7 CFR 1744, Subpart E / Regulation

Rural Utilities Service, USDA

§ 1744.201

(2) If borrower’s bank is not a member of the Federal Reserve System, the
name and address of its correspondent
bank that is a member of the Federal
Reserve System.
(3) American Bankers Association
(ABA) nine digit identifier of the receiving banks (routing number and
check digit).
(4) Borrower’s bank account title and
number.
(5) Any other necessary identifying
information.
[54 FR 12186, Mar. 24, 1989. Redesignated at 55
FR 39395, Sept. 27, 1990, and amended at 58
FR 66257, Dec. 20, 1993]

§ 1744.69

[Reserved]

Subpart D [Reserved]
Subpart E—Borrower Investments
SOURCE: 58 FR 52642, Oct. 12, 1993, unless
otherwise noted.

§ 1744.200

General statement.

(a) RUS telephone borrowers are encouraged to utilize their own funds to
participate in the economic development of rural areas, provided that such
activity does not impair a borrower’s
ability to provide modern telecommunications services at reasonable
rates or to repay its indebtedness to
RUS and other lenders. When considering loans, investments, or guarantees, borrowers are expected to act in
accordance with prudent business practices and in conformity with the laws
of the jurisdictions in which they
serve.
(b) This subpart E applies to both
RUS and RTB borrowers. For the purposes of RTB borrowers, as used in this
subpart E, if a borrower has received a
loan from the RTB, RUS means RTB,
and Administrator means Governor unless the text indicates otherwise.
§ 1744.201

Definitions.

Advance means any funds provided of
which repayment is expected.
Affiliated company means any organization that directly, or indirectly
through one or more intermediaries,
controls or is controlled by, or is under
common control with, the borrower.
Borrower means any organization
which has an outstanding loan made by
RUS or RTB, or guaranteed by RUS, or
which is seeking such financing.
Extension of credit means to make
loans or advances.
Guarantee means to undertake collaterally to answer for the payment of another’s debt or the performance of another’s duty, liability, or obligation,
including, without limitation, the obligations of affiliated companies. Some
examples of such guarantees would include:
(1) Guarantees of payment or collection on a note or other debt instrument;
(2) Issuing performance bonds or
completion bonds; or
(3) Cosigning leases or other obligations of third parties.
Maximum investment ratio means that
the aggregate of all qualified investments by the borrower including the
proposed qualified investment shall not
be more than one-third of the net
worth of the borrower.
Minimum total assets ratio means the
borrower’s net worth is at least twenty
percent of its total assets including the
proposed qualified investment.
Net plant means the sum of the balances of the following accounts of the
borrower:
Account Names
(1) Telecommunications plant in service
(2) Property held for future telecommunications use
(3) Telecommunications plant under construction-short term
(4) Telecommunications plant under construction-long term
(5) Telecommunications plant adjustment
(6) Nonoperating plant
(7) Goodwill
(8) Less accumulated depreciation
(9) Less accumulated amortization

As used in this subpart:
Administrator means the Administrator of the Rural Utilities Service
(RUS) and, as provided in § 1744.200(b),
the Governor of the Rural Telephone
Bank (RTB).

Number
2001
2002
2003
2004
2005
2006
2007
3100 through
3300s
3400 through
3600s

NOTE: All references to account numbers are to the Uniform
System of Accounts (47 CFR part 32).

Net worth means the sum of the balances of the following accounts of the
borrower:

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§ 1744.202

7 CFR Ch. XVII (1–1–03 Edition)

Account Names
(1)
(2)
(3)
(4)
(5)

Capital stock
Additional paid-in capital
Treasury stock
Other capital
Retained earnings

communications Companies (47 CFR
part 32) as supplemented by 7 CFR Part
1770, Accounting Requirements for
RUS Telephone Borrowers.

Number
4510
4520
4530
4540
4550

NOTE: For nonprofit organizations, owners’ equity is shown
in subaccounts of 4540 and 4550. All references regarding
account numbers are to the Uniform System of Accounts (47
CFR part 32).

Qualified investment is defined in
§ 1744.202(b).
RE Act means the Rural Electrification Act of 1936, as amended (7 U.S.C.
901 et seq.).
REA means the Rural Electrification
Administration formerly an agency of
the United States Department of Agriculture and predecessor agency to RUS
with respect to administering certain
electric and telephone loan programs.
RTB means the Rural Telephone
Bank, an agency and instrumentality
of the United States within the United
States Department of Agriculture.
Rural development investment is defined in § 1744.202(d).
RUS means the Rural Utilities Service, an agency of the United States Department of Agriculture established
pursuant to Section 232 of the Federal
Crop Insurance Reform and Department of Agriculture Reorganization
Act of 1994 (Pub. L. 103–354, 108 Stat.
3178), successor to REA with respect to
administering certain electric and telephone programs. See 7 CFR 1700.1.
RUS mortgage means the instrument
creating a lien on or security interest
in the borrower’s assets in connection
with a loan made or guaranteed under
the RE Act.
Total assets means the sum of the balances of the following accounts of the
borrower:
Account Names
(1) Current assets
(2) Noncurrent assets
(3) Total telecommunications plant
(4) Less accumulated depreciation
(5) Less accumulated amortization

Number
1100s through
1300s
1400s through
1500s
2001 through
2007
3100 through
3300s
3400 through
3600s

NOTE: All references regarding account numbers are to the
Uniform System of Accounts (47 CFR part 32).

Uniform System of Accounts means the
Federal Communications Commission
Uniform System of Accounts for Tele-

[58 FR 52642, Oct. 12, 1993, as amended at 59
FR 66440, Dec. 27, 1994]

§ 1744.202 Borrowers may make qualified investments without prior approval of the Administrator.
(a) A borrower that equals or exceeds
the minimum total assets ratio may
make a qualified investment, defined
in paragraph (b) of this section without
prior written approval of the Administrator.
(b) A qualified investment is a rural
development investment, defined in
paragraph (d) of this section meeting
the following criteria:
(1) Unless the borrower’s commitment is a guarantee, extension of credit, or advance, the borrower receives
any financial return accruing to such
investment, or the borrower’s proportionate share of such return;
(2) Unless the borrower’s commitment is a guarantee, extension of credit, or advance, the borrower retains
title to any asset acquired with such
investment, or the borrower’s proportionate share of such title; and
(3) The funds committed are the borrower’s own funds. As used in this subpart, the term own funds shall not include proceeds of loans made, guaranteed or lien accommodated by RUS;
funds necessary to make timely payments of principal and interest on
loans made, guaranteed or lien accommodated by RUS; and funds on deposit
in the cash construction fund-trustee
account, as defined in the borrower’s
loan contract with RUS.
(c) A rural development investment
will not be considered to be a qualified
investment to the extent that the
amount of such investments exceeds
the borrower’s maximum investment
ratio.
(d) A rural development investment
is an investment, extension of credit,
advance, or guarantee by a borrower
for a period longer than one year and
for one or more of the following purposes:
(1) Improve the economic well-being
of rural residents and alleviate the

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Rural Utilities Service, USDA

§ 1744.204

problems of low income, elderly, minority, and otherwise disadvantaged
rural residents;
(2) Improve the business and employment
opportunities,
occupational
training and employment services,
health care services, educational opportunities, energy utilization and
availability, housing, transportation,
community services, community facilities, water supplies, sewage and solid
waste management systems, credit
availability, and accessibility to and
delivery of private and public financial
resources in the maintenance and creation of jobs in rural areas;
(3) Improve state and local government management capabilities, institutions, and programs related to rural
development and expand educational
and training opportunities for state
and local officials, particularly in
small rural communities;
(4) Strengthen the family farm system; or
(5) Maintain and protect the environment and natural resources of rural
areas.
(e) As used in paragraph (d) of this
section, the term rural development investment shall include investments by
a borrower in its own name, in affiliated companies, and in entities not affiliated with the borrower.
§ 1744.203 Establishing
amount
rural development investment.

of

For purposes of determining whether
a rural development investment is
within the limits of the borrower’s
maximum investment ratio or the minimum total assets ratio, the amount of
the qualified investment shall be the
total amount of funds committed to
the rural development project as of the
date of determination. The total
amount of funds committed to the
rural development project includes:
(a) The principal amount of loans and
advances made by the borrower;
(b) Guarantees made by the borrower;
and
(c) A reasonable estimate of the
amount the borrower is committed to
provide to the rural development
project in future years.

§ 1744.204 Rural development investments that do not meet the ratio requirements.
(a) Each borrower is authorized to
make investments other than qualified
investments only in accordance with
the provisions of the borrower’s mortgage with RUS. Without RUS’s approval, the portion of any investment
of funds or commitment to invest funds
for any rural development investment
that will exceed the borrower’s maximum investment ratio or cause the
borrower to fall below the minimum
total assets ratio, must comply with
the provisions of the RUS mortgage.
(b) RUS will consider, on a case-bycase basis, requests for approval of
rural development investments not
constituting qualified investments.
RUS may condition such approval, if
granted, on such requirements and restrictions as RUS may determine to be
in the best interests of the Government, including, without limitation,
the borrower’s agreement to limit dividends or distributions of capital by an
amount specified by RUS. Requests for
such approvals must be submitted in
writing to the relevant RUS regional
office and shall include:
(1) A description of the rural development project and the type of investment to be made, such as a loan, guarantee, stock purchase or equity investment;
(2) A reasonable estimate of the
amount the borrower is committed to
provide to the rural development
project including investments that
may be required in the future; and
(3) A pro forma balance sheet and
cash flow statement for the period covering the borrower’s future commitments to the rural development
project.
(c) In determining whether to approve a rural development investment
that may cause the borrower to exceed
the maximum investment ratio or to
fall below the minimum total assets
ratio in the future, RUS will consider
annual increases to the borrower’s net
worth and total assets as might be reasonably anticipated from the borrower’s normal operations.

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§ 1744.205

7 CFR Ch. XVII (1–1–03 Edition)

§ 1744.205 Determinations and application of limitations described in
§ 1744.202.
(a) RUS will not include qualified investments, including qualified investments in affiliated companies, in calculating the amount of dividend or capital distributions a borrower may make
under its RUS mortgage.
(b) A borrower’s investment in its net
plant shall not be considered a rural
development investment for purposes
of calculating the maximum investment ratio or the minimum total assets ratio.
(c) The borrower’s net worth and
total assets shall be determined using
the balances of the respective accounts
of the borrower as of December 31 of
the last complete calendar year preceding the date on which the borrower’s maximum investment ratio and
minimum total assets ratio are calculated.
(d) All determinations required to be
made under 7 U.S.C. 926 or this subpart
will be made in accordance with the
Uniform System of Accounts (USoA)(47
CFR part 32). References to specific
USoA accounts shall include revised or
replacement accounts.
§ 1744.206 Effect of subsequent failure
to maintain ratios.
If an expenditure constitutes a qualified investment under the terms of this
subpart, it does not cease to be a qualified investment merely because subsequently the borrower fails to maintain
the maximum investment ratio or the
minimum total assets ratio.
§ 1744.207 Investment not to jeopardize loan security.
A borrower shall not make a qualified investment or a rural development
investment which jeopardizes:
(a) The security of loans made or
guaranteed by RUS; or
(b) The borrower’s ability to repay
such loans under the terms and conditions as agreed.
§ 1744.208 Rural development investments before November 28, 1990.
All investments made by a borrower
shall be subject to the provisions of
this subpart, regardless of when the in-

vestment was made or whether it has
been approved by RUS. Any restrictions required by RUS as a condition to
approving a rural development investment before November 28, 1990, shall
continue to be in effect to the extent
that such investment exceeds the maximum investment ratio or causes the
borrower to fall below the minimum
total assets ratio.
§ 1744.209

Records.

(a) The records of borrowers, including records relating to qualified investments, shall be subject to the auditing
procedures prescribed in part 1773 of
this chapter. RUS reserves the right to
review the records of the borrower relating to qualified investments to determine if the borrower is in compliance with this subpart.
(b) Borrowers shall report to RUS on
the end-of-year operating report, RUS
Form 479, the current status and principal amount of each qualified investment it has made or is committed to
make pursuant to § 1744.202.
(Approved by the Office of Management and
Budget under control number 0572–0098)

§ 1744.210 Effect of this subpart on
RUS loan contract and mortgage.
(a) Except as expressly provided in
this subpart, the borrower shall comply
with all provisions of its loan contract
with RUS, its notes issued to RUS, and
the RUS mortgage, including all provisions thereof relating to investments
not covered by this subpart.
(b) Nothing in this subpart shall affect any rights of supplemental lenders
under the RUS mortgage, or other
creditors of the borrower, to limit a
borrower’s investments, loans and
guarantees to levels below those permitted in § 1744.202.
(c) As used in paragraph (b) of this
section, supplemental lender means a
creditor of the borrower, other than
RUS, whose loan to the borrower is secured by the RUS mortgage.

PART 1748—POST-LOAN POLICIES
AND PROCEDURES FOR INSURED
TELEPHONE LOANS [RESERVED]

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