Connect America Fund et al.

<RULE> FEDERAL COMMUNICATIONS COMMISSION <CFR>47 CFR Part 54</CFR> <DEPDOC>[WC Docket Nos. 10-90, 18-143, 19-126, 24-144; AU Docket Nos. 17-182, 20-34; GN Docket No. 20-32; FCC 24-127; FR ID 276861]</DEPDOC> <SUBJECT>Connect America Fund et al.</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Federal Communications Commission. <HD SOURCE="HED">ACTION:</HD> Final rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> In this document, the Federal Communications Commission (the Commission) makes targeted modifications to the requirements for letters of credit (LOCs) that recipients of Universal Service Fund (USF) high-cost support awarded through a competitive process must obtain. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Effective March 26, 2025, except for §§ 54.315(c)(2)(i)(B); 54.804(c)(2)(i)(B); 54.1016(a)(2)(i)(B); and 54.1508(c)(1)(ii) which shall be effective August 25, 2025. </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> For further information, please contact, Nathan Eagan, Attorney Advisor, Telecommunications Access Policy Division, Wireline Competition Bureau, at <E T="03">Nathan.Eagan@fcc.gov</E> or 202-418-7400. </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> This is a summary of the Commission's Report and Order and Order ( <E T="03">Order</E> ) in WC Docket Nos. 10-90, 18-143, 19-126, 24-144; AU Docket Nos. 17-182, 20-34 and GN Docket No. 20-32; FCC 24-127, adopted on December 11, 2024, and released on December 13, 2024. The full text of this document is available at the following internet address: <E T="03">https://www.fcc.gov/document/fcc-modifies-letter-credit-rules-facilitate-broadband-buildout-0.</E> <HD SOURCE="HD1">I. Discussion</HD> In this document, the Commission makes targeted modifications to the requirements for letters of credit that recipients of USF high-cost support awarded through a competitive process must obtain. These changes are intended to facilitate accelerated broadband deployment in the areas where it is needed most, while continuing to safeguard our investment of limited USF dollars. First, the Commission modifies its bank eligibility rules for programs that award high-cost support through a competitive process, which will allow winning bidders to obtain qualifying letters from United States banks that meet the “well capitalized” criteria established by Federal bank supervisory agencies. This change will increase the number of banks qualified to issue letters of credit compared to the Commission's prior standard, which required a B− or better Weiss safety rating, while also ensuring that the Commission only accept letters of credit from financially stable banks. Second, the Commission allows Rural Digital Opportunity Fund (RDOF) support recipients to reduce the value of their letters of credit to one year of their annual support if they have deployed service to 10% of their required locations by the end of their second year of support. Finally, the Commission allows Connect America Fund Phase II (CAF II) support recipients that have met all of their reporting and deployment obligations to similarly reduce the value of their letters of credit consistent with the RDOF rules. Reducing the required letter of credit values for qualifying RDOF and CAF II support recipients will facilitate broadband deployment by reducing the amount of capital providers must maintain for the required letters of credit. The record provides broad support for the Commission to use a standard other than a Weiss B− safety rating for banks to qualify to issue letters of credit. The record also broadly supports reducing the required letter of credit values to one year of support for (1) RDOF providers that have deployed service to 10% of their required locations within a State by the end of their second year of support and (2) CAF II support recipients that have met all of their reporting and deployment obligations. The Commission first finds its relevant high-cost programs should continue to use a reliable benchmark to assess an issuing bank's financial stability. As a threshold matter, several commenters argued that no evaluation of a bank's reliability is necessary, and that any federally insured bank should be eligible to issue program LOCs. The Commission disagrees. As the Commission explained in 2016, allowing any federally-insured bank to issue program LOCs would require Commission staff to “conduct a comprehensive review of every bank to determine whether it has adequate safety and soundness.” The Commission continues to believe that some assurance of a bank's stability beyond being federally-insured is necessary, and that this assurance will enhance the reliability of the LOCs that are issued, and, by extension, the integrity of its programs that rely on those LOCs. The Commission next decides the appropriate standard to ensure a bank's financial health. Commenters disagreed about whether the Commission should continue to use the Weiss ratings, with some arguing that the Weiss ratings were opaque and fundamentally unreliable, while others believe the Commission should continue to use the Weiss ratings to minimize disruption. Commenters also had a number of different proposals for alternative methods of evaluating a bank's suitability to issue program LOCs. The Bank Policy Institute argued that if the Commission sought to evaluate a bank's suitability to issue program LOCs, it should require the bank to be “well capitalized,” which is “the federal supervisory framework's highest tier of capitalization.” Other commenters suggested that a bank should only need to be “adequately capitalized,” a less stringent standard than “well capitalized.” Bank of America suggested that a United States bank should be allowed to issue program LOCs if it had either: (1) a Weiss rating of B− or higher, or (2) a long-term unsecured credit rating issued by a widely-recognized credit rating agency that is equivalent to a BBB− or better rating by Standard & Poor's. Based on the Commission's review of the record, it eliminates the use of the Weiss ratings as the standard for United States banks to be considered “acceptable to the Commission” for purposes of issuing qualifying program LOCs. The Commission modifies its rules to make a bank “acceptable to the Commission” if it is a United States bank insured by the Federal Deposit Insurance Corporation (FDIC) that meets the criteria to be considered “well capitalized” as determined by the FDIC, the Federal Reserve, and the Office of the Comptroller of the Currency (OCC). Applying the well capitalized criteria used by these agencies will provide the Commission with assurance that the United States banks issuing program LOCs will have sufficient capital to promptly honor those LOCs in the event that the Commission needs to recover payment due to a default. Federal bank regulators are required by statute to promulgate regulations ensuring that a bank maintains adequate capital. The financial condition of United States banks is supervised by one of three agencies: the FDIC, the Federal Reserve, and the OCC. Each agency has promulgated nearly-identical criteria to determine a bank's capitalization status and whether it is “well capitalized.” Based on the four publicly-available metrics used by these agencies, a bank's capitalization status can be well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, or critically undercapitalized. For a bank to be well capitalized, the regulations also require a confirmation from the bank that it is not subject to certain regulatory actions from its supervising agency. The Commission finds that these established criteria are appropriate metrics by which it can determine that a banking institution is financially stable and has sufficient assets relative to its liabilities. Furthermore, like the Weiss bank safety ratings, the metrics that determine whether a bank is well capitalized are accessible—in this case in the electronic Code of Federal Regulations, and a bank's well capitalized status is not confidential supervisory information and is publicly available, which will assist both the Commission and the Universal Service Administrative Company (USAC or the Administrator) in determining whether a support recipient's letter of credit complies with program rules. Relying on these criteria will promote transparency in how banks may qualify to issue LOCs for Commission high-cost support programs because the standards for the metrics are established by regulation. Further, as stewards of the USF, the Commission has a responsibility to ensure that its programs' expenditures are protected while minimizing disruption for support recipients and their banks, and it concludes that using these criteria will achieve its obligations. As an additional safeguard, when future LOCs are submitted by program recipients to demonstrate compliance with the Commission's rules, it will also require a certification from a United States bank's officer that the bank meets the criteria to be considered well capitalized by at least one of the FDIC, the Federal Reserve, or the OCC. The Commission directs the Administrator to confirm the bank's status as well capitalized based on the four publicly-available metrics. The certification from a United States bank's officer will also serve as confirmation that the bank is not subject to any of the enhanced regulatory scrutiny set forth in the banking agencies' rules that would remove a bank from well capitalized status. Numerous commenters supported the Commission using well capitalized as the appropriate standard. The Commission disagrees with the commenters who argued that banks that are merely “adequately capitalized” under the financial regulations should also be allowed to issue program LOCs. The Commission concludes that allowing only banks that are well capitalized, which ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 47k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━