Rural Development:

Financial Condition of the Rural Utilities Service's Loan Portfolio

RCED-97-82: Published: Apr 11, 1997. Publicly Released: Apr 11, 1997.

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Pursuant to a congressional request, GAO reviewed the financial condition of the Rural Utilities Service's electricity, telecommunications, and waste disposal loan portfolios and the financial characteristics of borrowers having electricity and telecommunications loans.

GAO noted that: (1) at the end of fiscal year 1996, over $8 billion of the total $42.5 billion in outstanding principal on the Rural Utilities Service's electricity, telecommunications, and water and waste disposal loans was owed by borrowers that were experiencing financial problems; (2) almost all of this amount was owed by 12 electricity loan borrowers, representing less than 2 percent of the total number of electricity loan borrowers; (3) these 12 borrowers owed almost 25 percent of the outstanding electricity loan portfolio; (4) of the $5.2 billion in outstanding principal on the telecommunications loans, none was owed by borrowers experiencing similar financial distress; (5) of the slightly more than $5 billion in outstanding principal on water and waste disposal loans, $43 million was owed by 70 delinquent borrowers that made up less than 1 percent of total borrowers and that owed less than 1 percent of the outstanding portfolio; (6) most electricity and telecommunications loan borrowers had favorable financial characteristics at the end of calender year 1995; (7) for example, year-end reports to the Rural Utilities Service showed that more than 98 percent of the electricity loan borrowers and more than 99 percent of the telecommunications loan borrowers had positive equity at the end of 1995; (8) about 95 percent, or a total of 1,610 borrowers, had equity of $1 million or more; (9) similarly, the year-end reports showed that about 96 percent of the electricity loan borrowers and about 98 percent of the telecommunications loan borrowers made a profit in 1995; (10) about 92 percent, or a total of 1,565 borrowers, made a profit of $100,000 or more; (11) however, 10 electricity and 3 telecommunications loan borrowers had negative equity at the end of 1995; (12) nine of these electricity loan borrowers owed about $6.2 billion as of September 30, 1996 and the loans of the 10th borrower were resolved prior to that date when the borrower made a partial payment and the agency wrote off the remaining debt; (13) the three telecommunications loan borrowers owed about $5.4 million as of September 30, 1996; (14) also, 38 electricity and 14 telecommunications loan borrowers did not make a profit in 1995; and (15) these borrowers owed about $1.2 billion and about $103 million, respectively, as of September 30, 1996.

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