TIFIA to stop lending on first-come, first-serve basis(2)

The US credit assistance program for infrastructure will award financing to projects based on a competitive, fixed-date solicitation process, TIFIA Director Mark Sullivan told delegates gathered at the Public-Private Partnerships USA Summit in Washington DC.

Overwhelmed by demand for the US government’s TIFIA credit assistance program, the Department of Transportation will no longer fund projects on a first-come, first-serve basis but instead revert to a fixed-date solicitation process that awards money to the highest-priority projects.

The change is one of a number of potential reforms that Mark Sullivan, director of the Transportation Infrastructure Finance and Innovation Act's program office, discussed with delegates gathered at the 5th annual Public-Private Partnerships USA summit in Washington DC

TIFIA  is a federal credit assistance program that provides tax-exempt debt financing to new development infrastructure projects.

As debt has become scarce and expensive in the wake of the financial crisis, demand for TIFIA financing has skyrocketed since TIFIA loans have long lives and attractive rates. For example, a 35-year TIFIA loan currently costs 3.68 percent per annum.

Sullivan said that TIFIA – now a part of the Innovative Program Delivery division at the Department of Transportation, headed by Regina McElroy – has no money left to fund new projects.

“We are fully committed in the fiscal year ending September 2009. Most of the funds we are likely to get next year are also committed to new projects,” Sullivan said.“We need to take a step back from the process we have engaged in in previous years – first-come, first-serve – and ensure that we are identifying and financing the highest-priority programme,” Sullivan said.

TIFIA will do that by reverting to a fixed-date solicitation process for new loan applications once a moratorium on new loan applications is lifted, whereby all loan applications are submitted and evaluated for their merits in a standard manner, he explained.

The program could see additional funding from the recently passed American Recovery and Reinvestment Act. The act included a provision that allows the Secretary of Transportation, Ray LaHood, to allocate up to $200 million toward the program, which would enable about $2 billion in lending capacity, Sullivan explained.

But, it is far from certain whether the Secretary will allocate the funding, and if so, how much.

He added that TIFIA is currently looking to the private sector for recommendations for improvements. TIFIA will hold a “Capital Markets Listening Session” in Washington DC next month to give the private sector an opportunity to comment on the program, Sullivan said.

The springing lien was the original sin of the TIFIA program

Mark Sullivan

One of the more-popular reforms being sought by the private sector is an elimination of the so-called “springing lien” provision in TIFIA loan financing. The provision states that, in the event of bankruptcy, the government’s TIFIA loan “springs” up the capital structure to a parity status with senior project debt, making it difficult for other debtholders to get one consistent credit rating on their debt.

“The springing lien was the original sin of the TIFIA program. It was a last-minute compromise . . . it was the only way that the treasury would release its objection to the Department of Transportation doing this program,” Sullivan said.

“It could be removed – it’s certainly a possibility,” he added.

TIFIA was created by Congress in 1998 and has been allocated $1.25 billion of budget authority, of which it has utilized more than $400 million to fund loans for infrastructure projects like the Capital Beltway project in Virginia and the I-595 Corridor Roadway in Florida, Sullivan said.

That $400 million has enabled $6.4 billion of project loans and total project investment of $24.1 billion, according to Sullivan’s conference presentation.