§3908 Secured Loans

Summary

The Secretary or the Administrator can make secured loans to help pay eligible costs for projects chosen under the program. Before agreeing to a loan, they must work with the Office of Management and Budget and any rating agencies that gave an opinion letter to set an appropriate capital reserve subsidy. The senior project debt must have an investment-grade rating before a secured loan is made. Loan rules, covenants, and audits will be set by the Secretary or Administrator. A secured loan cannot be more than the lesser of 49 percent of the expected eligible project costs or, if the loan lacks an investment-grade rating, the amount of the senior project obligations. Loan proceeds can be used to cover non‑Federal shares when repayable from non‑Federal funds. Federal help for a project generally cannot exceed 80 percent of total cost, with limited exceptions for certain rural water projects and a rule allowing a State infrastructure financing authority to use up to 100 percent under section 3912(e) (but that authority must repay immediately if there is a default). Costs and in‑kind contributions made before getting federal help count toward the required non‑loan funding share. The Secretary or Administrator will set a repayment schedule based on expected project cash flow. Repayments must start no later than 5 years after the project is substantially complete (for State authorities, no later than 5 years after first disbursement). Interest must be at least the yield on U.S. Treasury securities of similar maturity on the loan signing date. The loan must mature no later than the earlier of 35 years after substantial completion or the project’s useful life (for State authorities, no later than 35 years after first disbursement). The secured loan cannot be made junior to project obligation holders in bankruptcy. Fees may be charged to cover government costs and can be financed into the loan on request. If a project cannot make scheduled payments, unpaid amounts may be added to the loan, keep accruing interest, and be amortized over the remaining term if repayment criteria are met. Excess revenues or non‑Federal refinancing may prepay the loan without penalty. After completion, the Secretary or Administrator may sell or reoffer a loan if terms are favorable, but cannot change the loan’s original terms without the obligor’s written consent. Instead of making a loan, the Secretary or Administrator may offer a loan guarantee with similar terms if the budget cost is about the same; the interest rate and prepayment terms under a guaranteed loan are negotiated between the obligor and the lender with the Secretary’s or Administrator’s approval.