§603 Secured Loans

Summary

The federal government can make or guarantee secured loans to help pay for projects picked under section 602, to refinance short-term construction loans, to refinance other federal credit for rural projects, or to refinance long-term debts if that frees up money to finish, improve, or grow a qualifying project. Loans must meet rules the Secretary sets. A loan cannot refinance interim construction debt that matures more than 1 year after the project is substantially complete. Before approving a loan, the Secretary and OMB must set a capital reserve subsidy based on project ratings. A loan normally can be no more than the smaller of 49 percent of the expected eligible project costs or, if the loan is not investment grade, the amount of senior project debt (special rules apply for rural project funds). Repayment must come from things like tolls, user fees, public-private payments, or other dedicated revenues, and loans must include coverage or rate protections. Interest rates must be at least the Treasury yield for a similar term, except rural projects can get a rate equal to one-half of the Treasury rate for portions paid from rural set-aside funds. Any interest rate buydown cannot reduce the rate by more than 1.5 percentage points (150 basis points) or by the amount the rate increased. The loan term generally cannot go past the lesser of 35 years after substantial completion or the asset’s useful life (special 35- and 75-year rules apply for rural funds and very long-lived assets). Loans normally cannot be made junior to other project debt in bankruptcy, but a public agency with existing senior bonds can get a waiver if the loan is A-rated or higher, secured by stable pledged revenues, and TIFIA pays 33 percent or less; in that case the federal credit subsidy paid cannot exceed 10 percent of the loan principal. The Secretary may charge fees, loans may cover required non-Federal shares if repaid from non-Federal sources, and total Federal help for a project may not exceed 80 percent of project cost. Repayments are set from projected project cash flow and the asset’s life, and must start no later than 5 years after substantial completion. If revenues fall short, unpaid principal and interest may be added to the loan balance, keep accruing interest, and be amortized over the remaining term if the project meets Secretary’s criteria, including reasonable assurance of repayment. Excess project revenues can be used each year to prepay the loan without penalty, with limited exceptions for certain government borrowers for loans made after the Surface Transportation Reauthorization Act of 2021; loans may also be prepaid from non‑Federal refinancing proceeds without penalty. After substantial completion, the Secretary may sell or reoffer a loan if terms are favorable, but cannot change loan terms without the borrower’s written consent. Instead of lending, the Secretary may guarantee a lender’s loan if the budget cost is similar; terms must otherwise match these rules, though rate and prepayment features can be negotiated with the Secretary’s approval. Finally, within 180 days after the FAST Act became law the Secretary must offer an expedited application path using standard terms (including loans up to $100,000,000, secured by stable pledged revenues, and repayment beginning within 5 years of disbursement). For public agencies that meet tighter criteria (conventional terms, A rating or better, TIFIA share ≤33 percent, contracting able to start within 90 days, and required NEPA clearance), the Secretary must set an expedited decision timeline and tell the applicant in writing whether the loan is approved or denied within 180 days after the creditworthiness review begins.