[Code of Federal Regulations]
[Title 7, Volume 11]
[Revised as of January 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 7CFR1710.112]

[Page 106-107]
 
                          TITLE 7--AGRICULTURE
 
    CHAPTER XVII--RURAL UTILITIES SERVICE, DEPARTMENT OF AGRICULTURE
 
PART 1710--GENERAL AND PRE-LOAN POLICIES AND PROCEDURES COMMON TO ELECTRIC LOANS AND GUARANTEES--Table of Contents
 
               Subpart C--Loan Purposes and Basic Policies
 
Sec. 1710.112  Loan feasibility.

    (a) RUS will make a loan only if there is reasonable assurance that 
the loan, together with all outstanding loans and other obligations of 
the borrower, will be repaid in full as scheduled, in accordance with 
the mortgage, notes, and loan contracts. The borrower must provide 
evidence satisfactory to the Administrator that the loan will be repaid 
in full as scheduled, and that all other obligations of the borrower 
will be met.
    (b) Based on evidence submitted by the borrower and other 
information, RUS will use the following criteria to evaluate loan 
feasibility:
    (1) Projections of power requirements, rates, revenues, expenses, 
margins, and other factors for the present system and proposed additions 
are based on reasonable assumptions and adequate supporting data and 
analysis, including analysis of a range of assumptions for the 
significant variables, when required by Sec. 1710.300(d)(5).
    (2) Projected revenues from the rates proposed by the borrower are 
adequate to meet the required TIER and DSC ratios based on the 
borrower's total costs, including the projected maximum debt service 
cost of the new loan.
    (3) The economics of the borrower's operations and service area are 
such that consumers can reasonably be expected to pay the proposed rates 
required to cover all expenses and meet RUS TIER and DSC requirements, 
and the borrower can reasonably compete with other utilities and other 
energy sources to prevent substantial load loss while providing 
satisfactory service to its consumers.
    (4) Risks of possible loss of substantial loads from large consumers 
or from load concentrations in particular industries will not 
substantially impair loan feasibility.
    (5) Risks of loss of portions of the borrower's service territory 
from annexation or other causes will not substantially impair loan 
feasibility. If there appears to be a substantial risk, RUS may require 
additional information from the borrower, such as a summary and analysis 
of the risk by the borrower; state, county or local planning reports 
having information on projected growth or expansion plans of local 
communities; annexation plans of the municipalities in question; and any 
other relevant information.
    (6) In states where rates or investment decisions are subject to 
approval by state regulatory authorities, there is reasonable 
expectation that such approvals will be forthcoming to enable repayment 
of the loan in full according to its terms.
    (7) The experience and performance of the system's management is 
acceptable.
    (8) In the case of joint ventures, the borrower has sufficient 
management control or other contractual safeguards with respect to the 
construction and operation of the jointly owned facility to ensure that 
the borrower's interests are protected and the credit risk is minimized.
    (9) The borrower has implemented adequate financial and management 
controls and there are and have been no significant financial or other 
irregularities.
    (10) The borrower's projected capitalization, measured by its equity 
as a

[[Page 107]]

percentage of total assets, is adequate to enable the borrower to meet 
its financial needs and to provide service consistent with the RE Act. 
Among the factors to be considered in reviewing the borrower's projected 
capitalization are the economic strength of the borrower's service 
territory, the inherent cost of providing service to the territory, the 
disparity in rates between the borrower and neighboring utilities, the 
intensity of competition faced by the borrower from neighboring 
utilities and other power sources, and the relative amount of new 
capital investment required to serve existing or new loads.
    (c) RUS considers a loan to be feasible only if the borrower's 
electric system is year 2000 compliant, or if the borrower provides RUS 
with evidence, satisfactory to RUS, that it is taking measures necessary 
to ensure that its electric system will be year 2000 compliant on or 
before December 31, 1999. Year 2000 compliant means that product 
performance and function are not affected by dates before, during, and a 
reasonable time after the year 2000.

[57 FR 1053, Jan. 9, 1992; 57 FR 4513, Feb. 5, 1992, as amended at 60 FR 
3731, Jan. 19, 1995; 63 FR 51793, Sept. 29, 1998]