Competition Heats Up in the South As TIFIA Loans Make a Comeback

Several Southeast transportation managers hope to score big savings this spring for their projects as they compete against each other and other projects nationally for a handful of low-interest federal loans.

There are 11 projects in the region that earlier this year submitted letters of interest to the Department of Transportation for loans from the Transportation Infrastructure Finance and Innovation Act of 1998, which are attractive to borrowers because the loans are at U.S. Treasury rates.

These projects are requesting $5.95 billion in TIFIA financing — about four times the amount that was authorized by the DOT in fiscal 2010 for the whole country.

Before the financial crisis, bidding for a TIFIA loan was less fierce. Projects that qualified were usually awarded financing, sources said. Before fiscal 2010, $19 billion had been requested in the 11 years of the program.

But demand for TIFIA loans jumped over the last couple of years as Treasury rates dropped and private-sector financing became more expensive.

Nationally, project managers submitted $12.5 billion of TIFIA bids in fiscal 2010 and 34 projects have requested $14 billion this year.

However, the program’s financing level is limited, stuck at the appropriation amount authorized by the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users, or SAFETEA-LU, which expired in September 2009 and has been reauthorized on a temporary basis five times.

The DOT funded $1.5 billion of TIFIA loans for four projects in fiscal 2010.

Project applicants might see some breathing room if a TIFIA expansion is included in a SAFETEA-LU reauthorization bill. House Transportation Committee chairman John Mica, R-Fla., has expressed interest in expanding TIFIA as a low-cost federal program that has proven to be successful.

TIFIA loans are financed from the Highway Trust Fund, and represent a sliver of the fund’s budget of about $41 billion.

The loans can only fund up to one-third of a project’s total cost, meaning the operators must come up with the rest of the money.

The program “is a way to help a major project access capital for most of its financing,” said Bryan Grote, co-founder of Mercator Advisors LLC, a transportation consulting firm.

He said that typically, a TIFIA loan will serve as junior-lien tranche in a financing scheme. Projects will usually find other sources of funding, through the bond market or from an equity investor, to complement the loan.

To qualify for a TIFIA loan, any senior debt issued for the project must have an investment-grade rating. Additionally, IT must receive federal environmental approval before a loan can be issued.

Two of the three requests for $1 billion or more came from the Southeast. Though the DOT has never approved a TIFIA loan for more than $1 billion, both the Metropolitan Washington Airports Authority and the Kentucky Transportation Cabinet are testing the upper limit of TIFIA financing.

The MWAA submitted a request of $1.73 billion for the Dulles Metrorail extension project — the same amount it bid for last year but did not receive.

The authority’s $6.6 billion venture will add 11 new stations and 23.1 miles of rail that will connect the Metro system to Dulles International Airport.

“We didn’t really change anything” in this year’s bid, said Andrew Rountree, the MWAA’s vice president and chief financial officer. “We feel like the TIFIA program would be an excellent fit for the financing plan for the Metrorail project.”

Losing out on a TIFIA loan “could translate into additional borrowing at higher interest rates,” Rountree said.

He said the authority expects to bring the next round of bonds to market for the project in the fourth quarter of this year or the first quarter of 2012. It might also consider issuing short-term notes in the meantime, he said.

The Kentucky Transportation Cabinet submitted the third-largest TIFIA request — $1.3 billion to support the $4.1 billion Louisville-Southern Indiana Ohio River Bridges project. The request represents 34% of the total cost.

Project officials are considering a financing package that would include tax-exempt revenue bonds, a TIFIA loan, and state and federal grants.

Another financing option is to team up with the private sector and include tax-exempt private-activity bonds, bank debt, TIFIA, other forms of credit assistance, and equity.

“The TIFIA program is very flexible and provides a low-cost financing mechanism that is ideal for these types of projects,” said Chuck Wolfe, a spokesman for the cabinet. It “can be utilized in either public or private delivery model.”

About $163 million has been spent so far on designs. The project involves rebuilding a major interchange in Louisville and building two bridges across the Ohio River.

Chesapeake, Va., is also seeking a TIFIA loan for a bridge project. The city’s $140 million request, one of the smallest among Southeast bidders, would save about $200 million on the Route 17 Dominion Boulevard bridge construction, according to Mary Ann Saunders, assistant city manager and director of federal relations.

“I don’t feel bigger is better,” Saunders said, adding that the project has broad support from state and local lawmakers. It is estimated to create up to 13,000 jobs, she said.

Saunders said Chesapeake expects to issue toll revenue bonds as part of the financing package. The rest of the funds would come from state and federal sources. A TIFIA loan “would be icing on the cake,” she said.

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