FR Doc E8-29378[Federal Register: December 11, 2008 (Volume 73, Number 239)]
[Page 75405-75408]
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The Historically Black College and University Capital Financing 

AGENCY: Office of Postsecondary Education, U.S. Department of 

ACTION: Notice of request for proposals.


SUMMARY: The U.S. Department of Education (Department) is seeking 
proposals from businesses interested in applying to serve as the 
``designated bonding authority'' (DBA) under the Historically Black 
College and University (HBCU) Capital Financing Program, authorized 
under Title III, Part D of the Higher Education Act of 1965, as amended 
(HEA). This notice describes the duties of the DBA, the selection 
criteria to be used to select the DBA, the selection process, and the 
process for submitting proposals.

DATES: Notices of intent to submit a proposal must be received by the 
Department on or before December 29, 2008. Proposals must be received 
by the Department on or before January 30, 2009.

FOR FURTHER INFORMATION CONTACT: Donald E. Watson, Executive Director, 
Historically Black College and University Capital Financing Program, 
1990 K Street, NW., room 6151, Washington, DC 20006; telephone: (202) 
219-7037; fax: (202) 502-7852; e-mail:
    Individuals who use a telecommunications device for the deaf (TDD) 
may call the Federal Relay Service (FRS) at 1-800-877-8339.



    The HBCU Capital Financing Program, authorized under Title III, 
Part D of the HEA, facilitates low-cost capital financing for HBCUs to 
enable them to continue and expand their educational mission and 
enhance their significant role in American higher education. Under this 
program, the Department provides financial insurance to guarantee up to 
$1,100,000,000 (approximately $650 million is already committed to 
current program borrowers) in loan principal and interest to qualifying 
HBCUs for specified kinds of capital projects. The Department provides 
this financing through an insurance agreement with a Designated Bonding 
Authority. To date, the Federal Financing Bank of the U.S. Treasury has 
purchased all bonds issued. Eligible borrowers under the program are 
limited to historically black colleges and universities as defined in 
section 322(2) of the HEA (20 U.S.C. 1061(2)).

The Designated Bonding Authority (DBA)

    Section 314(d)(1) of the Higher Education Opportunity Act of 2008, 
Public Law 110-315 (HEOA), which amended the HEA, directs the Secretary 
to publish in the Federal Register a notice and request for proposals 
for any private for-profit organization or entity wishing to serve as 
the DBA following the enactment of the HEOA. Accordingly, through this 
notice, the Department seeks proposals from any private for-profit 
organization or entity wishing to serve as the DBA for the HBCU Capital 
Financing Program.

General Role and Responsibilities of the DBA

    Under the HEA, the DBA issues taxable capital project construction 
bonds and plays a central role in administering and executing the HBCU 
Capital Financing Program. The DBA works with prospective borrowers to 
develop loan applications. With the approval of the Department, the DBA 
makes loans after determining, based on a credit review, that there is 
a reasonable expectation the loans will be repaid according to the 
terms of the loans. The DBA charges a rate of interest adequate to 
service the bond interest rate as well as to pay various costs of 
issuance including fees for the services of the DBA, costs to modify 
the loan documents, a Trustee, and fees for the services of other 
parties. These costs of issuance, however, must not exceed 2 percent of 
the principal amount of the proceeds of the bonds. The DBA monitors and 
enforces the loan agreements, including compliance with covenants and 
default provisions.
    The DBA also has construction oversight responsibilities (including 
approval of construction plans, oversight of construction progress, and 
compliance with Federal and State building codes), and generally is the 
focal point of information for the HBCU Capital Financing Program. The 
DBA and other participants in the program are paid only by the 
operation of the program, and the Federal Government is not responsible 
for any of their fees.
    Security for the bonds issued by the DBA includes investments, 
program loans, an escrow account funded with 5 percent of loan 
proceeds, and an insurance agreement executed by the Secretary or the 
Secretary's delegate and the DBA. This agreement will, subject to 
section 343(c)(1) of the HEA, 20 U.S.C. 1066b(c)(1), provide the full 
faith and credit of the United States to insure the payment of interest 
and principal on the bonds issued by the DBA.
    The responsibilities of the DBA selected will be set forth in an 
agreement to insure to be negotiated with the Department. The DBA also 
will assume the responsibilities of the current DBA, including becoming 
the successor to the incumbent DBA with respect to loans made to date 
under an Agreement to Insure, dated May 8, 2001, a preceding Agreement 
to Insure, dated November 29, 1994, a June 13, 2007, Katrina Agreement 
to Insure, a master trust indenture, as amended and supplemented, and 
certain program financing agreements and bond purchase agreements. 
Copies of the agreements to insure used in the program to date, as well 
as copies of the master trust indenture, program financing agreements, 
and bond purchase agreements currently used in the program, will be 
provided to all entities that submit, in a timely manner, a written 
notice of intent to submit a proposal in accordance with this notice. 
We will also provide these entities with the current loan application 
form, credit criteria, loan agreement, and promotional literature as 
developed by the incumbent DBA. The HEOA may require modification of 
some or all of the foregoing documents.
    Under the terms of section 315(d)(3) of the HEOA, the entity 
selected by the Department to serve as the DBA must undergo a 
performance review at least every three years. The statute authorizes 
the Secretary, based on this review, to use a revised competitive 
process, if the

[[Page 75406]]

Secretary determines a revised process is necessary.

Statutory Responsibilities of the DBA

    The responsibilities of the DBA under the HEA are as follows:
    (a) Use the proceeds of the qualified bonds, less costs of issuance 
not to exceed 2 percent of the principal amount thereof, to make loans 
to eligible institutions or for deposit into an escrow account for 
repayment of the bonds;
    (b) Provide in each loan agreement with respect to a loan that not 
less than 95 percent of the loan proceeds will be used to finance the 
repair, renovation, and in exceptional cases, construction or 
acquisition, of a capital project, or to refinance an obligation the 
proceeds of which were used to finance the repair, renovation, and in 
exceptional cases, construction or acquisition, of an eligible capital 
    (c) Charge such interest on loans, and provide for such a loan 
repayment schedule, as will, upon the timely repayment of the loans, 
provide adequate and timely funds for the payment of principal and 
interest on the bonds; and require that any payment on a loan expected 
to be necessary to make a payment of principal and interest on the 
bonds be due not less than 60 days prior to the date of the payment on 
the bonds for which the loan payment is expected to be needed;
    (d) Prior to the making of any loan, provide for a credit review of 
the institution receiving the loan and assure the Secretary that, on 
the basis of such credit review, it is reasonable to anticipate that 
the institution will be able to repay the loan in a timely manner 
pursuant to the terms of the loan;
    (e) Provide in each loan agreement with respect to a loan that, if 
a delinquency on such loan results in a funding under the insurance 
agreement, the institution obligated on such loan shall repay the 
Secretary, upon terms determined by the Secretary, for such funding;
    (f) Assign any loans to the Secretary, upon demand by the 
Secretary, if a delinquency or default has required a funding under the 
insurance agreement;
    (g) In the event of a delinquency or default, engage in such 
collection efforts as the Secretary shall require for a period of not 
less than 45 days prior to requesting a funding under the insurance 
    (h) Establish an escrow account into which each eligible 
institution shall deposit 5 percent of the proceeds of any loan made, 
with each eligible institution required to maintain in the escrow 
account an amount equal to 5 percent of the outstanding principal of 
all loans made to that institution under the HBCU Capital Financing 
Program. The escrow's balance shall be available first to the Secretary 
for the payment of principal and interest on the bonds in the case of a 
delinquency or default in loan repayment. Within 120 days, following 
full repayment of an institution's loan, the balance of an 
institution's 5 percent deposit of loan proceeds shall be used to 
return to the institution an amount equal to any remaining portion of 
that deposit;
    (i) Provide in each loan agreement that, if a delinquency or 
default occurs in any such program loan, all funds contributed by the 
borrowers to the escrow will be exhausted before there can be a funding 
under the insurance agreement.
    (j) Provide in each loan agreement with respect to a loan that if a 
delinquency or default results in a withdrawal from the escrow account 
to pay principal and interest on bonds, subsequent payments on such 
loan shall be available to replenish the escrow account.
    (k) Comply with the limitations described in section 344 of the 
    (l) Make loans available only to eligible institutions in 
accordance with conditions prescribed by the Secretary to ensure that 
loans are fairly allocated among as many eligible institutions as 
possible, consistent with making loans of amounts that will permit 
capital projects of sufficient size and scope to significantly 
contribute to the educational program of the eligible institutions; and
    (m) Limit loan collateralization, with respect to any loan under 
the program, to 100 percent of the loan amount, except as otherwise 
required by the Secretary.

Additional Responsibilities of the DBA

    Once designated by the Secretary or the Secretary's delegate, the 
DBA also will be required to:
    (a) Provide, one week after the end of a calendar quarter, detailed 
accounting information on each borrower's loan(s), including the 
payment due date, payment received date, payment amount, and type of 
all payments and disbursements (including fees), and the schedule of 
future payments; reports on marketing; delinquency and detailed 
accounting information on the transfer of Federal Financing Bank (FFB) 
Fees including each borrower's loan(s), the FFB Fee amounts, and the 
date the FFB Fee was paid; and an analysis of each borrower's financial 
    (b) Provide audited annual financial statements for the DBA's 
activities three months after the end of a calendar year;
    (c) Provide program data and information as may be requested by the 
Department within 15 calendar days of the request, except in cases in 
which the Department agrees to a longer timeframe; and
    (d) Provide program marketing and communication materials to the 
Department and develop an annual marketing plan that is reviewed and 
approved by the Department.

Criteria for Selection of the DBA

    The Department will use the following selection criteria to 
evaluate proposals for the DBA:
    1. Support of Minority Participation. In accordance with section 
348 of the HEA (20 U.S.C. 1066g), the extent to which the entity, in 
its employment, subcontracting, and partnering activities, encourages 
applications from members of groups that have been traditionally 
underrepresented based on race, color, national origin, gender, age, or 
disability, will be a positive factor.
    2. Existence of trained staff to perform the various duties of the 
DBA. It will be a positive factor if the entity will use its existing 
trained staff and resources, as opposed to having to hire and train new 
personnel and obtain new systems. Staff knowledge in the areas of bond 
financing, higher education credit, evaluation of security and 
collateral, program management, construction oversight (including 
knowledge of State and Federal building codes and standards), and loan 
servicing will be positive factors.
    3. Capacity to manage the issuance of a large offering of debt 
securities to the Federal Financing Bank pursuant to a direct 
placement. It will be a positive factor if the entity is a regular 
participant in the capital markets, using financing structures similar 
to those described in the Agreement to Insure between the Department 
and the existing DBA.
    4. Financial position and stability relative to industry norms. It 
will be a positive factor if the entity is a mature, stable corporation 
with favorable trends in key financial strength indicators such as net 
worth and stable earnings.
    5. Approach in performing the requirements of the program. It will 
be a positive factor if the entity presents a well thought out approach 
to the program, and has a thorough familiarity with the documentation 
used in the program. Suggestions for change in program documentation 
and administration will be entertained.

[[Page 75407]]

    6. Experience and resources available and commitment to providing 
business development services. It will be a positive factor if the 
entity currently undertakes similar business development functions as 
those required under the Agreement to Insure. Ideas for business 
development, which should be included in the proposal, will be positive 
    7. Past performances on previous Federal Government contracts. 
Sound prior performance on Federal Government contracts and familiarity 
with the particular requirements of the Federal Government will be a 
positive factor.
    8. Demonstrated history and ability in addressing the special needs 
of HBCUs. It will be a positive factor if the entity can demonstrate 
that it has extensive experience working closely and successfully with 
HBCUs. It will be particularly helpful if the entity has been involved 
in activities related to the HBCUs' educational mission, improvement of 
HBCUs' facilities, or HBCUs' financial planning.
    9. Detailed cost proposal. The extent to which the entity's cost 
proposal, e.g., provisions for separation of fees, including separate 
pricing for the costs of issuance, promotion, financing, loan review, 
construction oversight, ongoing loan servicing, program monitoring, 
post-loan closing document modification, and program administration, 
reflects an understanding of the various responsibilities of the DBA. 
Statements indicating the entity's willingness to promote the program, 
recognizing that payment of fees is contingent on making the loans to 
HBCUs, will be a positive factor.
    10. Corporate authority and ability to comply with for-profit 
requirement. The entity must have full corporate authority to perform 
the functions of the DBA and must specify the corporate and 
transactional structure it intends to establish with respect to its 
program responsibilities, including its access to financial resources 
and performance agreements. If the entity will be a special, for-profit 
subsidiary of a not-for-profit entity and proposes to enter into a 
long-term contract with the not-for-profit entity, under which the not-
for-profit entity will perform all or some of the actual 
responsibilities of the DBA, we will assess the relationship proposed 
to make sure it is workable over the long-term. Agreements between the 
non-profit and the for-profit entities that are unconditional will be 
viewed positively, and agreements with extensive conditions will be 
viewed negatively.
    11. Cohesiveness with any subcontractors. It is possible that the 
entity may seek to use subcontractors in performing its duties under 
the Agreement to Insure. Arrangements with subcontractors will be 
reviewed in light of how extensive the subcontractor's role would be 
and the ability of the contractor to replace a subcontractor for cause. 
An arrangement in which a subcontractor performs a discrete function 
and receives specific identifiable compensation will receive a more 
positive rating than an arrangement with a subcontractor in which tasks 
and compensation are shared between the contractor and the 
    12. No conflict of interest. We will not consider any proposal that 
indicates an actual or apparent conflict of interest.
    13. Senior management stability. It will be a positive factor if 
the senior management of the entity is experienced and stable.
    14. Special assistance to program applicants. It will be a positive 
factor if the entity demonstrates the ability, and presents a strategy, 
to provide assistance to potential borrowers who do not currently meet 
criteria for receiving a loan under this program.
    15. Loan procedures. The extent to which the entity proposes 
workable written policies and procedures addressed to the originating, 
servicing and monitoring of program loans, including adequate internal 
controls. The written policies and procedures should include but are 
not limited to the initial pre-application procedure, the calculation 
of the costs of issuance, quality control for loan closing 
documentation and recordation, how delinquency and defaults are 
handled, processes for handling borrower inquiries, reconciling and 
segregating principal, interest, escrow fees, late fees, default 
payments, Federal Financing Bank fees and other fees, and the types of 
information provided in borrower billing statements.
    16. Fully operational after appointment. Because the Department 
desires that the HBCU Capital Financing Program not experience any 
lapse in its outreach efforts or operations, the entity's demonstrated 
ability to become fully operational, including but not limited to 
reconciling current borrower account balances, as the DBA immediately 
upon appointment will be important.
Proposal Content
    In addition to responding to each of the selection criteria 
described, proposals submitted must include the following information:
    1. A statement that the entity has the legal corporate authority to 
perform all of the services required of the DBA by the Agreement to 
Insure and the statute.
    2. Assurances that no conflicts of interest or apparent conflicts 
of interest exist, and a description of the review and analysis that 
the entity conducted to reach this conclusion.
    3. Resumes of the entity's owners and proposed program managers.
    4. A description of the entity's experience with respect to each of 
the DBA's responsibilities as described in this notice, including in 
particular any current relevant experience the entity may have. This 
description must include a discussion of existing resources available 
to perform the DBA's duties, and the need (if any) to hire and train 
additional staff. Because the DBA is expected to perform these duties 
for an extended period, the proposal must describe similar programs and 
tasks that the entity currently expects to perform during its tenure as 
    5. A description of the entity's approach to performing each of the 
DBA's responsibilities, which must reflect the entity's review and 
understanding of the current program documents and processes. 
Innovative presentations will convey the entity's understanding of the 
proposed duties and will be favorably received.
    6. Information with respect to the entity's financial strength and 
copies of the entity's last five annual audited financial statements. 
The proposal must contain factors that assure the entity's existence 
for an extended period, including, for example, issuance of other long-
term non-callable debt, or other long-term ventures, which will require 
the long-term existence of the entity.
    7. A discussion of the entity's history in working with HBCUs, 
particularly with respect to experience relating to HBCU physical 
facilities, financial planning, and the HBCUs' educational mission. It 
must also describe actions the entity has taken and plans it has made 
for recruiting and outreach programs to ensure a diverse applicant pool 
in the entity's employment, subcontracting, and partnering activities, 
as well as the success the entity has achieved in attracting diverse 

Submission of Proposals and Selection Process

    Entities interested in submitting proposals must send written 
notice of their intent to Donald Watson, Executive Director, 
Historically Black College and University Capital

[[Page 75408]]

Financing Program, by mail, commercial carrier or fax. All notices of 
intent must be received by the Department on or before December 29, 
2008. Notices of intent sent by mail should be addressed to Mr. Watson 
at 1990 K Street, NW., Room 6151, Washington, DC 20006. Notices of 
intent sent by fax should be faxed to Mr. Watson at (202) 502-7852. 
Although neither telephone nor e-mail submission of notices of intent 
are acceptable, Mr. Watson's telephone is (202) 219-7037 and his e-mail 
is All notices must include the entity's name, 
address, telephone number, e-mail address, fax number, and point of 
contact. The Department will then supply the entity with copies of the 
current DBA agreements, forms, and documentation described earlier in 
this notice.
    Each interested entity must send, by mail or commercial carrier, 
eight (8) copies of its written proposal. Proposals must be sent to Mr. 
Watson at the above address, and must be received by him on or before 
January 30, 2009. Written proposals cannot be submitted by fax or e-
mail. Written proposals submitted by entities that failed to submit a 
notice of intent or submitted its notice of intent late will not be 
    We do not consider any proposal that does not comply with the 
deadline requirements. If your proposal is sent after the deadline 
date, we will not consider it.
    Consideration of all proposals submitted will be based on the 16 
criteria listed. The Department will rank the proposals quantitatively 
after giving each criterion a score of 1 to 10, with 1 being generally 
unfavorable and 10 being generally favorable. Highest-ranking proposals 
will be contacted for an oral interview, currently scheduled for the 
last week of February 2009.
    The Secretary or Secretary's delegate will make a final selection 
of the DBA, upon consideration of a written record that includes the 
highest-ranking proposals and staff recommendations. The record will be 
publicly available. The Department expects to complete the selection 
process within approximately ten weeks of the date of this notice.
    The appointment of the DBA will become effective as of the date of 
expiration of the incumbent DBA's appointment, which will occur 
immediately after the selection of the new DBA.
    Electronic Access to This Document: You may view this document, as 
well as all other documents of this Department published in the Federal 
Register, in text or Adobe Portable Document Format (PDF), on the 
Internet at the following site:
    To use PDF, you must have Adobe Acrobat Reader, which is available 
free at this site. If you have questions about using PDF, call the U.S. 
Government Printing Office (GPO), toll free at 1-888-293-6498; or in 
the Washington, DC, area at (202) 512-1530.

    Note: The official version of this document is the document 
published in the Federal Register. Free Internet access to the 
official edition of the Federal Register and the Code of Federal 
Regulations is available on GPO Access at:

    Program Authority: 20 U.S.C. 1066 et seq.

    Dated: December 8, 2008.
Vickie Schray,
Acting Deputy Assistant Secretary, Higher Education Programs, Office of 
Postsecondary Education.
 [FR Doc. E8-29378 Filed 12-10-08; 8:45 am]