USDA Biofuels Loan Guarantee Program Interim Final Rule Gives Program Added Boost

On February 14, 2011, acting upon the significant input of Mintz Levin's Mark J. Riedy, Stern Brothers' John May, and Krieg DeVault's John Kirkwood, the U.S. Department of Agriculture (USDA) published its interim final rule for the 9003 Advanced Biofuel Guaranteed Loans program. The USDA's interim final rule ushered in a host of changes to address the larger issue of making this debt more attractive to investors. Although entirely operative, this interim final rule, however, is not the final rule and a formal comment period ended April 15, 2011 to achieve that end.

The new interim final rule incorporates, among other substantial changes, a unique new bond-financing mechanism created by Mintz Levin, Stern Brothers, and Krieg DeVault that should serve to enhance the program's ability to link investors with capital-constrained advanced biofuel and bioproduct refineries. Also, on March 11, 2011, the USDA issued the Section 9003 fiscal year 2011 Notice of Funds Availability (NOFA).

The 9003 Loan Guarantee Program

The 9003 loan note guarantee (LNG) program originally was authorized under the Biorefinery Assistance Program (Farm Act 2008, Title IX, Section 9003), which is currently funded through fiscal year 2011. The program targets new and emerging technologies for advanced biofuel—and more recently bioproduct—refining (biofuels and bioproducts that do not rely on corn kernel starch as the feedstock), and issues LNGs to the lender applicant (U.S. regulated commercial bank) covering the development, construction, and retrofitting of commercial-scale refineries. The program funds up to $250 million of senior debt per project, but until recently and still in most cases will not cover more than 80% of the project's total costs. However, under the new interim final rule, it will cover up to 90% of these costs, under certain conditions and subject to the program's per project funding ceiling. Despite a very precarious but intense budget situation in Washington, the program has survived based on its merits. A spate of continuing resolutions—temporary budgetary extensions passed in order to keep the federal government running—cut additional government programs in the weeks leading up to finalizing the FY2011 budget in April. But, the program retained its place in the constellation of federal renewable energy incentives for at least another year.

The interim final rule is in response to demonstrable problems with the earlier program structure which was...