The TIFIA program's pragmatic challenge is to balance the objective of advancing transportation projects with the equally important need to lend prudently and protect the Federal interest in getting repaid. The objective is not to minimize its exposure but to optimize its exposure-that is, to take prudent risks in order to leverage Federal resources through attracting private and other non-Federal capital to projects. The procedural and negotiating requirements for securing TIFIA credit assistance, however, is seen by some States and private contractors as being overly burdensome.
The TIFIA program's most notable departure from typical senior/subordinate debt structures stems from the statute's provision that, although the U.S. DOT can accept a junior lien on revenues, its claim must be on parity with senior bondholders "in the event of bankruptcy, insolvency or liquidation of the project obligor."[314] This non-subordination feature, giving the U.S. DOT the status of a senior creditor upon occurrence of unlikely circumstances, is often termed in the financial community as the "springing lien." The non-subordination requirement has generated much discussion regarding TIFIA's ultimate benefit to a project's senior debt rating and some States believe the non-subordination requirement reduces the value of the credit support.
Generally, investors focus on a project's future cash flows rather than its liquidation value. On this basis, the credit analysis will acknowledge that U.S. DOT's secondary claim on ongoing project revenues affords senior bondholders additional debt service coverage and diminished probability of payment default. By and large, projects with investment grade ratings reflect the likelihood that the borrower can meet scheduled debt service payments from pledged revenues, without regard to the collateral or liquidation value of the project. However, for weaker projects where the credit analysis must take into account the break-up or liquidation value of a failed enterprise, there would be a co-equal sharing of claims against the pledged security between the senior bondholders and the U.S. DOT.
Reports from the credit rating agencies reflect this tension in the TIFIA program design. A recent report from Moody's Investor Services indicates that the non-subordination feature can be accommodated within project financings:
Although limited to a default scenario leading to issuer bankruptcy, insolvency and liquidation, the 'springing lien' feature poses some potential risks for issuers/project sponsors and investors-particularly for stand-alone or 'non-recourse' projects. Nevertheless, Moody's believes that project fundamentals and structural and procedural safeguards could moderate this risk substantially. [315]
The issue of early repayment of TIFIA is one that U.S. DOT has encountered in the course of specific project negotiations. Federal credit policy suggests that the TIFIA investment should not be long-term when resources are available to replace it. Although the TIFIA statute permits long-term financing (up to 35 years after substantial completion), it also encourages early repayment. Specifically, the statute permits prepayment at any time without penalty and speaks of using "excess revenues" for that purpose. Further, Committee Print 105-550 states the following in its analysis of the TIFIA provision: "The Conference would like the Secretary to encourage Federal borrowers to prepay their direct loans or guaranteed loans as soon as practicable from excess revenues or the proceeds of municipal or other capital market debt obligations."[316] However, from the standpoint of the equity investor, long-term participation by TIFIA may be critical to profitability because TIFIA's low-cost funds can be leveraged to multiply the equity returns. The challenge is to determine the appropriate balance between being patient so investors can build needed transportation infrastructure vis-à-vis being patient so investors can maximize financial returns. TIFIA's policy position, consistent with Congressional direction, is that it should withdraw its investment more rapidly via loan prepayments, should the project achieve solid financial success.
Another concern about TIFIA from the public-partnership perspective is that the program must compete with both public borrowing and private borrowing. In essence, there exists a niche between public and private borrowing where TIFIA can have significant benefit to public-private projects. Florida DOT suggests that the program should be tailored to fit this need without an extensive overhead burden, in order to make private borrowing more efficient and practical.
Finally, the TIFIA program is an innovative example of using public-sector financial participation to leverage private capital. However, few transportation projects are undertaken in many States that meet the current $100 million threshold for the TIFIA program. Some suggest that the project cost threshold be reduced to at least $50 million to broaden the range of projects eligible for TIFIA.[317] Such a reduction in the project cost threshold was proposed by the Administration in the surface transportation reauthorization bill - the Safe, Accountable, Flexible, and Efficient Transportation Equity Act of 2003 or SAFETEA.