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TxDOT and FHWA Agree to Experimental Program for Expediting TIFIA Credit Assistance to PPP Toll Road Projects

By: Christine D. Ryan, Barney A. Allison
07/18/06

On June 11, 2006, the Texas Department of Transportation ("TxDOT") and the Federal Highway Administration ("FHWA") signed an Early Development Agreement ("EDA") formalizing a new approach to the use of the Transportation Infrastructure Finance and Innovation Act ("TIFIA")[1] credit assistance program in connection with the competitive procurement of developers for TxDOT's SH 121, IH 635 and SH 161 Toll Road Projects (the "Projects").  TxDOT is developing each of the Projects through a public-private partnership as part of a statewide Comprehensive Development Agreement ("CDA") program.  In connection with each of the three projects, TxDOT intends to issue requests for proposals to design, finance, construct, operate, maintain and collect tolls from the Projects.  The new approach outlined in the EDA will streamline the TIFIA credit approval process and is expected to make the TIFIA program more attractive to prospective proposers in developing their finance plans.

TIFIA Program Application Requirements

The TIFIA program makes loans, loan guaranties and/or lines of credit available to both public agencies and private developers for qualified transportation projects.  Under current TIFIA rules and guidelines, any public or private party interested in obtaining TIFIA credit assistance must follow specific procedures to apply for and receive credit approval and funding pursuant to a credit agreement.  In particular, the application process requires identification of the borrowing entity and its legal authority to borrow funds, submission of a detailed plan of finance, provision of a preliminary rating opinion letter, and preparation of project management, operation and compliance plans.  Various additional requirements must be satisfied prior to federal approval of a commitment to provide TIFIA credit assistance.

TxDOT CDA Program

TxDOT has initiated a statewide comprehensive program to attract private investment capital and expertise to assist in the development of new transportation infrastructure.  One approach under this program involves the competitive procurement of qualified developers to design, build, finance, operate, maintain and collect tolls from highway projects.  Following receipt and evaluation of final detailed proposals for a specific project, TxDOT may enter into a CDA with the winning proposer.

A New Approach to Using the TIFIA Program

In establishing its CDA program, TxDOT strongly believed that a new approach to the TIFIA application process was needed in order to receive the most value from proposers who wished to use the TIFIA program.  The existing procedures for obtaining TIFIA credit assistance created a dilemma for proposers.  Requiring each proposer to file and process a TIFIA application without knowing if its proposal would be selected would be burdensome.  On the other hand, if a proposer waited until selection to apply, it would run the risk of not receiving the commitment as described in the proposal or not completing the TIFIA process by the date scheduled for financial close.  At the same time, expecting FHWA to process all of the applications without knowing the final borrower would not be an efficient use of FHWA resources. 

In order to address these concerns, TxDOT utilized FHWA’s Special Experimental Project Number 15 ("SEP 15") to apply for and receive FHWA approval to streamline the process for using the TIFIA program in connection with the competitive procurement of developers for the three Projects.  TxDOT’s innovative approach, as memorialized in the EDA, is to itself act as the initial applicant for TIFIA credit assistance.  Using a proforma finance plan developed from the best estimates at the time of project development costs, operating costs, and project revenues, as well as the terms and provisions of the TIFIA credit agreement, TxDOT will obtain a conditional credit commitment which can be made available to each proposer for use in crafting its detailed finance plans.  FHWA officials will be kept informed of the progress of the procurement and, if TIFIA is part of a proposer’s finance plan, the details of the finance plan.  The winning proposer will then be responsible for satisfying the conditions of the commitment and finalizing negotiation of the credit agreement in time to achieve financial close under the CDA.

Conclusion

The new procedures outlined in the EDA represent an innovative use of the TIFIA program in connection with the competitive procurement of a public-private partnership for toll road development.  TxDOT has received positive feedback about this approach from proposer teams for the SH 121 Toll Project and anticipates filing the first application for the SH 121 Toll Project by the end of July, 2006.  This approach is designed to make the most efficient use of an attractive financing source and is anticipated to result in more private investment for TxDOT’s projects.  As more and more state and local transportation agencies consider the use of public-private partnerships to develop transportation infrastructure, the need will increase for innovative uses of financial tools such as TxDOT's approach to the TIFIA program.  To address this need, the TIFIA Joint Program Office may want to consider amending its application guidelines to make this approach available on a programmatic basis.

For more information, please contact Barney Allison at (213) 612-7847 / ballison@nossaman.com or Christine Ryan at (512) 651-0656 / cryan@nossaman.com.



[1]For the full text of the Act and related regulations, visit the TIFIA Website and click on "Legislation and Regulations."

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