7 U.S.C. § 936b — Sale or prepayment of direct or insured

Page 540 TITLE 7—AGRICULTURE § 936b AMENDMENTS 1994—Pub. L. 103–354 substituted ‘‘Secretary’’ for ‘‘Rural Electrification Administration’’ in subsec. (b) and ‘‘Secretary’’ for ‘‘Administrator’’ wherever appear- ing in subsecs. (d) and (e). Statutory Notes and Related Subsidiaries PREPAYMENT OF RURAL ELECTRIFICATION LOANS DURING FISCAL YEAR 1988 Pub. L. 100–203, title I, § 1401, Dec. 22, 1987, 101 Stat. 1330–20, provided that: ‘‘(a) ELIGIBILITY TO PREPAY.—Notwithstanding sub- sections (c), (d), and (e) of section 306A of the Rural Electrification Act of 1936 (7 U.S.C. 936a(c), (d), and (e)), during fiscal year 1988, a borrower of a loan made by the Federal Financing Bank and guaranteed under sec- tion 306 of such Act (7 U.S.C. 936) may, at the option of the borrower, prepay such loan (or any loan advance thereunder) in accordance with subsections (a) and (b) of section 306A of such Act, except that any prepay- ment that would cause the total amount of such pre- payments during fiscal year 1988 to exceed $2,000,000,000 shall be subject solely to the approval of the Secretary of the Treasury. ‘‘(b) PRIORITY FOR APPROVAL.—In determining which borrowers shall be permitted to prepay loans under sub- section (a): ‘‘(1) The Administrator of the Rural Electrification Administration shall give priority to those 8 bor- rowers that were determined by the Administrator, prior to the date of the enactment of this Act [Dec. 22, 1987], to be eligible to prepay, or that prepaid, an advance under section 306A of such Act [7 U.S.C. 936a] (as in effect prior to the date of the enactment of this Act), except that to retain such priority a borrower shall— ‘‘(A) notify the Administrator in writing, within 30 days after the issuance of regulations to carry out this section, of the intent of the borrower to prepay; and ‘‘(B) complete such prepayment by disbursing funds to the Federal Financing Bank to prepay loan advances within 120 days after the issuance of such regulations. ‘‘(2) In considering requests for prepayment under subsection (a) by borrowers not described in para- graph (1), the Administrator shall permit prepayment based on the order in which borrowers are prepared to disburse funds to the Federal Financing Bank to com- plete such prepayments. If more than 1 borrower is so prepared at the same time, and if the combined amount of such prepayments would cause the total amount of prepayments during fiscal year 1988, under this section, to exceed $2,000,000,000, the Adminis- trator shall— ‘‘(A) base the determination on the date on which prepayment applications have been submitted; or ‘‘(B) permit partial prepayment by two or more borrowers. ‘‘(c) REGULATIONS.—Not later than 30 days after the date of enactment of this Act [Dec. 22, 1987], the Ad- ministrator of the Rural Electrification Administra- tion shall issue such regulations as are necessary to carry at this section. ‘‘(d) STUDY.—Not later than January 1, 1989, the Comptroller General of the United States shall— ‘‘(1) study— ‘‘(A) all benefits provided by Federal Financing Bank lending and the procedures and conditions for the prepayment of current Federal Financing Bank loans; ‘‘(B) the benefits and costs to Federal Financing Bank borrowers of making prepayments; and ‘‘(C) alternative conditions and procedures for prepayment of all Federal Financing Bank loans to balance Federal benefits with Federal costs; and ‘‘(2) submit to Congress a report describing the re- sults of such study, together with any appropriate recommendations.’’ PREPAYMENT OF GUARANTEED LOANS; RESTRICTIONS Pub. L. 100–202, § 101(k) [title VI, § 633], Dec. 22, 1987, 101 Stat. 1329–322, 1329–356, provided that: ‘‘Hereafter, notwithstanding section 306A(c), (d), and (e) of the Rural Electrification Act of 1936, as amended [7 U.S.C. 936a(c), (d), (e)], a borrower of a loan made by the Fed- eral Financing Bank and guaranteed under section 306 of such Act (7 U.S.C. 936) may, at the option of the bor- rower, prepay such loan (or any loan advance there- under) in accordance with section 306A(a) and (b) of such Act: Provided, That any prepayment in excess of $2,500,000,000 shall be subject to the approval of the Sec- retary of the Treasury.’’ Pub. L. 100–71, title I, July 11, 1987, 101 Stat. 429, pro- vided in part that: ‘‘Hereafter, notwithstanding section 306A(d) of the Rural Electrification Act of 1936 (7 U.S.C. 936a(d)), a borrower of a loan made by the Federal Fi- nancing Bank and guaranteed under section 306 of such Act (7 U.S.C. 936) may, at the option of the borrower, prepay such loan (or any loan advance thereunder) in accordance with section 306A of such Act.’’ REGULATIONS Pub. L. 99–509, title I, § 1011(c), Oct. 21, 1986, 100 Stat. 1876, provided that: ‘‘The Secretary of Agriculture shall issue regulations to implement this section [enacting sections 936a and 936b of this title and repealing provi- sions set out as a note under section 936 of this title] within 60 days after the date of enactment of this Act [Oct. 21, 1986]. Such regulations— ‘‘(1) shall facilitate prepayment of loans under sec- tion 306A of the Rural Electrification Act of 1936 [this section], as added by subsection (a); and ‘‘(2) may not require any rural utility that is a bor- rower of loans subject to section 306A to make unrea- sonable reductions in rates to its customers as a con- dition of such prepayment.’’ § 936b. Sale or prepayment of direct or insured loans (a) Discounted prepayment by borrowers of elec- tric loans (1) In general Except as provided in paragraph (2), a direct or insured loan made under this chapter shall not be sold or prepaid at a value that is less than the outstanding principal balance on the loan. (2) Exception On request of the borrower, an electric loan made under this chapter, or a portion of such a loan, that was advanced before May 1, 1992, or has been advanced for not less than 2 years, shall be sold to or prepaid by the borrower at the lesser of— (A) the outstanding principal balance on the loan; or (B) the present value of the loan dis- counted from the face value at maturity at the rate established by the Secretary. (3) Discount rate The discount rate applicable to the prepay- ment under this subsection of a loan or loan advance shall be the then current cost of funds to the Department of the Treasury for obliga- tions of comparable maturity to the remain- ing term of the loan. (4) Tax exempt financing If a borrower prepays a loan under this sub- section using tax exempt financing, the dis- count shall be adjusted to ensure that the bor- Page 541 TITLE 7—AGRICULTURE § 936b rower receives a benefit that is equal to the benefit the borrower would receive if the bor- rower used fully taxable financing. The bor- rower shall certify in writing whether the fi- nancing will be tax exempt and shall comply with such other terms and conditions as the Secretary may establish that are reasonable and necessary to carry out this subsection. (5) Eligibility (A) In general A borrower that has prepaid an insured or direct loan shall remain eligible for assist- ance under this chapter in the same manner as other borrowers, except that— (i) a borrower that has prepaid a loan, ei- ther before or after October 21, 1992, at a discount rate as provided by paragraph (3), shall not be eligible, except at the discre- tion of the Secretary, to apply for or re- ceive direct or insured loans under this chapter during the 120-month period begin- ning on the date of the prepayment; and (ii) a borrower that prepaid a loan before October 21, 1992, at a discount rate greater than that provided by paragraph (3), shall not be eligible— (I) except at the discretion of the Sec- retary, to apply for or receive direct or insured loans described in clause (i) dur- ing the 180-month period beginning on the date of the prepayment; or (II) to apply for or receive direct or in- sured loans described in clause (i) until the borrower has repaid to the Federal Government the sum of— (aa) the amount (if any) by which the discount the borrower received by rea- son of the prepayment exceeds the dis- count the borrower would have re- ceived had the discount been based on the cost of funds to the Department of the Treasury at the time of the prepay- ment; and (bb) interest on the amount described in item (aa), for the period beginning on the date of the prepayment and end- ing on the date of the repayment, at a rate equal to the average annual cost of borrowing by the Department of the Treasury. (B) Effect on existing agreements If a borrower and the Secretary have en- tered into an agreement with respect to a prepayment occurring before October 21, 1992, this paragraph shall supersede any pro- vision in the agreement relating to the res- toration of eligibility for loans under this chapter. (C) Distribution borrowers A distribution borrower not in default on the repayment of loans made or insured under this chapter shall be eligible for dis- counted prepayment as provided in this sub- section. For the purpose of determining eli- gibility for discounted prepayment under this subsection or eligibility for assistance under this chapter, a default by a borrower from which a distribution borrower pur- chases wholesale power shall not be consid- ered a default by the distribution borrower. (6) Definitions As used in this subsection: (A) Direct loan The term ‘‘direct loan’’ means a loan made under section 904 of this title. (B) Insured loan The term ‘‘insured loan’’ means a loan made under section 935 of this title. (b) Mergers of electric borrowers Notwithstanding subsection (a), a direct or in- sured loan may be prepaid by an electric bor- rower at the lesser of the outstanding principal balance due thereon or the present value thereof discounted from the face value at maturity at the rate set by the Secretary if the borrower is an electrical organization which resulted from a merger or consolidation between a borrower and an organization which, prior to October 1, 1987, prepaid its direct or insured loans pursuant to this section. Prepayments by a borrower here- under shall be made not later than one year after the effective date of the merger, consolida- tion, or other transaction. The discount rate to be set by the Secretary for direct or insured loans prepayments hereunder shall be based on the current cost of funds to the Department of the Treasury for obligations of comparable ma- turity to those being prepaid. If a borrower pre- pays using tax exempt financing, the discount shall be adjusted to make the discount equiva- lent to fully taxable financing. The borrower shall certify in writing whether the financing will be tax exempt and shall comply with such other terms and conditions as the Secretary may establish which are reasonable and nec- essary to implement this provision. As used in this section, the term ‘‘direct loan’’ means a loan made under section 904 of this title. (May 20, 1936, ch. 432, title III, § 306B, as added Pub. L. 99–509, title I, § 1011(a), Oct. 21, 1986, 100 Stat. 1876; amended Pub. L. 101–624, title XXIII, § 2387, Nov. 28, 1990, 104 Stat. 4051; Pub. L. 102–428, § 2, Oct. 21, 1992, 106 Stat. 2183; Pub. L. 103–354, title II, § 235(a)(13), Oct. 13, 1994, 108 Stat. 3221.) Editorial Notes CODIFICATION October 21, 1992, referred to in subsec. (a)(5)(A), (B), was in the original ‘‘the date of enactment of this sub- section’’, which was translated as meaning the date of enactment of Pub. L. 102–428, which amended subsec. (a) generally, to reflect the probable intent of Congress. AMENDMENTS 1994—Pub. L. 103–354 substituted ‘‘Secretary’’ for ‘‘Ad- ministrator’’ wherever appearing. 1992—Subsec. (a). Pub. L. 102–428, § 2(a), amended sub- sec. (a) generally. Prior to amendment, subsec. (a) read as follows: ‘‘A direct or insured loan made under this chapter shall not be sold or prepaid at a value less than the face value of any outstanding principal balance on such loan, except when sold to or prepaid by the bor- rower at the lesser of the outstanding principal balance due on the loan or the loan’s present value discounted from the face value at maturity at the rate set by the Administrator. The exception contained in the pre- ceding sentence shall be effective for the period ending September 30, 1987.’’ Subsec. (b). Pub. L. 102–428, § 2(b), inserted heading. Page 542 TITLE 7—AGRICULTURE § 936c 1990—Pub. L. 101–624 designated existing provisions as subsec. (a) and added subsec. (b). § 936c. Refinancing and prepayment of FFB loans (a) In general A borrower of a loan made by the Federal Fi- nancing Bank and guaranteed under section 936 of this title may, at the option of the borrower, refinance or prepay the loan or an advance on the loan, or any portion of the loan or advance. (b) Penalty (1) Determination of penalty A penalty shall be assessed against a bor- rower that refinances or prepays a loan or loan advance, or any portion of a loan or advance, under this section. Except as provided in para- graph (2), the penalty shall be equal to the lesser of— (A) the difference between the outstanding principal balance of the loan being refi- nanced and the present value of the loan dis- counted at a rate equal to the then current cost of funds to the Department of the Treasury for obligations of comparable ma- turity to the loan being refinanced or pre- paid; (B) 100 percent of the amount of interest for 1 year on the outstanding principal bal- ance of the loan or loan advance, or any por- tion of the loan or advance, being refi- nanced, multiplied by the ratio that— (i) the number of quarterly payment dates between the date of the refinancing or prepayment and the maturity date for the loan advance; bears to (ii) the number of quarterly payment dates between the first quarterly payment date that occurs 12 years after the end of the year in which the amount being refi- nanced was advanced and the maturity date of the loan advance; and (C)(i) the present value of 100 percent of the amount of interest for 1 year on the out- standing principal balance of the loan or loan advance, or any portion of the loan or advance, being refinanced or prepaid; plus (ii) for the interval between the date of the refinancing or prepayment and the first quarterly payment date that occurs 12 years after the end of the year in which the amount being refinanced or prepaid was ad- vanced, the present value of the difference between— (I) each payment scheduled for the inter- val on the loan amount being refinanced or prepaid; and (II) the payment amounts that would be required during the interval on the amounts being refinanced or prepaid if the interest rate on the loan were equal to the then current cost of funds to the Depart- ment of the Treasury for obligations of comparable maturity to the loan being re- financed or prepaid. (2) Limitation (A) In general Except as provided in subparagraph (B), the penalty provided by paragraph (1)(A) shall be required for refinancing or prepay- ment under this section. (B) Exception In the case of a loan advanced under an agreement that permits the refinancing or prepayment of the loan advance based on the payment of 1 year of interest on the out- standing principal balance of the loan ad- vance, a borrower may, in lieu of the penalty required by paragraph (1)(A), pay a penalty as provided by— (i) paragraph (1)(B), if the loan advance has reached the 12-year maturity required under the loan agreement for the refi- nancing or prepayment; or (ii) paragraph (1)(C), if the loan advance has not reached the 12-year maturity re- quired under the loan agreement for the refinancing or prepayment. (3) Financing of penalty (A) In general In the case of a refinancing under this sec- tion, a borrower may, at the option of the borrower, meet the penalty requirements of paragraph (1) by— (i) making a payment in the amount of the required penalty at the time of the re- financing; or (ii) increasing the outstanding principal balance of the loan advance guaranteed by the Secretary that is being refinanced under this section by the amount of the penalty. (B) Increased principal If a borrower meets the penalty require- ments of paragraph (1) by increasing the out- standing principal balance of the loan ad- vance that is being refinanced, the borrower shall make a payment at the time of the re- financing equal to 2.5 percent of the amount of the penalty that is added to the out- standing principal balance of the loan. (c) Loan terms and conditions after refinancing (1) In general On the payment of a penalty as provided by subsection (b), the loan or loan advance, or any portion of the loan or advance, shall be re- financed at the interest rate described in para- graph (2) for a term selected by the borrower pursuant to paragraph (3), except that this paragraph shall not apply if the loan advance, or any portion of the advance, is prepaid by the borrower. (2) Interest rate The interest rate on a loan refinanced under this section shall be determined to be equal to the then current cost of funds to the Depart- ment of the Treasury for obligations of com- parable maturity to a term selected by the borrower pursuant to paragraph (3), except that such rate shall not be greater than 7 per- cent per year, subject to subsection (d). (3) Loan term Subject to paragraph (4), the borrower of a loan that is refinanced under this section— (A) shall select the term for which an in- terest rate shall be determined pursuant to paragraph (2); and