Federal Register, Volume 65 Issue 130 (Thursday, July 6, 2000)

[Federal Register Volume 65, Number 130 (Thursday, July 6, 2000)]
[Rules and Regulations]
[Pages 41838-41849]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-16778]

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Part IV

Department of Transportation

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Federal Railroad Administration

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49 CFR 260

Railroad Rehabilitation and Improvement Financing Program; Revisions;
Final Rule

Federal Register / Vol. 65, No. 130 / Thursday, July 6, 2000 / Rules
and Regulations

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DEPARTMENT OF TRANSPORTATION

Federal Railroad Administration

49 CFR Part 260

[Docket No. FRA 1999-5663]
RIN 2130-AB26

Railroad Rehabilitation and Improvement Financing Program;
Revisions

AGENCY: Federal Railroad Administration (FRA), Department of
Transportation (DOT).

ACTION: Final rule.

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SUMMARY: The Department of Transportation (DOT) is issuing a final rule
which implements the Railroad Rehabilitation and Improvement Financing
Program (RRIF) to provide direct loans and loan guarantees to State and
local governments, government sponsored authorities and corporations,
railroads, and joint ventures that include at least one railroad.
Eligible projects include: (1) acquisition, improvement or
rehabilitation of intermodal or rail equipment or facilities (including
tracks, components of tracks, bridges, yards, buildings, and shops),
(2) refinancing outstanding debt incurred for these purposes, or (3)
development or establishment of new intermodal or railroad facilities.
The aggregate unpaid principal amounts of direct loans and loan
guarantees made under this program cannot exceed $3.5 billion at any
one time and not less than $1 billion is to be available solely for
projects benefitting freight railroads other than Class I carriers.

EFFECTIVE DATE: The final rule is effective September 5, 2000.

FOR FURTHER INFORMATION CONTACT: JoAnne M. McGowan, Chief of Freight
Programs Division, RDV-12, Office of Passenger and Freight Services,
FRA, 1120 Vermont Avenue, NW, MailStop 20, Washington, D.C. 20590 (202-
493-6379), or Joseph R. Pomponio, Senior Attorney, Office of Chief
Counsel, FRA, 1120 Vermont Avenue, NW, MailStop 10, Washington, D.C.
20590 (202-493-6065).

SUPPLEMENTARY INFORMATION:

Electronic Access

Internet users can access all comments received by the U.S. DOT
Dockets, Room PL-401, by using the universal resource locator (URL):
http://dms.dot.gov. It is available 24 hours each day, 365 days each
year. Please follow the instructions online for more information and
help.
An electronic copy of this document may be downloaded using a modem
and suitable communication software from the Government Printing Office
Electronic Bulletin Board Service at (202) 512-1661. Internet users may
reach the Federal Register's home page at: http://www.nara.gov/fedreg
and the Government Printing Office's database at: http://www.access.gpo.gov/nara.

Background

Prior to the enactment of the Transportation Equity Act of the 21st
Century (``TEA 21''), Pub. L. No. 105-178 (June 9, 1998), Title V of
the Railroad Revitalization and Regulatory Reform Act of 1976, as
amended (the ``Act''), 45 U.S.C. 821 et seq., authorized FRA to provide
railroad financial assistance through the purchase of preference shares
(45 U.S.C. 825), and the issuance of loan guarantees (45 U.S.C. 831).
The FRA regulations implementing the preference share program were
eliminated on February 9, 1996, due to the fact that the authorization
for the program expired (28 FR 4937). The FRA regulations implementing
the loan guarantee provisions of Title V of the Act are contained in 49
C.F.R. Part 260.
Section 7203 of TEA 21 replaces the existing Title V financing
programs. This final rule strikes the language in existing part 260 and
replaces it with new procedures and requirements to cover applications
of financial assistance in the form of direct loans and loan guarantees
consistent with the changes made to Title V of the Act by section 7203
of TEA-21.
The revised program is referred to in TEA 21 as the Railroad
Rehabilitation and Improvement Financing Program (``RRIF Program'').
The Secretary has delegated his authority under the RRIF Program to the
FRA Administrator.

NPRM

The FRA published a notice of proposed rulemaking (NPRM) on May 20,
1999, in the Federal Register (64 FR 27488). Comments were filed by 92
commenters. FRA is now issuing this final rule concerning
administration of the RRIF Program. This rule reflects the FRA's
consideration of the comments filed in response to the NPRM.

Discussion of Rulemaking Text

The following discussion summarizes the comments submitted to the
FRA by commenters on the NPRM, notes where and why changes have been
made to the rule, and, where relevant, states why particular
recommendations or suggestions have not been incorporated into the
following regulations. Paragraph references are as designated in the
NPRM.

Discussion of Comments and Responses by Section

Section 260.9 Loan terms. Sixty-one commenters urged that the
interest rate to be charged on direct loans made under the RRIF Program
be set at the cost of money to the Government for debt obligations with
terms equal to the term of the loan.
FRA Response: Although FRA anticipated that direct loans would be
assessed interest rates equal to the cost of money to the Government,
as determined by the rate on Treasury securities of a similar term, the
proposed regulations did not so specify. In order to clarify FRA's
intent in this regard, section 260.9 has been changed to specify the
interest rate to be charged.
Section 260.23(o) Lender of last resort. Seventy-two commenters
suggested that, as enacted by Congress, the RRIF Program was not
intended to provide financial assistance only as a lender of last
resort. Commenters noted that although in certain circumstances loans
may be available from the private sector, the terms on which such loans
are offered are prohibitive. Railroad assets typically have long
economic lives (up to 30 years) while private sector loans, when
available, offer no longer than a 7 year repayment period. Therefore,
private sector financing of most railroad assets is not economically
viable.
Also notably, comments submitted by four members of the Committee
on Transportation and Infrastructure, House of Representatives,
including: Bud Shuster, Chairman, James L. Oberstar, Ranking Member,
Thomas Petri, Chairman, Ground Transportation Subcommittee, and Nick J.
Rahall, II, Ranking Member, Ground Transportation Subcommittee, suggest
that TEA-21 does not require that the RRIF Program be a lender of last
resort and ask that this requirement be deleted. Further, those
comments indicate that the ``central purpose of the program is to
facilitate rail and rail-intermodal infrastructure improvements that
will confer public benefits beyond simple considerations of commercial
lending, and may not be able to attract sufficient private capital.''
FRA Response: Consistent with the intent of Congress FRA intends to
implement this program in a way that will meet the needs of the rail
industry for long term financing which is not available from the
private sector. While FRA need not be a lender of last resort, it does
not intend to replace private funding sources already available to the
rail industry. Therefore, in order to

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establish that private funding on terms necessary to the viability of
the applicant's project is not available, FRA will require that
railroad applicants provide a letter from a commercial lender denying
funding for the project. Section 260.23(o) has been amended
accordingly.
Sections 260.23, 25, & 29. Information to be provided with
applications. Sixty commenters suggested that the amount of information
required to be submitted with applications for assistance under the
RRIF Program will prove to be an undue burden on small businesses.
Commenters have suggested that FRA should limit the amount of
information required and eliminate the requirement that financial
statements be audited.
FRA Response: In an effort to reduce the burden on applicants while
still assuring that adequate information is available to accurately
evaluate each loan application and proposed project, FRA has amended
sections 260.23(h) and 260.25(b)(1) of the regulation to provide that
audited financial statements will only be required if they are
available. Further, FRA has amended sections 260.25(b) and (c), and
eliminated section 260.29.
Section 260.31 Investigation charge. Sixty commenters have
suggested that the investigation charge set by FRA at \1/2\% as
permitted by statute is too high and may prove to be a burden on
smaller applicants. Commenters suggested that the investigation charge
be assessed based on actual cost to FRA to process each application.
FRA Response: In order to avoid any unnecessary burden of future
applicants FRA will estimate the processing costs and advise applicant
at the pre-application meeting of the amount of the charge. That charge
will still be payable in two installments, \1/2\ at the time the
application is submitted and the remaining \1/2\ within 60 days
thereafter. Section 260.11 has been amended accordingly. Further, in
order to provide applicant more flexibility in controlling the total
administrative costs of each application, FRA has included a new
Section 260.29, which provides applicants with the option of
contracting with a third party financial consultant, with FRA approval,
to prepare a financial evaluation of the project and the applicant.
Cost savings to FRA as a result of receiving such an evaluation will be
reflected as reductions to the investigation charge.

General Comments

Fifty-six commenters asked that the limitation imposed by section
260.53, which provides that the Administrator will only guarantee up to
80% of the total obligation, be deleted so that 100% of an obligation
can be guaranteed.
FRA Response: The 80% limitation is imposed on all Federal loan
guarantees by the Office of Management and Budget, as iterated in
circular A-129. The FRA cannot guarantee more than 80%.
Sixty-four commenters requested that the calculation of the Credit
Risk Premium be simplified so as to be easily understood.
FRA Response: The calculation of the Credit Risk Premium is based
on a process which evaluates many indicators of the financial viability
of the applicant. In order to accurately assess the risk of default
associated with each loan or loan guarantee FRA must consider all
aspects of the applicant's organization and business. Therefore, this
estimation process necessarily is complex. However, FRA will provide
potential applicants with estimates of the size of the Credit Risk
Premium that may be required based on discussions at the preapplication
meeting provided under section 260.19.
One commenter requested that FRA accept a note from an applicant as
payment of the Credit Risk Premium in lieu of a cash payment.
FRA Response: Based on FRA's interpretation of the statutory
language this option is not permitted. Section 502(e)(3) provides that
``the credit risk premium under this section shall be paid to the
Secretary before the disbursement of loan amounts''. Acceptance of a
note would not constitute payment.
Two commenters suggested that priority consideration be given to
projects that would avoid the abandonment of a rail line; one commenter
asked for priority for projects benefitting railroad employees, and one
commenter requested that, FRA provide priority for a project included
in a state transportation plan.
FRA Response: The types of projects identified for priority
consideration in section 260.7 reflect the areas of priority detailed
by the enabling legislation. FRA has elected not to add to these
criteria at this time.
Two commenters asked that the cost of a right-of-way be made an
eligible cost of the project that receives financial assistance under
the RRIF Program.
FRA Response: The statutory language does not clearly state whether
the cost of right-of-way acquisition may be considered as part of the
project. While it is possible that in certain circumstances such costs
could be considered eligible cost of the project, it is also possible
that in other situations they would not. A determination regarding
whether the costs of rights-of-way may be considered eligible costs
will be made in each case after a careful review of the circumstances.
Three commenters suggested that the collection of a Credit Risk
Premium is too heavy a burden to be placed on applicants and asked that
FRA not charge a Credit Risk Premium.
FRA Response: Before FRA can disburse any direct loan or loan
guarantee it must set aside such amounts as are necessary to offset
anticipated costs to the Federal government of making such loans and
guarantees. Under this program such funds may come from funds
appropriated for this purpose by Congress, a Credit Risk Premium, or
any combination of appropriated funds and Credit Risk Premium. Where no
Congressional appropriation exists, and there is none for RRIF at this
time, FRA cannot approve a loan or loan guarantee without collecting a
Credit Risk Premium.
One commenter requested that FRA provide financial assistance under
this program for terms of up to 30 years.
FRA Response: Section 502(g)(1) of the Act requires that the
Administrator (as the Secretary's designee), shall not make a loan or a
loan guarantee unless the Administrator has made a finding that
repayment of the obligation is required to be made in a term of not
more than 25 years.
One commenter questioned our consideration of the ``size'' of an
applicant in determining the credit risk, and suggested that no
application should be denied solely because of the applicant's size.
FRA Response: FRA recognizes that the RRIF Program is intended, in
part, to provide financial assistance to small railroads and it will
not use a small applicant's size as a basis to deny financial
assistance. However, the size of the applicant is a significant factor
which must be considered along with all other factors outlined in
determining the credit risk of providing financial assistance. Size
would also be important if the applicant were large and the amount of
assistance sought by the applicant together with all other assistance
already provided to large applicants would result in less than $1
billion being available to small railroads.
One commenter requested that the term ``common carrier'' be removed
from the definition of a railroad provided in section 260.3(r), in
order to permit railroad shortlines providing only contract carrier
services to a limited number of small shippers to be

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eligible for financial assistance under the RRIF Program.
FRA Response: Section 7203 of TEA-21, which established the RRIF
Program by amending Title V of the Act, does not define ``railroad.''
However, section 102 of the Act, as amended, provides that ``as used in
this Act'' * * * ``(7) `railroad' means rail carrier subject to part A
of subtitle IV of title 49, United States Code.'' FRA has no discretion
to expand the definition provided by the Act but clarify the definition
by incorporating the statutory definition.
One commenter asked that the term ``equipment'', as used in section
260.5, ``Eligible purposes,'' be defined to clarify that it does
include railroad cars and locomotives.
FRA Response: The term ``equipment'' was not defined in the
proposed regulations because it includes a variety of items which are
used in the operation of a railroad. While rail cars and locomotives
are certainly railroad equipment, further determinations regarding what
will be considered ``equipment'' will be made as necessary.
One commentor suggests that the inclusion of all loans and loan
guarantees into one cohort each fiscal year is inappropriate because
the default of any obligation within that cohort will reduce the
likelihood that other obligations will receive a rebate of their credit
risk premium.
FRA Response: A default of any obligation in a cohort will produce
losses that must be covered by the credit risk premiums collected from
other obligations within that cohort. The fewer obligations a cohort
contains, the greater the likelihood that a default will consume all
the credit risk premiums and that none will remain to be returned to
the borrowers. Similarly, a cohort containing more obligations is more
likely to have sufficient credit risk premiums to cover the losses and
still be able to provide a rebate. Therefore, FRA has determined that
it will not necessarily limit cohorts to a one year period. Rather each
cohort will remain open until FRA has determined that it contains an
adequate pool of obligations, based on both size of the obligations and
the total credit risk premiums collected, to increase the possibility
that a rebate will be available upon the repayment of all the
obligations contained in the cohort. Also, to that end separate cohorts
will be established for direct loans and loan guarantees. Section
260.15 has been amended accordingly.

Regulatory Impact

E.O. 12866, SBREFA and DOT Regulatory Policies and Procedures

This final rule has been evaluated in accordance with existing
regulatory policies and is considered to be economically significant
within the meaning of Executive Order 12866 and is a significant rule
under DOT regulatory policies and procedures (44 Fed. Reg., February
26, 1979). Additionally, this is a major rule under the Small Business
Regulatory Enforcement Fairness Act (5 U.S.C. 804(2)) because the rule
may have an annual effect on the economy of $100 million or more.
Executive Order 12866 requires that for all economically
significant regulations, agencies provide an assessment, including the
underlying analysis, of the costs and benefits anticipated from the
regulatory action. In addition, the agency must analyze the costs and
benefits of potentially effective and reasonably feasible alternatives
to the planned regulations. While the agency has not produced a
quantified analysis of this rule, DOT has produced the following
qualitative assessment:
Potential Benefits. The financing made available through this final
rule may provide environmental and safety benefits, and avoid increased
highway maintenance costs. Of the $3.5 billion made available for
direct loans and loan guarantees, $1 billion is reserved for projects
benefitting small railroads. Shortline and regional railroads are one
of the transportation modes that connect rural America and small
communities to the national railroad system. A recent survey by the
American Association of State Highway and Transportation Officials has
found that 200 small railroads need more than $2 billion in external
financing to upgrade their track to safely accommodate the 286,000
pound cars that major carriers are now using. Shortline and regional
railroads that cannot safely handle these heavier cars will lose
traffic critical to their viability and continued operation. If these
railroads are abandoned, the traffic will be moved by less energy
efficient trucks. A 1991 FRA study entitled Rail vs. Truck Fuel
Efficiency found that on routes typically served by shortline
railroads, trains were 5.93 to 9 times more energy efficient than
trucks.
Additional truck traffic may increase adverse health and
environmental effects. It is unclear how significant the incremental
changes in health and environmental effects will be because the agency
has not estimated the incremental pollution reductions that may occur
from this rule. In addition, some of the reductions that do occur are
likely to be in sparsely populated areas.
This rule may also provide safety benefits by reducing track-
related accidents. From 1986 through 1991, small railroads experienced
over 3 track-related accidents for every million miles operated. During
the same period, major railroads had only 1.45 track-related accidents
for every million miles operated. Since 1991, the situation has
worsened. From 1992 through 1996, shortline and regional railroads
experienced more than 5 track-related accidents per million miles
operated while major railroads had only 1.28. On the other hand, it is
not clear that trucking the traffic carried by shortline and regional
railroads would be less safe.
Potential Costs. There are administrative costs associated with
this rule. Prospective borrowers will be required to file an
application containing certain financial information. This information
collection has been approved by the Office of Management and Budget.
The approved control number is 2130-0548. The estimated annual burden
hours are 5,881 hours and the annual costs are $543,866. The total
estimated administrative costs to the Federal government are $325,000.
Default costs also may occur as a result of this rule. If the cost
of borrowers' defaults exceeds the credit risk premiums collected there
will be a cost to the federal government.
There are also opportunity costs associated with this rule, since
it may reallocate finite resources to railroads that necessarily would
have been spent elsewhere absent this rule. FRA has observed that the
private sector will not provide funds to many railroads on terms that
will support long term improvement projects. Under the assumption that
private markets are working properly, this rule will displace more
valuable investments and will result in costs to society. Because the
private credit market generally allocates resources (including credit)
efficiently to meet societal demand, only under certain circumstances
(see examples below) may government intervention in the credit market
increase societal benefits.
If one assumes that the private sector is not providing credit to
railroads because an economic market failure exists, then government
intervention may improve the outcome. Reasons for economic market
failure of the credit market include information failures,
externalities, economic disequilibrium, failure of competition and
incomplete markets. Under these circumstances,

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government intervention may generate positive net societal benefits
through a combination of private and social benefits, taking into
account the factors identified in the discussion of potential benefits
above.
Cost-Benefit Comparison. Under Executive Order 12866, agencies may
propose or adopt a regulation only upon a reasoned determination that
the benefits of the regulation justify the costs. Based on numerous
project benefit-cost analyses completed by State Departments of
Transportation, DOT believes that the rule can lead to carefully
selected projects that will generate benefits sufficient to outweigh
the costs of this rule.
Future Analysis of this Program. FRA will periodically review the
public benefits and costs of the RRIF program to ensure that there is a
net societal benefit from this program. FRA recognizes that only under
certain circumstances will government intervention in the credit market
generate net societal benefits. Therefore, FRA will the reason for the
failure of the market to provide credit to rail projects, and will
assess the private and social costs and benefits of these projects to
determine if they are likely to result in net societal benefits.
The Office of Management and Budget Circular A-94 establishes
guidelines for analysis of the expected benefits and costs to society
of Federal programs. The purpose of A-94 is to promote efficient
resource allocation through well-informed decision-making by the
Federal Government.

Regulatory Flexibility Act

The Regulatory Flexibility Act of 1980 (5 U.S.C. 601 et seq.)
requires a review of rules to assess their impact on small entities.
FRA has conducted a regulatory flexibility assessment of this final
rule and FRA certifies that it does not have a significant impact on a
substantial number of small entities.
It is not likely that small governmental entities will seek
financial assistance under the RRIF Program. In response to a public
notice on the enactment of the program, only large metropolitan areas,
like the City of Indianapolis and the Memphis and Shelby County Port
Commission, indicated an interest in RRIF financing. The cost to
governmental entities of applying for the program would be minimal
since borrowers will normally have available the information needed to
prepare applications for funding.
In addition to small governmental entities, the small entities
directly affected by this rule are class III railroads. The cost to
small railroads will be minimal since the information needed to
complete applications will normally be available. Moreover,
participation in the RRIF Program is strictly voluntary. Therefore, FRA
has concluded that there are no substantial economic impacts for small
units of government, business, or other organizations.

Paperwork Reduction Act

This information collection has been approved by the Office of
Management and Budget. The approved control number is 2130-0548. FRA
cannot impose a penalty on persons for violating information collection
requirements which do not display a current OMB control number.

Environmental Impact

FRA has evaluated this regulation in accordance with its procedures
for ensuring full consideration of the potential environmental impacts
of FRA actions, as required by the National Environmental Policy Act
(42 U.S.C. 4321 et seq.), other environmental statutes, Executive
Orders, and related directives. This regulation meets the criteria that
establish this as a non-major action for environmental purposes.

Federalism Implications

This rule will not have a substantial effect on the States, on the
relationship between the Federal Government and the States, or on the
distribution of power and responsibilities among the various levels of
government. Thus, input by state and local officials, under Executive
Orders 13132, is not warranted.

Compliance With the Unfunded Mandates Reform Act of 1995

Pursuant to the Unfunded Mandates Reform Act of 1995 (Public Law
104-4) each federal agency ``shall, unless otherwise prohibited by law,
assess the effects of Federal Regulatory actions on State, local, and
tribal governments, and the private sector (other than to the extent
that such regulations incorporate requirements specifically set forth
in law).'' Sec. 201. Section 202 of the Unfunded Mandates Reform Act
further requires that ``before promulgating any general notice of
proposed rulemaking that is likely to result in promulgation of any
rule that includes any Federal mandate that may result in the
expenditure by State, local, and tribal governments, in the aggregate,
or by the private sector, of $100,000,000 or more (adjusted annually
for inflation) in any 1 year, and before promulgating any final rule
for which a general notice of proposed rulemaking was published, the
agency shall prepare a written statement * * *'' detailing the effect
on State, local and tribal governments and the private sector. The
final rules issued today will not result in the expenditure, in the
aggregate, of $100,000,000 or more in any one year, and thus
preparation of a statement was not required.

List of Subjects in 49 CFR Part 260

Loan programs--Transportation; Railroads.

The Final Rule

In consideration of the foregoing, Part 260 of Title 49, Code of
Federal Regulations, is revised to read as follows:

PART 260--REGULATIONS GOVERNING LOANS AND LOAN GUARANTEES UNDER THE
RAILROAD REHABILITATION AND IMPROVEMENT FINANCING PROGRAM

Subpart A--Overview
Sec.
260.1 Program authority.
260.3 Definitions.
260.5 Eligible purposes.
260.7 Priority consideration.
260.9 Loan terms.
260.11 Investigation charge.
260.13 Credit reform.
260.15 Credit risk premium.
Subpart B--FRA Policies and Procedures for Evaluating Applications for
Financial Assistance
260.17 Credit risk premium analysis.
260.19 Preapplication meeting.
Subpart C--Applications for Financial Assistance
260.21 Eligibility.
260.23 Form and content of application generally.
260.25 Additional information for applicants not having a credit
rating.
260.27 Additional information for loan guarantees.
260.29 Third party consultants.
260.31 Execution and filing of application.
260.33 Information requests.
260.35 Environmental assessment.
Subpart D--Standards for Maintenance of Facilities Involved in the
Project
260.37 Applicability.
260.39 Maintenance standards.
260.41 Inspection and reporting.
260.43 Impact on other laws.
Subpart E--Procedures To Be Followed in the Event of Default
260.45 Events of default for guaranteed loans.
260.47 Events of default for direct loans.
260.49 Avoiding defaults.
Subpart F--Loan Guarantees--Lenders
260.51 Conditions of guarantees.
260.53 Lender's functions and responsibilities.

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260.55 Lender's loan servicing.

Authority: 45 U.S.C. 821, 822, 823; 49 CFR 1.49.

Subpart A--Overview

Sec. 260.1 Program authority.

Section 502 of the Railroad Revitalization and Regulatory Reform
Act of 1976, as amended, 45 U.S.C. 821 et seq., authorizes the
Secretary of Transportation to provide direct loans and loan guarantees
to State and local governments, government sponsored authorities and
corporations, railroads, and joint ventures that include at least one
railroad. The Secretary's authority has been delegated to the
Administrator of the Federal Railroad Administration, an agency of the
Department of Transportation.

Sec. 260.3 Definitions.

As used in this part--
(a) Act means the Railroad Revitalization and Regulatory Reform Act
of 1976, as amended, 45 U.S.C. 821 et seq.
(b) Administrator means the Federal Railroad Administrator, or his
or her representative.
(c) Applicant means any State or local government, government
sponsored authority or corporation, railroad, or group of two or more
entities, at least one of which is a railroad, participating in a joint
venture, that submits an application to the Administrator for a direct
loan or the guarantee of an existing obligation under which it is an
obligor or for a commitment to guarantee a new obligation.
(d) Borrower means an Applicant that has been approved for, and has
received, financial assistance under this part.
(e) Credit risk premium means that portion of the total subsidy
cost to the Government of a direct loan or loan guarantee that is not
covered by Federal appropriations and which must be paid by Applicant
or its non-Federal infrastructure partner before that direct loan can
be disbursed or loan guarantee can be issued.
(f) Direct loan means a disbursement of funds by the Government to
a non-federal borrower under a contract that requires the repayment of
such funds.
(g) FRA means the Federal Railroad Administration.
(h) Financial assistance means a direct loan, or a guarantee of a
new loan issued under this part.
(i) Holder means the current owner of an obligation or the entity
retained by the owner to service and collect an obligation which is
guaranteed under the provisions of this part.
(j) Including means including but not limited to.
(k) Infrastructure partner means any non-Federal source of the
Credit Risk Premium which must be paid to the Administrator in lieu of,
or in combination with, an appropriation in connection with financial
assistance provided under this part.
(l) Intermodal means of or relating to the connection between rail
service and other modes of transportation, including all parts of
facilities at which such connection is made.
(m) Lender means the non-Federal entity making a loan to an
Applicant for which a loan guarantee under this part is sought.
(n) Loan guarantee means any guarantee, insurance, or other pledge
with respect to the payment of all or a part of the principal or
interest on any debt obligation of a non-Federal borrower to a non-
Federal Lender, but does not include the insurance of deposits, shares,
or other withdrawable accounts in financial institutions.
(o) Obligation means a bond, note, conditional sale agreement,
equipment trust certificate, security agreement, or other obligation.
(p) Obligor means the debtor under an obligation, including the
original obligor and any successor or assignee of such obligor.
(q) Project means the purpose for which financial assistance is
requested.
(r) Railroad means a rail carrier subject to part A of subtitle IV
of title 49, United States Code.
(s) Subsidy cost of a direct loan means the net present value, at
the time when the direct loan is disbursed, of the following estimated
cash flows:
(1) Loan disbursements;
(2) Repayments of principal; and
(3) Payments of interest and other payments by or to the Government
over the life of the loan after adjusting for estimated defaults,
prepayments, fees, penalties, and other recoveries; including the
effects of changes in loan terms resulting from the exercise by the
borrower of an option included in the loan contract.
(t) Subsidy cost of a loan guarantee means the net present value,
at the time when the guaranteed loan is disbursed, of the following
estimated cash flows:
(1) Payments by the Government to cover defaults, delinquencies,
interest subsidies, or other payments; and
(2) The payments to the Government including origination and other
fees, penalties and recoveries.

Sec. 260.5 Eligible purposes.

(a) Financial assistance under this part is available solely to:
(1) Acquire, improve, or rehabilitate intermodal or rail freight or
passenger equipment or facilities, including track, components of
track, bridges, yards, buildings, and shops;
(2) Refinance outstanding debt incurred for purposes described in
paragraph (a)(1) of this section; or
(3) Develop or establish new intermodal or railroad facilities.
(b) Financial assistance under this part cannot be used for
railroad operating expenses.

Sec. 260.7 Priority consideration.

When evaluating applications, the Administrator will give priority
consideration (but not necessarily in the following order) to projects
that:
(a) Enhance public safety;
(b) Enhance the environment;
(c) Promote economic development;
(d) Enable United States companies to be more competitive in
international markets;
(e) Are endorsed by the plans prepared under section 135 of title
23, United States Code, by the State or States in which they are
located; or
(f) Preserve or enhance rail or intermodal service to small
communities or rural areas.

Sec. 260.9 Loan terms.

The maximum repayment period for direct loans and guaranteed loans
under this part is 25 years from the date of execution. The interest
rate on direct loans will be equal to the rate on Treasury securities
of a similar term. In general, the financial assistance provided will
be required to be repaid prior to the end of the useful life of the
project it is used to fund.

Sec. 260.11 Investigation charge.

(a) Applicants for financial assistance under this part may be
required to pay an investigation charge of up to one-half of one
percent of the principal amount of the direct loan or portion of the
loan to be guaranteed.
(b) When an investigation charge is assessed, one-half of the
investigation charge shall be paid by Applicant at the time a formal
application is submitted to FRA.
(c) Within 60 days after the date of filing of the application,
Applicant shall pay to the Administrator the balance of the
investigation charge.

Sec. 260.13 Credit reform.

The Federal Credit Reform Act of 1990, 2 U.S.C. 661, requires
Federal agencies to set aside the subsidy cost of new credit assistance
provided in the form of direct loans or loan guarantees. The subsidy
cost will be the estimated

[[Page 41843]]

long term cost to the Government of the loan or loan guarantee. The
subsidy cost associated with each direct loan or loan guarantee, which
the Administrator must set aside, may be funded by Federal
appropriations, direct payment of a Credit Risk Premium by the
Applicant or a non-Federal infrastructure partner on behalf of the
Applicant, or any combination thereof.

Sec. 260.15 Credit risk premium.

(a) Where available Federal appropriations are inadequate to cover
the subsidy cost, a non-Federal infrastructure partner may pay to the
Administrator a Credit Risk Premium adequate to cover that portion of
the subsidy cost not covered by Federal appropriations. Where there is
no Federal appropriation, the Credit Risk Premium must cover the entire
subsidy cost.
(b) The amount of the Credit Risk Premium required for each direct
loan or loan guarantee, if any, shall be established by the
Administrator. The Credit Risk Premium shall be determined based on the
credit risk and anticipated recovery in the event of default, including
the recovery of collateral.
(c) The Credit Risk Premium must be paid before the disbursement of
a direct or guaranteed loan. Where the borrower draws down the direct
or guaranteed loan in several increments, the borrower may pay a
portion of the total Credit Risk Premium for each increment equal to
the proportion of that increment to the total amount of the direct or
guaranteed loan.
(d) Each direct loan and loan guarantee made by the Administrator
will be included in one cohort of direct loans or one cohort of loan
guarantees, respectively, made during that same fiscal year, or longer
period, as may be determined by the Administrator. When all obligations
in a cohort have been satisfied or liquidated, the amount of Credit
Risk Premiums, paid by applicants or infrastructure partners, remaining
in the cohort, after deductions made to mitigate losses from any loan
or loan guarantee in the cohort, together with interest accrued
thereon, will be repaid on a pro rata basis to each original payor of a
Credit Risk Premium for any obligation which was fully satisfied. If
the Administrator's estimate of the default risk cost of each loan is
accurate, the aggregate of Credit Risk Premiums associated with each
cohort of loans will fully offset all losses in the cohort and none
will remain to be returned to the payees.

Subpart B--FRA Policies And Procedures For Evaluating Applications
For Financial Assistance

Sec. 260.17 Credit risk premium analysis.

(a) When Federal appropriations are not available to cover the
total subsidy cost, the Administrator will determine the Credit Risk
Premium necessary for each direct loan or loan guarantee by estimating
the credit risk and the potential recovery in the event of a default of
each project evaluating the factors described in paragraphs (b) and (c)
of this section.
(b) Establishing the credit risk.
(1) Where an Applicant has received a recent credit rating from one
or more nationally recognized rating agencies, that rating will be used
to estimate the credit risk.
(2) Where an Applicant has not received a credit rating from a
credit rating agency, the Administrator will determine the credit risk
based on an evaluation of the following factors:
(i) Business risk, based on Applicant's:
(A) Industry outlook;
(B) Market position;
(C) Management and financial policies;
(D) Capital expenditures; and
(E) Operating efficiency.
(ii) Financial risk, based on Applicant?s past and projected:
(A) Profitability;
(B) Liquidity;
(C) Financial strength;
(D) Size; and
(E) Level of capital expenditures; and
(iii) Project risk, based on the proposed project's:
(A) Potential for improving revenues, profitability and cash flow
from operations; and
(B) Reliance on third parties for success.
(c) The potential recovery in the event of a default will be based
on:
(1) The nature of the Applicant's assets; and
(2) Liquidation value of the collateral offered, including the
terms and conditions of the lien securing the collateral.

Sec. 260.19 Preapplication meeting.

Potential Applicants may request a meeting with the FRA Associate
Administrator for Railroad Development to discuss the nature of the
project being considered. Applicants must be prepared to provide at
least the following information:
(a) Applicant's name, address, and contact person;
(b) Name of the proposed infrastructure partner(s), if any,
including the identification of potential amounts of funding from each;
(c) Amount of the direct loan or loan guarantee request, and a
description of the technical aspects of the project including a map of
the existing railroad lines with the location of the project indicated;
(d) Brief description and estimate of the economic impact,
including future demand for service, improvements that can be achieved,
the project's relation to the priorities listed in Sec. 260.7, along
with any feasibility, market or other studies that may have been done
as attachments;
(e) Amount of Applicant's equity and a description of collateral
offered, with estimated values, including the basis of such, to be
offered as security for the loan;
(f) If applicable, the names and addresses of the Applicant's
parent, affiliates, and subsidiary corporations, if any, and a
description of the ownership relationship and the level of guarantee,
if any, to be offered;
(g) For existing companies, a current balance sheet and an income
statement not more than 90 days old and financial statements for the
borrower and any parent, affiliates, and subsidiaries for at least the
four most recent years; and
(h) Information relevant to the potential environmental impacts of
the project in the context of applicable Federal law.

Subpart C--Applications for Financial Assistance

Sec. 260.21 Eligibility.

The Administrator may make a direct loan to an Applicant, or
guarantee the payment of the principal balance and any interest of an
obligation of an Applicant prior to, on, or after the date of execution
or the date of disbursement of such obligation, if the proceeds of such
direct loan or obligation shall be, or have been, used by the Applicant
for the eligible purposes listed in Sec. 260.5(a)(1), (2), and (3).

Sec. 260.23 Form and content of application generally.

Each application shall include, in the order indicated and
identified by applicable paragraph numbers and letters corresponding to
those used in this section, the following information:
(a) Full and correct name and principal business address of the
Applicant;
(b) Date of Applicant's incorporation, or organization if not a
corporation, and name of the government, State or territory under the
laws of which it was incorporated or organized. If Applicant

[[Page 41844]]

is a partnership, association, or other form of organization other than
a corporation, a full description of the organization should be
furnished;
(c) Name, title, and address of the person to whom correspondence
regarding the application should be addressed.
(d) A statement of whether the project involves another railroad or
other participant, through joint execution, coordination, or otherwise;
if so, description of the relative participation of Applicant and such
other railroad or participant, including financial statements (if
applicable) and financing arrangements of each participant, portion of
the work to be performed by each participant, and anticipated level of
usage of the equipment or facility of each participant when the work is
completed, along with a statement by a responsible officer or official
of the other railroad or participant that the information provided
reflects their agreement on these matters;
(e) A detailed description of the amount and timing of the
financial assistance that is being requested and its purpose or
purposes, including:
(1) Detailed description of the project and its purpose or
purposes;
(2) A description of all facilities or equipment and the physical
condition of such facilities or equipment included in or directly
affected by the proposed project;
(3) Each part or sub-part into which the project may reasonably be
divided and the priority and schedule of expenditure for each part or
sub-part; and
(4) Proposed dates of commencement and completion of the project
and estimated timing of the expenditure of the proceeds of the
obligation;
(5) A map of Applicant's existing railroad with location of project
indicated, if appropriate.
(f) A listing and description of the collateral to be offered the
Administrator in connection with any financial assistance provided;
Applicant's opinion of the value of this security and the basis for
such opinion; in the case of leased equipment to be rehabilitated or
improved with the proceeds of the obligation proposed to be guaranteed,
Applicant shall state, in addition to the above, whether the lease
provides for, or the lessor will permit, encumbrance of the leasehold
or subordination of the lessor's interest in the equipment to the
Administrator;
(g) A statement, in summary form, showing financial obligations to
or claims against the United States or obligations for which the United
States is guarantor, if any, by Applicant or any affiliated corporate
entity of the Applicant or the Applicant's parent as of the date of the
application, including:
(1) Status of any claims under litigation; and
(2) Any other debits or credits existing between the Applicant and
the United States, showing the department or agency involved in such
loans, claims and other debts;
(h) To the extent such information is available, an analysis that
includes:
(1) a statement, together with supporting evidence including copies
of all market analyses and studies that have been performed to
determine present and future demand for rail services or facilities,
that the financing is justified by present and future probable demand
for rail services or facilities, will meet existing needs for such
services or facilities, and will provide shippers or passengers with
improved service;
(2) Description of the impact of the project upon the projected
freight or passenger traffic to be originated, terminated, or carried
by the Applicant for at least the five years immediately following
completion of the project;
(3) Explanation of the manner in which the project will increase
the economical and efficient utilization of equipment and facilities;
and
(4) Description of cost savings or any other benefit which would
accrue to the Applicant from the project;
(i) A statement as to how the project will contribute to, or
enhance, the safe operation of the railroad, considering such factors
as the occupational safety and health of the employees and the
improvement of the physical and other conditions that have caused or
may cause serious injury or loss of life to the public or significant
property damage;
(j) A statement of the Applicant's maintenance program for its
entire rail system and planned maintenance program for the equipment or
facilities financed by the proceeds of the financial assistance;
(k) A certified statement in the form contained in Sec. 260.31(d)
that Applicant will pay to the Administrator, in accordance with
Sec. 260.11, the investigation charge with respect to the application.
(l) Information relevant to the potential environmental impacts of
the project in the context of applicable Federal laws;
(m) Any additional information that the Applicant deems appropriate
to convey a full and complete understanding of the project, the
project's relations to the priorities listed in Sec. 260.7, and its
impact, or to assist the Administrator in making the statutorily
prescribed findings; and
(n) Any other information which the Administrator may deem
necessary concerning an application filed under this part.
(o) Railroad applicants must also submit a copy of application for
financing for the project in the private sector, including terms
requested, from at least one commercial lender, and its response
refusing to provide such financing.

Sec. 260.25 Additional information for Applicants not having a credit
rating.

Each application submitted by Applicants not having a recent credit
rating from one or more nationally recognized rating agencies shall
include, in the order indicated and identified by applicable numbers
and letters corresponding to those used in this section, the following
information:
(a) A narrative statement detailing management's business plan to
enhance Applicant's ability to provide rail services including a
discussion of the following:
(1) Applicant's current and prospective traffic base, including by
commodity and geographic region, major markets served, major
interchange points, and market development plans;
(2) Applicant's current operating patterns, and plans, if any, to
enhance its ability to serve its current and prospective traffic base;
(3) System-wide plans to maintain equipment and rights-of-way at
current or improved levels; and
(4) Specific plans for rationalization of marginal or uneconomic
services;
(b) Detailed financial information, including:
(1) Financial statements prepared by a Certified Public Accountant
(audited, if available), for the four calendar years immediately
preceding the date of filing of the application, including:
(i) A copy of Applicant's most recent year-end general balance
sheet and a copy of Applicant's most recent unaudited general balance
sheet; and
(ii) Applicant's most recent annual income statement and a spread
sheet showing unaudited monthly and year-to-date income statement data
up to the date the application is filed;
(2) Projected financial statements, including spread sheets showing
for each of the four years subsequent to the year in which the
application is filed, both before and after giving effect to the
proceeds of the assistance requested in the application:
(i) Forecasted annual income statement;
(ii) Forecasted year-end balance sheets. These spread sheets shall
be

[[Page 41845]]

accompanied by a statement setting forth the bases for such forecasts;
and
(iii) A spread sheet showing changes in financial position for the
year in which the application is filed, including the period ending on
the date of the application based upon actual data and the period from
the date of the application to the end of the year, based upon
estimated and forecasted data;
(c) Capital spending plans for the next five years;
(d) Cash flow projections;
(e) Contingency plans for termination of the project before
completion, if necessary; and
(f) A narrative description of Applicant's management team,
including:
(1) Rail experience of top management;
(2) Management's plans for achieving growth and its long-term
capital spending plan; and
(3) A narrative description of Applicant's workforce and the
historical rate of employee turnover.

Sec. 260.27 Additional information for loan guarantees.

Applications for a loan guarantee shall also include in the order
indicated and identified by applicable numbers and letters
corresponding to those used in this section, the following information:
(a) With respect to each existing obligation to be refinanced or
proposed obligation:
(1) A certified copy of proposed or executed obligation agreements;
(2) A detailed description of the obligation, and a description of
the series or issue of which the obligation is, or will be, a part,
including:
(i) Effective date, or anticipated effective date;
(ii) Where a guarantee is sought for an outstanding obligation
being refinanced, actual effective rate of interest; or where the
obligation is new, the terms of the proposed obligation including the
proposed effective rate of interest; and
(iii) All related documents, whether executed or proposed;
(3) For an existing obligation, the Applicant's payment history on
that obligation; and
(b) With respect to each existing Lender, Holder, or prospective
Lender, a statement as to:
(1) Full and correct name and principal business address;
(2) Reference to applicable provisions of law and the charter or
other governing instruments conferring authority to do business on the
Lender, Holder, or prospective Lender;
(3) Brief statement of the circumstances and negotiations leading
to the agreement by the Lender, Holder, or prospective Lender to make
the loan;
(4) Brief statement of the nature and extent of any affiliation or
business relationship between the Lender, Holder, or prospective Lender
and the Applicant or any of Applicant's directors, partners, or
principal executive officers; and.
(5) Full and complete statement of all sums to be provided by the
Lender or Holder, or to be provided by the prospective Lender in
connection with the proposed obligation including:
(i) Name and address of each person to whom the payment has been
made or will be made and nature of any affiliation, association, or
prior business relationship between any person named in this paragraph
and the Lender, Holder or prospective Lender or any of its directors,
partners, or officers; and
(ii) Amount of the cash payment, or the nature and value of other
consideration.

Sec. 260.29 Third party consultants.

Applicants may utilize independent third-party consultants to
prepare a financial evaluation of the proposed project and the
applicant, if approved by FRA. Providing such an evaluation would
greatly assist FRA in the evaluation of the application and would
significantly reduce the time necessary for FRA to process the
application. We encourage the use of third party consultants.

Sec. 260.31 Execution and filing of the application.

(a) The original application shall bear the date of execution, be
signed in ink by or on behalf of the Applicant, and shall bear the
corporate seal in the case of an Applicant which is a corporation.
Execution shall be by all partners if a partnership, unless
satisfactory evidence is furnished of the authority of a partner to
bind the partnership, or if a corporation, an association or other
similar form of organization, by its president or other executive
officer having knowledge of the matters therein set forth. Persons
signing the application on behalf of the Applicant shall also sign a
certificate in form as follows:

(Name of official) certifies that he or she is the (Title of
official) of the (Name of Applicant); that he or she is authorized
on the part of the Applicant to sign and file with the Administrator
this application and exhibits attached thereto; that the consent of
all parties whose consent is required, by law or by binding
commitment of the Applicant, in order to make this application has
been given; that he or she has carefully examined all of the
statements contained in such application and the exhibits attached
thereto and made a part thereof relating to the aforesaid (Name of
Applicant); that he or she has knowledge of the matters set forth
therein and that all such statements made and matters set forth
therein are true and correct to the best of his or her knowledge,
information, and belief; and that Applicant will pay the balance of
the investigation charge in accordance with Sec. 260.11.

(Signature of official)
(Date)
(b) There shall be made a part of the original application the
following certificate by the Chief Financial Officer or equivalent
officer of the Applicant:

(Name of officer) certifies that he or she is (Title of officer)
of (Name of Applicant); that he or she has supervision over the
books of accounts and other financial records of the affected
Applicant and has control over the manner in which they are kept;
that such accounts are maintained in good faith in accordance with
the effective accounting practices; that such accounts are adequate
to assure that proceeds from the financing being requested will be
used solely and specifically for the purposes authorized; that he or
she has examined the financial statements and supporting schedules
included in this application and to the best of his or her knowledge
and belief those statements accurately reflect the accounts as
stated in the books of account; and that, other than the matters set
forth in the exceptions attached to such statements, those financial
statements and supporting schedules represent a true and complete
statement of the financial position of the Applicant and that there
are no undisclosed assets, liabilities, commitments to purchase
property or securities, other commitments, litigation in the courts,
contingent rental agreements, or other contingent transactions which
might materially affect the financial position of the Applicant.

(Signature of official)
(Date)

(c) The Applicant shall pay the investigation charge in accordance
with Sec. 260.11.
(d) The application shall be accompanied by a transmittal letter in
form as follows:

Federal Railroad Administrator, c/o Associate Administrator for
Railroad Development, Federal Railroad Administration, Washington,
D.C. 20590
Re: Application for financial assistance under the Railroad
Rehabilitation and Improvement Financing Program.

Dear Sir or Madam: Being duly authorized by (jointly and
severally/if more than one) (the ``Applicant'') to convey the
understandings hereinafter set forth, I respectfully submit this
application and remit its investigation fee in the amount equal to
one-half the total investigation fee established by the
Administrator. By this filing, Applicant requests the Administrator
to investigate the application and make the necessary findings upon
which Applicant's eligibility for a direct loan or loan guarantee
may be determined. Applicant understands

[[Page 41846]]

that neither the acceptance of this filing, the deposit of the
investigation charge, nor the commencement of an investigation
acknowledges the sufficiency of the application's form, content or
merit. Furthermore, Applicant understands that the Administrator
will incur numerous expenses by this filing with respect to the
investigation of the application, the appraisal of security being
offered, and the making of the necessary determinations and
findings, and promises to pay, within 60 days, the remainder of the
investigation fee required by the Administrator. Applicant
understands that the Administrator will establish the amount of
Credit Risk Premium due from Applicant, if any, as provided in
Sec. 260.15. Applicant agrees to pay such Credit Risk Premium prior
to the disbursement of direct or guaranteed loan, as appropriate.
Such Credit Risk Premium may be refunded as provided in Sec. 260.15.
Respectfully submitted.

Applicant(s)
Seal(s) by Its(Their).

(e) The original application and supporting papers, and two copies
thereof for the use of the Administrator, shall be filed with the
Associate Administrator for Railroad Development of the Federal
Railroad Administration, 1120 Vermont Ave., NW., MailStop 20,
Washington, DC 20590. Each copy shall bear the dates and signatures
that appear in the original and shall be complete in itself, but the
signatures in the copies may be stamped or typed.

Sec. 260.33 Information requests.

If an Applicant desires that any information submitted in its
application or any supplement thereto not be released by the
Administrator upon request from a member of the public, the Applicant
must so state and must set forth any reasons why such information
should not be released, including particulars as to any competitive
harm which would probably result from release of such information. The
Administrator will keep such information confidential to the extent
permitted by law.

Sec. 260.35 Environmental assessment.

(a) The provision of financial assistance by the Administrator
under this Part is subject to a variety of environmental and historic
preservation statutes and implementing regulations including the
National Environmental Policy Act (``NEPA'') (42 U.S.C. 4332 et seq.),
Section 4(f) of the Department of Transportation Act (49 U.S.C.
303(c)), the National Historic Preservation Act (16 U.S.C. 470(f)), the
Coastal Zone Management Act (16 U.S.C. 1451), and the Endangered
Species Act (16 U.S.C. 1531). Appropriate environmental/historic
preservation documentation must be completed and approved by the
Administrator prior to a decision by the Administrator on the
applicant's financial assistance request. FRA's ``Procedures for
Considering Environmental Impacts'' (``FRA's Environmental
Procedures'') (65 FR 28545 (May 26, 1999)) or any replacement
environmental review procedures that the FRA may later issue and the
NEPA regulation of the Council on Environmental Quality (``CEQ
Regulation'') (40 CFR Part 1500) will govern the FRA's compliance with
applicable environmental/historic preservation review requirements.
(b) The Administrator, in cooperation with the applicant, has the
responsibility to manage the preparation of the appropriate
environmental document. The role of the applicant will be determined by
the Administrator in accordance with the CEQ Regulation and
Environmental Procedures.
(c) Depending on the type, size and potential environmental impact
of the project for which the applicant is seeking financial assistance,
FRA will need to determine whether the project is categorically
excluded from detailed environmental review under FRA's Environmental
Procedures and, if not, to prepare or have prepared an Environmental
Assessment leading to an Environmental Impact Statement (EIS) or a
Finding of No Significant Impact. At the discretion of the
Administrator, Applicants may be required to prepare and submit an
environmental assessment of the proposed project or to submit adequate
documentation to support a finding that the project is categorically
excluded from detailed environmental review. If the applicant is a
public agency that has statewide jurisdiction or is a local unit of
government acting through a statewide agency, and meets the
requirements of section 102(2)(D) of NEPA, the applicant may be
requested to prepare the EIS and other environmental documents under
the Administrator's guidance.
(d) Applicants are strongly urged to consult with the Associate
Administrator for Railroad Development at the earliest possible stage
in project development in order to assure that the environmental/
historic preservation review process can be completed in a timely
manner.
(e) Applicants may not initiate any activities that would have an
adverse environmental impact or limit the choice of reasonable
alternatives in advance of the completion of the environmental review
process. This does not preclude development by applicants of plans or
designs or performance of other work necessary to support the
application for financial assistance.

Subpart D--Standards for Maintenance of Facilities Involved in the
Project

Sec. 260.37 Applicability.

This subpart prescribes standards governing the maintenance of
facilities that are being, or have been, acquired, rehabilitated,
improved, or constructed with the proceeds of a direct loan or a
guaranteed loan issued under this part for the period during which any
portion of the principal or interest of such obligation remains unpaid.

Sec. 260.39 Maintenance standards.

(a) When the proceeds of a direct loan or an obligation guaranteed
by the Administrator under this part are, or were, used to acquire,
rehabilitate, improve or construct track, roadbed, and related
structures, Borrower shall, as long as any portion of the principal or
interest of such obligation remains unpaid, maintain such facilities in
at least the highest track class, as defined by FRA Track Safety
Standards in part 213 of this chapter, specified in the Application at
which the rehabilitated, improved, acquired, or constructed track is to
be operated upon completion of the project.
(b) When the proceeds of a direct loan or an obligation guaranteed
by the Administrator under this part are, or were, used for equipment
or facilities, the Borrower shall, during the period in which any
portion of the principal or interest in such obligation remains unpaid,
maintain such equipment or facilities in a manner consistent with sound
engineering and maintenance practices and in a condition that will
permit the level of use that existed upon completion of the
acquisition, rehabilitation, improvement or construction of such
equipment or facilities.

Sec. 260.41 Inspection and reporting.

(a) Equipment or facilities subject to the provisions of this
subpart may be inspected at such times as the Administrator deems
necessary to assure compliance with the standards set forth in
Sec. 260.39. Each Borrower shall permit representatives of the FRA to
enter upon its property to inspect and examine such facilities at
reasonable times and in a reasonable manner. Such representatives shall
be permitted to use such testing devices as the Administrator deems
necessary to insure that the maintenance standards imposed by this
subpart are being followed.
(b) Each Borrower shall submit annually to the Administrator
financial

[[Page 41847]]

records and other documents detailing the maintenance and inspections
performed which demonstrate that the Borrower has complied with the
standards in Sec. 260.39.

Sec. 260.43 Impact on other laws.

Standards issued under this subpart shall not be construed to
relieve the Borrower of any obligation to comply with any other
Federal, State, or local law or regulation.

Subpart E--Procedures To Be Followed in the Event of Default

Sec. 260.45 Events of default for guaranteed loans.

(a) If the Borrower is more than 30 days past due on a payment or
is in violation of any covenant or condition of the loan documents and
such violation constitutes a default under the provisions of the loan
documents, Lender must notify the Administrator in writing and must
continue to submit this information to the Administrator each month
until such time as the loan is no longer in default; and the
Administrator will pay the Lender of the obligation, or the Lenders's
agent, an amount equal to the past due interest on the guaranteed
portion of the defaulted loan. This payment will in no way reduce the
Borrower's obligation to the Lender to make all payments of principal
and interest in accordance with the note. If the loan is brought
current, the Lender will repay to the Agency any interest payments made
by the Agency, plus accrued interest at the note rate.
(b) If the default has continued for more than 90 days, the
Administrator will pay to the Lender, or the Lender's agent, 90 percent
of the unpaid guaranteed principal. If, subsequent to this payment
being made, the default is cured and liquidation is no longer
appropriate, the Lender will repay such funds to the Administrator,
plus interest at the note rate.
(c) After the default has continued for more than 90 days, the
Lender shall expeditiously submit to the Administrator, in writing, its
proposed detailed plan to resolve the default by liquidating the
collateral or by any other means. If the resolution will require the
liquidation of the collateral, then the Lender's plan shall include:
(1) Proof adequate to establish that the Lender is legally in
possession of the obligation, or is the agent for a Holder who is
legally in possession of the obligation, and a statement of the current
loan balance and accrued interest to date and the method of computing
the interest;
(2) A full and complete list of all collateral, including any
personal and corporate guarantees;
(3) The recommended liquidation methods for making the maximum
collection possible and the justification for such methods, including
recommended action for acquiring and disposing of all collateral and
collecting from any guarantors;
(4) Necessary steps for preservation of the collateral;
(5) Copies of the Borrower's latest available financial statements;
(6) Copies of any guarantor's latest available financial
statements;
(7) An itemized list of estimated liquidation expenses expected to
be incurred along with justification for each expense;
(8) A schedule to periodically report to the FRA on the progress of
liquidation;
(9) Proposed protective bid amounts on collateral to be sold at
auction and a breakdown to show how the amounts were determined;
(10) If a voluntary conveyance is considered, the proposed amount
to be credited to the guaranteed debt;
(11) Legal opinions, as appropriate;
(12) The Lender will obtain an independent appraisal on all
collateral securing the loan which will reflect the fair market value
and potential liquidation value. In order to formulate a liquidation
plan that maximizes recovery, the appraisal shall consider the presence
of hazardous substances, petroleum products, or other environmental
hazards, which may adversely impact the market value of the collateral;
and
(13) The anticipated expenses associated with the liquidation will
be considered a cost of liquidation.
(d) The Administrator will inform the Lender in writing whether the
Administrator concurs in the Lender's liquidation plan. Should the
Administrator and the Lender not agree on the liquidation plan,
negotiations will take place between the Administrator and the Lender
to resolve the disagreement. When the liquidation plan is approved by
the Administrator, the Lender will proceed expeditiously with
liquidation. The liquidation plan may be modified when conditions
warrant. All modifications must be approved in writing by the
Administrator prior to implementation.
(e) Lender will account for funds during the period of liquidation
and will provide the Administrator with reports at least quarterly on
the progress of liquidation including disposition of collateral,
resulting costs, and additional procedures necessary for successful
completion of the liquidation.
(f) Within 30 days after final liquidation of all collateral, the
Lender will prepare and submit to the Administrator a final report in
which the Lender must account for all funds during the period of
liquidation, disposition of the collateral, all costs incurred, and any
other information necessary for the successful completion of
liquidation. Upon receipt of the final accounting and report of loss,
the Administrator may audit all applicable documentation to confirm the
final loss. The Lender will make its records available and otherwise
assist the Administrator in making any investigation.
(g) The Administrator shall be subrogated to all the rights of the
Lender, or if Lender is agent for a Holder then to all of the rights of
the Holder, with respect to the Borrower to the extent of the
Administrator's payment to the Lender under this section.
(h) When the Administrator finds the final report to be proper in
all respects:
(1) All amounts recovered in liquidation shall be paid to the
Administrator; and
(2) The remaining obligation of the Administrator to the Lender
under the guarantee, if any, will be paid directly to Lender by the
Administrator.
(i) The Administrator shall not be required to make any payment
under paragraphs (a) and (b) of this section if the Administrator
finds, before the expiration of the periods described in such
subsections, that the default has been remedied.
(j) The Administrator shall have the right to charge Borrower
interest, penalties and administrative costs, including all of the
United States' legally assessed or reasonably incurred expenses of its
counsel and court costs in connection with any proceeding brought or
threatened to enforce payment or performance under applicable loan
documents, in accordance with OMB Circular A-129 (www.whitehouse.gov/omb.), as it may be revised from time to time.

Sec. 260.47 Events of default for direct loans.

(a) Upon the Borrower's failure to make a scheduled payment, or
upon the Borrower's violation of any covenant or condition of the loan
documents which constitutes a default under the provisions of the loan
documents, the Administrator, at the Administrator's discretion may:
(1) Exercise any and all remedies available under the provisions of
the loan agreement and other loan

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documents, including any guarantees, or inherent in law or equity;
(2) Terminate further borrowing of funds;
(3) Take possession of assets pledged as collateral; and
(4) Liquidate pledged collateral.
(b) The Administrator shall have the right to charge Borrower
interest, penalties and administrative costs, including all of the
United States' legally assessed or reasonably incurred expenses of its
counsel and court costs in connection with any proceeding brought or
threatened to enforce payment or performance under applicable loan
documents, in accordance with OMB Circular A-129, as it may be revised
from time to time.

Sec. 260.49 Avoiding defaults.

Borrowers are encouraged to contact the Administrator prior to the
occurrence of an event of default to explore possible avenues for
avoiding such an occurrence.

Subpart F--Loan Guarantees--Lenders

Sec. 260.51 Conditions of guarantee.

(a) The percentage of the obligation for which Applicant seeks a
guarantee is a matter of negotiation between the Lender and the
Applicant, subject to the Administrator's approval. The maximum
percentage of the total obligation that the Administrator will
guarantee is 80 percent. The amount of guarantee allowed will depend on
the total credit quality of the transaction and the level of risk
believed to be assumed by the Administrator.
(b) A guarantee under this part constitutes an obligation supported
by the full faith and credit of the United States and is incontestable
except for fraud or misrepresentation of which a Lender or Holder has
actual knowledge at the time it becomes such Lender or Holder or which
a Lender or Holder participates in or condones. In addition, the
guarantee will be unenforceable by the Lender or the Holder to the
extent any loss is occasioned by the violation of usury laws, negligent
servicing, or failure to obtain the required security regardless of the
time at which the Administrator acquires knowledge thereof. Any losses
occasioned will be unenforceable to the extent that loan funds are used
for purposes other than those specifically approved by FRA in its
guarantee.
(c) The Administrator may guarantee an Applicant's obligation to
any Lender provided such Lender can establish to the satisfaction of
the Administrator that it has the legal authority and sufficient
expertise and financial strength to operate a successful lending
program. Loan guarantees will only be approved for Lenders with
adequate experience and expertise to make, secure, service, and collect
the loans.
(d) The Lender may sell all of the guaranteed portion of the loan
on the secondary market, provided the loan is not in default, or retain
the entire loan.
(e) When a guaranteed portion of a loan is sold to a Holder, the
Holder shall succeed to all rights of the Lender under the loan
guarantee to the extent of the portion purchased. The Lender will
remain bound to all obligations under the loan guarantee and the
provisions of this part. In the event of material fraud, negligence or
misrepresentation by the Lender or the Lender's participation in or
condoning of such material fraud, negligence or misrepresentation, the
Lender will be liable for payments made by the Agency to any Holder.

Sec. 260.53 Lenders' functions and responsibilities.

Lenders have the primary responsibility for the successful delivery
of the program consistent with the policies and procedures outlined in
this part. All Lenders obtaining or requesting a loan guarantee from
the Administrator are responsible for:
(a) Loan processing. Lender shall be responsible for all aspects of
loan processing, including:
(1) Processing applications for the loan to be guaranteed;
(2) Developing and maintaining adequately documented loan files;
(3) Recommending only loan proposals that are eligible and
financially feasible;
(4) Obtaining valid evidence of debt and collateral in accordance
with sound lending practices;
(5) Supervising construction, where appropriate;
(6) Distributing loan funds;
(7) Servicing guaranteed loans in a prudent manner, including
liquidation if necessary; and
(8) Obtaining the Administrator's approval or concurrence as
required in the loan guarantee documentation;
(b) Credit evaluation. Lender must analyze all credit factors
associated with each proposed loan and apply its professional judgment
to determine that the credit factors, considered in combination, ensure
loan repayment. The Lender must have an adequate underwriting process
to ensure that loans are reviewed by other than the originating
officer. There must be good credit documentation procedures;
(c) Environmental responsibilities. Lender has 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. Lender must alert the Administrator
to any controversial environmental issues related to a proposed project
or items that may require extensive environmental review. Lender must
assist borrowers as necessary to comply with the environmental
requirements outlined in this part. Additionally, Lender will 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;
(d) Loan closing. The Lender will conduct or arrange for loan
closings; and
(e) Fees and Charges. The Lender may establish charges and fees for
the loan provided they are similar to those normally charged other
Applicants for the same type of loan in the ordinary course of
business.

Sec. 260.55 Lender's loan servicing.

(a) The lender is responsible for servicing the entire loan and for
taking all servicing actions that are prudent. This responsibility
includes but is not limited to the collection of payments, obtaining
compliance with the covenants and provisions in the loan documents,
obtaining and analyzing financial statements, verification of tax
payments, and insurance premiums, and maintaining liens on collateral.
(b) The lender must report the outstanding principal and interest
balance on each guaranteed loan semiannually.
(c) At the Administrator's request, the Lender will periodically
meet with the Administrator to ascertain how the guaranteed loan is
being serviced and that the conditions and covenants of the loan
documents are being enforced.
(d) The Lender must obtain and forward to the Administrator the
Borrower's annual financial statements within 120 days after the end of
the Borrower's fiscal year and the due date of other reports as
required by the loan documents. The Lender must analyze the financial
statements and provide the Agency with a written summary of the
Lender's analysis and conclusions, including trends, strengths,
weaknesses, extraordinary transactions, and other indications of the
financial condition of the Borrower.
(e) Neither the Lender nor the Holder shall alter, nor approve any

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amendments of, any loan instrument without the prior written approval
of the Administrator.

Issued in Washington, DC on June 27.
Jolene M. Molitoris,
Administrator.
[FR Doc. 00-16778 Filed 7-5-00; 8:45 am]
BILLING CODE 4910-06-P