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1 TIFIA and Private Activity Bonds Northern Border Finance Conference May 15, 2007 Mark Sullivan
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TIFIA and Private Activity Bonds
Northern Border Finance ConferenceMay 15, 2007Mark Sullivan
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Goal: to leverage limited Federal resources and stimulate private investment by providing credit assistance rather than grants to transportation projects of national or regional significance.
Project cost > $50 million ($15 million for ITS projects)
TIFIA contribution up to 33 percent of project costs
Senior debt must be rated investment grade
Federal grant requirements apply
Public or private highway, transit, rail and port projects are eligible to apply for TIFIA assistance
Transportation InfrastructureFinance and Innovation Act of 1998
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TIFIA Credit Facilities
Secured (Direct) Loan: Maximum term of 35 years from substantial completion. Repayments must start 5 years after substantial completion.
Loan Guarantee: Guarantees a project sponsor’s repayments to non-Federal lender. Loan repayments to lender must commence no later than 5 years after substantial completion of project.
Line of Credit: Contingent loan available for draws as needed up to 10 years after substantial completion of project.
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How Does TIFIA Help Projects?
By enabling “borderline” projects access to the capital markets through the provision of secondary or subordinate debt.
By being a patient investor – with a long-term perspective on investment horizon, liquidity and risk.
Key objectives:
Facilitate projects of national/regional significance Encourage new revenue streams and private participation Fill capital market gaps for secondary/subordinate capital Limit Federal exposure by relying on market discipline
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Total TIFIA Assistance: $3.2 Billion
Total Project Investment: $13.2 Billion
Reno RailCorridor
$51Paid in full
SR 125Toll Road
$140
Staten Island Ferries
$159Paid in full
Tren Urbano $300
Paid in full
WashingtonMetro CIP
$600
Miami Intermodal Center$439
Central TexasTurnpike
$917
Cooper RiverBridge$215
Refinanced
WarwickIntermodal
$42
183-A$66
LA-1$66
TIFIA-assisted Projects (Credit Assistance in Millions)
Rental Car Facility
170
FDOT Program269
Paid in full
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Documentation Requirements
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Preliminary rating opinion letter obtained
Draft EIS circulated (or Categorical Exclusion or FONSI obtained)
Project consistent with state transportation plan and, if applicable, included in metropolitan transportation plan
ROD obtained
Project included in STIP
Project selection made
Term sheet issued
Funding obligated
Credit agreement executed
Funds disbursed according to terms
Application submitted
Investment-grade rating on senior debt submitted prior to anticipated closing date
Letter of interest provided
APPLICATIONS, APPROVALS,AND FUNDING
MAJOR REQUIREMENTS
Preliminary rating opinion letter obtained
Draft EIS circulated (or Categorical Exclusion or FONSI obtained)
Project consistent with state transportation plan and, if applicable, included in metropolitan transportation plan
ROD obtained
Project included in STIP
Project selection made
Term sheet issued
Funding obligated
Credit agreement executed
Funds disbursed according to terms
Application submitted
Investment-grade rating on senior debt submitted prior to anticipated closing date
Letter of interest provided
APPLICATIONS, APPROVALS,AND FUNDING
MAJOR REQUIREMENTS
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Document Major Prerequisites Resulting Action
Term Sheet Credit Assessment: Preliminary rating opinion letter on senior debt
Environmental Clearance: ROD, FONSI, or Categorical Exclusion
Planning Consistency: Inclusion in the STIP and long range plan
Defines amount of TIFIA credit assistance committed
Obligates contract authority
Establishes interest rate for line of credit
Credit Agreement
Credit Assessment: Investment grade credit rating on senior debt
Appropriate Security Features: Rate covenants, etc.
Updated Financial Plan: All necessary funds committed to the project
Defines final terms of assistance Establishes interest rate for secured or guaranteed loan Authorizes submission of requests for disbursement of funds
Key TIFIA Contractual Documents
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Organizational Framework
Secretary of Transportation
Asst. Secy. forBudget and Programs
(Chair)
FederalTransit
Administrator
FederalHighway
Administrator
Under Secretaryfor
Policy
Asst Secy. for Policy
GeneralCounsel
FederalRailroad
Administrator
DOT Credit Council
TIFIA Joint Program Office
MaritimeAdministrator
Director ofOSDBU
Chief Financial Officer
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Day-to-Day Functions
FHWA is administrative agent for the TIFIA program.
Administrator:
Execute term sheets, credit agreements and material amendments
Chief Financial Officer:
Execute administrative amendments
Approve project disbursements
Issue standard notices to borrowers
Oversee credit program accounting
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Program Fees
Non-refundable application fee of $30,000.
Credit transaction fee equal to a portion of the costs incurred by the TIFIA JPO in negotiating the credit agreement. This fee typically ranges from $200,000 to $300,000.
Annual $11,000+ servicing fee, adjusted for inflation.
As-needed monitoring fee based on requirements specified in particular credit agreement.
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Credit Instrument Life Cycle
Design / Construction Operations/Post Construction
Construction Oversight and Performance Monitoring
Su
bst
anti
al C
om
ple
tio
n
• On-site inspections• Periodic meetings• Disbursement approvals• Project acceptance
• Performance reporting• Revenue realization• Change reporting• Compliance with credit agreement
Construction Risk Performance Risk Exposure(Decreases over Time)
FinancialClosing
FinalMaturity
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• TIFIA loan process assumes project sponsor has secured control of project prior to loan application.
• Texas DOT public-private toll road franchises:
State seeks binding financial proposals from competing private ventures, each of which intend to seek TIFIA.
Process would require significant evaluation and negotiation prior to State award of franchise
Effort would demand a balance between fairness and innovation
• Texas DOT obtained FHWA approval to advance up to three projects under special authority (SEP-15) that would allow TIFIA to modify its application process and determine, via trial and error, the most effective approach.
TIFIA & Private Concessions
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Private Activity Bonds
Private Activity Bonds (PAB) allow the issuance of tax-exempt debt for “Qualified” Private Facilities.
Traditionally PABs have been used to finance facilities such as airports, docks, sewage facilities, and solid waste disposal facilities.
SAFETEA-LU legislation extended the authorization to Qualified Highways and Surface Freight Transfer Facilities (QHSFTF).
QHSFTF Bonds are subject to $15 Billion nationwide limitation.
Receipt of a TIFIA Loan would meet the requirement that the project financed with Qualified Exempt Facility Bonds be receiving federal assistance under Title 23 or 49.
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Private Activity Bonds
Private Activity Bonds have numerous conditions for use, such as:
Project and bonds have to be approved after public hearing and requires approval of elected public officials.
Limitations on preliminary expenditure (before bonds are issued)
95/5 Requirement: Most proceeds must finance capital costs. 5% may finance non-capital costs (eg. Working capital)
Less than 25% of proceeds can be used to acquire land.85% of proceeds to be spent in 5 years.
Limitations on cost of issuance.
Limitations on depreciation methodology.
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Private Activity Bonds
Depreciation can have significant effects on post-tax equity returns on a private facility.
In most private projects with equity sources, shareholders take advantage of accelerated depreciation over a shorter period of time than the economic life of the asset, which increases the present value of post-tax equity cash flow.
Depreciation decreases the taxable income in a given year. The
larger the depreciation charge, the lower the taxes that need to be paid and thus greater the cash flow to equity sources.
PABs require the use of straight-line depreciation over the
economic life of the project instead of accelerated depreciation. This may decrease the post tax equity internal rate of return (IRR) from the project.
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Private Activity Bonds
Currently, $1.866 billion has been allocated to the SH-121 project in Texas, and $1.4 billion and $900 million has been allocated to two of three short listed proposers in the Port of Miami tunnel.
Have applications for $600 million from the State of Missouri for their bridge program, and applications totaling $1.1 billion for two intermodal freight transfer facilities in Illinois.
Another $2.4 billion in the pipeline for projects in Texas and Alaska.
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Contact: TIFIA Joint Program Office (HCF-50)U.S. Department of TransportationRoom 4310400 Seventh Street, SWWashington, DC 20590
fax: (202) 366-2908
http://tifia.fhwa.dot.gov
Mark Sullivan, Chief (202) [email protected] Callender, Project Finance Coordinator (202) [email protected] Jones, Project Finance Advisor (202) [email protected] Sale, Senior Financial Advisor (602) [email protected]
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