The Transportation Infrastructure Finance and Innovation Act of 1998 (TIFIA) plays a critical role for US infrastructure funding and has increasingly been relied upon for public-private partnerships (PPP; P3) and non-P3s, according to a new Fitch Ratings report.
The current TIFIA portfolio encompasses 47 projects totaling $19.3 billion in credit support. Annual funding grew to $1 billion in 2014 from the programme's initial $80 million per year at inception, it said.
Up to 49 percent of total development costs are now eligible for TIFIA funding versus the prior 33 percent.
Calling it a subordinate lender with teeth, Fitch said TIFIA, apart from lower interest rates, provides potential flexibility in debt amortisation and takes on the risk of a typical project finance lender.
The repayment of the TIFIA loan is subordinate to repayment of senior lenders in the waterfall if the transaction is performing as it should. However, in a bankruptcy-related event, the US Department of Transportation (USDOT) requires that its claim on a project’s pledged revenues or other security spring to parity with other creditors.
“The springing lien nature of the pledge gives TIFIA considerably more influence in a distressed situation than a typical subordinate lender,” said Jeffrey Lack, associate director at the ratings agency.
By utilising TIFIA, projects that would otherwise be non-investment grade have the potential to reach investment grade through more favorable transaction terms, Lack said in the report.
TIFIA also has the ability to protect its interests – it has a history of protecting its interests more like a commercial lender in a distressed situation than a governmental grant-providing agency.
“This and other features present unique credit considerations when evaluating a financial structure that includes a TIFIA loan and have generally kept TIFIA ratings consistent with senior debt,” the report said.
Therefore, TIFIA and programmes similar to it are likely to become increasingly prevalent in financing infrastructure projects going forward as the US government moves away from traditional grant funding and into loans and credit enhancement programmes, according to the report.
The recently created Water Infrastructure Finance and Innovation Act (WIFIA) programme, which was modeled on TIFIA, is an example, it said.
“Most, if not all, long-term Highway Trust Fund (HTF) proposals call for maintaining, or in some instances, growing the program.”