§ 697f. — Prepayment of development company debentures.
[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 15USC697f]
TITLE 15--COMMERCE AND TRADE
CHAPTER 14B--SMALL BUSINESS INVESTMENT PROGRAM
SUBCHAPTER V--LOANS TO STATE AND LOCAL DEVELOPMENT COMPANIES
Sec. 697f. Prepayment of development company debentures
(a) In general
(1) Prepayment authorized
Subject to the requirements set forth in subsection (b) of this
section, an issuer of a debenture purchased by the Federal Financing
Bank and guaranteed by the Administration under this chapter may, at
the election of the borrower (in the case of a loan under section
697 of this title) or the issuer (in the case of a small business
investment company) and with the approval of the Administration,
prepay such debenture in accordance with the provisions of this
section.
(2) Procedure
(A) In general
In making a prepayment under paragraph (1)--
(i) the borrower (in the case of a loan under section
697 of this title) or the issuer (in the case of a small
business investment company) shall pay to the Federal
Financing Bank an amount that is equal to the sum of the
unpaid principal balance due on the debenture as of the date
of the prepayment (plus accrued interest at the coupon rate
on the debenture) and the amount of the repurchase premium
described in subparagraph (B); and
(ii) the Administration shall pay to the Federal
Financing Bank the difference between the repurchase premium
paid by the borrower under this subsection and the
repurchase premium that the Federal Financing Bank would
otherwise have received.
(B) Repurchase premium
(i) In general
For purposes of subparagraph (A)(i), the repurchase
premium is the amount equal to the product of--
(I) the unpaid principal balance due on the
debenture on the date of prepayment; and
(II) the applicable percentage rate, as determined
in accordance with clauses (ii) and (iii).
(ii) Applicable percentage rate
For purposes of clause (i)(II), the applicable
percentage rate means--
(I) with respect to a 10-year term loan, 8.5
percent;
(II) with respect to a 15-year term loan, 9.5
percent;
(III) with respect to a 20-year term loan, 10.5
percent; and
(IV) with respect to a 25-year term loan, 11.5
percent.
(iii) Adjustments to applicable percentage rate
The percentage rates described in clause (ii) shall be
increased or decreased by the Administration by a factor not
to exceed one-third, if the same factor is applied in each
case and if the Administration determines that an adjustment
is necessary, based on the number of borrowers having given
notice of their intent to participate, in order to make the
program (including the amounts appropriated for this purpose
under Public Law 103-317) result in no substantial net gain
or loss of revenue to the Federal Financing Bank or to the
Administration. Amounts collected in excess of the amount
necessary to ensure revenue neutrality shall be refunded to
the borrowers.
(b) Requirements
For purposes of subsection (a) of this section, the requirements of
this subsection are that--
(1) the debenture is outstanding and neither the loan that
secures the debenture, if any, nor the debenture is in default on
the date on which the prepayment is made;
(2) State, local, or personal funds, or the proceeds of a
refinancing in accordance with subsection (d) of this section under
the programs authorized by this subchapter, are used to prepay or
roll over the debenture; and
(3) with respect to a debenture issued under section 697 of this
title, the issuer certifies that the benefits, net of fees and
expenses authorized herein, associated with prepayment of the
debenture are entirely passed through to the borrower.
(c) No prepayment fees or penalties
No fees or penalties other than those specified in this section may
be imposed on the issuer, the borrower, the Administration, or any fund
or account administered by the Administration as the result of a
prepayment under this section.
(d) Refinancing limitations
(1) In general
The refinancing of a debenture under sections 697a and 697b of
this title, in accordance with subsection (b)(2) of this section--
(A) shall not exceed the amount necessary to prepay existing
debentures, including all costs associated with the refinancing
and any applicable prepayment penalty or repurchase premium; and
(B) except as provided in paragraphs (2) and (3), shall be
subject to the provisions of sections 697a and 697b of this
title and the rules and regulations promulgated thereunder,
including rules and regulations governing payment of authorized
expenses, commissions, fees, and discounts to brokers and
dealers in trust certificates issued pursuant to section 697b of
this title.
(2) Job creation
An applicant for refinancing under section 697a of this title of
a loan made pursuant to section 697 of this title shall not be
required to demonstrate that a requisite number of jobs will be
created with the proceeds of a refinancing.
(3) Loan processing fee
To cover the cost of loan packaging, processing, and other
administrative functions, a development company that provides
refinancing under subsection (b)(2) of this section may impose a
one-time loan processing fee, not to exceed 0.5 percent of the
principal amount of the loan.
(4) New debentures
Issuers of debentures under subchapter III of this chapter may
issue new debentures in accordance with such subchapter in order to
prepay existing debentures as authorized in this section.
(5) Preliminary notice
(A) In general
The Administration shall use certified mail and other
reasonable means to notify each eligible borrower of the
prepayment program provided in this subchapter. Each preliminary
notice shall specify the range and dollar amount of repurchase
premiums which could be required of that borrower in order to
participate in the program. In carrying out this program, the
Administration shall provide a period of not less than 45 days
following the receipt of such notice by the borrower during
which the borrower must notify the Administration of the
borrower's intent to participate in the program. The
Administration shall require that a borrower who gives notice of
its intent to participate to make an earnest money deposit of
$1,000 which shall not be refundable but which shall be credited
toward the final repurchase premium.
(B) ``Borrower'' defined
For purposes of this paragraph, the term ``borrower'', in
the case of a small business investment company or a specialized
small business investment company, means ``issuer''.
(6) Final notice
Based upon the response to the preliminary notice under
paragraph (5), the Administration shall make a final computation of
the necessary prepayment premiums and shall notify each qualified
respondent of the results of such computation. Each qualified
respondent shall be afforded not less than 4 months to complete the
prepayment.
(e) Definitions
For purposes of this section--
(1) the term ``issuer'' means--
(A) the qualified State or local development company that
issued a debenture pursuant to section 697 of this title, which
has been purchased by the Federal Financing Bank; and
(B) a small business investment company licensed pursuant to
section 681 of this title; or
(2) the term ``borrower'' means a small business concern whose
loan secures a debenture issued pursuant to section 697 of this
title.
(f) Regulations
Not later than 30 days after October 22, 1994, the Administration
shall promulgate such regulations as may be necessary to carry out this
section.
(g) Authorization
There are authorized to be appropriated $30,000,000 to carry out the
provisions of The Small Business Prepayment Penalty Relief Act of 1994.
(Pub. L. 85-699, title V, Sec. 509, as added Pub. L. 103-403, title V,
Sec. 503, Oct. 22, 1994, 108 Stat. 4199; amended Pub. L. 104-208, div.
D, title II, Sec. 208(h)(1)(H), Sept. 30, 1996, 110 Stat. 3009-747.)
References in Text
For definition of ``this chapter'', referred to in subsec. (a)(1),
see References in Text note set out under section 661 of this title.
Public Law 103-317, referred to in subsec. (a)(2)(B)(iii), is Pub.
L. 103-317, Aug. 26, 1994, 108 Stat. 1724, known as the Departments of
Commerce, Justice, and State, The Judiciary, and Related Agencies
Appropriations Act, 1995. For complete classification of this Act to the
Code, see Tables.
The Small Business Prepayment Penalty Relief Act of 1994, referred
to in subsec. (g), is title V of Pub. L. 103-403, Oct. 22, 1994, 108
Stat. 4198, which enacted this section and provisions set out as notes
under this section and section 661 of this title. For complete
classification of this Act to the Code, see Short Title of 1994
Amendment note set out under section 661 of this title and Tables.
Amendments
1996--Subsec. (a)(1). Pub. L. 104-208, Sec. 208(h)(1)(H)(i), struck
out at end ``A small business investment company operating under the
authority of section 681(d) of this title that has issued a debenture
that was purchased by and is held by the Administration, may, under the
same terms and conditions, prepay such debenture, and the penalty as
provided in this section, and shall thereafter be immediately eligible
to apply for additional assistance from the Administration.''
Subsec. (e)(1)(B). Pub. L. 104-208, Sec. 208(h)(1)(H)(ii),
substituted ``section 681 of this title'' for ``subsection (c) or (d) of
section 681 of this title''.
Intention of Congress
Section 502 of title V of Pub. L. 103-403 provided that:
``(a) In General.--The Small Business Administration shall fully
utilize the $30,000,000 appropriated in Public Law 103-317 [108 Stat.
1724] to reduce, in accordance with this title [enacting this section
and provisions set out as a note under section 661 of this title] and
the amendments made by this title, prepayment penalties imposed in
connection with debentures issued under--
``(1) section 303 or 503 of the Small Business Investment Act of
1958 [15 U.S.C. 683, 697], which have been purchased by the Federal
Financing Bank; and
``(2) title III [probably means title III of Pub. L. 85-699,
which is classified to section 681 et seq. of this title] to
companies operating under section 301(d) of such Act [15 U.S.C.
681(d)], which have been purchased by the Small Business
Administration.
``(b) Equal Opportunity.--In order to provide an equal opportunity
to participate in the program authorized under this title, the Small
Business Administration shall afford each borrower or issuer of a
debenture subject to this title, not less than 45 days to elect to
participate and to provide an earnest money deposit. The Administration
shall subsequently allow a period of not less than 4 months, during
which those borrowers or issuers that elect to participate shall be
allowed to complete the prepayment process.
``(c) Restrictions on Participation.--In no event shall the Small
Business Administration--
``(1) allow any borrower or issuer to participate in the program
if the borrower or issuer fails to--
``(A) make a timely election and provide the deposit on a
timely basis; or
``(B) complete the prepayment process within the required
time; or
``(2) allow any borrower or issuer to participate in the program
at a percentage rate other than the rate finally determined to be
applicable to all other borrowers or issuers with similar terms of
years.''
