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TIFIA vs Rural Project Fund Program: Contrasting Infrastructure Financing Options

This article compares the TIFIA program and the Rural Project Fund Program in New Jersey, highlighting the differences in project eligibility, funding levels, and loan rates. It discusses the emphasis on smaller rural projects in the Rural Project Fund Program and the focus on larger projects of national or regional significance in the TIFIA program.

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TIFIA vs Rural Project Fund Program: Contrasting Infrastructure Financing Options

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  1. NJ Infrastructure Bank / NJ Dept. of Transportation TIFIA Rural Project Fund Program David Zimmer NJ Infrastructure Bank August 2019

  2. TIFIA vs Rural Project Fund Program A pool of Smaller Projects One Large Project

  3. Contrast between TIFIA & Rural Projects Fund SIB Program(Project Finance v. Pool Finance) Rural Projects Fund State Infrastructure Bank Program • Loan to a SIB for a Rural Projects Fund capitalized by a TIFIA secured loan • Emphasis on SMALLER RURAL projects • e.g.) population less than 150,000 • Individual project costs must be anticipated to be at least $10M, but no more than $100M • TIFIA credit assistance: Up to 80% of project costs • TIFIA loan rate = ½ US Tsy yield on similar maturity at the time of the execution of the loan agreement TIFIA Credit Program • Credit assistance (Direct loans, loan guarantees, and standby lines of credit) to projects • LARGER projects – of national or regional significance • Typically in urbanized, metropolitan areas • TIFIA assistance: Typically limited to 33% to 49%) • TIFIA loan rate = US Try yield on similar maturity at the time of the execution of the loan agreement

  4. Required Documents Cooperative Agreement Stewardship / MOU (e.g. NEPA) Letter of Interest (LOI) Application Term Sheet Credit/Loan Agreement

  5. 1. Cooperative Agreement

  6. 1. Cooperative Agreement • Long-term Agreement - establishes SIB for the State (Program Account) • Sets forth SIB structure, including: • Designates a state entity as the administering agency (DOT v. Conduit) • May wish to consider conduit authority • Defines Financial Assistance provisions (Debt rating, Loan time limits, etc. • Defines compliance & remedies parameters • Execution of the Cooperative • n.b.) Agreement does not commit any Federal funds to the SIB or to any Eligible Projects that may be funded from Federal monies deposited into the SIB. • Individual loans have a Term Sheet and Loan Agreement

  7. 2. Stewardship / MOU (NEPA)

  8. 2. Stewardship and Oversight Agreement • Documents the extent to which the State assumes the responsibilities of FHWA under Title 23 • Formalizes these delegated responsibilities and agreements to address how the Rural Projects Fund SIB Program will be administered in the State • Defines acceptable NEPA compliance processes and procedures • (Issue = How to close on the SIB Financial Assistance for the first project when additional projects in the pool have not completed NEPA)

  9. 3. Letter of Interest (LOI) Application

  10. 3. Letter of Interest (LOI) Application LOI and Application forms describe the projects (Location, Purpose, Cost …) Demonstrate the project sponsor’s ability to meet the BAB’s creditworthiness requirements Detail how the TIFIA statutory eligibility requirements are met Outline the proposed financial plan, including the requested TIFIA credit assistance

  11. 4. Term Sheet

  12. 4. Term Sheet Contractual agreement between Bureau and SIB Sets forth the basic terms and conditions of BAB’s credit assistance Establishes Bureau’s legal commitment and triggers the obligation of budget authority for the project Include only basic terms and conditions related to Bureau’s provision of credit assistance Term sheet does not trigger a disbursement of funds to the borrower Before issuing a term sheet, the Bureau confirms satisfaction of all prerequisites for the obligation of funds

  13. 5. Credit / Loan Agreement

  14. 5. Credit / Loan Agreement • Definitive agreement between the BAB and the Borrower • Memorializes all of the terms and conditions of TIFIA credit assistance • Authorizes fund disbursement subject to satisfaction of specified conditions • The BAB will not execute the Term sheet or the Credit Agreement until: • Credit Team /Council on Credit & Finance recommend approval, • Secretary has approved Application, and instructed BAB to execute agreements • BAB will not execute the credit agreement and disburse funds, until borrower satisfies requirements set forth in the Term Sheet, including NEPA review

  15. Collateral / Credit

  16. Collateral / Credit • Each borrower pledges a “bond” to the SIB – placed in estate • Bond guarantees underlying project loan repayment obligation • Simplified if Borrowers are LGUs - pledge G.O.s (strength) • Any add’l collateral / reserve needed by SIB will be determined by strength of underlying bonds pledge to the estate • Underwriting terms (e.g. Concentration limits, minimum ratings, covenants, EOD terms and remedies)

  17. Finance

  18. Finance • Significant: SIB as conduit - up to 80% of funding from US Tsy • State Match at least 20% (vs TIFIA at 51% - 67 %) • State match can be borrowed from private sources (e.g. bonds) • Note… greater leverage will require more subordination • C-Flow Match: Project draws; Maturity terms = < 35 years • Cheap: Rate at 50% of Trsy cost (currently @ ~ 1.15%) • Flexible: Prepay loan at any time prior to maturity w/o penalty • NJIB lends State equity funds at 0% to keep financing costs low

  19. Structure / Cash-Flow Waterfall

  20. Structure / Cash-Flow Waterfall • Short-term loan program for Engineering, construction, Legal costs • Draw schedule for each individual project • Long-term financing only after construction complete • Waterfall = Prioritization of Loan Repaymts by individual borrowers • TIFIA-RPFP loan is pari-pasu senior w/ all other pool debt • Suggestion: State’s equity contribution subordinate to all debt • Minimizes any additional reserves • Ability to issue future debt under same Indenture • Option A - One pool for all series: All cash available to all Sr. loans • Option B - Individual pool series w/ equity pymts available to other pools

  21. Structure / Cash-Flow Waterfall Project Borrower Trustee / Estate Loan Repayments $$ Independent Trustee manages P&I payments 1. Payment of Trustee fee 2. Interest to TIFIA & Bond holders [90]% 3. Principal to TIFIA & Bondholders [90]% 4. NJIB’sP&I to “Payment Reserve” Acct (if not needed for loss payment) Payment Reserve Acct (PRA) P&I Payments (in arrears) to NJIB Debt Reserve Fund (if needed)

  22. Legal & Compliance

  23. Legal & Compliance • 23 / 610 requires that • funds that flow through the SIB MUST comply w/ Fed’l laws and regs (including interest cap pegged to coupon on TIFIA RPFP loan) • Project must comply w/ Fed’l laws and regs • So, keep State Match funds outside of SIB (i.e. Private bond funds, State equity)

  24. Information Technology

  25. Information Technology • Will need formal I.T. system to manage AND track underlying borrower/loan information: • LOI ] • Design Review ]____Typical Fed’l regs compliance • Environmental and Cross-cutter ] process • Construction mgmt process ] • Loan disbursements (S-T loans) ]____Suggest partnering w/ local • Loan repayments (L-T loans) ] bank system?

  26. Questions David Zimmer, CFA dzimmer@njib.gov (609) 219-8604

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