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[Code of Federal Regulations]
[Title 49, Volume 4]
[Revised as of October 1, 2003]
[CITE: 49CFR260]

[Page 702-715]
 

TITLE 49--TRANSPORTATION
CHAPTER II--FEDERAL RAILROAD ADMINISTRATION, DEPARTMENT OF TRANSPORTATION
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 the 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.

[[Page 703]]

                   Subpart F--Loan Guarantees--Lenders

260.51 Conditions of guarantee.
260.53 Lenders' functions and responsibilities.
260.55 Lender's loan servicing.

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

    Source: 65 FR 41841, July 6, 2000, unless otherwise noted.

                           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

[[Page 704]]

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 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

[[Page 705]]

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;

[[Page 706]]

    (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 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;

[[Page 707]]

    (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

[[Page 708]]

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 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;

[[Page 709]]

    (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:


[[Page 710]]


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 
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

[[Page 711]]

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 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.

[[Page 712]]

      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.

[[Page 713]]

    (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 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.

[[Page 714]]

    (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;

[[Page 715]]

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



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