You are here

Chapter 6: Transaction Documents and Ongoing Monitoring Requirements

This chapter describes the process by which the DOT will commit to provide credit assistance to a selected borrower (also termed “obligor”).  The chapter also describes the two major contractual documents used for the TIFIA and RRIF Programs:  the term sheet and the credit agreement.  The term sheet establishes the DOT’s legal commitment and triggers the obligation of budget authority for the project.  The credit agreement is the definitive agreement between the DOT and the borrower, containing all of the terms and conditions pursuant to which the DOT’s credit assistance is provided.  The DOT will not execute the term sheet or the credit agreement until the Credit Review Team and the Council on Credit and Finance have recommended the approval of an application, and the Secretary has approved the application and instructed the Bureau to execute these agreements.  As described in Chapter 5, the Bureau will not present an application to the Credit Review Team and Council on Credit and Finance until all prerequisite to receipt of credit assistance, such as receipt of a final NEPA determination, receipt of a preliminary rating opinion letter (for TIFIA credit assistance), and satisfaction of the eligibility requirements described in Chapter 3, have been satisfied.

If a project is also financed with other DOT funds, the recipient of credit assistance is required to comply with applicable modal project requirements and approvals as well as the applicable Credit Program’s requirements.  These may include approval for innovative contracting approaches and “mega project” procedures, such as submission of a financial plan and plan updates.  The Bureau process minimizes duplication of effort by borrowers, while ensuring effective oversight and monitoring of the Federal investment for projects.  The applicant can choose to take advantage of the coordinated processes as long as the timing of the submission of required documents fulfills both the Credit Program and the other applicable Federal program requirements.  The credit agreement will specifically address financial plan requirements and monitoring procedures.

Section 6-1

Term Sheet

The term sheet is a contractual agreement between the DOT and the borrower that sets forth certain business terms and conditions of the credit assistance for the project.[244]  The DOT’s issuance of this document triggers the DOT’s obligation (i.e., legal commitment) of budget authority.

Term Sheet Prerequisites

Before issuing a term sheet, the DOT will confirm that all prerequisites for the obligation of funds have been satisfied.  These prerequisites are described in detail in Chapter 3.

The term sheet obligates budget authority and binds the DOT and the borrower to the specified terms; it does not bind the DOT to details of the borrower’s application.  Further, the term sheet does not trigger a disbursement of funds to the borrower.  Disbursements are made pursuant to the credit agreement, which is the definitive financing agreement between the borrower and the DOT.

Term Sheet Contents

General rules concerning the terms for secured loans, loan guarantees, and standby lines of credit are summarized in Chapter 2.  More specific terms will be determined on a project-specific basis.  The DOT commitment in the term sheet, and the terms and conditions applicable to the DOT’s credit assistance, are subject in all respects the terns of the credit agreement.

Because term sheets serve primarily as obligating instruments for TIFIA and RRIF credit assistance, they include only basic terms and conditions related to the DOT’s provision of credit assistance.  Typically, the following will appear in every term sheet:

  • Parties to the agreement (e.g., lender, borrower, and guaranteed lender, as applicable);
  • Type(s) of credit instrument (i.e., secured loan, loan guarantee, or line of credit);
  • Description of the project;
  • Estimated total project costs and total eligible project costs;
  • Maximum amount of TIFIA and/or RRIF credit assistance;
  • Method for establishing the interest rate;
  • Estimated final maturity date;
  • Source of payment and security, if applicable, including lien priority of the credit instrument;
  • Requirement to reimburse the DOT for all costs in excess of the Advisors’ Fees Upfront Payment;
  • Conditions, if applicable, for execution of a credit agreement; and
  • Covenants such as limitations on additional bonds, minimum coverage ratios, and any required reserve funds.

Section 6-2

Credit Agreement

The credit agreement is the definitive agreement between the DOT and the borrower (and the guaranteed lender, if applicable).  It specifies all terms and conditions of the credit assistance and authorizes the disbursement of credit assistance to the project.

Credit Agreement Prerequisites

In order for the DOT to execute the credit agreement and disburse funds, the borrower must satisfy at a minimum any requirements set forth in the term sheet.  Also, for TIFIA credit assistance, the borrower must have received two investment grade ratings on the senior debt obligations and two ratings on the TIFIA credit instrument, as described in Section 3-6.  If the TIFIA debt is intended to be the senior debt, it must receive two investment grade ratings.

Prior to closing a credit agreement, the borrower will be required to submit updates to both the financial plan and project management and monitoring plan.

The DOT reserves the right to review and, as appropriate, approve all related project documents, including, but not limited to design-build contracts, concession agreements, development agreements, financing agreements, and funding agreements with third parties.

In addition to satisfying the requirements set forth above, prior to executing the credit agreement, the applicant must complete the Federal System for Award Management (SAM) registration process.  To complete the SAM registration process, the applicant must first obtain a Data Universal Numbering System (DUNS) number.  In addition, a Federal Employer Identification Number (FEIN, also known as a Federal Tax Identification Number) must be provided to satisfy the IRS tax reporting requirements.  Upon completing the SAM registration process, the applicant will receive a Commercial and Government Entity code.  The DOT will verify that the applicant has active registration status in SAM, has no active exclusions in SAM, and will require evidence of the applicant’s DUNS number and FEIN prior to executing a credit agreement.

Credit Agreement Contents

The contents of the credit agreement will include both standard provisions and transaction-specific provisions.  The borrower and the DOT will execute the credit agreement for a secured loan or line of credit; the guaranteed lender, the DOT, and the borrower will execute the loan guarantee agreement or instrument for a loan guarantee.  Additionally, for a loan guarantee, the guaranteed lender will execute a separate loan agreement with the borrower, and the borrower will execute a borrower’s certificate, compliance, and loan agreement with the DOT.  Depending on the nature of the transaction, additional documents, such as an intercreditor agreement or collateral agency agreement, may also be necessary.  The DOT will require the borrower to provide copies of the bond or loan documents, as applicable, and other agreements material to the flow of funds or to the DOT’s security for its review of the project’s creditworthiness.  The DOT may also review any disclosure with respect to the transaction that the borrower includes in offering documents.

Generally, borrowers can expect credit agreements to include, in addition to the items listed under “Term Sheet Contents,” the following:

  • Detailed description of the dedicated revenue source and pledged security, if applicable;
  • Credit enhancement features (e.g., rate covenants, additional bonds tests, and coverage requirements);
  • Flow of funds;
  • Repayment terms, including amortization schedule and final maturity;
  • Representations and warranties;
  • Borrower covenants;
  • Annual disbursement schedule and conditions for draws;
  • Financial plan requirements; and
  • Monitoring and reporting requirements.

The credit agreement will also include the form of requisition for disbursements and the form of bond/note.  Each borrower under a direct loan agreement executes a bond or note, as applicable, evidencing the obligation to repay the loan.

Section 6-3

Closing Activities

When the parties to the transaction have completed negotiations and finalized the credit agreement and other related financing documents, the pre-closing and closing occur.  This process is very similar to a bond transaction closing.

At closing, authorized representatives of the borrower, the DOT, and the guaranteed lender (if applicable) execute the legal documents.  Documents requiring execution by persons not attending the closing are signed in advance.  Copies of the agreements are made and distributed to the appropriate parties.  The timing of the closing is typically tied to the closing of the senior financing, if applicable.  The closing of the senior debt and the DOT credit instrument can be simultaneous, but the TIFIA and/or RRIF transaction can close ahead of the senior financing so long as the senior documents have been substantively finalized and execution is within a week of the TIFIA and/or RRIF closing.  In those circumstances, the DOT credit agreement will include conditions subsequent to closing that will terminate the commitment if the senior financing does not close by an outside date (not more than a week after the TIFIA and/or RRIF closing) or is on terms and conditions different than the forms of senior financing documents agreed when the TIFIA and/or RRIF loan(s) closed .  Standard transaction closing documents are required, including various legal opinions. 

Following the closing, a binder is prepared which includes all the legal documents, project documents, condition precedent materials from the DOT transaction, and other closing documents.  The Bureau uses this closing binder as the source of project information for accounting, budgeting, and program monitoring systems.  Exhibit 6-A contains a sample checklist for a secured loan closing.

Exhibit 6-A:  Sample Loan Closing Checklist for a TIFIA or RRIF Direct Loan

  1. Organizational Documents of the Borrower

If the Borrower is a public entity:

  1. Approval resolutions approving project and authorizing official to execute documents
  2. Copies of enabling legislation, bylaws, minutes of meetings regarding the project

If the Borrower is a private entity:

  1. Articles of incorporation, partnership agreement or similar documents, as appropriate
  2. Good standing certificate
  3. Bylaws

   d.   Incumbency certificate

   e.   Resolutions authorizing officials to execute documents

  1. TIFIA/RRIF Loan Agreement
  2. TIFIA/RRIF Term Sheet
  3. TIFIA/RRIF Promissory Note
  4. Intercreditor Agreement
  5. Development agreements (including design/build or concession agreements) and any other construction contracts
  6. Borrower’s Officer’s Certificate (certifying to project documents, incumbency, and other matters)
  7. Evidence of project’s inclusion in State Transportation Improvement Program (if applicable)
  8. Evidence of consistency with other State or metropolitan transportation plans (if applicable)
  9. Evidence of all necessary approvals
  10. Environmental Record of Decision, Finding of No Significant Impact or Categorical Exclusion
  11. Evidence of active registration in SAM
  12. Insurance Documents
  13. Borrower Non-Debarment Certificate (certifying that the borrower has not been suspended or debarred from participation in any Federal program)
  14. Independent Engineer’s Report
  15. Feasibility Study/Traffic and Revenue Study
  16. Working Financial Model (not in .pdf or values format) and Financial Plan
  17. Credit rating(s) (if applicable)
  18. Opinion of borrower’s counsel (addressing legal authority of Borrower, execution of documents, etc.) and of bond counsel (addressing legality and validity of security interests and validity, priority and perfection of lien, if applicable, and due authorization, legality, and binding nature of the credit instrument)
  19. For Senior Project Bonds (tax-exempt or taxable bonds):
    1. Enabling legislation and other documentation of issuer of senior project bonds
    2. Borrower’s resolution
    3. Trust indenture
    4. Bond purchase agreement
    5. Official statement
    6. Continuing disclosure agreement
    7. Bond insurance policy or other credit enhancement

Section 6-4

Oversight and Monitoring Requirements

The DOT requires certain ongoing, periodic reporting with respect to project receiving Bureau credit assistance.  This periodic review has three purposes: (i) to provide the DOT with an oversight tool for ensuring the borrower’s compliance with the provisions of the credit agreement; (ii) to monitor the overall status of the project; and (iii) to assist the DOT and the Office of Management and Budget (OMB) in identifying any changes to the credit risk posed to the Federal Government under individual credit agreements.  The credit instrument will specify the scheduled annual and project milestone reporting requirements, as well as any other ad hoc or periodic reporting requirements.

As part of its oversight and monitoring of TIFIA and RRIF projects, the DOT will routinely update its information on credit quality, construction schedules, legal issues, revenue forecasts, financial projections, and project performance.  Accordingly, borrowers will be required to covenant in the credit agreement to provide ongoing financial and project information not only during construction, but so long as any Bureau credit instrument is outstanding and/or until any debt obligation to the Federal Government is fully repaid.  Documentary evidence that may be requested for each project includes:  audited financial statements, updated budget and cash flow projections, audit reports, sources and uses of funds, coverage ratios, project schedules, operating statistics, and management updates (no more than 180 days following the borrower’s fiscal year-end).  In addition, the credit agreement will obligate the borrower to provide the DOT with an annual update to the project’s financial plan in accordance with specified requirements.  Financial plans must show full funding for the project and are subject to review and approval by the Bureau.  Each borrower will be required to give notice to the DOT of material events, including litigation, which could affect project development or the credit quality of the project. 

Borrowers of TIFIA credit assistance are also required to provide annually, at no cost to the Federal Government, ongoing credit evaluations of the project and all project debt, including the TIFIA credit instrument.[245]  These surveillance reports must be prepared by a Credit Rating Agency throughout the life of the TIFIA credit instrument.[246]  By “current credit evaluation,” the DOT means: (i) in the case of a project with a published rating, either a current rating or the borrower’s certification stating that the rating and outlook are unchanged from the previous year, and (ii) in the case of a project without a published rating, a current rating of the project obligations and the Federal credit instrument.  The DOT will also require periodic updates to the rating rationale to the extent that it is not included as part of the annual rating letter.  The borrower must furnish the DOT with any other credit surveillance reports on the TIFIA-assisted project as soon as they are available.

The DOT’s oversight and monitoring may also include site visits, periodic status meetings with the borrower, and reviews of independent engineer and/or other relevant reports.  The Bureau will coordinate oversight and monitoring activities with the appropriate DOT field offices.

Each credit agreement between the DOT and a borrower will specify the types of ongoing documentation required by the DOT and the frequency of such information requests.  The credit agreement will also authorize the DOT to commence increased monitoring and reporting, as may be necessary, to ensure the continued credit quality of the project and minimize the Federal Government’s risk.  With respect to P3 projects financed by DOT, in the event that issues arise during the concession term, all parties must make a good faith effort to resolve the situation, which may include discussions regarding the feasibility of additional equity infusions, changes to concession terms or any other corrective measure that could stabilize the financial condition of the project.

Section 6-5

Loan Servicing

The DOT may retain outside assistance to perform loan servicing for Bureau credit instruments, including credit accounting, collections, maintenance of documents, and financial reporting.[247]  To offset in part the DOT’s costs, a borrower is charged an annual fee for loan servicing activities associated with each credit instrument, which is adjusted periodically based on inflation.[248]

The DOT will provide general payment instructions to the borrower in each credit agreement.  Prior to each repayment date, the DOT’s loan servicer will notify the borrower of the date and amount due in accordance with the payment schedule in the credit agreement.  The loan servicer will also bill each borrower annually for servicing fees, for the DOT’s account, in accordance with the provisions in the credit agreement.

 

[244] Note that this term sheet is a different instrument from the indicative term sheet the Bureau offers to negotiate with public sponsors conducting P3 procurements.  The term sheet described above will be executed for all transactions receiving credit assistance and is necessary for the DOT to obligate funds.

[245] 49 C.F.R. §80.11(d).

[246] 49 C.F.R. §80.11(d).

[247] 23 U.S.C. §605(c)(1) and 45 U.S.C. §823(l)(3) and 45 U.S.C. §823(l)(1) and (3).

[248] 23 U.S.C. §605(b)(2) and 45 U.S.C. §823(l)(2).

Updated: Friday, March 31, 2017
Submit Feedback >