[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: 7CFR1737.70]

[Page 337-338]
 
                          TITLE 7--AGRICULTURE
 
    CHAPTER XVII--RURAL UTILITIES SERVICE, DEPARTMENT OF AGRICULTURE
 
PART 1737--PRE-LOAN POLICIES AND PROCEDURES COMMON TO INSURED AND GUARANTEED TELECOMMUNICATIONS LOANS--Table of Contents
 
             Subpart H--Feasibility Determination Procedures
 
Sec. 1737.70  Description of feasibility study


    (a) In connection with each loan RUS shall prepare a feasibility 
study that includes sections on consolidated loan estimates, operating 
statistics, projected telecommunications, plant, projected retirement 
computations, and projected revenue and expense estimates (including 
detailed estimates of depreciation and amortization expense, scheduled 
debt service payments, toll and access charge revenues, and local 
service revenues). Normally, projections will be for a 5-year period and 
used to determine the ability of the borrower to repay its loans in 
accordance with the terms thereof. RUS will not require borrowers to 
raise local service rates. Local service revenue projections will be 
based on the borrower's existing local service rates or regulatory body 
approved rates not yet in effect but to be implemented within the 
Forecast period. In the latter case, if a borrower is not required to 
obtain regulatory body approval for the implementation of such rates, 
RUS will require a resolution of the board of directors indicating when 
those rates will be in effect.
    (b) RUS makes loans only to rural telephone systems that are 
financially feasible. RUS shall consider the factors discussed in 
paragraphs (c) through (j) of this section in determining feasibility.
    (c) The revenue and expense estimates for the feasibility study 
generally will be based on the borrower's operating experience provided 
that:
    (1) Adjustments are made for any nonrecurring revenues and expenses 
that are not representative of the borrower's past operations and would 
thus make the borrower's experience data inappropriate for the forecast; 
and
    (2) Adjustments are made for any special or new characteristics or 
other considerations deemed necessary by the Administrator.
    (d) [Reserved]
    (e) Depreciation expense will be determined using depreciation rates 
appropriate to the normal operation of the borrower, based on:
    (1) The borrowers regulatory body approved depreciation rates; and
    (2) Where such rates as described in paragraph (e)(1) of this 
section do not exist for items which the borrower is seeking financing, 
the most recent median depreciation rates published by RUS for all 
borrowers. RUS will publish such depreciation rates annually in RUS's 
``Statistical Report, Rural Telephone Borrowers.''
    (f) Projected scheduled debt service payments will generally be 
based on all of the borrower's outstanding and proposed loans from RUS 
and all other lenders as of the end of the feasibility Forecast period 
(i.e. for a 5-year Forecast period, the amount of debt outstanding in 
year 5).
    (g) The financial and statistical data are derived from RUS Form 
479, ``Financial and Statistical Data for Telephone Borrowers,'' or for 
initial loans, the data may be obtained from the borrower's financial 
statements and other reports, and from other information supplied with 
the completed loan applications (see 7 CFR 1737.21 and 1737.22).
    (h) When, in RUS's opinion, the borrower's operating experience is 
not adequate or the borrower's current operations are not 
representative, the estimates in the feasibility study normally will be 
developed from state and regional standards based on the experience of 
RUS borrowers. These standards are included in the Borrower's

[[Page 338]]

Statistical Profile (BSP), which is revised annually by RUS. If the 
borrower's operating experience is not the basis for one or more per-
subscriber estimates used in the feasibility study, the estimates 
generally may not vary from the standard by more than 20 percent to 
reflect the particular characteristics of the loan applicant. Any 
variation from the standard shall be documented.
    (i) In cases where these per-subscriber standards do not represent a 
reasonable forecast of a particular borrower's operations (for example, 
when a variation greater than 20 percent is necessary), estimates based 
upon a special analysis of the borrower's projected operations shall be 
used. The special analysis will accompany the feasibility study.
    (j) When it is reasonably expected that a subscriber, classified as 
a special project, may discontinue service, a second feasibility study 
will be prepared, for comparison purposes, omitting revenues and 
expenses from this subscriber.
    (k) RUS may obtain and review commercially available credit reports 
on applicants for a loan or loan guarantee to verify income, assets, and 
credit history, and to determine whether there are any outstanding 
delinquent Federal or other debts. Such reports will also be reviewed 
for parties that are or propose to be joint owners of a project with a 
borrower.
    (l) If it is determined that loan feasibility cannot be proven as 
described in this section, the loan application will be returned to the 
borrower with an explanation. A borrower whose application has been 
returned will have 90 working days, from the date the application was 
returned, to revise and resubmit its application. If a revised 
application is not received by RUS within the 90-day period described 
above, the application will be canceled and a new application will need 
to be submitted if the borrower wishes further consideration.

[54 FR 13356, Apr. 3, 1989. Redesignated at 55 FR 39396, Sept. 27, 1990, 
as amended at 56 FR 26599, June 10, 1991; 58 FR 66256, Dec. 20, 1993; 62 
FR 46872, Sept. 5, 1997]