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Chapter 2: Terms and Funding of Bureau Credit Instruments

The Bureau Credit Program’s secured (direct) loans, loan guarantees, and standby lines of credit[16] may offer more flexible repayment terms and more favorable interest rates compared to other lenders.  In addition, master credit agreements offer predictability and efficiency for planning purposes for projects with an identified source of revenue and solidified schedule for construction.  This chapter summarizes the terms that apply generally to Bureau credit assistance and describes the major features of each credit instrument.  A section on loan repayment and prepayment structuring provides information on financing structures and related repayment issues that may arise during negotiations.  The chapter also provides an explanation of the funding controls that govern the amount of credit assistance available under each Bureau Credit Program.

Section 2-1

Summary of Basic Terms for Bureau Credit Assistance

Certain features of Bureau credit assistance are the same regardless of whether the credit assistance is provided under the RRIF Program or the TIFIA Program.  For example, the maximum maturity of all TIFIA and RRIF credit instruments is the lesser of: (i) 35 years after a project’s substantial completion or (ii) the useful life of the project being financed by TIFIA or RRIF.[17]  The DOT, at its discretion, has the ability to defer the first TIFIA or RRIF payment up to five years after substantial completion, depending on the needs of the project.[18] Exhibit 2-A provides an illustrative repayment structure for the three credit instruments.

Exhibit 2-A: Illustrative Repayment Structure as Permitted by Statute

Text of Exhibit 2-A

  • Timeline from Construction Commencement to Final Maturity
  • Maximum Term from Substantial Project Completion - 36 years
  • Ramp up Period = LOC Availability - 10 years
  • Deferral Period - 5 years from Substantial Project Completion
  • Construction Period - until Substantial Project Completion
  • First Payment Due upon Substantial Project Completion

A Bureau credit instrument can be junior (i.e., subordinate) to the project’s other debt obligations in the priority of its lien on the project’s cash flow.  In the event of bankruptcy, insolvency, or liquidation, the DOT is required by both the RRIF and TIFIA statutes to have a parity lien with respect to the project’s senior creditors.[19]  The credit agreement will clearly specify the DOT’s interest in the pledged security relative to other creditors.

Other Key Limitations to Bureau Credit Assistance

TIFIA Program
The TIFIA statute places two other important limits on the Federal Government’s exposure to credit risk.  First, TIFIA credit assistance is limited to no more than 49 percent of reasonably anticipated eligible project costs for a TIFIA secured loan or loan guarantee and no more than 33 percent of reasonably anticipated eligible project costs for a TIFIA standby line of credit.[20]  As noted below, TIFIA direct loans provided to date have only covered up to 33 percent of reasonably anticipated eligible project costs.  Applicants requesting assistance in excess of this amount must provide a rationale for such additional assistance.  The limitation in the DOT’s total share of project costs is designed to ensure that the DOT shares the credit risk with other participants.  Second, the applicant must obtain two investment-grade ratings (Baa3/BBB- or higher) on the senior debt obligations and two ratings on the TIFIA credit instrument, both from a Credit Rating Agency, in order to execute a TIFIA credit agreement.[21]  If the TIFIA credit assistance is the senior and/or the only debt in the project, then it must receive two investment grade ratings.[22]  If the total amount of debt in the project is less than $75 million, then the applicant must obtain only one investment-grade rating on the senior obligations and one rating on the TIFIA credit instrument from a Credit Rating Agency.[23]  Chapter 3 provides further details on eligible project costs and credit ratings.

RRIF Program
As noted above, the RRIF Program does not currently have an appropriation of budget authority to cover the cost of RRIF direct loans and loan guarantees.  As such, the cost to the government of providing financial assistance must be borne by the RRIF applicant, or another non-federal entity on behalf of the applicant, through the payment of the credit risk premium (CRP).  The CRP attributable to each drawdown request must be paid on a pro rata basis prior to each disbursement.[24]  Chapter 2 provides further information regarding the CRP.

In addition, the RRIF statute requires that RRIF credit agreements provide for certain specific terms and conditions regarding the sufficiency and availability of funds to cover ongoing operations.  Those terms and conditions will require a RRIF borrower to agree:

  • Not to use any funds or assets from railroad or intermodal operations for purposes not related to such operations if that use would impair the ability of the borrower or its partners to provide rail or intermodal services in an efficient and economic manner or would adversely affect the ability of the borrower or its partners to perform its obligations under the RRIF credit instrument;
  • To maintain its capital program, equipment, facilities, and operations on a continuing basis, consistent with its capital resources; and
  • Not to make any discretionary dividend payments that unreasonably conflict with its ability to maintain its capital program, equipment, facilities and operations.[25]

Section 2-2

Bureau Credit Instruments

The main features of direct loans, loan guarantees, lines of credit (TIFIA only), and master credit agreements are summarized below.  These features are established by statute.  This section also addresses the rules that govern the setting of interest rates, disbursement of funds, and repayment of TIFIA and RRIF credit assistance.

Secured/Direct Loans (23 U.S.C. §603 and 45 U.S.C. §822)

A direct loan[26] is a debt obligation involving the DOT as the lender and a non-Federal entity as the borrower.  Actual terms and conditions will be negotiated between the DOT and the borrower, but the general characteristics include:

  • Use of Proceeds.  The proceeds of both RRIF and TIFIA direct loans must be used either to finance eligible project costs or to refinance debt that was issued to finance eligible project costs.

TIFIA direct loans can only be used to refinance: (i) interim construction financing of eligible project costs; (ii) existing Federal credit instruments for rural infrastructure projects; or (iii) long-term project obligations or Federal credit instruments if the refinancing provides additional funding capacity for the completion, enhancement, or expansion of an eligible project.[27]  In the case of refinancing interim construction financing, the TIFIA direct loan may not refinance the existing debt (x) if that debt’s maturity is later than 1 year after the substantial completion of the project, or (y) later than one year following substantial completion of the project.[28]

RRIF direct loans can only be used to refinance outstanding debt incurred for certain types of eligible projects, including debt incurred to acquire, improve, or rehabilitate intermodal or rail equipment or facilities, including track, components of track, bridges, yards, buildings, and shops, and costs related thereto, or to develop or establish new intermodal or railroad facilities.[29]  RRIF direct loans cannot be used to refinance outstanding debt incurred for other eligible projects.

  • Amount.  The principal amount of a RRIF direct loan may not exceed available statutory authority.[30]  The principal amount of a TIFIA direct loan (in combination with other TIFIA credit assistance, if any) may not exceed 49 percent of the reasonably anticipated eligible project costs.[31]  To date, TIFIA direct loans have only covered up to 33 percent of reasonably anticipated eligible project costs in order to ensure other investors are sharing in project costs and associated risks.  While TIFIA can fund up to 49 percent of reasonably anticipated eligible project costs, applicants requesting assistance in excess of 33 percent of reasonably anticipated eligible project costs must provide a strong rationale for requiring additional assistance.  If the project is supported by debt senior to the TIFIA lien, the TIFIA credit instrument must be secured by the same revenues pledged to the senior debt.  If the TIFIA secured loan is rated below investment grade, then the amount of the TIFIA loan may not exceed the amount of the senior debt.[32]
  • Interest Rate.  The interest rate on a TIFIA direct loan will be equal to or greater than the yield on U.S. Treasury securities of comparable maturity on the date of execution of the credit agreement.[33]  The interest rate on a RRIF direct loan will be equal to the yield on U.S. Treasury securities of comparable maturity on the date of execution of the credit agreement.[34]  The DOT identifies the Treasury rates through use of the daily rate tables published by the Bureau of the Public Debt for the State and Local Government Series (SLGS) investments.  Adding one basis point to the SLGS rates produces the estimated average yields on comparable Treasury securities.  The SLGS tables can be found on-line at https://www.treasurydirect.gov/GA-SL/SLGS/selectSLGSDate.htm.  The daily 30-year Treasury rate can be found on the Bureau’s website at https://www.transportation.gov/buildamerica.  Interest begins to accrue on loan proceeds immediately upon disbursement of funds to the borrower.

TIFIA direct loans may be provided to rural infrastructure projects, or under the FAST Act, to capitalize rural projects funds within SIBs (these types of projects together, Rural Projects), at a discounted interest rate of one-half of the Treasury Rate.[35]  The reduced interest rate is only available to TIFIA direct loans for Rural Projects where the subsidy cost of such loans is funded out of amounts set aside from the TIFIA Program’s annual budget authority specifically for such reduced interest rate loans.[36]  The TIFIA Program may set aside up to 10 percent of its annual budget authority to fund the subsidy costs of TIFIA direct loans to Rural Projects at the reduced interest rate.[37]  The reduced interest rate is only available in any fiscal year to the extent sufficient funds are available in the set-aside for that fiscal year.[38]  Any amounts set aside in a fiscal year to fund the subsidy cost of TIFIA direct loans to Rural Projects at the reduced interest rate that have not been obligated by June 1 of such fiscal year must be made available to fund projects not receiving the reduced interest rate to the extent sufficient funds are not otherwise available.[39] 

In addition, the TIFIA statute allows project sponsors to buy down the interest rate on a TIFIA direct loan in the event the rate has increased between the date on which the project sponsor submitted its complete application and the date on which the secured loan is executed.[40]  Project sponsors can reduce the interest rate by way of a limited buydown up to 1 1/2 percentage points (150 basis points) or the amount of the increase in the interest rate, whichever is less.

  • Timing of Disbursements.  The DOT will disburse funds as often as monthly, on a reimbursement basis, as costs are incurred for eligible project purposes.[41]  The credit agreement will specify a draw schedule, which may be amended if necessary.  Note that, for RRIF direct loans, the CRP attributable to each RRIF loan drawdown request must be paid to the DOT on a pro rata basis prior to each disbursement.[42]
  • Maturity.  The final maturity date of a direct loan must be no later than 35 years after the date of substantial completion of the project or the useful life of the project, whichever is less.[43]  Note that, for a TIFIA direct loan to capitalize a rural projects fund within a SIB, the final maturity date of the TIFIA direct loan must be not later than 35 years after the date on which the TIFIA direct loan is obligated.[44]
  • Repayment Terms.  Scheduled repayments must commence no later than five years after the date of substantial completion of the project.[45]  Debt service will be structured based on project economics and risk to the DOT.[46]  Debt service payments are scheduled semi-annually.
  • Deferrals.  In the event revenues are insufficient to meet scheduled loan payments, the DOT, in its sole discretion, may allow payment deferrals.  Any interest payment that is deferred will be added to the outstanding balance of the direct loan and amortized over the existing term of the direct loan.  Any principal payment that is deferred will continue to accrue interest on a current basis.  In addition, (a) for TIFIA direct loans, any such deferral will be contingent on the project’s meeting requirements established by the Secretary, including standards for reasonable assurance of repayment and (b) for RRIF direct loans, such deferral is limited to a maximum aggregate time of one year over the term of the direct loan.[47]  There can be no assurance the Secretary will exercise this authority, however, so borrowers should only agree to a debt service schedule they are confident they can meet.
  • Prepayment Conditions.  In general, a direct loan may be prepaid in whole or in part at any time without penalty.[48]
  • Lien Priority.  The DOT’s lien on pledged revenues can be subordinated to those of senior lenders to the project except in the event of bankruptcy, insolvency, or liquidation of the obligor.  In such an instance, the DOT’s lien would be on par with the lien of the project’s senior creditors.[49]  This provision will be implemented by way of incorporation into the TIFIA or RRIF credit agreement, as applicable, and any other appropriate financing agreements entered into at the time of execution of such credit agreement.  As noted in Section 2-1 above, this provision can be waived under certain circumstances for public agency borrowers having senior bonds under preexisting indentures so long as certain conditions are met.[50]

Loan Guarantees (23 U.S.C. §603(e) and 45 U.S.C. §822)

A Bureau loan guarantee is a pledge by the DOT to pay a third-party lender all or part of the debt service on a borrower’s debt obligation.  The DOT will seek to recover from the borrower all funds paid to the guaranteed lender, pursuant to a reimbursement agreement executed simultaneously with the loan guarantee.

By statute, the guaranteed lender must be a non-Federal entity, and for TIFIA loan guarantees, the guaranteed lender must be a “non-Federal qualified institutional buyer” as defined in 17 C.F.R. §230.144A(a), including qualified retirement plans and governmental plans.[51]  Prospective applicants and lenders should contact the DOT with any questions about what constitutes a “non-Federal qualified institutional buyer.” 

The DOT may give preference to applications for loan guarantees rather than other forms of credit assistance.[52]  This preference is consistent with Federal policy that, when Federal credit assistance is necessary to meet a Federal objective, loan guarantees should be favored over direct loans, unless attaining the Federal objective requires a subsidy deeper than can be provided by a loan guarantee.  Applicants requesting only a direct loan and/or a line of credit (TIFIA only) are required to specify in their application how the plan of finance for the project would be impacted if credit assistance was instead provided in the form of a loan guarantee.

Characteristics of a guaranteed loan include:

  • Use of Proceeds.  The proceeds of a guaranteed loan must be used either to finance eligible project costs or to refinance debt that was issued to finance eligible project costs.

TIFIA guaranteed loans can only be used to refinance: (i) interim construction financing of eligible project costs; (ii) existing Federal credit instruments for rural infrastructure projects; or (iii) long-term project obligations or Federal credit instruments if the refinancing provides additional funding capacity for the completion, enhancement, or expansion of an eligible project.[53]  In the case of a TIFIA guaranteed loan used to refinance interim construction financing, the guaranteed loan may not refinance the existing debt (x) if that debt’s maturity is later than 1 year after the substantial completion of the project, or (y) later than one year following substantial completion of the project.[54]

RRIF guaranteed loans can only be used to refinance outstanding debt incurred for certain types of eligible projects, including debt incurred to acquire, improve, or rehabilitate intermodal or rail equipment or facilities, including track, components of track, bridges, yards, buildings, and shops, and costs related thereto, or to develop or establish new intermodal or railroad facilities.[55]  RRIF guaranteed loans cannot be used to refinance outstanding debt incurred for other eligible projects.

  • Amount.  The amount of a RRIF loan guarantee may not exceed available statutory authority.[56]  In addition, a RRIF loan guarantee may not guarantee more than 80% of the guaranteed loan.[57]  The amount of a TIFIA loan guarantee, in combination with any other TIFIA credit assistance, may not exceed 49 percent of the reasonably anticipated eligible project costs.[58]  To date, TIFIA credit assistance has only covered up to 33 percent of reasonably anticipated eligible project costs and applicants requesting assistance in excess of this amount must provide a rationale for such additional assistance.   
  • Interest Rate.  The interest rate on a guaranteed loan negotiated by the borrower and the guaranteed lender must be satisfactory to the DOT.[59]  Interest payments on a guaranteed loan are subject to Federal income taxation.[60]
  • Maturity.  The final maturity date of the guaranteed loan must be no later than 35 years after the date of substantial completion of the project or the useful life of the project, whichever is less.[61]
  • Repayment Terms.  Scheduled repayments to the guaranteed lender must commence no later than five years after the date of substantial completion of the project.[62]
  • Prepayment Conditions.  The prepayment features on a guaranteed loan negotiated between the guaranteed lender and the borrower must be satisfactory to the DOT.[63]
  • Default Feature.  In the event of an uncured borrower payment default, the guaranteed lender will receive payment from the DOT for the guaranteed payment due.[64]  The DOT will seek recovery from the borrower of all funds advanced, pursuant to a reimbursement agreement executed simultaneously with the loan guarantee.
  • Lien Priority.  The DOT’s lien on pledged revenues can be subordinated to those of senior lenders to the project except in the event of bankruptcy, insolvency, or liquidation of the obligor.  In such an instance, the DOT’s lien would be on par with the lien of the project’s senior creditors.[65]  This provision will be implemented by way of incorporation into the TIFIA or RRIF loan guarantee agreement, as applicable, and any other appropriate financing agreements entered into at the time of execution of such loan guarantee agreement.  As noted above, this provision can be waived under certain circumstances for public agency borrowers having senior bonds under preexisting indentures so long as certain conditions are met.[66]

TIFIA Lines of Credit (23 U.S.C. §604)

In addition to direct loans and loan guarantees, the TIFIA Program also offers lines of credit.  A line of credit provides a contingent loan that may be drawn upon after substantial completion of a project to supplement project revenues during the first 10 years of a project’s operations.[67]  The DOT will disburse funds only under certain conditions, which will be specified in the TIFIA credit agreement.[68]

Characteristics of a line of credit include:

  • Use of Proceeds.  The proceeds from a draw on a TIFIA line of credit may be used only to pay debt service on project obligations (other than a TIFIA credit instrument) issued to finance eligible project costs, extraordinary repair and replacement costs, operation and maintenance expenses, and/or costs associated with Federal or state environmental restrictions arising after the transaction closed.[69]
  • Amount.  The total principal amount of a TIFIA line of credit may not exceed 33 percent of the reasonably anticipated eligible project costs.[70]  The total combined TIFIA credit assistance for a project receiving a TIFIA line of credit plus a TIFIA direct loan or TIFIA loan guarantee may not exceed 49 percent of eligible project costs.[71]
  • Condition Precedent for Draws.  A draw may be made only if revenues from the project are insufficient to pay the costs enumerated above in “Use of Proceeds.”  Reserve funds need not be tapped prior to a draw.[72]
  • Availability.  A TIFIA line of credit may be available for a period of 10 years following substantial completion of the project.[73]
  • Interest Rate.  The interest rate on a TIFIA direct loan resulting from a draw on a TIFIA line of credit will be equal to or greater than the yield on a 30-year U.S. Treasury security on the date of the execution of the TIFIA line of credit agreement.[74]  The DOT identifies the Treasury rates through use of the daily rate tables published by the Bureau of the Public Debt for the State and Local Government Series investments.  Adding one basis point to the SLGS rates produces the estimated average yields on comparable Treasury securities.  The SLGS tables can be found on-line at The SLGS tables can be found on-line at https://www.treasurydirect.gov/GA-SL/SLGS/selectSLGSDate.htm.  The daily 30-year Treasury rate can be found on the Bureau’s website at  http://www.transportation.gov/buildamerica.  Interest accrual on loan proceeds begins immediately upon disbursement of funds to the borrower.
  • Maturity.  The final maturity date of a TIFIA direct loan resulting from a draw on a TIFIA line of credit must be no later than 35 years after the date of substantial completion of the project or the useful life of the project, whichever is less.[75]
  • Repayment Terms.  Scheduled repayments of a draw on a TIFIA line of credit must commence no later than five years after the end of the 10-year period of availability and be fully repaid no later than 25 years after the end of the 10-year period of availability.[76]  Level debt service is not required.[77]  Debt service payments should be scheduled semi-annually.
  • Ratings Requirement.  The project’s senior obligations must receive an investment grade rating from two Credit Rating Agencies before the DOT will enter into a TIFIA line of credit.[78]
  • Lien Priority.  The DOT’s lien on pledged revenues can be subordinated to those of senior lenders to the project except in the event of bankruptcy, insolvency, or liquidation of the obligor.  In such an instance, the DOT’s lien would be on par with the lien of the project’s senior creditors.[79]  This provision will be implemented by way of incorporation into the TIFIA credit agreement and any other appropriate financing agreements entered into at the time of execution of the TIFIA credit agreement.  As noted above, this provision can be waived under certain circumstances for public agency borrowers having senior bonds under preexisting indentures so long as certain conditions are met.[80]

Master Credit Agreements (23 U.S.C. §602(b)(2) and 45 U.S.C. §822(m))

A master credit agreement is a contingent commitment of TIFIA or RRIF credit assistance for a program of related projects.[81]  While these contingent commitments are not an obligation and do not guarantee receipt of RRIF or TIFIA credit assistance, as applicable, they represent an agreement between the DOT and a project sponsor to provide credit assistance subject to the satisfaction of all of the terms and conditions for credit assistance set forth under the RRIF or TIFIA statutes, as applicable, including satisfaction of Federal eligibility requirements (such as the National Environmental Policy Act of 1969) and the availability of budgetary authority for such credit assistance.  The DOT will not enter into a credit instrument under and pursuant to a master credit agreement (and as such will not obligate funds) until the DOT has confirmed satisfaction of all such terms and conditions and the availability of sufficient budgetary authority to fund such credit instrument.

To be eligible for a master credit agreement, each project covered by the master credit agreement must be an eligible project under the statutory requirements of the relevant Credit Program.  The master credit agreements will incorporate a list of eligible projects, the maximum amount of credit assistance available and the availability period for the contingent commitment.  In addition, the master credit agreement will include the terms and conditions for providing the credit assistance as well as terms and conditions that will be common across all credit instruments issued under the master credit agreement.  

Section 2-3

Direct Loan Repayment and Prepayment Structuring

The TIFIA and RRIF statutes give the DOT discretion to defer the commencement of debt service repayments for up to five years after substantial completion.[82]  The DOT also has the flexibility to structure a debt service schedule so that repayment is aligned with projected cash flows.

1.   Scheduled Debt Service.  Projects are not entitled to debt service deferral.  In exercising its discretion to defer the commencement of debt service repayments, the DOT will evaluate the economics and risks to the DOT of each project on a project-by-project basis to determine an appropriate repayment schedule.  Factors in this assessment include:

  • Availability of revenues for debt service.  Some projects are not true “project financings,” but rely on tax or other non-project revenues, which may be available for debt service even before the project is completed.  In such cases, the DOT is likely to require commencement of debt service upon substantial completion, although the DOT may require commencement of debt service during construction for a project not financed with user revenues.  Projects more likely to be favorably considered for interest deferral and backloading of principal are those where project revenues support the financing and borrowers anticipate a long ramp-up period.
  • Amortization of senior debt.  When the financial plan includes other project debt senior to the TIFIA and/or RRIF credit instruments, the DOT expects that the capitalized interest period for the project’s senior debt is likely to end before the capitalized interest period for the TIFIA and/or RRIF loan(s).  Thus, the DOT may agree to continue deferring an appropriate amount of its loan interest to ensure that revenue is adequate to pay full interest on the senior debt.  However, the DOT will not increase its investment in a project by deferring interest when other creditors are withdrawing their investment.  Therefore, the DOT’s policy is not to permit any amortization of a project’s senior debt while TIFIA/RRIF interest is being deferred.
  • Returns on equity.  The DOT requires equity investors, who will be subordinate to the DOT, to defer commencement of their return.  The DOT will not permit any distribution to equity until all currently accruing TIFIA/RRIF interest is paid.  The DOT will negotiate, on a project-by-project basis, the priority and relationship of TIFIA/RRIF repayment and equity distributions.  As noted above in Section 2-1, the DOT will also prohibit RRIF borrowers from making any discretionary dividend payments that unreasonably conflict with the RRIF borrower’s ability to maintain its capital program, equipment, facilities and operations.[83]

2.   Prepayment and Refinancing.  Although the Credit Programs provide long-term financing, the DOT does not intend that TIFIA or RRIF direct loans become part of a project’s permanent capital structure where a strong revenue stream and vigorous project economics permit prepayment or substitution of the DOT credit instrument.  The DOT will negotiate a debt service schedule that provides a high probability of repayment and avoidance of default.  In return, the DOT typically requires that excess revenues – not needed for project or ongoing operational purposes – be applied to prepayment of the TIFIA/RRIF loan.  The DOT also will seek to structure the financing in a way that encourages borrowers to replace the TIFIA/RRIF loan with capital markets debt at such time as project economics support refinancing.

3.   Flow of Funds (Revenue/Project Financings).  DOT credit instruments that are secured by revenues, such as toll or system revenues or sales tax revenues, will typically establish a flow of funds that sets forth a prescribed order of cashflows.  This flow of funds will be documented in both the DOT credit instrument and ancillary documentation, such as a collateral agency agreement or an indenture.  Exhibit 2-B on the following page shows a typical flow of funds for a public project financing secured by project-generated revenues, in this case a financing that includes both senior bonds and a subordinate TIFIA loan.  In the example set forth below, senior debt service (as well as reserve accounts for the benefit of senior bondholders) accumulates revenues ahead of TIFIA debt service and reserve accounts for TIFIA debt service, if applicable.  However, note that for public-private partnerships, the DOT will require that debt service on the DOT credit instrument must be paid before the funding of any senior debt service reserve accounts.

Exhibit 2-B:  Example of TIFIA Public Sponsor, Project Revenue Flow of Funds

Text of Exhibit 2-B

  • Revenues Bucket
  • Project Operation & Maintenance Bucket
  • Senior Debt Service Bucket
  • Senior Debt Service Reserves Bucket
  • TIFIA Debt Service Bucket
  • TIFIA Debt Service Reserves Bucket
  • Various Other Project Reserves Bucket
  • Suplus Revenue Bucket

Section 2-4

Taxation Issues

Federal income tax law prohibits the use of direct or indirect Federal guarantees in combination with tax-exempt debt (section 149(b) of the Internal Revenue Code of 1986 (the Code).  Neither the TIFIA nor RRIF statutes override or otherwise modify this provision of the Code.  The DOT urges all applicants, and particularly those intending to use tax-exempt bonds in connection with direct loans or TIFIA lines of credit, to consult with the Internal Revenue Service, the U.S. Department of the Treasury, and/or bond and tax counsel.

Section 2-5

Credit Program Funding

The Credit Programs are subject to the Federal Credit Reform Act of 1990, which requires the DOT to establish a capital reserve[84] sufficient to cover the estimated long-term cost to the Federal Government of a Federal credit instrument, including any expected credit losses, before the DOT can provide TIFIA or RRIF credit assistance.[85]

TIFIA Program
Congress places limits on the annual subsidy amount available to fund the credit subsidy for TIFIA credit instruments.

The FAST Act authorized $275 million in FY 2016 funds, $275 million in FY 2017 funds, $285 million in FY 2018 funds, $300 million in FY 2019 funds, and $300 million in FY 2020 funds in TIFIA budget authority from the Highway Trust Fund to pay the subsidy cost of TIFIA credit assistance.[86]  Additional funds may also be available from budget authority carried over from previous fiscal years.  Any budget authority not obligated in the fiscal year for which it is authorized remains available for obligation in subsequent years.[87]

The TIFIA budget authority is subject to an annual obligation limitation that may be established in appropriations law.  Like all funds subject to the annual Federal-aid obligation ceiling, the amount of TIFIA budget authority available in a given year may be less than the amount authorized for that fiscal year.

The amount of TIFIA budget authority available in a given year is subject to several factors, as described below.

  • Federal-aid Highway Obligation Limitation.  This obligation limitation pertains to most of the programs funded from the Federal Highway Trust Fund (including the TIFIA Program) and is determined through the appropriations process each year.  As with appropriations processes for other Federal programs, this limitation typically reduces the total funds available for obligation in the year ahead.
  • Program Administration Expenses.  The TIFIA statute authorizes the DOT to use a specified amount of authorized budget authority for each fiscal year to administer the TIFIA Program.[88]  In addition, the statute authorizes the DOT to collect and spend fees to cover expenses related to reviewing, negotiating, monitoring and servicing credit agreements.[89]
  • Carry-over Resources.  Any budget authority made available but not obligated in previous fiscal years may carry over and increase the amount of budget authority available in a given fiscal year.[90]

RRIF Program
The RRIF Program is authorized to provide direct loans and loan guarantees up to $35 billion.[91]  Not less than $7 billion is reserved for projects benefiting freight railroads other than Class I carriers.  A direct loan can fund up to 100% of the eligible project costs[92], however, the DOT prefers applicants to provide equity to the project.  For the current amount of available funding remaining, please refer to the Bureau Credit Programs website: https://www.transportation.gov/buildamerica.

However, since the RRIF Program does not currently have an appropriation, the cost to the government of providing financial assistance must be borne by the RRIF applicant, or another non-federal entity on behalf of the applicant, through the payment of the CRP.  The main factors influencing the CRP calculation are the financial health of the applicant (credit rating for larger entities) and the value of the collateral being pledged (if any).  Pursuant to the FAST Act, RRIF applicants may provide certain credit enhancements to the DOT, which the DOT will use as a basis for determining the CRP.  These credit enhancements include: (1) state or local subsidy income or other dedicated revenues to secure the RRIF direct loan or loan guarantee, (2) adequate coverage requirements to ensure repayment, on a non-recourse basis, from cash flows generated by the project or any other dedicated revenue source, and (3) an investment-grade rating on the RRIF direct loan or loan guarantee.[93]  The CRP attributable to each drawdown request must be paid on a pro rata basis prior to each disbursement.[94]

 

[16]  Note that standby lines of credit are only available under the TIFIA Program and are not available under the RRIF Program.

[17]  23 U.S.C. §§603(b)(5), (e)(2) and 604(c)(2)(B) and 45 U.S.C. §822(g)(1).  Note that for TIFIA loans to capitalize rural projects funds within a state infrastructure bank (SIB), the maximum maturity for the secured loan is 35 years after the date on which the TIFIA secured loan is obligated (23 U.S.C. §603(b)(5)(B)).

[18]  23 U.S.C. §603(c)(2), (c)(3), (e)(2), and 45 U.S.C. §822(j)(1).  For TIFIA standby lines of credit, repayment can commence up to 15 years after substantial completion (23 U.S.C. §604(c)(2)(A)).

[19]  23 U.S.C. §§603(b)(6), (e)(2), 604(b)(8), and 45 U.S.C. §822(l)(1).  However, the TIFIA and RRIF nonsubordination requirements may be waived if certain specified conditions are satisfied: (i) the borrower is a public agency; (ii) the credit instrument receives a rating within the A category or higher from at least one Credit Rating Agency for RRIF credit instruments and at least two Credit Rating Agencies for TIFIA credit instruments; (iii) the credit instrument is secured and payable from pledged revenues that are not affected by project performance, such as a tax-backed revenue pledge or a system pledge; and (iv) the percentage of eligible project costs being financed by Bureau credit assistance is 33 percent or less for TIFIA credit assistance and 50 percent or less for RRIF credit assistance.  However, in such cases for (x) TIFIA credit assistance, the maximum credit subsidy to be paid by the Federal Government may not be more than 10 percent of the principal amount of the TIFIA credit assistance, and the obligor is responsible to pay any remaining subsidy cost, and (y) for RRIF credit assistance, the DOT may impose limitations on the waiver of nonsubordination requirements if it determines that such limitations would be in the financial interest of the Federal Government.  23 U.S.C. §§603(b)(6)(B) and 604(b)(8)(B), and 45 U.S.C. §822(l)(2)(A).

[20]  23 U.S.C. §§603(b)(2) and 604(b)(2). 

[21]  23 U.S.C. §602(a)(2)(A).

[22]  23 U.S.C. §602(a)(2)(B).

[23]  23 U.S.C. §602(a)(2)(A)(iv) and (a)(2)(B).

[24]  45 U.S.C. §822(f)(4) and 49 C.F.R. §260.15(c).

[25]  45 U.S.C. §822(h)(1).

[26]  Note that the TIFIA statute defines direct loans as “secured loans” and the RRIF statute uses the term “direct loans.”  For ease of reference in this Program Guide, we use the term “direct loans.”  (See 23 U.S.C. §601(a)(17) and 45 U.S.C. §821(3).)

[27]  23 U.S.C. §603(a)(1).

[28]  23 U.S.C. §603(a)(2).

[29]  45 U.S.C. §822(b)(1).

[30]  45 U.S.C. §822(d).  In addition, credit assistance for RRIF TOD Projects is limited to 75 percent of total project costs.

[31]  23 U.S.C. §603(b)(2)(A).  Note that the maximum amount is limited to 33 percent where the nonsubordination requirement is waived, as described in footnote 17 above.  Note also that the principal amount of a TIFIA direct loan to capitalize a rural projects fund within a SIB may not exceed $100 million.  

[32]  23 U.S.C. §603(b)(2).

[33]  23 U.S.C. §603(b)(4)(A).

[34]  45 U.S.C. §822(e) and 49 C.F.R. §260.9.

[35]  23 U.S.C. §603(b)(4)(B)(i).

[36]  23 U.S.C. §603(b)(4)(B)(ii).

[37]  23 U.S.C. §608(a)(3)(A).

[38]  23 U.S.C. §603(b)(4)(B)(ii).

[39]  23 U.S.C. §608(a)(3)(B).

[40]  23 U.S.C. §§601(a)(8) and 603(b)(4)(C).  In addition, a limited buydown is available in the event a borrower has entered into a master credit agreement and the interest rate has increased between the date on which the master credit agreement was executed and the date on which an underlying TIFIA direct loan is entered into in connection with such master credit agreement.

[41]  23 U.S.C. §603(a)(1) and 45 U.S.C. §§822(b)(1) and (2).

[42]  45 U.S.C. §822(f)(4) and 49 C.F.R. §260.15(c).

[43]  23 U.S.C. §603(b)(5) and 45 U.S.C. §822(g)(1).

[44]  23 U.S.C. §603(b)(5)(B).

[45]  23 U.S.C. §603(c)(2) and 45 U.S.C. §822(j)(1).

[46]  23 U.S.C. §603(c)(1) and 45 U.S.C. §822(j)(1).

[47]  23 U.S.C. §603(c)(3) and 45 U.S.C. §822(j)(3).

[48]  23 U.S.C. §603(c)(4) and 45 U.S.C. §822(j)(4).

[49]  23 U.S.C. §603(b)(6) and 45 U.S.C. §822(l).

[50]  23 U.S.C. §603(b)(6)(B) and 45 U.S.C. §822(l)(2).

[51]  23 U.S.C. §601(a)(5) and 45 U.S.C. §821(7).

[52]  Office of Mgmt. & Budget, Exec. Office of the President, OMB Circular No. A-129, Policies for Federal Credit Programs and Non-Tax Receivables (2013) at Section II.B (pp. 4-5) and 49 C.F.R. §80.15(c).

[53]  23 U.S.C. §603(a)(1) and (e)(2).

[54]  23 U.S.C. §603(a)(2) and (e)(2).

[55]  45 U.S.C. §822(b)(1).

[56]  45 U.S.C. §822(d).  In addition, credit assistance for RRIF TOD Projects is limited to 75 percent of total project costs.

[57]  49 C.F.R. §260.51(a).

[58]  23 U.S.C. §603(b)(2) and (e)(2).

[59]  23 U.S.C. §603(e)(2) and 45 U.S.C. §822(e)(2).

[60]  26 U.S.C. §149(b).

[61]  23 U.S.C. §603(b)(5) and (e)(2); 45 U.S.C. §822(g)(1).

[62]  23 U.S.C. §603(c)(2) and (e)(2); 45 U.S.C. §822(j)(1).

[63]  See 23 U.S.C. §603(e)(2).  The RRIF Program will apply a similar requirement for prepayment arrangements to be satisfactory to the DOT.

[64]  23 U.S.C. §601(a)(9) and 45 U.S.C. §823(g).

[65]  23 U.S.C. §603(b)(6) and (e)(2); 45 U.S.C. §822(l).

[66]  23 U.S.C. §603(b)(6)(B) and 45 U.S.C. §822(l)(2).

[67]  23 U.S.C. §604(a)(1) and (b)(6).

[68]  23 U.S.C. §604(a)(1) and (b)(1).

[69]  23 U.S.C. §604(a)(2).

[70]  23 U.S.C. §604(b)(2).

[71]  23 U.S.C. §604(b)(10).

[72]  23 U.S.C. §604(b)(3)(B).

[73]  23 U.S.C. §604(b)(6).

[74]  23 U.S.C. §604(b)(4).

[75]  23 U.S.C. §604(c)(2)(B).

[76]  23 U.S.C. §604(c)(2).

[77]  23 U.S.C. §604(c)(1).

[78]  23 U.S.C. §604(a)(4).

[79]  23 U.S.C. §604(b)(8)(A).

[80]  23 U.S.C. §604(b)(8)(B).

[81]  In addition, a TIFIA master credit agreement can be utilized for a single project where current-year funds have been fully obligated to other projects and the project sponsor elects to wait until the fiscal year when additional funds are available for TIFIA credit assistance. (23 U.S.C. §602(b)(2)(B))

[82]  23 U.S.C. §603(c)(2) and (e)(2); 45 U.S.C. §822(j).  Debt service payments on TIFIA direct loans issued under a TIFIA line of credit can be deferred for up to fifteen years after substantial completion.  23 U.S.C. §604(c)(2)(A).

[83]  45 U.S.C. §822(h)(1)(C).

[84]  As noted above, under the TIFIA Program, the capital reserve is referred to as the “credit subsidy” and under the RRIF Program it is referred to as the “credit risk premium.”

[85]  2 U.S.C. §661c(b).

[86]  FAST Act, Pub. L. No. 114-94, §1101(a)(2), (129 Stat. 1322) (2015).

[87]  23 U.S.C. §608(a)(4).

[88]  23 U.S.C. §608(a)(5).

[89]  23 U.S.C. §605(b).

[90]  23 U.S.C. §608(a)(4).

[91]  45 U.S.C. §822(d).

[92]  However, note that for RRIF direct loans for transit oriented development projects, the DOT will require the borrower to provide a non-Federal match of not less than 25% of the eligible project costs.  (45 U.S.C. §822(h)(4))

[93]  45 U.S.C. §822(f)(3).  Note that if the total amount of the RRIF direct loan or loan guarantee is greater than $75 million, the applicant must provide an investment grade rating on the RRIF credit instrument from at least two Credit Rating Agencies for the DOT to incorporate such ratings into its calculation of the CRP (45 U.S.C. §822(f)(3)(C)).

[94]  45 U.S.C. §822(f)(4) and 49 C.F.R. §260.15(c).

Updated: Monday, April 3, 2017
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