for the independent credit risk analysis is
less than found in the Section 9003 NOFA.
5. Environmental responsibilities (Sec. 4279.202(e)). The Agency
is proposing that lenders comply with the environmental
responsibilities in proposed Sec. 4279.202(e) rather than with those
requirements specified in Sec. 4279.30(c) of the B&I regulation. The
proposed provisions are very similar to those found in the Section 9003
NOFA.
6. Additional lender functions and responsibilities Sec.
4279.202(f)). The Agency is proposing to add three new paragraphs to
Sec. 4279.30, Lenders' functions and responsibilities. These three
paragraphs, which were part of the Section 9003 NOFA, address:
Agency action or inaction. Any action or inaction on the
part of the Agency does not relieve the lender of its responsibilities
to originate and service the loan guaranteed under this subpart.
Lender files. The lender must compile and maintain in its
files a
[[Page 20049]]
complete application for each guaranteed loan for at least 3 years
after the final loss has been paid.
Conflicts of interest. The lender must report to the
Agency all conflicts of interest and appearances of conflicts of
interest.
7. Certified lender program (Sec. 4279.202(g)). The Agency is not
including either a preferred or certified lender program because the
Agency does not believe a preferred lender program, or a certified
lender program as provided in Sec. 4279.43, is appropriate for the
biorefinery assistance program.
8. Oversight and monitoring (Sec. 4279.202(h)). This paragraph
addresses the recording keeping, oversight, and monitoring requirements
with which lenders would have to comply. These provisions are the same
as found in the Section 9003 NOFA.
9. Conditions of guarantee (Sec. 4279.202(i)). The Agency is
proposing that the guarantee for a biorefinery assistance loan will
have to be secured by a first lien on all collateral necessary to run
the project in the event of the borrower's default. The Agency is
adding this requirement because of the size of the guaranteed loans
under this section. The Section 9003 NOFA also required a first lien on
all collateral.
The Agency is also proposing to include two other provisions, which
are found in the Section 9003 NOFA: the rights of the holder of the
guaranteed portion and the requirement to show the lender as an
additional insured on insurance policies.
Lastly, the Agency is proposing that if a lender does not
satisfactorily comply with the changes and cost overrun provisions
found in Sec. 4279.256(c) and such failure leads to losses, then such
losses may not be recoverable under the guarantee. This provision was
not found in the Section 9003 NOFA, but is being added to protect the
Agency's interests.
10. Sale or assignment of guaranteed loan Sec. 4279.202(j)). The
Agency is proposing to supplement Sec. 4279.75 by requiring the
guaranteed portion of the loan to be fully transferable to any
accredited investor and allowing the Agency to not guarantee a loan
funded with the net proceeds of a bond described in section 142(a) of
the Internal Revenue Code of 1986. These two provisions were part of
the Section 9003 NOFA.
11. Minimum retention (Sec. 4279.202(k)). The Agency is proposing
the same provisions for minimum retention as found in the Section 9003
NOFA. The Agency believes that these minimum retention provisions are
better suited to the size of the loans that will be guaranteed under
the Section 9003 program than those found in the corresponding B&I
provisions for minimum retention at Sec. 4279.77.
12. Replacement of document 4279.202(l)). The Agency is proposing
to supplement Sec. 4279.84(b)(1)(v) by identifying additional
circumstances (defacement or mutilation) under which documents will be
replaced.
Loan Processing (Sec. 4279.225)
This section states that Biorefinery Assistance Guaranteed loans
will be processed in accordance with the B&I provisions found in
Sec. Sec. 4279.107 through 4279.199, subject to a number of important
exceptions. These exceptions are identified in the proposed rule in
Sec. Sec. 4279.226 through 4279.299 and are discussed below.
Fees (Sec. 4279.226)
This section addresses guarantee fees and renewal fees. The B&I
provisions for the guarantee and renewal fees, which are found at Sec.
4279.107, apply to this program. The following paragraphs summarize
differences from these B&I provisions.
Guarantee Fee. The guarantee fee rates, which are based on the size
of the loan relative to total project costs, are the same as found in
the Section 9003 NOFA.
Renewal Fee. As found in the Section 9003 NOFA, the annual renewal
fee must be paid to the Agency for as long as the guaranteed loan is
outstanding and is payable during the construction period. The renewal
fee rates are also the same as found in the Section 9003 NOFA. The
Agency notes that the Section 9003 NOFA allowed the guarantee fee to be
passed on to the borrower, but did not address whether the renewal fee
could be passed on to the borrower. Under the proposed rule, the
renewal fee can be passed on to the borrower.
Borrower Eligibility (Sec. 4279.227)
This section identifies the eligible borrowers for a guaranteed
loan under the Biorefinery Assistance program; the borrower eligibility
requirements in Sec. 4279.108 will not apply to this subpart. Instead,
eligible borrowers, which are defined in the 2008 Farm Bill, must be
one of the following:
An individual;
An entity;
An Indian Tribe;
A unit of State or local government;
A corporation;
A farm cooperative;
A farmer cooperative organization;
An association of agricultural producers;
A National Laboratory;
An institution of higher education;
A rural electric cooperative;
A public power entity; or
A consortium of any of the above entities.
Because these entities, including units of State and local
governments, National laboratories, and institutions of higher
education, are statutorily defined, the Agency cannot make changes to
this list. The Agency has defined several of the entities to clarify
who will be eligible. Lastly, the Agency notes that ``entity'' was not
included in the Section 9003 NOFA; this was an oversight.
In addition to being an eligible type of borrower, borrowers must
also meet citizenship requirements and must possess the legal authority
and responsibility necessary to construct, operate, and maintain the
proposed facility and services and to obtain, give security for, and
repay the proposed loan. The proposed citizenship requirements are very
similar to those found in the Section 9003 NOFA, but with the following
three additions:
When an entity owns an interest in the borrower, its
citizenship will be determined by the citizenship of the individuals
who own an interest in the entity or any sub-entity based on their
ownership interest;
If an entity is composed solely of members of an immediate
family, that entity is eligible to participate provided that at least
one of the immediate family members meets the citizenship requirement
for an individual; and
Corporate borrowers traded on major United States stock
exchanges will be presumed to have more than 51 percent of their owners
as United States citizens.
This section also identifies conditions under which the borrower
will be considered ineligible for a guarantee. Further, if an applicant
does not meet the citizenship requirement, the applicant is not
eligible for this program. While this citizenship requirement is not
required by statute, it is consistent with the Agency's other programs.
As found in Section III of this preamble, the Agency is seeking comment
on this requirement.
Project Eligibility (Sec. 4279.228)
This section presents the requirements for a project to be eligible
for a Biorefinery Assistance Guaranteed loan; the project eligibility
requirements in Sec. 4279.113 will not apply to this subpart. Instead,
the Agency is proposing five specific project eligibility requirements,
as discussed below.
The Agency is proposing that the project must be located in a rural
area
[[Page 20050]]
in order to be eligible for this program. If the project is not located
in a rural area, it is not eligible for this program. While not
statutorily required, the Agency is proposing this rural area
requirement for consistency with its other programs and its mission to
improve the economic conditions of rural America. Lastly, as found in
Section III of this preamble, the Agency is seeking comment on this
requirement.
The second requirement (that the project must be for either the
development and construction of commercial-scale biorefineries using
eligible technology or the retrofitting of existing facilities) is
statutorily-driven. Both of the first and second requirements are the
same as found in the Section 9003 NOFA.
The third requirement, use of an eligible feedstock, is being
proposed in response to comments on the ANPRM. These comments requested
that the Agency clarify the various types of feedstocks that
biorefineries could use to make advanced biofuels and still be eligible
for funding under this program. The commenters referred to both the
statutory language and the Manager's Report on the statute, pointing
out that certain types of feedstocks were considered, but not clearly
identified, as potential feedstocks for biorefineries. The Agency
believes that the statute clearly defines eligible feedstock and no
further clarification is needed in the proposed rule.
The Agency received a comment on the ANPRM that requested the
Agency to consider excluding paper that is commonly recycled from the
definition of ``waste,'' thus excluding it as an eligible feedstock.
The Agency has adopted this position in this rule and is seeking
specific comments on this request and on any other feedstocks that
should not be considered eligible under this program.
The fourth requirement, more than 70 percent of revenues from the
sale of advanced biofuel, attempts to address the Agency's concern that
loans guaranteed under this program go to projects at biorefineries
whose primary purpose is the production of advanced biofuel. This
provision was not included in the Section 9003 NOFA.
The fifth requirement is that the project must have cash equity
injection of not less than 20 percent of eligible project costs not
attributed to other Federal grant or loan programs such as the
Department of Energy. By limiting the maximum loan guaranteed to 80
percent of eligible project costs, the statute requires that at least
20 percent of the project's costs come from sources other than loan
proceeds. The Agency requested comment in the ANPRM as to:
What should the equity requirements be?
Should there be minimum equity requirements that may vary
depending on the size of the project?
Will it differ between construction and development versus
retrofitting?
After considering the responses to these questions, the Agency
believes that equity should be cash equity, because cash equity
represents the best commitment of the borrower to the project and it
can help reduce project risk by making cash available during
construction and project startup. The Agency is proposing the same cash
equity requirement for all biorefinery assistance projects.
Lastly, this section identifies what areas qualify as rural. The
definition being proposed is the same as in the Section 9003 NOFA with
the addition that projects that are located in areas determined to be
``rural in character'' will be eligible. When making a ``rural in
character'' determination under the Section 9003 program, the Agency
will do so in a manner that is consistent with making similar
determinations under its Business and Industry Guaranteed Loan program.
Guaranteed Loan Funding (Sec. 4279.229)
Instead of complying with the B&I provisions for guaranteed loan
funding found at Sec. 4279.119, the Agency is proposing a separate set
of provisions for Biorefinery Assistance Guaranteed loans. These
provisions, which are the same as those found in the Section 9003 NOFA,
address:
Distribution of budget authority each fiscal year;
Maximum amount of the loan;
Maximum principal amount to one borrower;
Maximum guarantee; and
Eligible project costs.
As required by the 2008 Farm Bill, of the funds made available for
loan guarantees for a fiscal year, 50 percent of the funds must be
reserved for obligation during the second half of the fiscal year. To
implement this provision, the Agency will allocate up to, but no more,
than 50 percent of its budgetary authority to fund applications
received by the end of the first application window. If any of this
budgetary authority is not obligated by the end of the first
application window, the Agency will carry it over into the second
application window. Thus, the Agency will have at a minimum 50 percent
of its budgetary authority available for the second application window.
As required by the 2008 Farm Bill, the amount of a guaranteed loan
for a project under this section cannot exceed 80 percent of total
eligible project costs, which are identified later in this preamble. In
addition, total Federal participation for a biorefinery project will
not exceed 80 percent of total eligible project costs. The project is
the biorefinery or portion of the biorefinery that is producing
eligible advanced biofuels and any eligible biobased by-products
receiving funds under this program.
The Agency is proposing to limit the maximum principal amount of a
loan guaranteed under this section to one borrower to $250 million; the
Agency is not proposing a minimum amount. This is the same as found in
the Section 9003 NOFA. The Agency notes that the 2008 Farm Bill
provides for a maximum principal amount of a loan guaranteed under the
Biorefinery Assistance program to $250 million on a loan basis. The
Agency is proposing to apply the $250 million limit on a borrower basis
in order to make funds available to more entities.
In addition, and as required by the 2008 Farm Bill, the amount of a
loan guaranteed under this section will be reduced by the amount of
other direct Federal funding (i.e., direct loans and grants) that the
eligible borrower receives for the same project. For example, an
eligible borrower is applying for a loan guarantee on a $1 million
project. The borrower provides the minimum matching requirement of 20
percent, or $200,000. This leaves $800,000 in other funding needed to
implement the project. If the borrower receives no other direct Federal
funding for this project and requests a guarantee for the $800,000, the
Agency will consider a guarantee on the $800,000. However, if this
borrower receives $100,000 in other direct Federal funding for this
project, the Agency will only consider a guarantee on $700,000. These
provisions are the same as those found in the Section 9003 NOFA.
This section also establishes the maximum percent guarantees for
loans under this subpart, which are the same as found in the Section
9003 NOFA. The last paragraph in this section contains the list of
items the Agency is proposing as eligible project costs, provided the
items are an integral and necessary part of the total project. The list
of eligible project costs are the same as found in the Section 9003
NOFA, except that professional service fees, feasibility studies, and
business plans have been removed from this list. The Agency is deleting
these three items because these are expenses that the applicant will
[[Page 20051]]
otherwise incur in evaluating project capability and suitability prior
to seeking financial assistance.
Subordination of Lien Position (Sec. 4279.230)
In addition to complying with the provisions found in Sec.
4279.123, a subordination must not extend the term of the guaranteed
loan made under this subpart.
Interest Rates (Sec. 4279.231)
This section identifies the requirements for interest rates for
loans that are guaranteed under this program, which are the same as
found in the Section 9003 NOFA.
Terms of Loan (Sec. 4279.232)
As found in the Section 9003 NOFA, the repayment term for a loan
guaranteed under this subpart will be for a maximum period of 20 years
or 85 percent of the useful life of the project, whichever is less, as
determined by the lender and confirmed by the Agency. In addition, the
length of the loan term will be required to be the same for both the
guaranteed and unguaranteed portion of the loan. Additional provisions,
which are also found in the Section 9003 NOFA, address when guarantees
can be provided and that all loans guaranteed must be financially sound
and feasible with reasonable assurance of repayment.
Lastly, repayment of the loan will be subject to the B&I provisions
found at Sec. 4279.125(a) and Sec. 4279.126(b), (c), and (d).
Credit Evaluation (Sec. 4279.233)
Instead of complying with the B&I provisions at Sec. 4279.131
concerning credit quality, the Agency is proposing a separate set of
provisions under this subpart.
As proposed, lenders must conduct a credit evaluation for each
application submitted. The proposed rule identifies what the Agency
considers to be an acceptable credit evaluation. Specifically, the
lender must use credit documentation procedures and an underwriting
process that are consistent with generally accepted commercial lending
practices, and the lender must include an analysis of all credit
factors associated with each guarantee application to ensure loan
repayment.
In making this analysis, the proposed rule requires the lender to
consider the following:
Credit worthiness. This refers to those qualities that
generally impel the prospective borrower to meet its obligations as
demonstrated by its credit history.
Cash flow. This refers to a prospective borrower's ability
to produce sufficient cash to repay the loan as agreed.
Capital. This refers to the financial resources that the
prospective borrower currently has and those it is likely to have when
payment is due. The prospective borrower must be adequately
capitalized.
Collateral. This refers to the assets, including the
processing technology owned by the borrower, pledged by the prospective
borrower in support of the loan.
Conditions. This refers to the general business
environment and status of the prospective borrower's industry.
When determining the credit quality of the borrower, the lender
must include the following:
Borrowers must demonstrate evidence of cash equity
injection in the project of not less than 20 percent of eligible
project costs. The fair market value of equity in real property that is
to be pledged as collateral for the loan may be substituted in whole or
in part to meet the cash equity requirement. However, the appraisal
completed to establish the fair market value of the real property must
not be more than 1 year old unless a more recent appraisal is requested
by the Agency in order to reflect market conditions. The appraisal used
to establish fair market value of the real property must conform to the
requirements of Sec. 4279.244. Otherwise, cash equity injection must
be in the form of cash.
The credit analysis must also include spreadsheets of the
balance sheets and income statements of the borrower for the 3 previous
years (for existing businesses), pro forma balance sheets at startup,
and projected yearend balance sheets and income statements for a period
of not less than 3 years of stabilized operation, with appropriate
ratios and comparisons with industrial standards (such as Dun &
Bradstreet or Robert Morris Associates) to the extent available.
All data must be shown in total dollars and also in common
size form, obtained by expressing all balance sheet items as a
percentage of assets and all income and expense items as a percentage
of sales.
The Agency is including these additional details because of the
size and complexity of the anticipated biorefinery assistance projects.
Financial Statements (Sec. 4279.237)
Instead of complying with the B&I provisions for financial
statements found at Sec. 4279.137, the Agency is proposing that
biorefinery assistance projects comply with the financial statement
provisions found at Sec. 4279.261(c), which are presented later in
this preamble.
Appraisals (Sec. 4279.244)
In addition to complying with the B&I provisions for appraisals at
Sec. 4279.144, the appraisals for proposed biorefineries must be self-
contained appraisals. Further, lenders will be required to complete,
for all applications, a Phase I Environmental Site Assessment (ESA) in
accordance with ASTM International standards, which should be provided
to the appraiser for completion of the self-contained appraisal.
To conduct these appraisals, lenders are required to use
specialized appraisers, unless a specialized appraiser does not exist,
in which case the Agency may waive this requirement. This exception,
that a specialized appraiser will not be required if such an appraiser
does not exist for the technology required, is being proposed in
recognition that one of the purposes of this program is to help push
the technological envelop regarding the production of advanced biofuels
and, as a result, specialized appraisers may not exist for all
technologies under this program. Including this exception allows the
Agency to avoid determining a project ineligible simply because the
lender cannot find a specialized appraiser for a new technology.
Feasibility Studies (Sec. 4279.250)
Because the Agency is proposing feasibility studies specific to
biorefinery assistance projects, which are found at Sec. 4279.261(f),
the B&I provisions for feasibility studies found at Sec. 4279.150 do
not apply to this subpart.
Loan Priorities (Sec. 4279.255)
Instead of complying with the B&I provisions for loan priorities
found at Sec. 4279.155, the Agency is proposing scoring criteria
specific to biorefinery assistance projects, which are found at Sec.
4279.265(c) and which are presented later in this preamble.
Construction Planning and Performing (Sec. 4279.256)
As proposed, the B&I provisions for construction planning and
performing found at Sec. 4279.156(a) and (b) will apply to Biorefinery
Assistance Guaranteed loans. In addition, the Agency is proposing
several additional requirements specific to Biorefinery Assistance
Guaranteed loans, as discussed below.
Architectural and engineering practices. Similar to the Section
9003 NOFA, lenders would also be required
[[Page 20052]]
to ensure that all project facilities are designed utilizing accepted
architectural and engineering practices that conform to the
requirements of the proposed subpart.
Onsite inspectors. As proposed, lenders will be required to provide
an onsite project inspector. Given the size and complexity of the
anticipated biorefinery assistance projects, the Agency believes the
presence of such inspectors is necessary to protect the interests of
the lender and the Government.
Changes and cost overruns. As proposed, borrowers will be
responsible for any changes or cost overruns. If any such change or
cost overrun occurs, then any change order must be approved by the
Agency, and neither the lender nor borrower will be allowed to divert
funds from purposes identified in the guaranteed loan application
approved by the Agency to pay for any such change or cost overrun. In
no event will the current loan be modified or a subsequent guaranteed
loan be approved to cover any such changes or costs. In the event of
any of the aforementioned increases in costs or expenses, the borrower
will be required to provide for such increases in a manner that does
not diminish the borrower's operating capital. Failure to comply with
the terms of this paragraph will be considered a material adverse
change in the borrower's financial condition, and the lender will have
to address this matter, in writing, to the Agency's satisfaction. If a
lender does not satisfactorily address the matter and such failure
leads to losses, then such losses may not be recoverable under the
guarantee.
New draws. As proposed, the following three certifications will be
required for each new draw:
Certification by the project engineer to the lender that
the work referred to in the draw has been successfully completed;
Certification from the lender that all debts have been
paid and all mechanics' liens have been waived; and
Certification from the lender that the borrower is
complying with the Davis-Bacon Act.
The Agency is proposing these ``change or cost overruns'' and new
draw provisions to protect its interests. These requirements are the
same as found in the Section 9003 NOFA, with one exception--the Section
9003 NOFA did not include the certification from the lender that the
borrower is complying with the Davis-Bacon Act. The Agency believes
such certification is appropriate to help ensure compliance with the
statutory requirement for inclusion of the Davis-Bacon Act requirements
in this program.
Surety. The Agency is proposing that surety be required in cases
when the guarantee will be issued prior to completion of construction
unless the contractor will receive a lump sum payment at the end of
work. In addition, surety is to be made a part of the contract, if the
borrower requests it or if the contractor requests partial payments for
construction work. Finally a latent defects bond may be required to
cover the work in instances where no surety is provided and the project
involves precommercial technology, first of its type in the U.S., or
new designs without sufficient operating hours to prove their merit.
Reporting during construction. As proposed, lenders will be
required to submit quarterly construction reports during the
construction of commercial-scale biorefineries or the retrofitting of
existing facilities using eligible technology for the development of
advanced biofuels. These reports must contain, at a minimum, planned
and completed construction milestones, loan advances, and personnel
hiring, training, and retention. The Agency believes that such reports
are necessary to provide better oversight on these large projects.
Borrower Responsibilities (Sec. 4279.259)
Under the proposed rule, the Agency has consolidated and simplified
the responsibilities of borrowers under the Biorefinery Assistance
program. These responsibilities, which are consistent with those
associated with the B&I Guaranteed Loan program, address the following
areas:
Federal, State, and local regulations;
Permits, agreements, and licenses;
Insurance;
Access to borrower's records; and
Access to the project.
Guarantee Applications (Sec. Sec. 4279.260 and 4279.261)
Instead of complying with the B&I provisions for applications found
at Sec. 4279.161, the Agency is proposing a self-contained set of
requirements for guaranteed loan applications for biorefinery
assistance projects. These requirements are found in two sections of
the proposed rule, as described below.
1. Guarantee Applications--General (Sec. 4279.260)
This section of the proposed rule contains requirements associated
with:
Application submittal;
Application deadline;
Incomplete applications; and
Application withdrawal.
Application submittal. Because of the size and complexity of the
anticipated biorefinery assistance projects, the Agency proposes to
manage this program out of the National Office. Lenders will be
required to submit applications (one original and two copies) to the
Agency.
Application deadline. As proposed, complete applications must be
submitted to the Agency no later than June 1 of each fiscal year to be
considered for funding in that fiscal year. If the Agency determines
that a different application deadline is needed, it will publish a
notice in the Federal Register identifying the new application deadline
for that fiscal year. If the application deadline falls on a weekend or
a federally-observed holiday, the deadline will be the next Federal
business day.
Even though there is a single application deadline, to assist in
the implementation of the program and to manage work flow, the Agency
is proposing two competitions for funds each fiscal year. The first
competition will be among those complete and eligible applications
received by March 1. The Agency will then make awards to eligible
applications in this first pool of applications. The second competition
will be among those complete applications received by June 1. This
second competition could contain any eligible applications from the
first competition that were not selected for funding.
Incomplete applications. The Agency will reject all incomplete
applications. For each incomplete application it receives, the Agency
will notify the lender in writing of those elements that made the
application incomplete. Lenders may resubmit such applications prior to
the applicable application deadline. Applicants will be informed that
the application was not processed and why.
Application withdrawal. Because a borrower's circumstances can
change after submittal of the application, under this section, the
lender must notify the Agency if the project is no longer viable or the
borrower no longer is requesting financial assistance for the project.
Upon receipt of such notification, the Agency will either withdraw the
application or rescind the selection of project, as applicable.
2. Application of Loan Guarantee Content (Sec. 4279.261)
This section identifies the content for each application for loan
guarantee
[[Page 20053]]
under this program. Each loan guarantee application must contain:
A project summary;
Lender's analysis and credit evaluation;
Financial statements;
Environmental information;
Appraisal;
Feasibility study;
Business plan;
Technical assessment;
Economic analysis;
Loan agreement;
Lender certifications;
Intergovernmental consultation;
DUNS number;
Bioenergy experience; and
Any other information requested by the Agency or entities
working on the Agency's behalf.
Much of the application content is based on the Agency's Rural
Energy for America Program, which has similar projects. However,
because of the size of projects under the Biorefinery Assistance
program, the Agency has modified similar provisions to require more
information. The following paragraphs discuss key portions of the
application content.
Lender's analysis and credit evaluation (paragraph (b)). This
paragraph requires the lender to provide a summary of the technology to
be used in the project, the viability of such technology for the
particular project application, and the development type (e.g.,
installation, construction, retrofit).
Because of the size of the loans being guaranteed under the
Biorefinery Assistance program, the Agency believes that it is
necessary to provide more specific regulatory requirements for the
submittal of credit reports by identifying the type of credit report
(personal or commercial) that is to be submitted and on whom such
credit reports are to be submitted. These additional requirements will
help borrowers in preparing their applications and assist lenders
during their due diligence process. The Agency is, therefore, proposing
to require:
Personal credit reports from an acceptable credit
reporting company for those owning 20 percent or more interest in the
borrower or any owner with more than 10 percent ownership interest in
the borrower if there is no owner with more than 20 percent ownership
interest in the borrower, including a proprietor (owner), each partner,
officer, director, key employee, and stockholder, except for those
corporations listed on a major stock exchange. Note that the 20 percent
requirement is consistent with the Business and Industry Guaranteed
Loan program. Credit reports are not required for elected and appointed
officials when the borrower is a public body or non-profit corporation;
and
Commercial credit reports on the borrower and any parent,
affiliate, and subsidiary firms.
The lender must also include its credit evaluation, as specified in
Sec. 4279.232.
As found in the Section 9003 NOFA, the Agency is also proposing
that, for loans of $125 million or more, an evaluation and credit
rating of the total project's indebtedness, without consideration for a
government guarantee, from a nationally-recognized rating agency be
obtained. The Agency is requiring this because of the size of the risk
associated with these projects.
Financial statements (paragraph (c)). As proposed, financial
statement will need to be submitted for all borrowers.
For businesses that have been in existence for one or more years,
their most recent audited financial statements will be submitted if the
guaranteed loan is $3 million or more, unless alternative financial
statements are authorized by the Agency. If the guaranteed loan is less
than $3 million, however, the borrower's most recent audited or Agency-
acceptable financial statements of the borrower will be submitted. In
proposing this $3 million threshold, the Agency reviewed the comments
it received on a recently withdrawn guaranteed loan rule. For that
rule, the Agency originally proposed a threshold of $1 million for
requiring audited financial statements. Commenters were concerned that
the expense of audited financial statements and the low threshold would
be too punitive and the level should be left to the lender. After
considering these comments, the Agency revised the $1 million to $3
million and added a provision that alternative financial statements
could be submitted provided they were approved by the Agency. The
Agency believes these provisions are suitable to the Section 9003
program.
For businesses that have been in existence for less than one year,
their most recent Agency-authorized financial statements, regardless of
the amount of the guaranteed loan request, will be submitted.
For all businesses, a current (not more than 90 days old) balance
sheet; a pro forma balance sheet at startup; and projected balance
sheets, income and expense statements, and cash flow statements for a
period of not less than 3 years of stabilized operation will be
submitted. Projections should be supported by a list of assumptions
showing the basis for the projections.
Lastly, the Agency may find it necessary to request additional
financial information from the borrower because of the complexity of
the project and the financial condition of the borrower. Thus, the
Agency is reserving the right to request additional financial
information.
Environmental information (paragraph (d)). Lenders are required to
submit with the application the environmental information specified in
RD 1940-G, Exhibit H.
Appraisals (paragraph (e)). In complying with Sec. 4279.244 (which
was discussed early in this preamble), self-contained appraisals
accompanied by a copy of a Phase I Environmental Site Assessment (ESA)
in accordance with ASTM International standards must be submitted with
the application if available.
Feasibility study (paragraph (f)). Lenders are required to submit a
feasibility study with each application for guarantee. The Agency is
identifying a detailed list of components for Biorefinery Assistance
program feasibility studies. The basic elements of this study are:
Executive Summary.
Economic feasibility.
Market feasibility.
Technical feasibility (including technical assessment).
Financial feasibility.
Management feasibility.
Qualifications.
Because of the size and complexity of these projects, and the loan
amount being guaranteed under this program, the Agency is proposing
very detailed and prescriptive requirements for the feasibility study.
Each component specified for the feasibility study is generally found
in other Agency programs, but in less detail.
The specific components are essentially the same as those
identified in the Section 9003 NOFA. One of the specific components
presented in Table 1, Feasibility Study Components, was relocated to
Sec. 4279.261(h), Technical Assessment, because it is more appropriate
to that paragraph than in the table describing components of the
feasibility study. In addition, the Agency has modified several of the
components associated with management feasibility from those identified
in the Section 9003 NOFA to more clearly articulate the type of
management experience to be addressed.
Business plan (paragraph (g)). Each lender must submit a business
plan with each application. The business plan must include the
following:
[[Page 20054]]
The borrower's experience and succession planning when
discussing the borrower's ownership and management;
The names and a description of the relationship when
discussing the borrower's parent, affiliates, and subsidiaries;
The borrower's business strategy;
Possible vendors and models of major system components;
The availability of the resources (e.g., labor, raw
materials, supplies) necessary to provide those products and services;
Site location and its relation to product distribution
(e.g., rail lines or highways) and any land use or other permits
necessary to operate the facility;
The market for the product and its competition, including
any and all competitive threats and advantages;
Projected balance sheets, income and expense statements,
and cash flow statements for a period of not less than 3 years of
stabilized operation; and
A description of the proposed use of funds.
If any of the information contained in the business plan is
provided in the feasibility study, the lender will not be required to
include such information in the business plan.
Technical assessment (paragraph (h)). Because of the technical
challenges that confront the construction and development of
biorefineries, the Agency is further detailing the type of technical
assessment to be submitted with the application. The Agency modeled
this technical assessment, which is similar to that found in the
Section 9003 NOFA, after the current provisions for such assessments
for projects under the REAP guaranteed loan program.
As noted earlier, one of the specific components from Table 1,
Feasibility Study Components, was relocated to paragraph (h). This
component states that the technical assessment must be based upon
verifiable data and contain sufficient information and analysis so that
a determination may be made on the technical feasibility of achieving
the levels of income or production that are projected in the financial
statements.
In addition, the Section 9003 NOFA stated that ``All projects
require the services of a professional engineer (PE).'' In the proposed
rule, the Agency has revised this to read ``All projects require the
services of an independent, third-party professional engineer.'' This
change reflects a specific component, which had been in Table 1 in the
Section 9003 NOFA, that discussed what constitutes an independent
project engineer. The Agency believes that it is very important that
technical feasibility be assessed by independent third-parties to
ensure there is no conflict of interest in the preparation of the
technical assessment.
Economic analysis (paragraph (i)). For the same reasons it is
requiring a detailed, prescriptive technical assessment, the Agency is
specifying a detailed economic analysis of the project to be included
in the feasibility analysis. The provisions for the economic analysis
are the same as found in the Section 9003 NOFA.
Loan Agreement (paragraph (j)). The Agency is requiring that the
lender submit with the application a proposed loan agreement or a
sample loan agreement with an attached list of the proposed loan
agreement provisions, which will have to be executed by the lender and
borrower before the Agency will issue a loan note guarantee. The list
of loan agreement provisions to be included must conform to the list
found in Sec. 4279.161(b)(11).
Lender certification (paragraph (k)). Lenders will be required to
submit certifications as specified in the B&I regulations at Sec.
4279.161(b)(16). In addition, lenders will be required to certify that
the project is also able to demonstrate technical merit.
Bioenergy experience (paragraph (n)). This paragraph identifies the
information lenders will be required to submit concerning the
borrower's prior experience in bioenergy projects.
Guarantee Application Evaluation (Sec. 4279.265)
Instead of evaluating biorefinery assistance applications for loan
guarantees using the B&I procedures specified in Sec. 4279.165, the
Agency is proposing a self-contained set of application evaluation
procedures, as described below, for Biorefinery Assistance Guaranteed
loan applications.
General (paragraph (a)). When the Agency receives a complete
application from an approved lender, it will review the application to
determine if the borrower, lender, and project are eligible. The Agency
will also review the application to determine whether the proposed
project has technical merit, as determined by the Agency, and whether
it has met each of three minimum financial metric criteria.
Applications from lenders not approved by the Agency specifically for
the Biorefinery Assistance program will not be processed.
If it determines that the borrower, lender, or project is
ineligible, the Agency will notify the lender, in writing, of the
reasons and provide any applicable appeal rights. The Agency will
discontinue processing such applications.
Lastly, if the Agency determines it is unable to guarantee the loan
at any time during the processing of the application and prior to
issuance of the loan note guarantee, the Agency will inform the lender
in writing. The Agency will include the reasons for denial of the
guarantee in its notification to the lender. Because such a denial
constitutes an adverse decision, the affected entities will have appeal
rights.
Technical merit determination (paragraph (b)). The Agency will use
the information provided in the application to determine a project's
technical merit. Any project determined by the Agency to be without
technical merit will not be selected for funding. In evaluating and
rating Biorefinery Assistance Guaranteed loan applications, the Agency
may, at its discretion, engage the services of other government
agencies or recognized industry experts in the applicable technology
field. The Agency may use this evaluation and rating to determine the
level of technical merit of the proposed project.
Financial metric criteria (paragraph (c)). Using the information
provided in the application, the Agency will determine if the project
meets each of the following three financial metric criteria:
A debt coverage ratio of 1.0 or higher;
A debt-to-tangible net worth ratio of 4:1 or lower for
startup businesses and of 9:1 or lower for existing businesses; and
A discounted loan-to-value ratio of no more than 1.0.
These criteria are to be calculated from the realistic information
in the pro forma statements or borrower financial statements of a
typical operating year after the project is completed and stabilized.
The Agency is requiring these minimum financial criteria to reduce the
chances that loan guarantees are sought for high risk projects and that
such projects, even if an application is submitted, are not guaranteed
by the Agency.
Scoring applications (paragraph (d)). The Agency will score each
eligible application that meets the minimum requirements for financial
and technical feasibility using a set of evaluation criteria. The
scoring criteria being proposed are specified in the 2008 Farm Bill.
For the most part, the scoring criteria are the same as found in
the Section 9003 NOFA, but the Agency is proposing a few changes to the
scoring criteria and points found in the Section
[[Page 20055]]
9003 NOFA. The changes made reflect reconsideration by the Agency on
how to prioritize projects for funding. These changes are summarized
below.
The Agency has revised how it will score whether the borrower is
proposing to work with producer associations or cooperatives. As
proposed, points will be awarded based on the dollar value of
procurement or marketing agreements with producer associations and
cooperatives obtained by the borrower relative to the dollar value of
the project's feedstock, biofuel, and biobased by-product. In order to
receive the points under this criterion, each of the following must be
met:
At least 60% of the dollar value of feedstock to be used
by the proposed biorefinery will be supplied by producer associations
and cooperatives;
At least 60% of the dollar value of the advanced biofuel
to be produced by the proposed biorefinery will be sold to producer
associations and cooperatives; and
At least 60% of the dollar value of the advanced biobased
by-products to be produced by the proposed biorefinery will be sold to
producer associations and cooperatives.
To illustrate this criterion, consider a proposed biorefinery that
will purchase $1,000,000 of feedstock and produce $5,000,000 worth of
biofuel and $2,000,000 worth of biobased by-products. In order to
receive the 5 points under this criterion, at least $500,000 worth of
feedstock purchases must be from producer associations or cooperatives,
at least $2,500,000 worth of biofuel must be sold to producer
associations or cooperatives, and at least $1,000,000 worth of biobased
by-products must be sold to producer associations or cooperatives. If
any one of these is not achieved, no points will be awarded.
The Agency has revised the method for awarding points under the
level of financial participation by the borrower criterion. In the
Section 9003 NOFA, points are awarded based on the percent tangible
balance sheet equity that results from the borrower's cash equity
injection plus other sources of funding. In the proposed rule, points
will be awarded based on the debt-to-tangible net worth ratio that
results from the borrower's cash equity injection plus other sources of
funding.
The Agency has removed cellulosic feedstocks as a scoring
criterion. The Agency has determined that specific feedstocks should
not receive preference over other feedstocks when evaluating
applications; however, the Agency has determined that feedstocks that
can be used for human or animal consumption should not receive the same
preference as other feedstocks. Thus, the Agency is proposing to deduct
5 points from applications that propose to use feedstocks that can be
used for human or animal consumption.
The Agency is being more specific, compared to the Section 9003
NOFA, on how points will be awarded under the scoring criterion for
local ownership. As proposed, points will be awarded on the basis of
the percentage of local owners whose primary residence is within 20
miles of the area supplying feedstock to the biorefinery. The Agency
believes this will provide an easier metric on which to score this
criterion. The Agency is also seeking comment this proposed method for
scoring this criterion.
The Agency has also revised the scoring criterion for ``first-of-a-
kind technology'' from whether the project ``is the first to use'' a
particular technology, system, or process to whether the project ``uses
a particular technology, system, or project that is not currently
operating in the advanced biofuel market as of October 1 of the fiscal
year for which funding is available.''
The Agency adjusted the points that can be awarded for five of the
scoring criteria, increasing the points for four criteria and
decreasing the points for one criterion. The criteria for which the
Agency has increased points are:
Feedstock not previously used in the production of
advanced biofuels (from 14 to 15 points);
The potential for rural economic development (from 3 to 5
points);
The level of local ownership (from 13 to 15 points); and
First of a kind technology (from 10 points to 15 points).
The Agency has decreased the points that can be awarded, from 9 to
5, for the criterion that addresses whether the proposed biorefinery
will have positive impact on resource conservation, public health, and
the environment.
In response to the ANPRM, the Agency received a number of comments
on the scoring criteria and points. After considering these comments,
the Agency believes that the proposed criteria on which the Agency
received comments are still appropriate for this program. In
considering the comments, the Agency points out the following:
Regarding the first scoring criterion, when determining
whether a borrower has established a market, the Agency believes that
it is important to have commitments and agreements on both the
feedstock side of the project and on the sales side of the project.
Thus, the Agency is continuing to require both supply and offtake
commitments and agreements as part of the demonstration of whether a
borrower has established a market.
Regarding the second scoring criterion, it is the Agency's
intent is to promote projects that will not compete for feedstocks that
are already being used to supply another advanced biofuel facility.
This criterion is designed to award points to such facilities. A
comment was received that ``area'' (to assess whether the borrower
proposes to place the biorefinery in an area that has other similar
advanced biofuel facilities) should be broadly defined (State or
region). For the proposed rule, the Agency has recast the wording
associated with this criterion to make clearer how it will be applied.
Beyond this change, the Agency does not believe it is necessary to
revise this criterion based on this comment.
Regarding the fifth criterion, level of financial
participation, the proposed rule requires borrowers to provide at least
20 percent cash equity into the project. It is the Agency's intent to
score applications higher that can demonstrate more than this 20
percent minimum (30 percent or more). Borrowers who meet the minimum 20
percent cash equity are still eligible, but will not receive points
under this criterion. Further, of all the criteria used to score
applications, the Agency continues to believe that this criterion is
the most important because it represents the best commitment of the
borrower to the project. Therefore, the Agency continues to assign the
highest potential points to this criterion.
When demonstrating that a biofuels production technology will not
have any economically significant negative impacts on existing
manufacturing plants or other facilities that use similar feedstocks,
the Agency would expect applicants to be able to identify the location
of the biorefinery and its feedstock relative to the other
biorefineries and the feedstock being used by those plants. Such an
analysis would be part of the applicant's market analysis and
feasibility study.
Lastly, the Agency notes that, when it evaluates an application for
the projects potential for rural economic development, it will be based
on projections made by the applicant as reported in its application,
including in the feasibility study and technical report.
Ranking of applications (paragraph (e)). The Agency will rank the
applications according to their scores. The Agency is proposing to rank
applications twice each fiscal year. The Agency will rank the first set
of applications (those complete and
[[Page 20056]]
eligible applications received by March 1) on or before May 31 and the
second set (those complete and eligible applications received by June
1) on or before August 31.
All applications that are ranked in a given fiscal year will be
considered by the Agency for selection for funding for the entire
fiscal year. For example, a complete and eligible application scored
and ranked in the first set of applications, but not selected for
funding, will be carried forward into the second set of applications.
When an application scored in first set of applications is carried
forward into the second set of applications, it will be competed
against all of the applications in the second set using its score from
the first set of applications.
Selection of applications for funding and for potential funding
(paragraph (f)). In selecting applications for funding, the first
criterion the Agency will use is the application's score, with higher
scoring applications receiving first consideration for funding. A
minimum score of 55 points is required in order to be considered for a
guarantee.
Before selecting applications for funding, the Agency will consider
the following two factors, which may result in the Agency selecting a
lower scoring application. These two factors are:
Availability of budgetary authority; and
Availability of other funding sources.
In considering the availability of budgetary authority, the Agency
will evaluate the size of the loan request relative to the budgetary
authority that remains available to the program during the fiscal year
in two ways:
If sufficient budgetary authority remains to guarantee the
higher scoring loan application and
If the amount of the funding request is greater than 25
percent of the Agency's outstanding budgetary authority for the
program.
If either case exists, the Agency may elect to select, after
providing the applicant of the higher scoring application the
opportunity to reduce its fund request, the next highest scoring
application for further processing.
Ranked applications not funded (paragraph (g)). This paragraph
identifies how the Agency will dispose of applications that have been
ranked, but not funded, including such applications that have been
selected for funding but are missing information. The Agency notes that
such a situation would only occur in those situations where additional
information not relevant to scoring may be needed to continue the
approval process (e.g., pending receipt of a particular certification).
The Agency will not carry over into the next fiscal year a ranked
application that is not funded in the fiscal year in which it was
submitted. In such a situation, the Agency will notify the lender in
writing.
Wage rates (paragraph (h)). This paragraph identifies requirements
associated with the wages paid to laborers and mechanics working on the
project. This provision is included because it is required by the 2008
Farm Bill.
Changes in Borrowers (Sec. 4279.280)
This section states the B&I provisions for changes in borrowers
found at Sec. 4279.180 apply except that the eligibility requirements
of this program apply. Note that, as specified in Sec. 4279.180, all
changes in borrowers must be approved by the Agency.
Conditions Precedent to Issuance of Loan Note Guarantee (Sec.
4279.281)
As proposed, the B&I provisions for conditions precedent to the
issuance of the loan note guarantee found at Sec. 4279.181(a) through
(o) will apply to this subpart, with several additions. The additions
are as follows:
For loans exceeding $150,000, the lender has certified its
compliance with the Anti-Lobby Act (18 U.S.C. 1913). Also, if any funds
have been, or will be, paid to any person for influencing or attempting
to influence an officer or employee of any agency, a Member of
Congress, an officer or employee of Congress, or an employee of a
Member of Congress in connection with this commitment providing for the
United States to guarantee a loan, the lender shall completely disclose
such lobbying activities in accordance with 31 U.S.C. 1352.
Where applicable, the lender must certify that the
borrower has obtained:
(1) A legal opinion relative to the title to rights-of-way and
easements. Lenders are responsible for ensuring that borrowers have
obtained valid, continuous, and adequate rights-of-way and easements
needed for the construction, operation and maintenance of a facility.
(2) A title opinion or title insurance showing ownership of the
land and all mortgages or other lien defects, restriction or
encumbrances, if any. It is the responsibility of the lender to ensure
that the borrower has obtained and recorded such releases, consents, or
subordinations to such property rights from holders of outstanding
liens or other instruments as may be necessary for the construction,
operation and maintenance of the facility and to provide the required
security. For example, when a site is for major structures for utility-
type facilities (such as a gas distribution system) and the lender and
borrower are able to obtain only a right-of-way or easement on such
site rather than a fee simple title, such a title opinion must be
requested.
The minimum financial criteria, including those financial
criteria contained in the Conditional Commitment, have been maintained
through the issuance of the loan note guarantee. Failure to maintain
these financial criteria shall result in an ineligible application.
The borrower is required to certify 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 section shall be 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. This
certification is being required because these referenced provisions are
a project eligibility requirement and the Agency needs assurance that
these conditions are or will be complied with prior to issuing the loan
note guarantee.
The lender must certify that it has reviewed all contract
documents and verified compliance with sections 3141 through 3144,
3146, and 3147 of title 40, U.S.C., and title 29 of the Code of Federal
Regulations. Further, the lender must certify that the same process
will be completed for all future contracts and any changes to existing
contracts.
The lender must certify that the proposal for the facility
seeking a guarantee under this subpart complies with all Federal,
State, and local laws and regulatory rules that are in existence and
that affect the project, the borrower, or lender activities.
The lender must notify the Agency in writing whenever
there has been a change in the classification of a loan within 15
calendar days of such change.
The Agency notes that one of the questions in the ANPRM was whether
the Agency should issue the loan note guarantee prior to construction
or whether the program should be limited to post-construction
financing. One comment was received on this question, and it supported
issuing the loan note guarantee prior to construction. The Section 9003
NOFA provided for the issuance of the loan note guarantee prior to
construction and the Agency has retained this in the proposed rule.
[[Page 20057]]
Requirements After Construction (Sec. 4279.290)
Once the project has been constructed, the lender will be required
to provide the Agency with annual reports from the borrower on the
performance characteristics and results of the project and to conduct
annual inspections of the project for the life of the guaranteed loan.
The contents of the annual reports, which are identified in paragraphs
(a)(1) through (8), are the same as those found in the Section 9003
NOFA with one exception. The one exception is the addition that these
reports include the results of the inspections conducted under Sec.
4279.290(b). These reports and inspections are being required to assist
the Agency in monitoring Agency risk and to ensure that the Agency is
meeting its goals in implementing this and other programs under Title
IX of the 2008 Farm Bill.
Servicing Biorefinery Assistance Guaranteed Loans (7 CFR 4287, Subpart
D)
The Agency is proposing to add a new subpart D to 7 CFR part 4287,
Servicing, to address the servicing of Biorefinery Assistance
Guaranteed loans. In general, the Agency is proposing to use the same
procedures and provisions for servicing B&I guaranteed loans, as found
in 7 CFR part 4287, subpart B, for servicing Biorefinery Assistance
Guaranteed loans. There are, however, a number of additions and
exceptions to the B&I provisions. These are described below.
Periodic reports (Sec. 4287.307(a)). The lender must submit
periodic reports, on a quarterly basis, unless otherwise determined by
the Agency to meet the financial interests of the United States,
regarding the condition of its Agency guaranteed loan portfolio
(including borrower status and loan classification) and any material
change in the general financial condition of the borrower since the
last periodic report was submitted. The Agency is proposing that these
reports be submitted on a quarterly basis, rather than a semi-annual
basis, because it believes that such reports are required more
frequently in order to provide better oversight on these large
projects. This requirement is the same as found in the Section 9003
NOFA.
Default reports (Sec. 4287.307(b)). Lenders must submit monthly
default reports, including borrower payment history, for each loan in
monetary default using a form approved by the Agency. The Agency is
requiring the submittal of this history in order to evaluate the
financial condition of the borrower.
Financial reports (Sec. 4287.307(c)). In addition to complying
with the financial reports identified in Sec. 4287.107(d), financial
statements may also be specified in the Conditional Commitment, lenders
would be required to submit quarterly financial statements within 45
days at the end of each quarter, and the annual financial statements
must be audited financial statements. These provisions are the same as
found in the Section 9003 NOFA.
Additional loans (Sec. 4287.307(d)). Instead of complying with the
B&I provisions for additional expenditure identified in Sec.
4287.107(e), lenders would be required to comply with the additional
loan provisions specified in this paragraph. The additional loan
provisions are the same as found in the Section 9003 NOFA.
Collateral inspection and release (Sec. 4287.307(e)). Instead of
complying with the B&I provisions of Sec. 4287.113, the Agency is
proposing specific provisions for loans guaranteed under this program.
These provisions, which are similar to those found in the Section 9003
NOFA, are being proposed by the Agency for Biorefinery Assistance
Guaranteed loan projects because of the size of the loans being
guaranteed under this section.
As proposed, lenders will be required to inspect the collateral as
often as necessary to properly service the loan. Lenders must obtain
Agency approval prior to the release of collateral, except in those
instances where the proceeds are used to pay down debt in order of lien
priority, or to acquire replacement equipment, or where the release of
collateral is made under the abundance of collateral provision of the
applicable security agreement. The sale or release of collateral must
be based on an arm's length transaction, unless otherwise approved by
the Agency in writing.
Lenders will be required to obtain appraisals on the collateral
being released on all transactions exceeding $250,000. Such appraisals,
which will be at the expense of the borrower, must meet the
requirements specified in Sec. 4279.244.
In addition, lenders will be allowed, over the life of the
guaranteed loan, to release collateral with a cumulative value of up to
20 percent of the original loan amount without Agency concurrence if
the proceeds generated are used to pay down secured debt in the order
of lien priority or to buy replacement collateral. Release of
collateral with a cumulative value in excess of 20 percent of the
original loan or when the proceeds will not be used to pay down secured
debt or to buy replacement collateral, will have to be requested, in
writing, by the lender, and will have to be concurred by the Agency, in
writing, in advance of the release. The lender will also be required to
complete a written evaluation justifying the release. This is the same
as found in the Section 9003 NOFA.
The Agency is proposing that under this program the value of
collateral released at any one time and within any one calendar year
cannot be more than 10 percent of the original loan amount.
Finally, the Agency is proposing that any release of collateral
must not adversely affect the project's operation or financial
condition.
Transfers and assumptions (Sec. 4287.307(f)). In addition to
complying with the B&I provisions at Sec. 4287.134, the Agency is
proposing that it may charge the lender a nonrefundable transfer fee at
the time of a transfer application. The Agency will set the amount of
the transfer fee in an annual notice of funds availability. All
transfers need to be approved by the Agency. Further, and consistent
with the Section 9003 NOFA, the Agency is including provisions
addressing changes in the control of a borrower and changes in terms
that result in an increase in the cost of the loan guarantee.
Substitution of lender after issuance of the loan note guarantee
(Sec. 4287.307(g)). Except for the provisions associated with Agency
approval of a substitute lender, the provisions in Sec. 4287.135 will
apply. The requirements the Agency is proposing to approve the
substitution of a new lender, which are very similar to those found in
the Section 9003 NOFA, will be used instead of the provisions found in
Sec. 4287.135(a). In order to be approved by the Agency, the proposed
substitute lender must:
Be an eligible lender in accordance with Sec.
4279.202(b);
Be able to service the loan in accordance with the
original loan documents; and
Acquire title to the unguaranteed portion of the loan held
by the original lender and assume all original loan requirements,
including liabilities and servicing responsibilities.
Default by borrower (Sec. 4287.307(h)). This paragraph identifies
that defaults by borrowers will be handled in accordance with the B&I
provisions for default by borrowers found at Sec. 4287.145, except
with regard to when the lender must submit the notification to the
Agency.
Protective advances (Sec. 4287.307(i)). In addition to complying
with the B&I
[[Page 20058]]
provisions for protective advances found at Sec. 4279.156, Agency
written authorization will be required when cumulative protective
advances exceed $100,000 (not $5,000 as found in the current B&I
regulations) or 10 percent of the guaranteed loan, whichever is less.
Determination of loss and payment (Sec. 4287.307(j)). This
paragraph identifies that determination of loss and payment will be
made in accordance with the B&I provisions found at Sec. 4279.158 and
also requires the keeping of an annual report if the lender receives a
final loss payment.
III. Request for Comments
The Agency is interested in receiving comments on all aspects of
the proposed rule. Areas in which the Agency is seeking specific
comments are identified below. All comments should be submitted as
indicated in the ADDRESSES section of this preamble.
a. Preapplications. The Agency is requesting comment on whether or
not a preapplication process for the Biorefinery Assistance program
will provide sufficient benefit to lenders and borrowers. If you
believe a preapplication process will be beneficial, please identify
what elements you recommend for including in a preapplication. Please
be sure to provide rationale for your position.
b. Feedstocks. The Agency is requesting comment on whether a
specific type of material that could serve as a feedstock for the
production of advanced biofuels, as it relates to project eligibility
for this program, should not be an eligible feedstock. For example,
should by-products from the pulp and paper production process which are
commonly used for on-site energy production or recycled be an eligible
feedstock for a biorefinery seeking a loan guarantee under this
program? Please be sure to provide rationale for your position.
c. Rural area requirement. As proposed, only biorefineries located
in rural areas will be eligible for loan guarantees. The Agency is
requesting comment on whether biorefineries located in non-rural areas
should also be eligible for a loan guarantee under this program. Please
be sure to provide rationale for your position.
d. Foreign ownership. The Agency is requesting comment on whether
biorefineries that do not meet the proposed citizenship requirements
(Sec. 4279.227(a)(2)) of at least 51 percent domestic ownership,
including those owned entirely by immediate family members where only
one of the family members meets citizenship requirements, should be
eligible for a loan guarantee under this program. Please be sure to
provide rationale for your position.
e. Program obstacles. The Agency is requesting comments on any and
all provisions for the proposed Biorefinery Assistance program and the
Business and Industry Guaranteed Loan program that present an obstacle
for stakeholders applying for assistance in either program. For each
provision that you perceive as an obstacle, please be sure to provide
your rationale and please identify potential alternatives that will
improve participation in the program.
f. Processing technology owned by the borrower. The Agency is
requesting comments on whether the processing technology owned by the
borrower should be included as an eligible project cost. Examples of
potential eligible project costs associated with the processing
technology could include, but not be limited to: highly skilled labor,
laboratory costs and testing, and equipment. If so, how should the
value of such processing technology be determined? In addition, for
collateral analysis, what discounting factor should be applied?
g. Percent revenue from sale of advanced biofuel. The Agency is
requesting comments on the percentage of a biorefinery's sales that
must come from the sale of eligible advanced biofuels in order to be
eligible under this program. The Agency recognizes that other biobased
products can potentially be a sizeable portion of a biorefinery's
revenues and thus affect the viability of the biorefinery. However, the
Agency's primary goal of this program is to encourage the production of
advanced biofuels.
h. Value of feedstock supplied by producer associations and
cooperatives. The Agency is requesting comments on the percentage of
feedstocks that must be purchased from producer association and
cooperatives in order to be awarded points in the scoring of
applications (see Sec. 4279.265(d)(4)). The Agency is proposing a 60
percent threshold for such purchases. The Agency is seeking to try to
strike a balance between giving priority to the purchase of feedstocks
from producer associations and cooperatives and encouraging new
feedstocks and technologies.
i. Measuring potential for rural economic development. The Agency
is requesting comments on metrics that can be used for measuring rural
economic development. Please be sure to discuss the availability of
data and how such data can be verified.
j. Measuring positive impacts on resource conservation, public
health, and the environment. The Agency is requesting comments on
metrics that can be used for measuring each of these three areas--
resource conservation, public health, and the environment. The Agency
is considering an approach that would award more points to facilities
that produce biofuels that significantly reduce lifecycle GHGs by
compared to conventional fuels they replace in the market; facilities
that produce biofuels that do not demonstrate significant GHG
reductions of would receive fewer points. For example, in the case of
liquid biofuels, fuels that have been certified as advanced biofuels,
cellulosic biofuels, or bio-based diesel under EPA's Renewable Fuels
Standard achieve lifecycle GHG reductions of at least 50 percent
relative to conventional liquid fuels, and so facilities that produce
these fuels would receive higher points. We request comments on this
approach as an alternative to the proposed rule text, including
comments on how such an alternative should be drafted to best address
the goal of lifecycle GHG reductions. We also request comment on
specific metrics to promote positive impacts on air quality, water
quality, and water quantity. Please be sure to be specific and, if
proposing to measure data, to discuss the availability of data and how
such data can be verified.
k. Definition of agricultural producer. The Agency is requesting
comments on the definition of agricultural producer in which ``50
percent or greater of their gross income is derived from the
[agricultural] operations.'' This definition is consistent with the
current definition from in 7 CFR part 4280, subpart B, for the
renewable energy system and energy efficiency improvement program. The
Agency is interested in receiving comments on whether the percentage of
income should be higher and, if so, at what level it should be set.
Please be sure to provide rationale for your suggestions.
l. Local ownership. The Agency is requesting comment on the
definition of ``local owner'' in scoring applications under Sec.
4279.265(d)(9) for determining the percent local ownership of the
biorefinery. The Agency is seeking comment in particular on the
relationship of an owner to the area supplying the feedstock to the
biorefinery and whether the proposed distance of 20 miles beyond the
feedstock area is reasonable. Please be sure to provide rationale for
your suggestions.
[[Page 20059]]
List of Subjects in 7 CFR Parts 4279 and 4287
Loan programs-Business and Industry-Rural development assistance,
Biorefinery assistance, Rural areas.
For the reasons set forth in the preamble, under the authority at 5
U.S.C. 301 and 7 U.S.C. 1989, Chapter XLII of title 7 of the Code of
Federal Regulations is proposed to be amended as follows:
CHAPTER XLII--RURAL BUSINESS-COOPERATIVE SERVICE AND RURAL UTILITIES
SERVICE, DEPARTMENT OF AGRICULTURE
PART 4279--GUARANTEED LOANMAKING
1. The authority citation for part 4279 continues to read as
follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 1989; and 7 U.S.C. 1932(a).
2. Part 4279 is amended by adding a new subpart C to read as
follows:
Subpart C--Biorefinery Assistance Loans
Sec.
4279.201 Purpose and scope.
4279.202 Compliance with Sec. Sec. 4279.1 through 4279.99.
4279.203-4279.224 [Reserved]
4279.225 Loan processing.
4279.226 Fees.
4279.227 Borrower eligibility.
4279.228 Project eligibility.
4279.229 Guaranteed loan funding.
4279.230 Subordination of lien position.
4279.231 Interest rates.
4279.232 Terms of loan.
4279.233 Credit evaluation.
4279.234-4279.236 [Reserved]
4279.237 Financial statements.
4279.238-4279.243 [Reserved]
4279.244 Appraisals.
4279.245-4279.249 [Reserved]
4279.250 Feasibility studies.
4279.251-4279.254 [Reserved]
4279.255 Loan priorities.
4279.256 Construction planning and performing development.
4279.257-4279.258 [Reserved]
4279.259 Borrower responsibilities.
4279.260 Guarantee applications--General.
4279.261 Application for loan guarantee content.
4279.262-4279.264 [Reserved]
4279.265 Guarantee application evaluation.
4279.266-4279.279 [Reserved]
4279.280 Changes in borrowers.
4279.281 Conditions precedent to issuance of loan note guarantee.
4279.282-4279.289 [Reserved]
4279.290 Requirements after project construction.
4279.291-4279.300 [Reserved]
Subpart C--Biorefinery Assistance Loans
Sec. 4279.201 Purpose and scope.
The purpose and scope of this subpart is to provide financial
assistance for the development and construction of commercial-scale
biorefineries or for the retrofitting of existing facilities using
eligible technology for the development of advanced biofuels.
Sec. 4279.202 Compliance with Sec. Sec. 4279.1 through 4279.99.
Except as specified in paragraphs (a) through (l) of this section,
all loans guaranteed under this subpart shall comply with the
provisions found in Sec. Sec. 4279.1 through 4279.99 of this chapter.
(a) Definitions. The terms used in this subpart are defined in
either Sec. 4279.2 or in this paragraph. If a term is defined in both
Sec. 4279.2 and this paragraph, it will have, for purposes of this
subpart only, the meaning given in this paragraph.
Advanced biofuel. Fuel derived from renewable biomass, other than
corn kernel starch, to include:
(i) Biofuel derived from cellulose, hemicellulose, or lignin;
(ii) Biofuel derived from sugar and starch (other than ethanol
derived from corn kernel starch);
(iii) Biofuel derived from waste material, including crop residue,
other vegetative waste material, animal waste, food waste, and yard
waste;
(iv) Diesel-equivalent fuel derived from renewable biomass,
including vegetable oil and animal fat;
(v) Biogas (including landfill gas and sewage waste treatment gas)
produced through the conversion of organic matter from renewable
biomass;
(vi) Butanol or other alcohols produced through the conversion of
organic matter from renewable biomass; and
(vii) Other fuel derived from cellulosic biomass.
Agency. The Rural Business-Cooperative Service or successor Agency
assigned by the Secretary of Agriculture to administer the Biorefinery
Assistance program. References to the National Office, Finance Office,
State Office or other Agency offices or officials should be read as
prefaced by ``Agency'' or ``Rural Development'' as applicable.
Agricultural producer. An individual or entity directly engaged in
the production of agricultural products, including crops (including
farming); livestock (including ranching); forestry products;
hydroponics; nursery stock; or aquaculture, whereby 50 percent or
greater of their gross income is derived from the operations.
Association of agricultural producers. An organization that
represents agricultural producers and whose mission includes working on
behalf of such producers and the majority of whose membership and board
of directors is comprised of agricultural producers.
Biofuel. A fuel derived from renewable biomass.
Biorefinery. A facility (including equipment and processes) that
converts renewable biomass into biofuels and biobased products and may
produce electricity.
Borrower. Any party that borrows or seeks to borrow money from the
lender, including any party or parties liable for the guaranteed loan
except guarantors.
Business plan. A comprehensive document that clearly describes the
borrower's ownership structure and management experience including, if
applicable, discussion of a parent, affiliates, and subsidiaries; a
discussion of how the borrower will operate the proposed project,
including, at a minimum, a description of the business and project, the
products and services to be provided, pro forma financial statements
for a period of 2 years, including balance sheet, income and expense,
and cash flows, and the availability of the resources necessary to
provide those products and services.
By-product. Any and all biobased products generated under normal
operations of the proposed project that can be reasonably measured and
monitored. By-products may or may not have a readily identifiable
commercial use or value.
Default. The condition that exists when a borrower is not in
compliance with the promissory note, the loan agreement, or other
related documents evidencing the loan.
Eligible project costs. Those expenses approved by the Agency for
the project.
Eligible technology. Eligible technology is defined as either:
(i) A technology that is being adopted in a viable commercial-scale
operation of a biorefinery that produces an advanced biofuel; or
(ii) A technology not described in paragraph (i) of this definition
that has been demonstrated to have technical and economic potential for
commercial application in a biorefinery that produces an advanced
biofuel.
Existing business. A business that has been in operation for at
least one full year. Mergers, changes in the business name, or legal
type of entity of a currently operating business, or expansions of
product lines are considered to be existing businesses as long as there
is not a significant change in operations.
Farm cooperative. A business incorporated as a cooperative that is
solely owned and controlled by agricultural producers.
[[Page 20060]]
Farmer Cooperative Organization. An organization whose membership
is composed of farm cooperatives.
Feasibility study. An analysis by an independent qualified
consultant of the economic, market, technical, financial, and
management capabilities of a proposed project or business in terms of
its expectation for success.
Future recovery. Funds collected by lender after final loss claim.
Immediate family. Individuals who are closely related by blood,
marriage, or adoption, or live within the same household, such as a
spouse, domestic partner, parent, child, brother, sister, aunt, uncle,
grandparent, grandchild, niece, or nephew.
Indian Tribe. This term has the meaning as defined in 25 U.S.C.
450b.
Institution of higher education. This term has the meaning as
defined in 20 U.S.C. 1002(a).
Loan classification. The assigned score or metric reflecting the
lender's analysis of the degree of potential loss in the event of
default.
Local owner. An individual who owns any portion of an eligible
advanced biofuel biorefinery and whose primary residence is located
within 20 miles of the feedstock area supplying the advanced biofuel
biorefinery.
Market value. The amount for which a property will sell for its
highest and best use at a voluntary sale in an arm's length
transaction.
Material adverse change. Any change in the purpose of the loan, the
financial condition of the borrower, or the collateral, that might
jeopardize loan performance.
Negligent loan origination. The failure of a lender to perform
those services that a reasonably prudent lender will perform in
originating its own portfolio of unguaranteed loans. 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 will act.
Offtake agreement. The terms and conditions governing the sale and
transportation of biofuels, biobased products, and electricity produced
by the borrower to another party.
Project. The facility or portion of facility producing eligible
advanced biofuels and any eligible biobased by-product receiving
funding under this subpart.
Protective advances. Advances made by the lender for the purpose of
preserving and protecting the collateral where the debtor has failed
to, and will not or cannot, meet obligations to protect or preserve
collateral.
Regulated or supervised lender. A lender that is subject to credit
examination or supervision by an appropriate agency of the United
States or a State that supervises or regulates credit institutions.
Renewable biomass.
(1) Materials, pre-commercial thinnings, or invasive species from
National Forest System land and public lands (as defined in section 103
of the Federal Land Policy and Management Act of 1976 (43 U.S.C. 1702))
that:
(i) Are by-products of preventive treatments that are removed to
reduce hazardous fuels; to reduce or contain disease or insect
infestation; or to restore ecosystem health;
(ii) Will not otherwise be used for higher-value products; and
(iii) Are harvested in accordance with applicable law and land
management plans and the requirements for old-growth maintenance,
restoration, and management direction of paragraphs (2), (3), and (4)
of subsection (e) of section 102 of the Healthy Forests Restoration Act
of 2003 (16 U.S.C. 6512) and large-tree retention of subsection (f) of
that section; or
(2) Any organic matter that is available on a renewable or
recurring basis from non-Federal land or land belonging to an Indian or
Indian Tribe that is held in trust by the United States or subject to a
restriction against alienation imposed by the United States, including:
(i) Renewable plant material, including feed grains; other
agricultural commodities; other plants and trees; and algae; and
(ii) Waste material, including crop residue; other vegetative waste
material (including wood waste and wood residues); animal waste and by-
products (including fats, oils, greases, and manure); and food waste
and yard waste.
Retrofitting. The modification of a building or equipment to
incorporate functions not included in the original design that allow
for the production of advanced biofuels.
Semi-work scale. A manufacturing plant operating on a limited
commercial scale to provide final tests of a new product or process.
Startup business. A business that has been in operation for less
than one full year. Startup businesses include newly formed entities
leasing space or constructing facilities in a new market area, even if
the owners of the startup business own affiliated businesses doing the
same kind of business. Newly-formed entities that are buying existing
businesses or facilities will be considered an existing business as
long as the business or facility being bought remains in operation and
there is no significant change in operations.
Surety. An entity that agrees to be primarily liable for the
conduct, obligation, or performance of another.
Tangible net worth. Tangible assets minus liabilities.
Technical and economic potential. A technology not described in
paragraph (i) of the definition of ``eligible technology'' is
considered to have demonstrated ``technical and economic potential''
for commercial application in a biorefinery that produces an advanced
biofuel if each of the following conditions is met:
(i) The advanced biofuel biorefinery's likely financial and
production success is evidenced in a thorough evaluation including, but
not limited to:
(A) Feedstocks;
(B) Process engineering;
(C) Siting;
(D) Technology;
(E) Energy production; and
(F) Financial and sensitivity review using a banking industry
software analysis program with appropriate industry standards.
(ii) The evaluation in paragraph (i) of this definition is
completed by an independent third-party expert in a feasibility study,
technical report, or other analysis, each of which must be satisfactory
to the Agency, that demonstrates the potential success of the project.
(iii) The advanced biofuel technology has at least a 12 month (four
seasons) operating cycle at semi-work scale.
Tier 1 capital. This term has the meaning given it under 12 CFR
Part 325 and as calculated under applicable Federal Deposit Insurance
Corporation regulations.
Tier 2 capital. This term has the meaning given it under applicable
Federal Deposit Insurance Corporation regulations.
Tier 1 leverage capital ratio. This term means the ratio of Tier 1
capital to total assets as defined and calculated in 7 CFR part 325 and
its appendices.
Tier 1 risk-based capital ratio. This term has the meaning given it
in 7 CFR part 325.
Total project costs. The sum of all costs associated with a
completed project.
Total qualifying capital. This term has the meaning given to it
under applicable Federal Deposit Insurance Corporation regulations.
Total risk-based capital ratio. This term has the meaning given to
it in 7 CFR part 325.
Viable commercial-scale operation. An operation is considered to be
a
[[Page 20061]]
viable commercial scale operation if it demonstrates that:
(i) Its revenue will be sufficient to recover the full cost of the
project over the term of the loan and result in an anticipated annual
rate of return sufficient to encourage investors or lenders to provide
funding for the project;
(ii) It will be able to operate profitably without public and
private sector subsidies upon completion of construction (volumetric
excise tax is not included as a subsidy);
(iii) Contracts for feedstocks are adequate to address proposed
off-take from the biorefinery;
(iv) The ability to achieve market entry, suitable infrastructure
to transport the advanced biofuel to its market is available, and
general market competitiveness of the advanced biofuel technology and
related products;
(v) It can be easily replicated and that replications can be sited
at multiple facilities across a wide geographic area based on the
proposed deployment plan; and
(vi) The advanced biofuel technology has at least a 12 months (four
seasons) operating history at semi-work scale, which demonstrates the
ability to operate at a commercial scale.
Working capital. Current assets available to support a business'
operations and growth. Working capital is calculated as current assets
less current liabilities.
(b) Exception authority. The exception authority provisions of this
paragraph apply to this subpart instead of those in Sec. 4279.15. The
Administrator may, on a case-by-case basis, make an exception to any
requirement or provision of this subpart that is not inconsistent with
any authorizing statute or applicable law, if the Administrator
determines that application of the requirement or provision would
adversely affect the USDA's interest.
(c) Lender eligibility requirements. The requirements specified in
Sec. 4279.29 do not apply to this subpart. Instead, a lender must meet
the requirements specified in paragraphs (c)(1) through (4) of this
section in order to be approved for participation in this program.
(1) The lender must be a regulated or supervised lender.
(2) The lender must maintain at all times the minimum acceptable
levels of capital specified in paragraphs (c)(2)(i) through (iii) of
this section. If the regulated or supervised lender is a commercial
bank or thrift, these levels will be based on those reflected in Call
Reports and Thrift Financial Reports.
(i) Total Risk-Based Capital ratio of 10 percent or higher;
(ii) Tier 1 Risk-Based Capital ratio of 6 percent or higher; and
(iii) Tier 1 Leverage Capital ratio of 5 percent or higher.
(3) The lender must not be otherwise debarred or suspended by the
Federal government.
(4) The Agency will approve applications for loan guarantees only
from lenders with adequate experience, as determined by the Agency,
with similar projects and the expertise to make, secure, service, and
collect loans approved under this subpart.
(d) Independent credit risk analysis. The Agency will require an
independent credit risk analysis (e.g., a credit rating or assessment)
from a nationally-recognized rating agency for loans of $100,000 or
more.
(e) Environmental responsibilities. The provisions of this
paragraph shall be used instead of the provisions specified in Sec.
4279.30(c) for determining a lender's environmental responsibilities
under this subpart. Lenders have a responsibility to become familiar
with Federal environmental requirements; to consider, in consultation
with the prospective borrower, the potential environmental impacts of
their proposals at the earliest planning stages; and to develop
proposals that minimize the potential to adversely impact the
environment.
(1) Lenders must alert the Agency to any controversial
environmental issues related to a proposed project or items that may
require extensive environmental review.
(2) Lenders must help the borrower prepare Form RD 1940-20,
``Request for Environmental Information'' (when required by subpart G
of part 1940 of this title); 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.
(3) Lenders must ensure that the borrower has:
(i) Provided the necessary environmental information to enable the
Agency to undertake its environmental review process in accordance with
subpart G of either 7 CFR part 1940 or successor regulations, including
the provision of all required Federal, State, and local permits;
(ii) Complied with any mitigation measures required by the Agency;
and
(iii) 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 which will have an adverse effect on the environment.
(f) Additional lender functions and responsibilities. In addition
to the requirements in Sec. 4279.30, the requirements specified in
paragraphs (f)(1) through (3) apply.
(1) Any action or inaction on the part of the Agency does not
relieve the lender of its responsibilities to originate and service the
loan guaranteed under this subpart.
(2) The lender must compile and maintain in its files a complete
application for each guaranteed loan for at least 3 years after the
final loss has been paid.
(3) The lender must report to the Agency all conflicts of interest
and appearances of conflicts of interest.
(g) Certified lender program. Section 4279.43 does not apply to
this subpart.
(h) Oversight and monitoring. In addition to complying with
requirements specified in Sec. 4279.44, the lender will cooperate
fully with Agency oversight and monitoring of all lenders involved in
any manner with any guarantee under the Biorefinery Assistance programs
to ensure compliance with this subpart. Such oversight and monitoring
will include, but is not limited to, reviewing lender records and
meeting with lenders (in accordance with Sec. 4287.107(c)).
(i) Conditions of guarantee. All loan guarantees under this subpart
are subject to the provisions of Sec. 4279.72 and as specified in
paragraphs (i)(1) through (4) of this section.
(1) The guarantee under this section will be secured by a first
lien on all collateral necessary to run the project in the event of the
borrower's default.
(2) The holder of a guaranteed portion shall have all rights of
payment, as defined in the loan note guarantee, to the extent of the
portion purchased. The lender will remain bound by all obligations
under the loan note guarantee, Lender's Agreement, and Agency program
regulations.
(3) The lender must be shown as an additional insured on insurance
policies (or other risk sharing instruments) that benefit the project
and must be able to assume any contracts that are material to running
the project including any feedstock or offtake agreements, as may be
applicable.
(4) If a lender does not satisfactorily comply with the provision
found in Sec. 4279.256(c) and such failure leads to losses, then such
losses may not be recoverable under the guarantee.
(j) Sale or assignment of guaranteed loan. In addition to complying
with the provisions of Sec. 4279.75, the guaranteed portion of the
loan shall be fully
[[Page 20062]]
transferable to any accredited investor and the Agency may not
guarantee a loan funded with the net proceeds of a bond described in
section 142(a) of the Internal Revenue Code of 1986.
(k) Minimum retention. The provisions of Sec. 4279.77 do not apply
to this subpart. Instead, lenders may syndicate a portion of its risk
position to other eligible lenders provided that at no time during the
life of the guarantee may the original lender hold less than 50 percent
of their original unguaranteed position in the loan.
(l) Replacement of document. Documents must be replaced in
accordance with Sec. 4279.84, except, in Sec. 4279.84(b)(1)(v), a
full statement of the circumstances of any defacement or mutilation of
the Loan Note Guarantee or Assignment Guarantee Agreement would also
need to be provided.
Sec. Sec. 4279.203-4279.224 [Reserved]
Sec. 4279.225 Loan processing.
Processing Biorefinery Assistance Guaranteed loans under this
subpart shall comply with the provisions found in Sec. Sec. 4279.107
through 4279.199 of this chapter, except as provided in the following
sections.
Sec. 4279.226 Fees.
Except as specified in paragraphs (a) and (b) of this section, the
fee provisions specified in Sec. 4279.107 apply to guaranteed loans
under this subpart.
(a) Guarantee fee. The guarantee fee shall be as follows:
(1) Two percent for guarantees on loans greater than 75 percent of
total project costs.
(2) One and one-half percent for guarantees on loans of greater
than 65 percent but less than or equal to 75 percent of total project
costs.
(3) One percent for guarantees on loans of 65 percent or less of
total project costs.
(b) Annual renewal fee. The annual renewal fee, which may be passed
on to the borrower, will be paid to the Agency for as long as the
guaranteed loan is outstanding and is payable during the construction
period. The annual renewal fee shall be as follows:
(1) One hundred basis points (1 percent) for guarantees on loans
that were originally greater than 75 percent of total project costs.
(2) Seventy five basis points (0.75 percent) for guarantees on
loans that were originally greater than 65 percent but less than or
equal to 75 percent of total project costs.
(3) Fifty basis points (0.50 percent) for guarantees on loans that
were originally for 65 percent or less of total project costs.
Sec. 4279.227 Borrower eligibility.
Borrower eligibility will be determined according to the provisions
of this section in lieu of Sec. 4279.108.
(a) Eligible entities. To be eligible, a borrower must meet the
requirements specified in paragraphs (a)(1) through (3) of this
section, as applicable.
(1) Type of borrower. The borrower must be one of the following:
(i) An individual;
(ii) An entity;
(iii) An Indian Tribe;
(iv) A unit of State or local government;
(v) A corporation;
(vi) A farm cooperative;
(vii) A farmer cooperative organization;
(viii) An association of agricultural producers;
(ix) A National Laboratory;
(x) An institution of higher education;
(xi) A rural electric cooperative;
(xii) A public power entity; or
(xiii) A consortium of any of the above entities.
(2) Citizenship. Citizenship requirements are as follows:
(i) Individual borrowers must be citizens of the United States
(U.S.), the Republic of Palau, the Federated States of Micronesia, the
Republic of the Marshall Islands, or American Samoa, or reside in the
U.S. after legal admittance for permanent residence.
(ii) Entities other than individuals must be at least 51 percent
owned or controlled by individuals who are either citizens as
identified under paragraph (a)(2)(i) of this section or legally
admitted permanent residents residing in the U.S. When an entity owns
an interest in the borrower, its citizenship will be determined by the
citizenship of the individuals who own an interest in the entity or any
sub-entity based on their ownership interest. This paragraph is not
applicable if the entity is owned solely by members of an immediate
family. In such instance, if at least 51 percent of the immediate
family members are citizens or nationals, as defined in paragraph
(a)(2)(i) of this section, then the entity is eligible.
(iii) If the borrower is a subsidiary, the parent entity or the
entities that have an ownership interest in that borrower must also be
at least 51 percent owned by individuals who are either citizens or
nationals of the United States (U.S.), the Republic of Palau, the
Federated States of Micronesia, the Republic of the Marshall Islands,
or American Samoa, or legally admitted permanent residents residing in
the U.S.
(iv) Corporate borrowers traded on major United States stock
exchanges will be presumed to have more than 51 percent of their owners
as United States citizens.
(3) Legal authority and responsibility. Each borrower must have, or
obtain, the legal authority necessary to construct, operate, and
maintain the proposed facility and services and to obtain, give
security for, and repay the proposed loan.
(b) Ineligible entities. A borrower will be considered ineligible
for a guarantee if the borrower, any owner with more than 20 percent
ownership interest in the borrower, or any owner with more than 3
percent ownership interest in the borrower if there is no owner with
more than 20 percent ownership interest in the borrower:
(1) Has an outstanding judgment obtained by the U.S. in a Federal
Court (other than U.S. Tax Court),
(2) Is delinquent on the payment of Federal income taxes,
(3) Is delinquent on a Federal debt, or
(4) Is debarred or suspended from receiving Federal assistance.
Sec. 4279.228 Project eligibility.
In lieu of the requirements specified in Sec. 4279.113, to be
eligible for a guaranteed loan under this subpart, at a minimum, a
borrower and project, as applicable, must meet each of the requirements
specified in paragraphs (a) through (f) of this section.
(a) The project must be located in a rural area (as defined in
paragraph (f) of this section).
(b) The project must be for either:
(1) The development and construction of commercial-scale
biorefineries using eligible technology or
(2) The retrofitting of existing facilities, including, but not
limited to, wood products facilities and sugar mills, with eligible
technology.
(c) The project must use an eligible feedstock for the production
of an advanced biofuel. Eligible feedstocks include, but are not
limited to, renewable biomass, primarily organic biodegradable
components (by weight) of municipal solid waste, and by-products of the
pulping process. For the purposes of this subpart, recycled paper is
not an eligible feedstock.
(d) More than 70 percent of the revenue generated by the
biorefinery must be from the sale of advanced biofuel.
(e) The project must have cash equity injection of not less than 20
percent of eligible project costs.
(f) For the purposes of this subpart, the term ``Rural or rural
area'' means any area of a State not in a city or town that has a
population of more than 50,000 inhabitants, according to the latest
decennial census of the United States,
[[Page 20063]]
and the contiguous and adjacent urbanized area. In determining which
census blocks in an urbanized area are not in a rural area, the Agency
shall exclude any cluster of census blocks that will otherwise be
considered not in a rural area only because the cluster is adjacent to
not more than 2 census blocks that are otherwise considered not in a
rural area under this definition.
(1) For the purposes of this definition, cities and towns are
incorporated population centers with definite boundaries, local self
government, and legal powers set forth in a charter granted by the
State.
(2) For the Commonwealth of Puerto Rico, the island is considered
rural and eligible for Business Programs assistance, except for the San
Juan Census Designated Place (CDP) and any other CDP with greater than
50,000 inhabitants. CDPs with greater than 50,000 inhabitants, other
than the San Juan CDP, may be determined to be eligible if they are
``not urban in character.'' Any such requests must be forwarded to the
National Office, Business and Industry Division, with supporting
documentation as to why the area is ``not urban in character'' for
review, analysis, and decision by the Under Secretary of Rural
Development.
(3) For the State of Hawaii, all areas within the State are
considered rural and eligible for Business Programs assistance, except
for the Honolulu CDP within the County of Honolulu.
(4) For the purpose of defining a Rural Area in the Republic of
Palau, the Federated States of Micronesia, and the Republic of the
Marshall Islands, the Agency shall determine what constitutes Rural and
Rural Area based on available population data.
Sec. 4279.229 Guaranteed loan funding.
Instead of the provisions found in Sec. 4279.119, the provisions
of this section apply to loans guaranteed under this subpart.
(a) In administering this program's budgetary authority each fiscal
year, the Agency will allocate up to, but no more, than 50 percent of
its budgetary authority to fund applications received by the end of the
first application window. Any funds not obligated to support
applications submitted during the first application window will be
available to support applications received during the second window.
The Agency, therefore, will have a minimum of 50 percent of each fiscal
year's budgetary authority for this program available to support
applications received during the second application window.
(b) The amount of a loan guaranteed for a project under this
subpart will not exceed 80 percent of total eligible project costs.
Total Federal participation will not exceed 80 percent of total
eligible project costs. Eligible project costs are specified in
paragraph (d) of this section.
(c) The maximum principal amount of a loan guaranteed under this
subpart is $250 million to one borrower; there is no minimum amount. If
an eligible borrower receives other direct Federal funding (i.e.,
direct loans and grants) for a project, the amount of the loan that the
Agency will guarantee under this subpart must be reduced by the same
amount of the other direct Federal funding that the eligible borrower
received for the project. For example, an eligible borrower is applying
for a loan guarantee on a $1 million project. The borrower provides the
minimum matching requirement of 20 percent, or $200,000. This leaves
$800,000 in other funding needed to implement the project. If the
borrower receives no other direct Federal funding for this project and
requests a guarantee for the $800,000, the Agency will consider a
guarantee on the $800,000. However, if this borrower receives $100,000
in other direct Federal funding for this project, the Agency will only
consider a guarantee on $700,000.
(d) The maximum guarantee on the principal and interest due on a
loan guaranteed under this subpart will be determined as specified in
paragraphs (d)(1) through (3) of this section.
(1) If the loan amount is equal to or less than $80 million, 80
percent.
(2) If the loan amount is more than $80 million and less than $125
million, 80 percent on the first $80 million and 70 percent on the loan
amount that is greater than $80 million.
(3) If the loan amount is equal to or more than $125 million, 60
percent on the entire loan amount.
(e) Eligible project costs are only those costs associated with the
items listed in paragraphs (e)(1) through (7) of this section, as long
as the items are an integral and necessary part of the total project,
as determined by the Agency.
(1) Purchase and installation of equipment (new, refurbished, or
remanufactured), except agricultural tillage equipment, used equipment,
and vehicles.
(2) Construction or retrofitting.
(3) Permit and license fees.
(4) Working capital.
(5) Land acquisition.
(6) Cost of financing, excluding guarantee and renewal fees.
(7) Any other item identified by the Agency in a notice published
in the Federal Register.
Sec. 4279.230 Subordination of lien position.
In addition to complying with the provisions found in Sec.
4279.123, a subordination must not extend the term of the guaranteed
loan.
Sec. 4279.231 Interest rates.
Instead of the provisions found in Sec. 4279.125, the interest
rate provisions of this section apply to loans guaranteed under this
subpart.
(a) General. The interest rate for the guaranteed loan will be
negotiated between the lender and the applicant. The interest rate
charged must be in line with interest rates on other similar government
guaranteed loan programs, and is subject to Agency review and approval.
(1) The interest rate may be either fixed or variable, as long as
it is a legal rate, and shall be fully amortizing.
(2) The interest rate for both the guaranteed and unguaranteed
portions of the loan must be of the same type (i.e., both fixed or both
variable).
(3) The guaranteed and unguaranteed portions of the loan can bear
interest at different rates, provided that the blended rate on the
entire guaranteed loan shall not exceed the rate on the guaranteed
portion of the loan by more than one (1) percent.
(4) Both portions of the loan must amortize at the same rate.
(b) Variable rates. A variable interest rate agreed to by the
lender and borrower must be based on published indices, such as the
Prime Rate, applicable Treasury rate, or the London Inter Bank Offering
Rate (LIBOR), and agreed to by the lender and the Agency. Variable
rates should have either an internal or external interest rate cap.
(1) The variable interest rate may be adjusted at different
intervals during the term of the loan, but the adjustments may not be
more often than quarterly and no less than yearly to prevent negative
amortization, and must be specified in the loan agreement.
(2) Variable rate loans will not provide for negative amortization
nor will they give the borrower the ability to choose its payment among
various options.
(3) The lender must incorporate, within the variable rate
Promissory Note at loan closing, the provision for adjustment of
payment installments coincident with an interest-rate adjustment.
(4) The lender will ensure that the outstanding principal balance
is properly amortized within the
[[Page 20064]]
prescribed loan maturity to eliminate the possibility of a balloon
payment at the end of the loan.
(c) Interest changes. Any change in the interest rate between the
date of issuance of the Conditional Commitment and before the issuance
of the Loan Note Guarantee must be approved, in writing, by the Agency
approval official. Approval of such a change will be shown as an
amendment to the Conditional Commitment. Such changes are subject to
the restrictions set forth in the following paragraphs.
(1) Reductions. The borrower, lender, and holder (if any) may
collectively initiate a permanent or temporary reduction in the
interest rate of the guaranteed loan at any time during the life of the
loan upon written agreement among these parties. The Agency must be
notified by the lender, in writing, within 15 days of the change. If
any of the guaranteed portion has been purchased by the Agency, then
the Agency will affirm or reject interest rate change proposals in
writing. The Agency will concur in such interest-rate changes only when
it is demonstrated to the Agency that the change is a more viable
alternative than initiating or proceeding with liquidation of the loan
or continuing with the loan in its present state.
(i) Fixed rates can be changed to variable rates to reduce the
borrower's interest rate only when the variable rate has a ceiling for
the life of the guaranteed loan that is less than or equal to the
original fixed rate.
(ii) The interest rates, after adjustments, must comply with the
requirements for interest rates on new loans as established under this
Notice.
(iii) The lender is responsible for the legal documentation of
interest-rate changes by an endorsement or any other legally effective
amendment to the promissory note; however, no new notes may be issued.
Copies of all legal documents must be provided to the Agency.
(2) Increases. Increases in interest rates are not permitted beyond
what is provided in the loan documents. Increases from a variable
interest rate to a higher interest rate that is a fixed rate are
allowed, subject to concurrence by the Agency.
Sec. 4279.232 Terms of loan.
Instead of the provisions found in Sec. 4279.126, the provisions
of this section apply to loans guaranteed under this subpart, except as
provided in Sec. 4279.232(d).
(a) The repayment term for a loan under this subpart will be for a
maximum period of 20 years or 85 percent of the useful life of the
project, as determined by the lender and confirmed by the Agency,
whichever is less. The length of the loan term shall be the same for
both the guaranteed and unguaranteed portions of the loan.
(b) Guarantees must be provided only after consideration is given
to the borrower's overall credit quality and to the terms and
conditions of any applicable subsidies, tax credits, and other such
incentives.
(c) All loans guaranteed under this subpart must be financially
sound and feasible, with reasonable assurance of repayment.
(d) Repayment of the loan shall be in accordance with Sec.
4279.125(a) and Sec. 4279.126(b), (c), and (d).
Sec. 4279.233 Credit evaluation.
Instead of the provisions found in Sec. 4279.131, the provisions
of this section apply to loans guaranteed under this subpart. For all
applications for guarantee, the lender must prepare a credit
evaluation. An acceptable credit evaluation must:
(a) Use credit documentation procedures and an underwriting process
that are consistent with generally accepted commercial lending
practices, and
(b) Include an analysis of the credit factors associated with each
guarantee application to ensure loan repayment, including consideration
of each of the following five elements.
(1) Credit worthiness. Those financial qualities that generally
impel the borrower to meet its obligations as demonstrated by its
credit history.
(2) Cash flow. A borrower's ability to produce sufficient cash to
repay the loan as agreed.
(3) Capital. The financial resources that the borrower currently
has and those it is likely to have when payments are due. The borrower
must be adequately capitalized.
(4) Collateral. The assets, including processing technology owned
by the borrower, less those acquired with other Federal funds pledged
by the borrower in support of the loan. Collateral must have documented
value sufficient to protect the interest of the lender and the Agency
and the discounted collateral value must be at least equal to the loan
amount. Lenders will discount collateral consistent with sound loan-to-
value policy.
(5) Conditions. The general business environment and status of the
borrower's industry.
(c) When determining the credit quality of the borrower, the lender
must include the following in its analysis:
(1) Borrowers shall demonstrate evidence of cash equity injection
in the project of not less than 20 percent of eligible project costs.
The fair market value of equity in real property that is to be pledged
as collateral for the loan may be substituted in whole or in part to
meet the cash equity requirement. However, the appraisal completed to
establish the fair market value of the real property must not be more
than 1 year old unless a more recent appraisal is requested by the
Agency in order to reflect market conditions. The appraisal used to
establish fair market value of the real property must conform to the
requirements of Sec. 4279.244. Otherwise, cash equity injection must
be in the form of cash.
(2) The credit analysis must also include spreadsheets of the
balance sheets and income statements of the borrower for the 3 previous
years (for existing businesses), pro forma balance sheets at startup,
and projected yearend balance sheets and income statements for a period
of not less than 3 years of stabilized operation, with appropriate
ratios and comparisons with industrial standards (such as Dun &
Bradstreet or Robert Morris Associates) to the extent industrial
standards are available.
(3) All data must be shown in total dollars and also in common size
form, obtained by expressing all balance sheet items as a percentage of
assets and all income and expense items as a percentage of sales.
Sec. Sec. 4279.234-4279.236 [Reserved]
Sec. 4279.237 Financial statements.
The provisions of Sec. 4279.137 do not apply to this subpart.
Instead, the submittal of financial statements with the loan guarantee
application must meet the requirements specified in Sec. 4279.261(c).
Sec. Sec. 4279.238-4279.243 [Reserved]
Sec. 4279.244 Appraisals.
All appraisals must be in accordance with Sec. 4279.144 and each
appraisal must be a complete self-contained appraisal. Lenders must
complete at least a Transaction Screen Questionnaire for any
undeveloped sites and a Phase I Environmental Site Assessment in
accordance with ASTM International Standards on existing business
sites, which should be provided to the appraiser for completion of the
self-contained appraisal. Specialized appraisers will be required to
complete appraisals under this section. The Agency may approve a waiver
of this requirement only if a specialized appraiser does not exist in a
specific industry or hiring one will cause an undue financial burden to
the borrower.
[[Page 20065]]
Sec. Sec. 4279.245-4279.249 [Reserved]
Sec. 4279.250 Feasibility studies.
The provisions of Sec. 4279.150 do not apply to this subpart.
Instead, feasibility studies must meet the requirements specified in
Sec. 4279.261(f).
Sec. Sec. 4279.251-4279.254 [Reserved]
Sec. 4279.255 Loan priorities.
The provisions of Sec. 4279.155 do not apply to this subpart.
Sec. 4279.256 Construction planning and performing development.
The lender must comply with Sec. 4279.156(a) through (c), except
as otherwise provided in paragraphs (a) through (f) of this section.
(a) Architectural and engineering practices. Under paragraph Sec.
4279.156(a), the lender must also ensure that all project facilities
are designed utilizing accepted architectural and engineering practices
that conform to the requirements of this subpart.
(b) Onsite inspector. The lender must provide an onsite project
inspector.
(c) Changes and cost overruns. The borrower shall be responsible
for any changes or cost overruns. If any such change or cost overrun
occurs, then any change order must be expressly approved by the Agency
which approval shall not be unreasonably withheld, and neither the
lender nor borrower will divert funds from purposes identified in the
guaranteed loan application approved by the Agency to pay for any such
change or cost overrun without the express written approval of the
Agency. In no event will the current loan be modified or a subsequent
guaranteed loan be approved to cover any such changes or costs. In the
event of any of the aforementioned increases in cost or expenses, the
borrower must provide for such increases in a manner that does not
diminish the borrower's operating capital. Failure to comply with the
terms of this paragraph will be considered a material adverse change in
the borrower's financial condition, and the lender must address this
matter, in writing, to the Agency's satisfaction.
(d) New draw certifications. The following three certifications are
required for each new draw:
(1) Certification by the project engineer to the lender that the
work referred to in the draw has been successfully completed;
(2) Certification from the lender that all debts have been paid and
all mechanics' liens have been waived; and
(3) Certification from the lender that the borrower is complying
with the Davis-Bacon Act.
(e) Surety. Surety will be required in cases when the guarantee
will be issued prior to completion of construction unless the
contractor will receive a lump sum payment at the end of work. Surety
will be made a part of the contract, if the borrower requests it or if
the contractor requests partial payments for construction work. In such
cases where no surety is provided and the project involves pre-
commercial technology, first of its type in the U.S., or new designs
without sufficient operating hours to prove their merit, a latent
defects bond may be required by the Agency to cover the work.
(f) Reporting during construction. During the construction of the
project, lenders shall submit quarterly construction progress reports
to the Agency. These reports must contain, at a minimum, planned and
completed construction milestones, loan advances, and personnel hiring,
training, and retention. This requirement applies to both the
development and construction of commercial-scale biorefineries and to
the retrofitting of existing facilities using eligible technology for
the development of advanced biofuels. The lender must expeditiously
report any problems in project development to the Agency.
Sec. Sec. 4279.257-4279.258 [Reserved]
Sec. 4279.259 Borrower responsibilities.
(a) Federal, State, and local regulations. Borrowers must comply
with all Federal, State, and local laws and rules that are in existence
and that affect the project including, but not limited to:
(1) Land use zoning;
(2) Health, safety, and sanitation standards as well as design and
installation standards; and
(3) Protection of the environment and consumer affairs.
(b) Permits, agreements, and licenses. Borrowers must obtain all
permits, agreements, and licenses that are applicable to the project.
(c) Insurance. The borrower is responsible for maintaining all
hazard, flood, liability, worker compensation, and personal life
insurance, when required, on the project.
(d) Access to borrower's records. Except as provided by law, upon
request by the Agency, the borrower will permit representatives of the
Agency (or other agencies of the U.S. Department of Agriculture or
Federal Departments as authorized by the U.S. Department of
Agriculture) to inspect and make copies of any of the records of the
borrower pertaining to any Agency guaranteed loan. Such inspection and
copying may be made during regular office hours of the borrower or at
any other time agreed upon between the borrower and the Agency.
(e) Access to the project. The borrower must allow the Agency
access to the project and its performance information until the loan is
repaid in full and permit periodic inspection of the project by a
representative of the Agency.
Sec. 4279.260 Guarantee applications-General.
The provisions of Sec. 4279.161 do not apply to this subpart.
Instead, the application provisions of this section and Sec. 4279.261
apply to the preparation of Biorefinery Assistance Guaranteed loan
applications.
(a) Application submittal. For each guarantee request, the lender
must submit to the Agency an application that is in conformance with
Sec. 4279.261. One original completed application and two hard copies
of the complete application, including all attachments, are to be
submitted to the Agency.
(b) Application deadline. Unless otherwise specified by the Agency
in a notice published in the Federal Register, complete applications
must be received by the Agency on or before by June 1 of each year to
be considered for funding for that fiscal year. If the application
deadline falls on a weekend or a Federally-observed holiday, the
deadline will be the next Federal business day.
(c) Incomplete applications. Incomplete applications will be
rejected. Lenders will be informed of the elements that made the
application incomplete. If a resubmitted application is received by the
applicable application deadline, the Agency will reconsider the
application.
(d) Application withdrawal. During the period between the
submission of an application and the execution of documents, the lender
must notify the Agency, in writing, if the project is no longer viable
or the borrower is no longer requesting financial assistance for the
project. When the lender so notifies the Agency, the selection will be
rescinded or the application withdrawn.
Sec. 4279.261 Application for loan guarantee content.
Approved lenders must submit an Agency-approved application form
for each loan guarantee sought under this subpart. Loan guarantee
applications from approved lenders must contain the information
specified in paragraphs (a) through (n) of this section, organized
pursuant to a Table of contents in a
[[Page 20066]]
chapter format, and in paragraph (o) of this section as applicable.
(a) Project Summary. Provide a concise summary of the proposed
project and application information, project purpose and need, and
project goals, including the following:
(1) Title. Provide a descriptive title of the project.
(2) Borrower eligibility. Describe how the borrower meets the
eligibility criteria identified in Sec. 4279.227.
(3) Project eligibility. Describe how the project meets the
eligibility criteria identified in paragraph (c) of this section.
Clearly state whether the application is for the construction and
development of a biorefinery or for the retrofitting of an existing
facility. Provide results from demonstration or pilot facilities that
prove the technology proposed to be used meets the definition of
eligible technology. Additional project description information will be
needed later in the application process.
(4) Matching funds. Submit a spreadsheet identifying sources,
amounts, and availability of matching funds. The spreadsheet must also
include a directory of matching funds source contact information.
Attach any applications, correspondence, or other written communication
between borrower and matching fund source.
(b) Lender's analysis and credit evaluation (conforming to Sec.
4279.232(b)). This analysis shall include:
(1) A summary of the technology to be used in the project;
(2) The viability of such technology for the particular project
application;
(3) The development type (e.g., installation, construction,
retrofit);
(4) The credit reports of the borrower, its principals, and any
parent, affiliate, or subsidiary as follows:
(i) A personal credit report from an acceptable credit reporting
company for individuals owning 20 percent or more interest in the
borrower or any owner with more than 10 percent ownership interest in
the borrower if there is no owner with more than 20 percent ownership
interest in the borrower, including a proprietor (owner), each partner,
officer, director, key employee, and stockholder, except for when the
borrower is a corporation listed on a major stock exchange. Credit
reports are not required for elected and appointed officials when the
borrower is a public body or non-profit corporation; and
(ii) Commercial credit reports on the borrower and any parent,
affiliate, and subsidiary firms;
(5) The credit analysis specified in Sec. 4279.232(b); and
(6) For loans of $125 million or more, an evaluation and credit
rating of the total project's indebtedness, without consideration for a
government guarantee, from a nationally-recognized rating agency.
(c) Financial statements. Financial statements as follows:
(1) For businesses that have been in existence for one or more
years,
(i) The most recent audited financial statements of the borrower if
the guaranteed loan is $3 million or more, unless alternative financial
statements are authorized by the Agency; or
(ii) The most recent audited or Agency-acceptable financial
statements of the borrower if the guaranteed loan is less than $3
million.
(2) For businesses that have been in existence for less than one
year, the most recent Agency-authorized financial statements of the
borrower regardless of the amount of the guaranteed loan request.
(3) For all businesses, a current (not more than 90 days old)
balance sheet; a pro forma balance sheet at startup; and projected
balance sheets, income and expense statements, and cash flow statements
for a period of not less than 3 years of stabilized operation.
Projections should be supported by a list of assumptions showing the
basis for the projections.
(4) Depending on the complexity of the project and the financial
condition of the borrower, the Agency may request additional financial
statements and additional related information.
(d) Environmental information. Environmental information required
by the Agency to conduct its environmental reviews (as specified in RD
1940-G, Exhibit H).
(e) Appraisals. An appraisal conducted as specified under Sec.
4279.244.
(f) Feasibility study. Elements in an acceptable feasibility study
include, but are not limited to, the elements outlined in Table 1. In
addition, as part of the feasibility study, both a technical assessment
and economic analysis of the project are required, as specified in
paragraphs (h) and (i) of this section.
Table 1--Feasibility Study Components
------------------------------------------------------------------------
-------------------------------------------------------------------------
(A) Executive Summary
------------------------------------------------------------------------
Introduction/Project Overview (Brief general overview of project
location, size, etc.)
Economic feasibility determination.
Market feasibility determination.
Technical feasibility determination.
Financial feasibility determination.
Management feasibility determination.
Recommendations for implementation.
------------------------------------------------------------------------
(B) Economic Feasibility
------------------------------------------------------------------------
Information regarding project site;
Availability of trained or trainable labor;
Availability of infrastructure, including utilities, and rail, air
and road service to the site.
Feedstock:
Feedstock source management
Estimates of feedstock volumes and costs
Collection, Pre-Treatment, Transportation, and Storage
Document that any and all woody biomass feedstock cannot be used as
a higher value wood-based product.
Impacts on existing manufacturing plants or other facilities that
use similar feedstock if the borrower's proposed biofuel production
technology is adopted.
Project impact on resource conservation, public health, and the
environment.
Overall economic impact of the project including any additional
markets created for agricultural and forestry products and
agricultural waste material and potential for rural economic
development.
[[Page 20067]]
Feasibility/plans of project to work with producer associations or
cooperatives including estimated amount of annual feedstock and
biofuel and biobased by-product dollars from producer associations
and cooperatives.
------------------------------------------------------------------------
(C) Market Feasibility
------------------------------------------------------------------------
Information on the sales organization and management;
Nature and extent of market and market area;
Marketing plans for sale of projected output--principle products and
by-products;
Extent of competition including other similar facilities in the
market area;
Commitments from customers or brokers--principle products and by-
products;
Risks Related to the Advanced Biofuel Industry, including industry
status.
------------------------------------------------------------------------
(D) Technical Feasibility
------------------------------------------------------------------------
Suitability of the selected site for the intended use.
Scale of development for which the process technology has been
proven (i.e., lab or bench, pilot, demonstration, or semi-work
scale).
Specific volume of the process (expressed either as volume of
feedstock processed--tons per unit of time, or as product--gallons
per unit of time).
Any constraints or limitations in the financial projections and any
other facility or design-related factors that might affect the
success of the enterprise.
Identification and estimation of project operation and development
costs. Specify the level of accuracy of these estimates and the
assumptions on which these estimates have been based.
Ability of the proposed system to be commercially replicated.
Identify how the project assists in meeting or reaching the goals
identified in the Renewable Fuel Standard established in the Energy
Independence and Security Act of 2007 and subsequent laws.
Risks Related to:
Construction of the Advanced Biofuel Plant;
Advanced Biofuel Production; and
Regulation and Governmental Action.
------------------------------------------------------------------------
(E) Financial Feasibility
------------------------------------------------------------------------
Reliability of the financial projections and assumptions on which
the financial statements are based including all sources of project
capital both private or public, such as Federal funds. Three years
(minimum) projected Balance Sheets, Income and Expense Statements,
and Cash Flow statements.
Ability of the business to achieve the projected income and cash
flow.
Assessment of the cost accounting system.
Availability of short-term credit or other means to meet seasonal
business costs.
Adequacy of raw materials and supplies.
Sensitivity Analysis--including feedstock and energy costs, product
and by-product prices.
Risks Related to:
The Project;
Borrower Financing Plan;
The operational units; and
Tax Issues.
------------------------------------------------------------------------
(F) Management Feasibility
------------------------------------------------------------------------
Identify borrower and/or management's previous experience
concerning:
Biofuel production;
Acquisition of feedstock;
Marketing and sale of offtake; and
The receipt of Federal financial assistance, including amount of
funding, date received, purpose, and outcome.
Management plan for procurement of feedstock and labor, marketing of
the offtake, and management succession.
Risks Related to:
Borrower as a Company (i.e., Development-Stage); and
Conflicts of Interest.
------------------------------------------------------------------------
(G) Qualifications
------------------------------------------------------------------------
A resume or statement of qualifications of the author of the
feasibility study, including prior experience, should be submitted.
------------------------------------------------------------------------
(g) Business plan. The lender must submit a business plan that
includes the information specified in paragraphs (g)(1) through (10) of
this section. Any or all of this information may be omitted if it is
included in the feasibility study specified in paragraph (f) of this
section.
(1) The borrower's experience;
(2) The borrower's succession planning addressing both ownership
and management;
(3) The names and a description of the relationship of the
borrower's parent, affiliates, and subsidiaries;
(4) The borrower's business strategy;
(5) Possible vendors and models of major system components;
(6) The availability of the resources (e.g., labor, raw materials,
supplies) necessary to provide those products and services;
(7) Site location and its relation to product distribution (e.g.,
rail lines or highways) and any land use or other permits necessary to
operate the facility;
[[Page 20068]]
(8) The market for the product and its competition, including any
and all competitive threats and advantages;
(9) Projected balance sheets, income and expense statements, and
cash flow statements for a period of not less than 3 years of
stabilized operation; and
(10) A description of the proposed use of funds.
(h) Technical Assessment. As part of the feasibility study required
under paragraph (f) of this section, a detailed technical assessment is
required for each project. The technical assessment must demonstrate
that the design, procurement, installation, startup, operation and
maintenance of the project will permit it to operate or perform as
specified over its useful life in a reliable and a cost effective
manner, and must identify what the useful life of the project is. The
technical assessment must also identify all necessary project
agreements, demonstrate that those agreements will be in place at or
before the time of loan closing, and demonstrate that necessary project
equipment and services will be available over the useful life of the
project. The technical assessment must be based upon verifiable data
and contain sufficient information and analysis so that a determination
can be made on the technical feasibility of achieving the levels of
income or production that are projected in the financial statements.
All technical information provided must follow the format specified in
paragraphs (h)(1) through (9) of this section. Supporting information
may be submitted in other formats. Design drawings and process flow
charts are required as exhibits. A discussion of each topic identified
in paragraphs (h)(1) through (9) of this section is not necessary if
the topic is not applicable to the specific project. Questions
identified in the Agency's technical review of the project must be
answered to the Agency's satisfaction before the application will be
approved. All projects require the services of an independent, third-
party professional engineer.
(1) Qualifications of project team. The project team will vary
according to the complexity and scale of the project. The project team
must have demonstrated expertise in similar advanced biofuel technology
development, engineering, installation, and maintenance. Authoritative
evidence that project team service providers have the necessary
professional credentials or relevant experience to perform the required
services for the development, construction, and retrofitting, as
applicable, of technology for producing advanced biofuels must be
provided. In addition, authoritative evidence that vendors of
proprietary components can provide necessary equipment and spare parts
for the biorefinery to operate over its useful life must be provided.
The application must:
(i) Discuss the proposed project delivery method. Such methods
include a design, bid, build where a separate engineering firm may
design the project and prepare a request for bids and the successful
bidder constructs the project at the borrower's risk, and a design
build method, often referred to as turnkey, where the borrower
establishes the specifications for the project and secures the services
of a developer who will design and build the project at the developer's
risk;
(ii) Discuss the advanced biofuels technology equipment
manufacturers of major components being considered in terms of the
length of time in business and the number of units installed at the
capacity and scale being considered;
(iii) Discuss the project team members' qualifications for
engineering, designing, and installing advanced biofuels refineries
including any relevant certifications by recognized organizations or
bodies. Provide a list of the same or similar projects designed,
installed, or supplied and currently operating and with references if
available; and
(iv) Describe the advanced biofuels refinery operator's
qualifications and experience for servicing, operating, and maintaining
such equipment or projects. Provide a list of the same or similar
projects designed, installed, or supplied and currently operating, with
references if available.
(2) Agreements and permits. All necessary agreements and permits
required for the project and the status and schedule for securing those
agreements and permits, including the items specified in paragraphs
(h)(2)(i) through (vi) of this section, must be identified in the
application.
(i) Advanced biofuels refineries must be installed in accordance
with applicable local, State, and national codes and regulations.
Identify zoning and code issues, and required permits and the schedule
for meeting those requirements and securing those permits.
(ii) Identify licenses where required and the schedule for
obtaining those licenses.
(iii) Identify land use agreements required for the project and the
schedule for securing the agreements and the term of those agreements.
(iv) Identify any permits or agreements required for solid, liquid,
and gaseous emissions or effluents and the schedule for securing those
permits and agreements.
(v) Identify available component warranties for the specific
project location and size.
(vi) Identify all environmental issues, including environmental
compliance issues, associated with the project.
(3) Resource assessment. Adequate and appropriate evidence of the
availability of the feedstocks required for the advanced biofuels
refinery to operate as designed must be provided in the application.
Indicate the type and quantity of the feedstock, including storage,
where applicable, and competing uses for the feedstock. Indicate
shipping or receiving methods and required infrastructure for shipping,
and other appropriate transportation mechanisms. For proposed projects
with an established resource, provide a summary of the resource.
(4) Design and engineering. Authoritative evidence that the
advanced biofuels refinery will be designed and engineered so as to
meet its intended purposes, will ensure public safety, and will comply
with applicable laws, regulations, agreements, permits, codes, and
standards must be provided in the application. Projects shall be
engineered by a qualified entity. Each biorefinery must be engineered
as a complete, integrated facility. The engineering must be
comprehensive, including site selection, systems and component
selection, and systems monitoring equipment. Biorefineries must be
constructed by a qualified entity.
(i) The application must include a concise but complete description
of the project including location of the project; resource
characteristics, including the kind and amount of feedstocks;
biorefinery specifications; kind, amount, and quality of the output;
and monitoring equipment. Address performance on a monthly and annual
basis. Describe the uses of or the market for the advanced biofuels
produced by the biorefinery. Discuss the impact of reduced or
interrupted feedstock availability on the biorefinery's operations.
(ii) The application must include a description of the project site
and address issues such as site access, foundations, backup equipment
when applicable, and the environmental information documents Form RD
1940-20 and required narrative in the 7 CFR part 1940, subpart G,
Exhibit H format. Identify any unique construction and installation
issues.
(iii) Sites must be controlled by the eligible borrower for at
least the
[[Page 20069]]
financing term of any associated Federal loans or loan guarantees.
(5) Project development schedule. Each significant task, its
beginning and end, and its relationship to the time needed to initiate
and carry the project through startup and shakedown must be provided in
the application. Provide a detailed description of the project timeline
including resource assessment, project and site design, permits and
agreements, equipment procurement, and project construction from
excavation through startup and shakedown.
(6) Equipment procurement. A demonstration that equipment required
by the biorefinery is available and can be procured and delivered
within the proposed project development schedule must be provided in
the application. Biorefineries may be constructed of components
manufactured in more than one location. Provide a description of any
unique equipment procurement issues such as scheduling and timing of
component manufacture and delivery, ordering, warranties, shipping,
receiving, and on-site storage or inventory.
(7) Equipment installation. A full description of the management of
and plan for site development and systems installation, details
regarding the scheduling of major installation equipment needed for
project construction, and a description of the startup and shakedown
specification and process and the conditions required for startup and
shakedown for each equipment item individually and for the biorefinery
as a whole must be provided in the application.
(8) Operations and maintenance. The operations and maintenance
requirements of the biorefinery necessary for the biorefinery to
operate as designed over the useful life must be provided in the
application. The application must also include:
(i) Information regarding available biorefinery and component
warranties and availability of spare parts;
(ii) A description of the routine operations and maintenance
requirements of the proposed biorefinery, including maintenance
schedules for the mechanical, piping, and electrical systems and system
monitoring and control requirements, as well as provision of
information that supports expected useful life of the biorefinery and
timing of major component replacement or rebuilds;
(iii) A discussion of the costs and labor associated with operating
and maintaining the biorefinery and plans for in-sourcing or
outsourcing. A description of the opportunities for technology transfer
for long term project operations and maintenance by a local entity or
owner/operator; and
(iv) Provision and discussion of the risk management plan for
handling large, unanticipated failures of major components.
(9) Decommissioning. A description of the decommissioning process,
when the project must be uninstalled or removed. A description of any
issues, requirements, and costs for removal and disposal of the
biorefinery.
(i) Economic Analysis. The feasibility study required under
paragraph (f) of this section must contain a detailed economic analysis
of the project. The economic analysis must describe the costs and
revenues of the proposed project to demonstrate the financial
performance of the project by:
(1) Providing a detailed analysis and description of project costs
including project management, resource assessment, project design,
project permitting, land agreements, equipment, site preparation,
systems installation, startup and shakedown, warranties, insurance,
financing, professional services, and operations and maintenance costs;
(2) Providing a detailed analysis and description of annual project
revenues and expenses over the useful life of the project;
(3) Providing a detailed description of applicable investment
incentives, productivity incentives, loans, and grants; and
(4) Identifying any other project authorities and subsidies that
affect the project.
(j) Loan Agreement. A proposed loan agreement or a sample loan
agreement with an attached list of the proposed loan agreement
provisions as specified in Sec. 4279.161(b)(11).
(k) Lender certifications. The lender must provide certification in
accordance with Sec. 4279.161(b)(16). In addition, the lender must
certify that the project is able to demonstrate technical merit.
(l) Intergovernmental consultation. Intergovernmental consultation
comments in accordance with RD Instruction 1940-J and 7 CFR, part 3015,
subpart V.
(m) DUNS Number. For borrowers other than individuals, a Dun and
Bradstreet Universal Numbering System (DUNS) number.
(n) Bioenergy experience. Identify borrower's, including its
principals', prior experience in bioenergy projects and the receipt of
Federal financial assistance, including the amount of funding, date
received, purpose, and outcome, for such projects.
(o) Other information. Any other information determined by the
Agency to be necessary to evaluate the application.
Sec. Sec. 4279.262-4279.264 [Reserved]
Sec. 4279.265 Guarantee application evaluation.
Instead of evaluating applications using the provisions of Sec.
4279.165, the Agency will evaluate and award applications according to
the provisions specified in paragraphs (a) through (h) of this section.
(a) Application processing. Upon receipt of a complete application,
the Agency will conduct a review to determine if the borrower, lender,
and project are eligible; if the project has technical merit as
determined under paragraph (b) of this section; and if the minimum
financial metric criteria under paragraph (c) of this section are met.
(1) If the borrower, lender, or the project is determined to be
ineligible for any reason, the Agency will inform the lender, in
writing, of the reasons. No further evaluation of the application will
occur.
(2) If the Agency determines it is unable to guarantee the loan,
the lender will be informed in writing. Such notification will include
the reasons for denial of the guarantee.
(b) Technical merit determination. The Agency's determination of a
project's technical merit will be based on the information in the
application. Projects determined by the Agency to be without technical
merit will not be selected for funding.
(c) Financial metric criteria. The borrower must meet the financial
metric criteria specified in paragraphs (c)(1) through (3) of this
section. These financial metric criteria shall be calculated from the
realistic information in the pro forma statements or borrower financial
statements, submitted in accordance with Sec. 4279.261(c), of a
typical operating year after the project is completed and stabilized.
(1) A debt coverage ratio of 1.0 or higher.
(2) A debt-to-tangible net worth ratio of 4:1 or lower for startup
businesses and of 9:1 or lower for existing businesses.
(3) A discounted loan-to-value ratio of no more than 1.0.
(d) Scoring applications. The Agency will score each complete and
eligible application it receives on or before June 1 in the fiscal year
in which it was received. The Agency will score each eligible
application that meets the minimum requirements for financial and
technical feasibility using the
[[Page 20070]]
evaluation criteria identified below. A maximum of 100 points is
possible.
(1) Whether the borrower has established a market for the advanced
biofuel and the by-products produced. A maximum of 5 points can be
awarded. Points to be awarded will be determined as follows:
(i) If the business has less than or equal to a 60 percent
commitment for feedstocks, marketing agreements for the advanced
biofuel, and the biobased by-products produced, 0 points will be
awarded.
(ii) If the business has a greater than 60 percent commitment for
feedstocks, marketing agreements for the advanced biofuel, and the
biobased by-products produced, 5 points will be awarded.
(2) Whether the area in which the borrower proposes to place the
biorefinery, defined as the area that will supply the feedstock to the
proposed biorefinery, has other similar advanced biofuel facilities. A
maximum of 5 points can be awarded. Points to be awarded will be
determined as follows:
(i) If the area that will supply the feedstock to the proposed
biorefinery does not have any other advanced biofuel biorefineries, 5
points will be awarded.
(ii) If there are other advanced biofuel biorefineries located
within the area that will supply the feedstock to the proposed
biorefinery, 0 points will be awarded.
(3) Whether the borrower is proposing to use a feedstock not
previously used in the production of advanced biofuels. A maximum of 15
points can be awarded. Points to be awarded will be determined as
follows:
(i) If the borrower proposes to use a feedstock previously used in
the production of advanced biofuels in a commercial facility, 0 points
will be awarded.
(ii) If the borrower proposes to use a feedstock not previously
used in production of advanced biofuels in a commercial facility, 15
points will be awarded.
(4) Whether the borrower is proposing to work with producer
associations or cooperatives. A maximum of 5 points can be awarded.
Five (5) points will be awarded if all of the conditions specified in
paragraphs (d)(4)(i) through (iii) of this section are met. If any one
of these conditions is not met, 0 points will be awarded. For example,
consider a proposed biorefinery that will purchase $1,000,000 of
feedstock and produce $5,000,000 worth of biofuel and $2,000,000 worth
of biobased by-products. In order to receive the 5 points under this
criterion, at least $500,000 worth of feedstock purchases must be from
producer associations or cooperatives, at least $2,500,000 worth of
biofuel must be sold to producer associations or cooperatives, and at
least $1,000,000 worth of biobased by-products must be sold to producer
associations or cooperatives.
(i) At least 60 percent of the dollar value of feedstock to be used
by the proposed biorefinery will be supplied by producer associations
and cooperatives;
(ii) At least 60 percent of the dollar value of the advanced
biofuel to be produced by the proposed biorefinery will be sold to
producer associations and cooperatives; and
(iii) At least 60 percent of the dollar value of the advanced
biobased by-products to be produced by the proposed biorefinery will be
sold to producer associations and cooperatives.
(5) The level of financial participation by the borrower, including
support from non-Federal and other private sources. Other Direct
Federal funding (i.e., direct loans and grants) will not be considered
as part of the borrower's cash equity participation. A maximum of 20
points can be awarded. Points to be awarded will be determined as
follows:
(i) If the borrower's cash equity injection plus other resources
results in a debt-to-tangible net worth ratio equal to or less than 3
to 1, but greater than 2.5 to 1, 10 points will be awarded.
(ii) If the borrower's cash equity injection plus other resources
results in a debt-to-tangible net worth ratio equal to or less than 2.5
to 1, 20 points will be awarded.
(iii) If a project uses other Federal direct funding, 10 points
will be deducted.
(6) Whether the borrower has established that the adoption of the
process proposed in the application will have a positive effect on
three impact areas: resource conservation, public health, and the
environment. A maximum of 5 points can be awarded. Based on what the
borrower has provided in either the application or the feasibility
study, points to be awarded will be determined as follows:
(i) If process adoption will have a positive impact on any one of
the three impact areas (resource conservation, public health, or the
environment), 1 point will be awarded.
(ii) If process adoption will have a positive impact on two of the
three impact areas, 3 points will be awarded.
(iii) If process adoption will have a positive impact on all three
impact areas, 5 points will be awarded.
(7) Whether the borrower can establish that, if adopted, the
biofuels production technology proposed in the application will not
have any economically significant negative impacts on existing
manufacturing plants or other facilities that use similar feedstocks. A
maximum of 5 points can be awarded. Points to be awarded will be
determined as follows:
(i) If the borrower has not established, through an independent
third party (i.e., feasibility study), that the biofuels production
technology proposed in the application, if adopted, will not have any
economically significant negative impacts on existing manufacturing
plants or other facilities that use similar feedstocks, 0 points will
be awarded.
(ii) If the borrower has established, through an independent third
party (i.e., feasibility study), that the biofuels production
technology proposed in the application, if adopted, will not have any
economically significant negative impacts on existing manufacturing
plants or other facilities that use similar feedstocks, 5 points will
be awarded.
(8) The potential for rural economic development. If the business
creates jobs with an average wage that exceeds both the State and
County median household wages where the biorefinery will be located, 5
points will be awarded.
(9) The level of local ownership of the biorefinery proposed in the
application. A maximum of 15 points can be awarded. Points to be
awarded will be determined as follows:
(i) If more than 20 but less than or equal to 50 percent of the
biorefinery's owners are local owners, 9 points will be awarded.
(ii) If more than 50 percent of the biorefinery's owners are local
owners, 15 points will be awarded.
(10) Whether the project can be replicated. A maximum of 5 points
can be awarded. Points to be awarded will be determined as follows:
(i) If the project can be commercially replicated regionally (e.g.,
Northeast, Southwest, etc.), 2 points will be awarded.
(ii) If the project can be commercially replicated nationally, up
to 5 points will be awarded.
(11) If the project uses a particular technology, system, or
process that is not currently operating in the advanced biofuel market
as of October 1 of the fiscal year for which the funding is available,
15 points will be awarded.
(12) If the project proposes to use a feedstock that can be used
for human or animal consumption, 5 points will be deducted from the
score.
(e) Ranking of applications. The Agency will rank all scored
applications to create a priority list of scored applications for that
program. Unless
[[Page 20071]]
otherwise specified in a notice published in the Federal Register, the
Agency will rank applications on or before May 31 for complete and
eligible applications received by March 1 and on or before August 31
for complete and eligible applications received on or before June 1.
(1) All applications that are ranked in a given fiscal year will be
considered for selection for funding for that entire fiscal year.
(2) When an application scored in first set of applications is
carried forward into the second set of applications, it will be
competed against all of the applications in the second set using its
score from the first set of applications.
(f) Selection of applications for funding. Using the priority list
created under paragraph (e) of this section, the Agency will select
applications for funding based on the criteria specified in paragraphs
(f)(1) through (3) of this section. The Agency will notify, in writing,
lenders whose applications have been selected for funding.
(1) Ranking. The Agency will consider the score an application has
received compared to the scores of other applications in the priority
list, with higher scoring applications receiving first consideration
for funding. A minimum score of 55 points is required in order to be
considered for a guarantee.
(2) Availability of budgetary authority. The Agency will consider
the size of the request relative to the budgetary authority that
remains available to the program during the fiscal year.
(i) If there is insufficient budgetary authority during a
particular funding period to select a higher scoring application, the
Agency may elect to select the next highest scoring application for
further processing. Before this occurs, the Agency will provide the
borrower of the higher scoring application the opportunity to reduce
the amount of its request to the amount of budgetary authority
available. If the borrower agrees to lower its request, it must certify
that the purposes of the project can be met, and the Agency must
determine the project is financially feasible at the lower amount.
(ii) If the amount of funding required is greater than 25 percent
of the program's outstanding budgetary authority, the Agency may elect
to select the next highest scoring application for further processing,
provided the higher scoring borrower is notified of this action and
given an opportunity to revise their application and resubmit it.
(3) Availability of other funding sources. If other financial
assistance is needed for the project, the Agency will consider the
availability of other funding sources. If the lender cannot demonstrate
that funds from these sources are available at the time of selecting
applications for funding or potential funding, the Agency may instead
select the next highest scoring application for further processing
ahead of the higher scoring application.
(g) Ranked applications not funded. A ranked application that is
not funded in the fiscal year in which it was submitted will not be
carried forward into the next fiscal year. The Agency will notify the
lender in writing. If an application has been selected for funding, but
has not been funded because additional information is needed, the
Agency will notify the lender of what information is needed, including
a timeframe for the lender to provide the information. If the lender
does not provide the information within the specified timeframe, the
Agency will remove the application from further consideration and will
so notify the lender.
(h) Wage rates. As a condition of receiving a loan guaranteed under
this subpart, each borrower shall ensure 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 subpart shall be 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. Awards under this subpart are
further subject to the relevant regulations contained in title 29 of
the Code of Federal Regulations.
Sec. Sec. 4279.266-4279.279 [Reserved]
Sec. 4279.280 Changes in borrowers.
All changes in borrowers must be in accordance with Sec. 4279.180,
but the eligibility requirements of this program apply.
Sec. 4279.281 Conditions precedent to issuance of loan note
guarantee.
The loan note guarantee will not be issued until the lender
certifies to the conditions identified in Sec. 4279.181(a) through (o)
and paragraphs (a) through (g) of this section. 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 as to why
the lender is unable to provide the certification.
(a) For loans exceeding $150,000, the lender has certified its
compliance with the Anti-Lobby Act (18 U.S.C. 1913). Also, if any funds
have been, or will be, paid to any person for influencing or attempting
to influence an officer or employee of any agency, a Member of
Congress, an officer or employee of Congress, or an employee of a
Member of Congress in connection with this commitment providing for the
United States to guarantee a loan, the lender shall completely disclose
such lobbying activities in accordance with 31 U.S.C. 1352.
(b) Where applicable, the lender must certify that the borrower has
obtained:
(1) A legal opinion relative to the title to rights-of-way and
easements. Lenders are responsible for ensuring that borrowers have
obtained valid, continuous, and adequate rights-of-way and easements
needed for the construction, operation and maintenance of a facility.
(2) A title opinion or title insurance showing ownership of the
land and all mortgages or other lien defects, restriction or
encumbrances, if any. It is the responsibility of the lender to ensure
that the borrower has obtained and recorded such releases, consents, or
subordinations to such property rights from holders of outstanding
liens or other instruments as may be necessary for the construction,
operation and maintenance of the facility and to provide the required
security. For example, when a site is for major structures for utility-
type facilities (such as a gas distribution system) and the lender and
borrower are able to obtain only a right-of-way or easement on such
site rather than a fee simple title, such a title opinion must be
requested.
(c) The minimum financial criteria, including those financial
criteria contained in the Conditional Commitment, have been maintained
through the issuance of the loan note guarantee. Failure to maintain
these financial criteria shall result in an ineligible application.
(d) Each borrower shall certify 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 subpart shall be 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. Awards under this subpart are
further subject to the relevant regulations contained in title 29 of
the Code of Federal Regulations.
(e) The lender certifies that it has reviewed all contract
documents and verified compliance with Sections 3141
[[Page 20072]]
through 3144, 3146, and 3147 of title 40 U.S.C., and title 29 of the
Code of Federal Regulations. The lender will certify the same process
will be completed for all future contracts and any changes to existing
contracts.
(f) The lender certifies that the proposed facility complies with
all Federal, State, and local laws and regulatory rules that are in
existence and that affect the project, the borrower, or lender
activities.
(g) The lender will notify the Agency in writing whenever there has
been a change in the classification of a loan within 15 calendar days
of such change.
Sec. Sec. 4279.282-4279.289 [Reserved]
Sec. 4279.290 Requirements after project construction.
Once the project has been constructed, the lender must:
(a) Provide the Agency annual reports from the borrower commencing
the first full calendar year following the year in which project
construction was completed and continuing for the life of the
guaranteed loan. The borrower's reports will include, but not be
limited to, the information specified in the following paragraphs, as
applicable.
(1) The actual amount of advanced biofuels produced to assess
whether project goals are being met.
(2) If applicable, documentation that identified health and/or
sanitation problems have been solved.
(3) A summary of the cost of operating and maintaining the
facility.
(4) Description of any maintenance or operational problems
associated with the facility.
(5) Certification that the project is and has been in compliance
with all applicable State and Federal environmental laws and
regulations.
(6) The number of jobs created.
(7) A description of the status of the project's feedstock
including, but not limited to, the feedstock being used, outstanding
feedstock contracts, feedstock changes and interruptions, and quality
of the feedstock;
(8) The results of the annual inspections conducted under paragraph
(b) of this section; and
(b) For the life of the guaranteed loan, conduct annual
inspections.
Sec. Sec. 4279.291-4279.300 [Reserved]
PART 4287--SERVICING
3. The authority citation for part 4287 continues to read as
follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 1989.
4. Part 4287 is amended by adding a new subpart D to read as
follows:
Subpart D--Servicing Biorefinery Assistance Guaranteed Loans
Sec.
4287.301 Introduction.
4287.302 Definitions.
4287.303 Exception authority.
4287.304-4287.305 [Reserved]
4287.306 Appeals.
4287.307 Servicing.
4287.308-4287.400 [Reserved]
Subpart D--Servicing Biorefinery Assistance Guaranteed Loans
Sec. 4287.301 Introduction.
(a) This subpart supplements part 4279, subparts A and C of this
chapter by providing additional requirements and instructions for
servicing and liquidating all Biorefinery Assistance Guaranteed Loans.
(b) The lender will be responsible for servicing the entire loan
and will remain mortgagee and secured party of record notwithstanding
the fact that another party may hold a portion of the loan. The entire
loan will be secured by the same security with equal lien priority for
the guaranteed and unguaranteed portions of the loan. The unguaranteed
portion of a loan will neither be paid first nor given any preference
or priority over the guaranteed portion of the loan.
(c) Copies of all forms, regulations, and Instructions referenced
in this subpart are available in any Agency office. Whenever a form is
designated in this subpart, that designation includes predecessor and
successor forms, if applicable, as specified by the field or National
Office.
Sec. 4287.302 Definitions.
The definitions and abbreviations contained in Sec. 4279.2 subpart
A and in Sec. 4279.202 of subpart C of part 4279 of this chapter apply
to this subpart.
Sec. 4287.303 Exception authority.
Section 4279.15 of subpart A of part 4279 of this chapter applies
to this subpart.
Sec. Sec. 4287.304-4287.305 [Reserved]
Sec. 4287.306 Appeals.
Section 4279.16 of subpart A of part 4279 of this chapter applies
to this subpart.
Sec. 4287.307 Servicing.
Except as specified in paragraphs (a) through (k) of this section,
all loans guaranteed under this subpart shall comply with the
provisions found in Sec. Sec. 4287.101 through 4287.199 of this
chapter. If the Agency determines that the lender is not in compliance
with its servicing responsibilities, the Agency reserves the right to
take any action the Agency determines necessary to protect the Agency's
interests with respect to the loan. If the Agency exercises this right,
the lender must cooperate with the Agency. Any cost to the Agency
associated with such action will be assessed against the lender.
(a) Periodic reports. Each lender shall submit periodic reports, on
a quarterly basis, unless otherwise determined by the Agency to meet
the financial interests of the United States, regarding the condition
of its Agency guaranteed loan portfolio (including borrower status and
loan classification) and any material adverse change in the general
financial condition of the borrower since the last periodic report was
submitted.
(b) Default reports. Lenders shall submit monthly default reports,
including borrower payment history, for each loan in monetary default
using a form approved by the Agency.
(c) Financial reports. In addition to complying with the financial
reports specified in Sec. 4287.107(d),
(1) The financial reports required under 4287.107(d) may be
specified in either the loan agreement or the Conditional Commitment;
(2) The lender must submit to the Agency quarterly financial
statements within 45 days of the end of each quarter; and
(3) The annual financial statements required under Sec.
4287.107(d)(1)(ii) must be audited financial statements.
(d) Additional loans. Instead of complying with the additional
expenditures provisions specified in Sec. 4287.107(e), the lender may
make additional expenditures or new loans to a borrower with an
outstanding loan guaranteed under this Notice only with prior written
Agency approval. The Agency will only approve additional expenditures
or new loans to the extent such actions where the expenditure or loan
will not violate one or more of the loan covenants of the borrower's
loan agreement. In all instances, the lender must notify the Agency
when they make any additional expenditures or new loans. In all cases,
any additional expenditure or loan made by the lender must be junior in
priority to the loan guaranteed hereunder.
(e) Collateral inspection and release. In lieu of complying with
Sec. 4287.113, lenders must comply with the provisions of this
paragraph. The lender must inspect the collateral as often as necessary
to properly service the loan. The Agency will require prior approval of
the release of collateral, except in those instances where the proceeds
are used to pay down debt in order of lien priority, or to acquire
replacement
[[Page 20073]]
equipment, or where the release of collateral is made under the
abundance of collateral provision of the applicable security agreement.
Appraisals on the collateral being released will be required on all
transactions exceeding $250,000 and will be at the expense of the
borrower. The appraisal must meet the requirements of Sec. 4279.244.
The sale or release of collateral must be based on an arm's length
transaction, unless otherwise approved by the Agency in writing.
(1) Lenders may, over the life of the guaranteed loan, release
collateral with a cumulative value of up to 20 percent of the original
loan amount without Agency concurrence if the proceeds generated are
used to pay down secured debt in order of lien priority or to buy
replacement collateral.
(2) Release of collateral with a cumulative value in excess of 20
percent of the original loan or when the proceeds will not be used to
pay down secured debt or to buy replacement collateral, must be
requested, in writing, by the lender and concurred by the Agency, in
writing, in advance of the release. A written evaluation will be
completed by the lender to justify the release.
(3) Lenders may not release collateral with a value of more than 10
percent of the original loan amount at any one time and within any one
calendar year without Agency concurrence.
(4) Any release of collateral must not adversely affect the
project's operation or financial condition.
(f) Transfers and assumptions. Transfers and assumptions shall
comply with Sec. 4287.134 and with paragraphs (f)(1) through (3) of
this section.
(1) The Agency may charge the lender a nonrefundable transfer fee
at the time of a transfer application. The Agency will set the amount
of the transfer fee in an annual notice of funds availability.
(2) Assumption shall be deemed to occur in the event of a change in
the control of the borrower. For purposes of the loan, change of
control means the merger, sale of all or substantially all of the
assets of the borrower, or the sale of more than 25 percent of the
stock or other equity interest of either the borrower or its corporate
parent.
(3) The Agency will not approve any change in terms that results in
an increase in the cost of the loan guarantee, unless the Agency can
secure any additional budget authority that would be required.
(g) Substitution of lender after issuance of the Loan Note
Guarantee. All substitutions of lenders must comply with Sec. 4287.135
except that, instead of approving a new lender as a substitute lender
using the provisions of Sec. 4287.135(a), the Agency may approve the
substitution of a new lender if the proposed substitute lender:
(1) Is an eligible lender in accordance with Sec. 4279.202(b);
(2) Is able to service the loan in accordance with the original
loan documents; and
(3) Acquires title to the unguaranteed portion of the loan held by
the original lender and assumes all original loan requirements,
including liabilities and servicing responsibilities.
(h) Default by borrower. In addition to complying with Sec.
4287.145, if a loan goes into default, the lender must provide the
notification required under Sec. 4287.145(a) to the Agency within 15
calendar days of when a borrower is 30 days past due on a payment or is
otherwise in default of the Loan Agreement.
(i) Protective advances. All protective advances made by the lender
must comply with Sec. 4287.156 and the provisions of paragraphs (i)(1)
and (2) of this section.
(1) Instead of the $5,000 specified in Sec. 4279.156(c), Agency
written authorization is required when cumulative protective advances
exceed $100,000, unless otherwise specified by the Agency at a lesser
amount.
(2) The lender must obtain written Agency approval for any
protective advance that will singularly or cumulatively amount to more
than $100,000 or 10% of the guaranteed loan, whichever is less.
(j) Determination of loss and payment. In addition to complying
with Sec. 4279.158, if a lender receives a final loss payment, the
lender must submit to the Agency an annual report on its collection
activities for each unsatisfied account for 3 years following payment
of the final loss claim.
Sec. Sec. 4287.308-4287.400 [Reserved]
Dated: April 5, 2010.
Judith A. Canales,
Administrator, Rural Business-Cooperative Service.
[FR Doc. 2010-8274 Filed 4-15-10; 8:45 am]
BILLING CODE 3410-XY-P