[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: 7CFR1710.113]

[Page 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. 1710.113  Loan security.

    (a) RUS makes loans only if, in the judgment of the Administrator, 
the security therefor is reasonably adequate and the loan will be repaid 
according to its terms within the time agreed.
    (b) RUS generally requires that borrowers provide it with a first 
lien on all of the borrower's real and personal property, including 
intangible personal property and any property acquired after the date of 
the loan. This lien shall be in the form of a mortgage by the borrower 
to the Government or a deed of trust between the borrower and a trustee 
satisfactory to the Administrator, together with such security documents 
as RUS may deem necessary in a particular case.
    (c)(1) When a borrower is unable by reason of preexisting 
encumbrances, or otherwise, to furnish a first mortgage lien on its 
entire system the Administrator may accept other forms of security, such 
as a pledge of revenues, if he or she determines such security is 
reasonably adequate and the form and nature thereof is otherwise 
acceptable.
    (2) The Administrator, at his or her discretion, may approve the use 
of an indenture patterned after those indentures commonly used by 
utilities engaged in private market financing, in lieu of a mortgage as 
the security instrument for loans to power supply borrowers. The use of 
an indenture will be by mutual agreement of the borrower and the 
Administrator. The terms of each indenture and related loan agreement 
will be negotiated on a case by case basis to best meet the needs of the 
individual borrower and the Government. The provisions of the indenture 
and loan contract shall control, notwithstanding any provisions of 7 CFR 
Chapter XVII which may be in conflict therewith.
    (d) In the case of loans that include the financing of electric 
facilities that are operated as an integral component of a non-RUS 
financed system (such as generation and transmission facilities co-owned 
with other electric utilities), the borrower shall, in addition to the 
mortgage lien on all of the borrower's electric facilities, furnish 
adequate assurance, in the form of contractual or other security 
arrangements, that the system will be operated on an efficient and 
continuous basis. Satisfactory evidence must also be provided that the 
non-RUS financed system is financially sound and under capable 
management. Examples of such evidence include financial reports, annual 
reports, Security and Exchange Commission 10K reports if the system is 
required to file them, credit reports from Standard and Poor's, Moodys 
or other recognized sources, reports to state regulatory authorities and 
the Federal Energy Regulatory Commission, and evidence of a successful 
track record in related construction projects.
    (e) Additional controls on the borrower's financial, investment and 
managerial activities appear in the loan contract and mortgage required 
by RUS.

[57 FR 1053, Jan. 9, 1992, as amended at 62 FR 7665, Feb. 20, 1997]

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