The telecommunications loan portfolio had no delinquencies. RUS’ records show that a total principal of $7.4 billion was owed by such borrowers at the end of fiscal year 1996. Electricity Loans

According to RUS’ reports, about $8 billion, or almost 25 percent of the $32.3 billion in outstanding principal on electricity loans as of September 30, 1996, was owed by 12 borrowers that are delinquent or in financial distress. These 12 borrowers made up less than 2 percent of the total number of RUS’ electricity loan borrowers. Water and Waste Disposal Loans

According to RUS’ reports, less than 1 percent of the outstanding principal on water and waste disposal loans was owed by borrowers that were delinquent. Specifically, the outstanding principal on water and waste disposal loans totaled slightly more than $5 billion as of September 30, 1996; direct loans accounted for all but about $8 million of this amount. These 70 borrowers made up less than 1 percent of the total number of water and waste disposal direct loan borrowers. While the overwhelming majority of borrowers had positive equity at the end of 1995, 13 borrowers, or about 1 percent, had negative equity. The electricity loans of the eighth borrower were settled on September 13, 1996, when the borrower made a partial payment and RUS wrote off the remaining debt. However, four borrowers, or 7.8 percent, did not have a profit in 1995. About 96 percent of the distribution borrowers and about 92 percent of the power supply borrowers had 1995 income that equaled or exceeded their 1995 interest expenses. These three borrowers owed $5.4 million on their outstanding telecommunications loans as of September 30, 1996. Twenty-nine percent of the borrowers made more than $1 million in profit in 1995; these borrowers accounted for 92.5 percent of the total profit. Electricity loans. Telecommunications loans. RUS also employs about 35 field accountants who conduct financial reviews of electricity and telecommunications loan borrowers. For example, table II.1 shows that the amount of outstanding principal owed on electricity loans declined by about $2.1 billion, or 6.2 percent, from the end of fiscal year 1992 to the end of fiscal year 1996. Table II.3: Amount of Outstanding Principal Owed on Water and Waste Disposal Loans Made or Guaranteed by RUS, and Portion Owed by Delinquent Borrowers, September 30, 1992, Through September 30, 1996

Financial Information on Borrowers With Electricity and Telecommunications Loans

This appendix contains information on the financial characteristics of borrowers that had RUS’ electricity and telecommunications loans and that reported financial information to RUS as of the end of calendar years 1992 through 1995. Subsequently, on October 17, 1996, the Chairman of the Committee on the Budget, House of Representatives, wrote to us expressing his concern about the financial risks associated with RUS’ lending and asking that we report to him on the (1) financial condition of the electricity, telecommunications, and water and waste disposal loan portfolios and (2) financial characteristics of borrowers having electricity and telecommunications loans.
Why GAO Did This Study

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.

What GAO Found

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.