PWF Blog (2/14)
TIFIA Is A “Ravenous Beast
Against all odds, the TIFIA program will have obligated or committed 75% of its $750 million in budget authority for fy 2014 by the April 1 deadline set in MAP-21, according to Duane Callender, director of the TIFIA Joint Programs Office at FHWA. Skeptics in Congress doubted whether the small group of bankers inside FHWA could expand quickly enough to spend the seven-fold increase in loan authorization obtained by Sen. Barbara Boxer (D-Calif.) less than two years ago. Having done that, the issue now is right-sizing the loan program for the long term in the MAP -21 reauthorization.
All of TIFIA’s pre-MAP-21 backlog has been cleared, says Callender. Including those projects and new ones, 11 TIFIA loans or credit agreements totalling $16.5 billion were approved by USDOT’s Credit Council in fiscal 2014. By PWF’s count, that is twice the number of loans made in the previous two years. Most of the fiscal 2014 TIFIA loans were for publicly financed projects—nine vs. three P3s.
Five more projects are expected to reach financial close by October 1, 2014, when MAP-21 expires. And loan requests for 13 new projects have been submitted in the past 12 months.
The international developers who are active in the U.S. P3 market say USDOT’s loan window offers the most effective financial tool in the world for supporting private investment in transportation infrastructure.
“TIFIA is a ravenous beast,” says Callender, who finally has a deputy and will have quadrupled his staff to 26 by year end. “No matter how many resources you throw at it, it always wants more,” he says.
Congress will have to decide this year or next how much to fund TIFIA for the long term. TIFIA has $1 billion in loan authority to spend this year. To obligate or commit that much going forward would require a major increase in the flow of well-structured, creditworthy projects, both public and P3, being brought to USDOT each year. That depends to some degree on how much Highway Trust Fund money is available to states, which is uncertain at this point.
The flow of P3 projects seeking TIFIA loans has never been more robust. PWF’s P3 Deal Tracker shows 11 states have P3 procurements underway for 12 projects now with a design-build capital component of about $15 billion. In addition, there are substantially more non-P3 projects transportation projects in TIFIA’s deal flow pipeline that are not tracked by PWF. TIFIA’s backlog includes six transit projects; maybe half will be P3.
How many near-term prospects will reach financial close is impossible to predict. Likewise, P3 industry experts are reluctant to guess at deal flow much beyond 18 months, when electoral politics and other big events may come into play.
One key to P3 deal flow is Private Activity Bonds (PAB). The rush to spend down TIFIA’s budget authority could quickly use up the $4 billion-$5 billion in tax-exempt PAB authority USDOT says is left from a 2005 law authorizing $15 billion for highway and rail projects. The view of Nossaman, Barclays Capital and others is that PABs could run out by the end of 2015.
The Obama Administration has proposed raising the PABs volume to $19 billion in MAP-21. Getting Congress to go along will be a challenge, says Sylvia I. Garcia, CFO at USDOT. Sen. Mark Kirk (R-Ill.) introduced a bill (S. 2050) on March 7 that would raise the cap to $19 billion. But the issue on the Hill, Garcia says, is the slow spend down of PAB authority over the past nine years, not the predicted shortage.
All but one of the large P3 projects financed since 2010 used PABs as senior debt. The loss of the tax subsidy would increase the cost of debt in a P3 by about 20 points or more, say bankers, reducing deal flow by one or two projects a year.
Without PABs, however, P3 bankers would never see most deals, state DOT advisors say. That’s because the impact of the capital cost increase on life-cycle costs would kill most P3s in the planning stage. That’s when value for money studies or simple capital cost comparisons are done by governments to help them decide whether or not to pursue a P3 procurement in the first place.