§936c Refinancing and prepayment of FFB loans

Summary

A borrower with a Federal Financing Bank loan guaranteed under section 936 can choose to refinance or pay off all or part of the loan or an advance. If the borrower does so, they must pay a penalty. The penalty is the smallest of three calculations: (1) the gap between the loan’s unpaid principal and the present value of the loan when discounted at the Treasury’s current borrowing cost for similar-term securities; (2) 100 percent of one year’s interest on the unpaid principal multiplied by a ratio of remaining quarterly payments to a certain number of quarterly payments tied to the loan’s 12-year schedule; or (3) the present value of one year’s interest plus, for the period until the loan reaches the payment date that falls 12 years after the year the advance was made, the present value of the difference between the loan’s scheduled payments and the payments that would be due if the loan carried the Treasury’s current borrowing cost. If the loan agreement already allows prepayment by paying one year’s interest, the borrower may use calculation (2) when the advance has reached its 12-year date or calculation (3) if it has not. A borrower may pay the penalty in cash or add it to the loan balance. If added to the balance, the borrower must also pay 2.5 percent of that added penalty at closing. After the penalty is paid, the loan can be refinanced at the Treasury’s current borrowing cost for a term the borrower picks, but the rate is capped at 7 percent per year and the term cannot go past the original maturity. Borrowers may renew at the end of each chosen term. Refinancing and adding the penalty are not limited by annual appropriation totals, and requests cannot be denied or delayed. Borrowers may choose to cap the rate at 7 percent, but only up to 50 percent of their outstanding guaranteed loans, and must pay a 1 percent fee of the balance when choosing that cap. That cap option must be requested in writing no later than 1 year after the regulations implementing the Rural Electrification Loan Restructuring Act of 1993 take effect.