U.S. DOT’S Credit Programs: RRIF, TIFIA AND PABs

Railroad and other infrastructure development typically require significant upfront capital investments. The time to recover returns can be many decades. This can make it difficult to marshal financing, particularly for smaller public or private borrowers. U.S. DOT offers three credit programs that can be attractive option to finance a wide range of surface transportation infrastructure investments: RRIF and TIFIA loans and Private Activity Bonds (PABs).
THE RRIF PROGRAM

The Railroad Rehabilitation and Improvement Financing Program was established to provide direct loans and guarantees out of a $35 billion pool of revolving credit. By 2019 over $8.3 billion has been provided through 40 loans, ranging in size from tens of thousands of dollars up to $2.5 billion.

RRIF direct loans may fund up to 100% of a project, with repayment periods of up to 35 years, at interest rates equal to those for the nearest equivalent term US Treasury securities. Deferral of principal payment for up to five years after project completion are possible. RRIF loans may be used to:

  • Acquire, improve, or rehabilitate intermodal, rail freight or passenger equipment or facilities, including track, bridges, yards, buildings, stations, maintenance shops, locomotives and rolling stock;
  • Develop or establish new intermodal or railroad facilities, such as terminals;
  • Refinance outstanding debt (including capital leases) incurred for these eligible purposes.

RRIF may not be used for operating expenses.

Eligible applicants for RRIF loans include railroads, state and local governments, governmentsponsored authorities or corporations, joint ventures with a railroad and captive freight shippers seeking competitive rail access.

Collateral may be offered to reduce the risk premium charged by the government. Collateral may include the funded capital improvements or other tangible assets, as well as secured revenue streams such as taxes or user fees. There are one-time subsidies available to offset risk premium charges and application costs for certain categories of borrowers.

THE TIFIA PROGRAM
The TIFIA program provides funding for highway and transit capital projects, intelligent transportation systems, international bridges and tunnels, intercity passenger bus and rail facilities and vehicles, publicly owned freight rail facilities, intermodal freight transfer facilities and some types of projects within port terminals.

TIFIA de facto will provide only 33% of total eligible project costs and senior debt must be rated investment grade. TIFIA differs from RRIF in another important aspect: the cost of risk to the government is covered by regular annual subsidies. The government has combined TIFIA and RRIF loans in the past, in part to enable the transaction to take advantage of this subsidy.

As of early 2019 over $30 billion in financing had been approved through TIFIA loans. TIFIA loans have ranged in size from $42 million up to $1.9 billion.

PRIVATE ACTIVITY BONDS

PABs are quite different from TIFIA and RRIF. They are not a direct loan from the government but rather a type of tax exempt bond defined in the Internal Revenue Code. U.S. DOT may authorize issuances of PABs up to a statutory cap: $15 billion as of 2019. PABs do not reside on the federal balance sheet. Their issuance is authorized by U.S. DOT but they are offered on the market through a conduit issuer at the sub-federal level. Frequently the conduit issuer is different from the project sponsor and the conduit issuer will finance the project by extending a loan to the sponsor using the proceeds of the bonds. PABs are popular and more than $10.3 billion had been issued or allocated by early 2019. Projects financed have included intermodal/freight transfer facilities, intercity passenger rail, highway and toll projects and commuter and transit rail and bridge projects. As the name implies, privately developed and operated projects are eligible beneficiaries of PAB financing.

THE APPLICATION PROCESS AND HOW TO START

Applications for TIFIA, RRIF and PABs are managed through the U.S. DOT’s Build America Bureau. The Bureau provides a lender which is sector-specific. Applicants will deal with DOT personnel familiar with the transportation industry and transportation project finance.

The federal credit process begins with an information session with Bureau staff at U.S. DOT. Applications go through a defined process including engineering, legal, credit risk, safety and environmental reviews. The DOT Credit Council and the Office of Management and Budget make decisions on key credit terms and credit risk premiums. While credit recipients often find the application process grueling, they have generally been pleased with the execution of financing.

Most successful applicants for U.S. DOT credit have hired an external advisor for assistance with application preparation. The scope of services provided by such advisors will vary. Seneca is one of the firms that regularly provide this assistance. We began working with federal credit programs first as an independent financial advisor to U.S. DOT. We have supported applications for public and private entities, for projects involving both freight and passenger operations and for financing requests ranging from tens to hundreds of millions of dollars.

Interested borrowers should start by reviewing the basic legal documentation for the loan program including the authorizing statutes and the RRIF/TIFIA Program Guide. Applicants should also review the requirements for compliance with the National Environmental Policy Act (NEPA) and Buy America statutes. For more information on how Seneca can specifically support your efforts to secure financing for your infrastructure project, please contact us.