FCC to Vote on Proposal to Loosen High-Cost Letter of Credit Requirements

If approved, the measure would open a comment period.

FCC to Vote on Proposal to Loosen High-Cost Letter of Credit Requirements
Photo from KMR Photography. Used with permission.

WASHINGTON, May 16, 2024 – The Federal Communications Commission is set to vote next month on a proposal to relax the letter of credit requirements for some of its broadband subsidy programs.

The proposal, if approved, would seek comment on changing the agency’s minimum bank rating requirements and on allowing Rural Digital Opportunity Fund participants to reduce the value of their letter of credit after meeting certain milestones.

Current FCC rules require providers who won high-cost subsidies through a competitive bidding process – namely the $6-billion RDOF program and the $1.8-billion Connect America Fund Phase II Auction – to secure a letter of credit equal to at least their first year of support and increase that by a certain amount each year. That typically involves putting up an equal amount of cash as collateral.

The commission also extended RDOF letter of credit rules, which require smaller yearly increases and allow providers to reduce their letters by a larger amount sooner into deployment, to CAF II auction recipients through 2024, a response to pandemic hardships.

The letters of credit originally had to come from banks with a Weiss credit rating of at least a B minus, but the agency has partially waived that requirement until March 2025 after hearing concerns from providers whose banks’ ratings had dropped.

The proposal would seek input on making such a permanent change, either by lowering the required Weiss rating or by using another rating system altogether. The agency said that of the 3,600 banks eligible to provide letters of credit under the program in early 2023, more than 1,600 have since seen their Weiss ratings fall below the B minus threshold.

It would also ask for comments on letting RDOF participants reduce their letter of credit to one year of support with 10 percent of their build out complete, down from 20 percent.

The proposal is an effort to decrease burdens on RDOF providers, who are facing rising deployment costs and continuing to default on commitments.

Program participants and other advocates are pushing the FCC to lower penalties for surrendering service areas in an effort to make them eligible for the Commerce Department’s $42.5-billion Broadband Equity, Access and Deployment program. States are in the process of finalizing coverage maps for that program, and homes and businesses slated to be served through RDOF won’t be eligible for BEAD grants if projects fall through in the future.

That program’s letter of credit requirements were also relaxed after providers flagged concerns. Commerce is allowing states, the entities ultimately funding projects under the program, to accept performance bonds and to lower letter of credit amounts over time.

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