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Chapter 5: Selection Process

This chapter describes the project review and selection process for both the TIFIA and RRIF Credit Programs.

Section 5-1

Project Review

TIFIA Streamlined Application Process

The FAST Act required that the DOT develop a streamlined application process for certain TIFIA requests for credit assistance.[226]  The Bureau has developed such a process, identifying potential reductions in processing time while preserving an appropriate level of due diligence.  Eligibility for this streamlined application process is dependent on satisfaction of certain project criteria.  In general, projects that inherently present lower risks to the Government, such as requests for credit assistance of not more than $100 million and dedicated revenue sources that are not affected by project performance (e.g., sales tax revenue pledges), are eligible for the streamlined process.  Smaller loan requests backed by highly-rated pledges would be expected to incur less review and underwriting time than larger requests for credit assistance, lower-rated credits, or projects with complex legal considerations.  Applicants that agree to DOT’s standard terms for secured loans would likely experience a reduction in Letter of Interest and application review time and the cost of DOT’s outside advisors due to the minimal negotiation required to document the transaction.[227]   In addition, the Bureau may consider offering a streamlined application process to qualified projects on a case-by-case basis.  Please contact the Bureau for more information about the streamlined application process, including the applicable eligibility criteria.

Submission of the Letter of Interest and Invitation to Submit an Application

Chapter 4 describes the process of engaging with the Bureau for purposes of seeking credit assistance.  The DOT conducts an in-depth creditworthiness review of the project sponsor and the revenue stream proposed to repay the TIFIA and/or RRIF credit assistance.  The creditworthiness review involves evaluation of the plan of finance, financial model, and feasibility of the anticipated pledged revenue or, in the case of RRIF loans where the proposed collateral is other than a dedicated revenue stream, the sufficiency of such other pledged collateral.  Concurrently with this review, the DOT will ask project sponsors requesting TIFIA credit assistance to provide a preliminary rating opinion letter.  In addition, at this time, the DOT will ask project sponsors to submit the $250,000[228] Advisors’ Fees Upfront Payment to enable the DOT to hire outside financial and, as and when necessary, legal advisors to complete its review of the project.  (See Section 4-2 for additional discussion of the Advisors’ Fees Upfront Payment, including regarding the availability of DOT-funded assistance for TIFIA projects with costs anticipated to be less than $75 million.)  In addition, the DOT will request that the potential applicant give an oral presentation to the DOT followed by a question and answer session.  As noted above, potential applicants will be invited to submit a formal application only once the DOT has satisfactorily completed its review of a project’s eligibility, including a satisfactory review of the creditworthiness of the project.  See Chapters 1 and 4 for a step-by-step description of the application process.

Eligibility Criteria

The preliminary review team led by a Project Development Lead from the Bureau’s Outreach and Project Development Team (as described in Section 4-1) ensures satisfaction of the threshold requirements described in Chapter 3, including satisfaction of Federal requirements, Credit Program-specific requirements, and project readiness.  Such team also reviews the Letter of Interest/Draft Application for completeness of information.  The DOT employs the services of an independent financial advisor to assist with financial and credit risk assessments of the project.

The Project Development team’s preliminary review will focus on certain key eligibility elements to ensure the relevant project is ready for the more in-depth creditworthiness review.  These key preliminary items are:

  • Project Eligibility.  The preliminary review team will first verify that the project and the potential applicant satisfy the program-specific requirements applicable to the relevant Credit Program.  This review will determine whether the project is eligible for credit assistance under the requested Credit Program and the potential applicant is an eligible applicant.
  • Federal Requirements.  The preliminary review team will verify whether certain preliminary Federal requirements either have been satisfied or are on schedule to be completed in sufficient time to continue the review process.  The Federal requirements most likely to delay the Letter of Interest/Draft Application process are Buy America and NEPA, however, the preliminary review team will flag all Federal compliance issues it discovers during the initial Letter of Interest/Draft Application review.
  • Credit Program-Specific Requirements.  In addition to the generally applicable Federal requirements, the preliminary review team will verify whether the other threshold criteria described in Section 3-5 have been (or are reasonably likely to be) satisfied.  For example, the review team will determine whether the amount of the requested credit assistance exceeds the statutory authority for the applicable program (such as a request for a TIFIA loan in excess of 49 percent of eligible project costs,[229] or combined RRIF and TIFIA credit assistance in excess of 80 percent of eligible project costs in the aggregate[230]) or the project size does not meet the applicable Credit Program’s requirements (such as a request for TIFIA credit assistance for a non-rural, non-local project with anticipated eligible costs of $40 million[231]).  This review will also confirm whether the project has been reflected in the applicable state planning and programming documents[232] and satisfies the applicable readiness requirements.[233]

After concluding its initial review and upon making a determination that the project is reasonably likely to satisfy all of the eligibility requirements of the applicable Credit Program, the DOT will conduct an in-depth creditworthiness review of the project sponsor and the proposed plan of finance.  This review focuses on the following eligibility criteria set forth in the RRIF and TIFIA statutes, as applicable:

  • Creditworthiness:  The DOT will review the creditworthiness of the project.  This includes a demonstrated capacity to repay the Federal credit assistance as well as a determination that the project has appropriate security features, such as appropriate coverage ratios, rate covenants and reserves, as applicable.  For requests for TIFIA credit assistance, project sponsors will need to specifically demonstrate the following:
  1. Ability to satisfy applicable creditworthiness standards;[234]
  2. Rate covenant, if applicable[235]
  3. Adequate coverage requirements to ensure repayment;[236] and
  4. Ability to obtain investment grade ratings on senior debt.[237]
  • Repayment Source.  While the RRIF statute does not require a borrower to pledge a dedicated revenue source to the repayment of RRIF credit assistance, for both the RRIF and TIFIA Programs, the DOT will analyze the revenue stream proposed to repay the DOT credit assistance to determine whether there is adequate assurance that the credit assistance can be repaid, including under downside scenarios.  In addition, the TIFIA statute requires that both project debt generally and TIFIA debt specifically must be repaid in whole or in part by a dedicated revenue source(s) as discussed in Section 3-5 above.[238]  The DOT will require that revenues pledged to the TIFIA obligation be of substantially similar credit quality to those securing the senior debt, except with respect to TIFIA’s lien position, which can be junior (i.e., subordinated) the project’s other debt obligations.[239] 
  • Rating Opinion (TIFIA).  The DOT will not complete its review of a TIFIA Letter of Interest and render a determination of eligibility before the project sponsor has submitted at least one preliminary rating opinion letter from a Credit Rating Agency.  This preliminary assessment of the project’s proposed financing structure must indicate that the senior obligations funding the project have the potential to receive an investment grade rating.[240]  The DOT will not consider projects that do not demonstrate the potential for the obligations senior to the TIFIA obligation to receive an investment grade rating.  The preliminary rating opinion letter should also provide a preliminary assessment of the likely rating category for the requested TIFIA credit instrument.  In addition, the preliminary rating opinion letter should provide a preliminary rating assessment of the financial strength of the overall project and the default risk (i.e., without regard to recovery potential) of the requested TIFIA credit instrument.[241]  See Section 3-6 for additional discussion regarding the DOT’s use of credit ratings.
  • DOT Policy Goals.  The preliminary review team will review the Letter of Interest/Draft Application, and any supplemental materials, to determine whether and to what extent a project satisfies the DOT policy goals described in Section 3-5 above.  (See Section 3-5 for a description of the applicable policy goals.)  For requests for TIFIA credit assistance, the review team must make a determination that the policy goals described in Section 3-5 are satisfied in order for the project to be eligible for TIFIA credit assistance.  Failure to achieve the RRIF policy goals described in Section 3-5 is not a bar to eligibility, but will be used to determine the prioritization of projects and failure to satisfy any or all of the goals identified may result in a project not receiving RRIF credit assistance.

With respect to public-private partnerships (P3s) seeking Bureau credit assistance, the DOT expects a partnership in which all parties will work together to ensure that the project is successful from construction through loan maturity.  The terms within the P3 concession agreement are critical to the DOT’s analysis.  Prior to execution of a concession agreement, typically when the public sponsor finalizes a draft concession agreement for the Request for Proposals process, the DOT will review the agreement with a focus on credit underwriting.  The DOT’s review will ensure the concession terms are incorporated into the overall credit due diligence process and will identify terms that may negatively impact the repayment of the project’s debt.  The Department may require changes to the concession agreement to reach a finding of creditworthiness.  To ensure that all parties will work together during the concession period while the loan would be outstanding, particularly in distress situations, the DOT will review previous experience by private entities in making a creditworthiness determination.

After concluding its review of each Letter of Interest/Draft Application and related information submitted by potential applicants, along with the independent financial analysis report from the DOT’s independent financial advisor, and after the project sponsor’s oral presentation, the DOT will invite sponsors of eligible projects to submit complete applications.  In addition to the foregoing requirements, project sponsors must have circulated a draft EIS by the time it submits an application, unless the project has received either a FONSI or a Categorical Exclusion.  The DOT will not obligate funds for a project before a ROD (if required, or the equivalent final agency decision) has been issued for that project.  (See Sections 3-3 and 3-7 for additional discussion regarding NEPA requirements).  Further, applicants must certify in their application that they are not delinquent on any Federal debt, including tax debt.[242]

Credit Subsidy/Credit Risk Premium Calculation

Based on the financial information presented in the Letter of Interest/Draft Application and application (and any supplemental materials), the DOT will estimate the credit subsidy/CRP for the proposed credit assistance.  This preliminary calculation, reflecting the DOT’s estimated credit risk, will determine, for TIFIA credit assistance, the amount of TIFIA budget authority the project would consume if selected for credit assistance, and for RRIF credit assistance, the size of the CRP payment the applicant will ultimately be required to pay to the DOT.[243]

Section 5-2

Project Recommendations

Based on work of the technical review team, Bureau staff will prepare a recommendation regarding TIFIA credit assistance and present it, first to the Bureau’s Credit Review Team, a team of DOT staff drawn from credit and modal expertise throughout the Department.  After the Credit Review Team has reviewed and affirmed the Bureau’s recommendation, the Bureau will present its recommendation to the DOT Council on Credit and Finance.

Section 5-3

Project Selection

The DOT Council on Credit and Finance provides recommendations to the Secretary, who will make the final determination regarding award of Bureau credit assistance.  The Secretary’s approval, if received, will instruct the Bureau to proceed to finalize the negotiation of the documentation for the credit assistance.  Once terms and conditions acceptable to the DOT have been finalized, the parties will execute a term sheet, which obligates the credit assistance, a definitive credit agreement, which sets forth the terms and conditions of the credit assistance, and the other documents necessary to provide credit assistance, and close the transaction.  The typical transaction documents utilized in connection with DOT credit assistance are described in Chapter 6.

Section 5-4

Summary of the Bureau Selection Process

Exhibit 5-A provides a summary of the Bureau application and selection processes addressed in Chapters 4 and 5.

Exhibit 5-A: The Bureau Application Process

Action

Responsible Party

Bureau Outreach and Project Development

  • Project Sponsor Engages with Bureau Outreach Staff.
  • Project Sponsor

Initial Project Assessment:

  • Establish a preliminary review team to review the Letter of Interest/Draft Application.
  • Determine whether the prospective project meets statutory eligibility requirements.
  • Provide additional information (if requested by the DOT).
  • DOT
     
  • DOT
     
  • Project Sponsor

Letter of Interest:

Prepare the Letter of Interest and submit it to the DOT.

  • Project Sponsor

In-Depth Creditworthiness Review:

  • Review creditworthiness of the project sponsor and the revenue stream proposed to repay the credit assistance.
  • Upon request from the DOT, provide a feasibility study (as applicable), and a fully functional Microsoft Excel-based financial model.
  • For TIFIA applicants, upon request from the DOT, provide the preliminary rating opinion letter.
  • Upon request from the DOT, provide the $250,000 Advisors’ Fees Upfront Payment to enable the DOT to hire outside financial and legal advisors in order to continue project review.
  • DOT
  • Project Sponsor
  • Project Sponsor
  • Project Sponsor
     

Oral Presentation:

  • After initial determination of eligibility and receipt of the Advisors’ Fees Upfront Payment and, for TIFIA applicants, the preliminary rating opinion letter, and upon request from the DOT, present the project to the review team and advisors, as well as representatives of the Bureau and the DOT Council on Credit and Finance.
  • Project Sponsor

Application:

  • After successful determination of eligibility, oral presentation, and receipt of the Advisors’ Fees Upfront Payment and, for TIFIA applicants, the preliminary rating opinion letter, notify selected projects that have been invited to submit an application.
  • Prepare and submit the complete application (with the appropriate number of copies).
  • DOT
  • Project Sponsor

Application Review:

  • Based on the written application and oral presentation, reassess the project’s satisfaction of the applicable eligibility criteria, with particular focus on creditworthiness.
  • Calculate the credit subsidy cost/CRP estimate.
  • DOT
  • DOT

Recommendations to Bureau Credit Review Team, DOT Council on Credit and Finance and Secretary:

  • Prepare and present a recommendation for the project to the Bureau’s Credit Review Team.
  • If approved by the Credit Review Team, present a recommendation for the project to the DOT Council on Credit and Finance.
  • Review, approve, or revise recommendation and forward to the Secretary for final decision on approval.
  • DOT
  • DOT
  • DOT Council on Credit and Finance

Approval and Notifications:

  • Approve project, as appropriate, and authorize the issuance of a term sheet and completion of negotiations of a credit agreement.
  • Advise applicant of Secretary’s determination.
  • Secretary
  • DOT
 
 

[226]  23 U.S.C. §603(f).

[227]  The TIFIA loan agreement templates for P3 and public borrowers are available on the Bureau’s website: https://www.transportation.gov/buildamerica.

[228]  Note that, for RRIF projects, the Advisors’ Fees Upfront Payment may be higher depending on the nature and complexity of the project.  Project sponsors should consult with the Bureau to confirm the applicable amount of the Advisors’ Fees Upfront Payment.

[229]  23 U.S.C. §603(b)(2)(A).

[230]  23 U.S.C. §603(b)(9)(A).

[231]  23 U.S.C. §602(a)(5)(A).

[232]  As required under the TIFIA statute (23 U.S.C. §602(a)(3)) and as a priority consideration under the RRIF statute (45 U.S.C. §822(c)(5)).

[233]  For requests for RRIF credit assistance, this review and the NEPA status review will one and the same; for requests for TIFIA credit assistance, the review team will determine whether the project sponsor has demonstrated that the construction contracting process for the project can commence no more than 90 days after the execution of a TIFIA credit instrument.

[234]  23 U.S.C. §602(a)(2).

[235]  23 U.S.C. §602(a)(2)(A)(i).

[236]  23 U.S.C. §602(a)(2)(A)(ii).

[237]  23 U.S.C. §602(a)(2)(A)(iii).

[238]  23 U.S.C. §602(a)(6).

[239]  As noted in Section 2-1 above, the TIFIA 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 TIFIA lien would be on par with the lien of the project’s senior creditors.  However, 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, as further discussed in Section 2-1 above.

[240]  If there are no debt obligations senior to the TIFIA credit instrument, then the TIFIA credit instrument itself must be shown to have the potential to obtain an investment grade rating.  23 U.S.C. §602(b)(3).

[241]  23 U.S.C. §602(b)(3).

[242]  See 31 U.S.C. §3720B, 31 C.F.R. §285.13, and 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 III(A)(1)(b).

[243]  As noted in Chapter 2, 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.  See Chapter 2 for additional information regarding the credit subsidy/CRP.

Updated: Friday, March 31, 2017
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