DALLAS -- A $1 billion a year federal transportation loan program provides public toll road operators with lower cost capital, but poses risks for bondholders, Moody's Investors Service said Friday in a report on the Transportation Infrastructure Finance and Innovation Act.
The TIFIA program, which is administered through the Federal Highway Administration, includes direct loans, loan guarantees, and standby lines of credit for surface transportation infrastructure projects.
TIFIA loans are considered credit positive for toll roads, state and local agencies, and public-private partnerships with low-interest funding for major projects and flexible payment schedules, the report said.
However, TIFIA-backed financings usually add some credit risks that are not usually found in typical municipal bond transactions for toll roads, Moody's said
The weaker legal provisions in the TIFIA agreements include lower rate covenants, lower additional bond tests, and smaller debt service reserve fund requirements.
"These features benefit the debt issuer by allowing more funds to flow directly to the project and reducing overall issuance costs," Moody's said.
The report cites three additional significant contingency risks for holders of revenue bonds supported by toll road revenues.
These include slowdowns in federal disbursements resulting from further government shutdowns over the debt ceiling, defaults due to a contractor bankruptcy, and a springing lien provision in most TIFIA loans that eliminates differing degrees of loss between senior lien debt and the loan debt.
Some credit features have been modified in recent loan agreements, Moody's said, reflecting the changes in the TIFIA program since it was first authorized by Congress in 1998.
"Some of these modifications add credit strength, while others are dilutive" the report said.
The loan program was expanded in the current two-year funding bill, Moving Ahead For Progress in the 21st Century.
MAP-21 increased the TIFIA appropriation to $750 million in fiscal 2013 and $1 billion in fiscal 2014from $122 million in 2012. MAP-21 will expire Sept. 30 at the end of fiscal 2014.
Federal budget appropriations cover only the risk premium portion of a TIFIA loan, or about 10% of the total value. That enables TIFIA to support 10 times the budgeted amount in actual lending, or about $17 billion in 2013 and 2014.
"The increased program funding has spurred and accelerated a number of large projects in the past year, with more likely in 2014," Moody's said.
President Obama's proposed four-year transportation bill, expected to be introduced in Congress in April, keeps the TIFIA program at $1 billion per year through fiscal 2019.
Two TIFIA-eligible projects issued short-term bond anticipation notes in late 2013, to be funded with TIFIA loans at maturity. Unlike most TIFIA projects, Moody's said, the two will not draw down the federal loan until project completion.
The $1.4 billion loan to the New York State Thruway Corp. for the replacement of the Tappan Zee Bridge is the largest single allocation in TIFIA history and at A3 is Moody's highest rated toll road credit.
The financial plan for the bridge project calls for the loan to be drawn a year after substantial completion, although some construction costs could be reimbursed earlier from the loan.
Moody's put a Baa3 rating on a $452 million TIFIA loan to Kentucky Public Transportation Infrastructure Authority for a bridge project in downtown Louisville.
The Kentucky project's financial plan includes a debt service reserve fund to cover the first two installments on the TIFIA loan.
