(iii) Exception for uncreditworthy companies. If the Secretary finds that a firm that received a government-provided long-term loan was uncreditworthy, as defined in paragraph (a)(4) of this section, the Secretary normally will calculate the interest rate to be used in making the comparison called for by paragraph (a)(1) of this section according to the following formula:

ib = [(1 − qn)(1 + if) ⁿ / (1 − pn)]1/n − 1,

where: n = the term of the loan; ib = the benchmark interest rate for uncreditworthy companies; if = the long-term interest rate that would be paid by a creditworthy company; pn = the probability of default by an uncreditworthy company within n years; and qn = the probability of default by a creditworthy company within n years.

“Default” means any missed or delayed payment of interest and/or principal, bankruptcy, receivership, or distressed exchange. For values of pn, the Secretary will normally rely on the average cumulative default rates reported for the Caa to C-rated category of companies in Moody's study of historical default rates of corporate bond issuers. For values of qn, the Secretary will normally rely on the average cumulative default rates reported for the Aaa to Baa-rated categories of companies in Moody's study of historical default rates of corporate bond issuers.

(4) Uncreditworthiness—(i) In general. The Secretary will consider a firm to be uncreditworthy if the Secretary determines that, based on information available at the time of the government-provided loan, the firm could not have obtained long-term loans from conventional commercial sources. The Secretary will determine uncreditworthiness on a case-by-case basis, and may, in appropriate circumstances, focus its creditworthiness analysis on the project being financed rather than the company as a whole. In making the creditworthiness determination, the Secretary may examine, among other factors, the following:

1. (A) The receipt by the firm of comparable commercial long-term loans;
2. (B) The present and past financial health of the firm, as reflected in various financial indicators calculated from the firm's financial statements and accounts;
3. (C) The firm's recent past and present ability to meet its costs and fixed financial obligations with its cash flow; and
4. (D) Evidence of the firm's future financial position, such as market studies, country and industry economic forecasts, and project and loan appraisals prepared prior to the agreement between the lender and the firm on the terms of the loan.
5. (ii) Significance of long-term commercial loans. In the case of firms not owned by the government, the receipt by the firm of comparable long-term commercial loans, unaccompanied by a government-provided guarantee, will normally constitute dispositive evidence that the firm is not uncreditworthy.
6. (iii) Significance of prior subsidies. In determining whether a firm is uncreditworthy, the Secretary will ignore current and prior subsidies received by the firm.
7. (iv) Discount rate. When the creditworthiness of a firm is considered in connection with the allocation of non-recurring benefits, the Secretary will rely on information available in the year in which the government agreed to provide the subsidy conferring a non-recurring benefit.

(ii) Government-owned banks. The Secretary will not investigate a loan provided by a government-owned bank absent a specific allegation that is supported by information reasonably available to petitioners indicating that:

1. (A) The loan meets the specificity criteria in accordance with section 771(5A) of the Act; and
2. (B) A benefit exists within the meaning of paragraph (a)(1) of this section.
3. (b) Time of receipt of benefit. In the case of loans described in paragraphs (c)(1), (c)(2), and (c)(4) of this section, the Secretary normally will consider a benefit as having been received in the year in which the firm otherwise would have had to make a payment on the comparable commercial loan. In the case of a loan described in paragraph (c)(3) of this section, the Secretary normally will consider the benefit as having been received in the year in which the firm receives the proceeds of the loan.
4. (c) Allocation of benefit to a particular time period—(1) Short-term loans. The Secretary will allocate (expense) the benefit from a short-term loan to the year(s) in which the firm is due to make interest payments on the loan. In no event may the present value (in the year of receipt of the loan) of the amounts calculated under the preceding sentence exceed the principal of the loan.
5. (2) Long-term fixed-rate loans with concessionary interest rates. Except as provided in paragraph (c)(3) of this section, the Secretary normally will calculate the subsidy amount to be assigned to a particular year by calculating the difference in interest payments for that year, i.e., the difference between the interest paid by the firm in that year on the government-provided loan and the interest the firm would have paid on the comparison loan. However, in no event may the present value (in the year of receipt of the loan) of the amounts calculated under the preceding sentence exceed the principal of the loan.
6. (3) Long-term fixed-rate loans with different repayment schedules—(i) Calculation of present value of benefit. Where the government-provided loan and the loan to which it is compared under paragraph (a) of this section are both long-term, fixed-interest rate loans, but have different grace periods or maturities, or where the shapes of the repayment schedules differ, the Secretary will determine the total benefit by calculating the present value, in the year that repayment would begin on the comparable commercial loan, of the difference between the amount that the firm is to pay on the government-provided loan and the amount that the firm would have paid on the comparison loan. In no event may the total benefit calculated under the preceding sentence exceed the principal of the loan.

7. (ii) Calculation of annual benefit. With respect to the benefit calculated under paragraph (c)(3)(i) of this section, the Secretary will determine the portion of that benefit to be assigned to a particular year by using the formula set forth in § 351.524(d)(1) and the following parameters:

   Ak = the amount countervailed in year k, y = the present value of the benefit (see paragraph (c)(3)(i) of this section), n = the number of years in the life of the loan, d = the interest rate on the comparison loan selected under paragraph (a) of this section, and k = the year of allocation, where the year that repayment would begin on the comparable commercial loan = 1.

8. (4) Long-term variable interest rate loans. In the case of a government-provided long-term variable-rate loan, the Secretary normally will determine the amount of the benefit attributable to a particular year by calculating the difference in payments for that year, i.e., the difference between the amount paid by the firm in that year on the government-provided loan and the amount the firm would have paid on the comparison loan. However, in no event may the present value (in the year of receipt of the loan) of the amounts calculated under the preceding sentence exceed the principal of the loan.
9. (d) Contingent liability interest-free loans—(1) Treatment as loans. In the case of an interest-free loan, for which the repayment obligation is contingent upon the company taking some future action or achieving some goal in fulfillment of the loan's requirements, the Secretary normally will treat any balance on the loan outstanding during a year as an interest-free, short-term loan in accordance with paragraphs (a), (b), and (c)(1) of this section. However, if the event upon which repayment of the loan depends will occur at a point in time more than one year after the receipt of the contingent liability loan, the Secretary will use a long-term interest rate as the benchmark in accordance with paragraphs (a), (b), and (c)(2) of this section. In no event may the present value (in the year of receipt of the contingent liability loan) of the amounts calculated under this paragraph exceed the principal of the loan.
10. (2) Treatment as grants. If, at any point in time, the Secretary determines that the event upon which repayment depends is not a viable contingency, the Secretary will treat the outstanding balance of the loan as a grant received in the year in which this condition manifests itself.