7 CFR 1720.14 – Nature of guarantee; acceleration of guaranteed bonds
(a) Any guarantee executed by the Secretary under this part shall be an obligation supported by the full faith and credit of the United States and incontestable except for fraud or misrepresentation of which the guaranteed bondholder had actual knowledge at the time it purchased the guaranteed bonds.
Terms Used In 7 CFR 1720.14
- Fraud: Intentional deception resulting in injury to another.
- Interest rate: The amount paid by a borrower to a lender in exchange for the use of the lender's money for a certain period of time. Interest is paid on loans or on debt instruments, such as notes or bonds, either at regular intervals or as part of a lump sum payment when the issue matures. Source: OCC
- Obligation: An order placed, contract awarded, service received, or similar transaction during a given period that will require payments during the same or a future period.
(b) Amounts due under the guarantee shall be paid within 30 days of demand by a bondholder, certifying the amount of payment then due and payable.
(c) The guarantee shall be assignable and transferable to any purchaser of guaranteed bonds as provided in the bond documents.
(d) The following actions shall constitute events of default under the terms of the guarantee agreements:
(1) The guaranteed lender failed to make a payment of principal or interest when due on the guaranteed bonds;
(2) The guaranteed bonds were issued in violation of the terms and conditions of the bond documents;
(3) The guarantee fee required by 7 CFR 1720.10 of this part, has not been paid;
(4) The guaranteed lender made a misrepresentation to the Secretary in any material respect in connection with the application, the guaranteed bonds, or the reporting requirements listed in 7 CFR 1720.12; or
(5) The guaranteed lender failed to comply with any material covenant or provision contained in the bond documents.
(e) In the event the guaranteed lender fails to cure such defaults within the notice terms and the timeframe set forth in the bond documents, the Secretary may demand that the guaranteed lender redeem the guaranteed bonds. Such redemption amount will be in an amount equal to the outstanding principal balance, accrued interest to the date of redemption, and prepayment premium, if any. To the extent the Secretary makes any payments under the guarantee, the Secretary shall be deemed the guaranteed bondholder.
(f) To the extent the Secretary makes any payments under the guarantee, the interest rate the government will charge to the guaranteed lender for the period of default shall accrue at an annual rate of the greater of 1.5 times the 91-day Treasury-Bill rate or 200 basis points (2.00%) above the rate on the guaranteed bonds.
(g) Upon guaranteed lender’s event of default, under the bond documents, the Secretary shall be entitled to take such other action as is provided for by law or under the bond documents.