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TIFIA and Private Activity Bonds. Northern Border Finance Conference May 15, 2007 Mark Sullivan. Transportation Infrastructure Finance and Innovation Act of 1998.

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tifia and private activity bonds

TIFIA and Private Activity Bonds

Northern Border Finance Conference

May 15, 2007

Mark Sullivan


Transportation Infrastructure

Finance and Innovation Act of 1998

  • 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

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.

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

TIFIA-assisted Projects

(Credit Assistance in Millions)

Staten Island Ferries


Paid in full

Reno Rail



Paid in full





Metro CIP


SR 125

Toll Road


Cooper River




Total TIFIA Assistance: $3.2 Billion

Total Project Investment:

$13.2 Billion



Central Texas



Tren Urbano


Paid in full



Miami Intermodal Center


Rental Car Facility


FDOT Program


Paid in full

organizational framework
Organizational Framework

Asst. Secy. for

Budget and



Secretary of Transportation

Asst Secy. for




Under Secretary



Director ofOSDBU

DOT Credit Council












Chief Financial Officer

TIFIA Joint Program Office


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
program fees
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.

credit instrument life cycle
Credit Instrument Life Cycle

Construction Oversight and Performance Monitoring

  • On-site inspections
  • Periodic meetings
  • Disbursement approvals
  • Project acceptance

Design / Construction

Operations/Post Construction

  • Performance reporting
  • Revenue realization
  • Change reporting
  • Compliance with
  • credit agreement

Substantial Completion

Construction Risk

Performance Risk Exposure

(Decreases over Time)






TIFIA & Private Concessions

  • 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.

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.

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.

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.

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.

Contact: TIFIA Joint Program Office (HCF-50)

    • U.S. Department of Transportation
    • Room 4310
    • 400 Seventh Street, SW
    • Washington, DC 20590
    • fax: (202) 366-2908
    • http://tifia.fhwa.dot.gov
  • Mark Sullivan, Chief (202) 366-5785
  • mark.sullivan@fhwa.dot.gov
  • Duane Callender, Project Finance Coordinator (202) 366-9644
  • duane.callender@fhwa.dot.gov
  • Cheryl Jones, Project Finance Advisor (202) 366-0317
  • cheryl.jones@fhwa.dot.gov
  • Suzanne Sale, Senior Financial Advisor (602) 379-4014
  • suzanne.sale@fhwa.dot.gov