§16373 Secured Loans

Summary

The Secretary can make secured loans to help pay for eligible projects chosen under the program or projects that meet its rules. Loan money can pay project costs, refinance short-term construction loans, or refinance long-term debt if that refinancing frees up funds to finish, improve, or grow the project. Before agreeing to a loan, the Secretary and the Director of the Office of Management and Budget must set a credit subsidy amount and consider how risky the borrower is. The Secretary sets the loan rules, including promises the borrower must keep and audits. A loan cannot be more than 80% of the expected eligible project costs. Loans must be paid from user fees, public-private partnership payments, or other project revenues. The interest rate must be at least the Treasury yield for a similar term on the loan signing date, though the Secretary may lower it if Treasury rates rose during the application period, but never by more than 1.5 percentage points. The loan must mature by the earlier of 35 years after the project is mostly complete or the asset’s useful life. The Secretary may charge up to $3,000,000 in fees at financial close, and that fee can be added to the loan principal. Total federal support for a project, including any grant, cannot exceed 80% of eligible costs. Repayment is planned from the project’s cash flow and its useful life. Regular payments must start no later than 5 years after substantial completion. If a project cannot make scheduled payments later, the Secretary may let the borrower add unpaid amounts to the loan balance, but those amounts keep accruing interest and are spread over the remaining loan term, and any deferral must meet standards showing repayment is likely. Extra project revenue can be used to prepay the loan without penalty, and refinancing with nonfederal funds can also prepay without penalty. After a project is substantially complete, the Secretary may sell or reoffer the loan if terms are favorable, but cannot change original loan terms without the borrower’s written OK. Instead of making a loan, the Secretary may give a loan guarantee if it costs the same or less to the budget; those guarantees follow the same rules except the loan rate and prepayment terms are negotiated by the borrower and lender with the Secretary’s consent. A public agency borrower with existing senior bonds may get a waiver of a rule that otherwise prevents the secured loan from being subordinate, but only if the loan is rated A or higher and backed by revenues not tied to project performance; if that waiver is used, the federal share of the credit subsidy can be no more than 10% of the loan principal and the borrower pays any remaining subsidy.