A number of proposals have been put forward by key figures in Washington for the creation of a national infrastructure bank to stimulate private capital investment in domestic infrastructure projects. President Obama, in his recent speech on job creation, reinforced the need for a national infrastructure bank and supported the bi-partisan bill introduced by senators John Kerry and Kay Bailey Hutchison earlier this year. This bi-partisan bill has been imported into the American Jobs Act delivered to Congress and is expected to be put on the legislative calendar later this year.
The American Jobs Act of 2011 calls for the creation of an American Infrastructure Financing Authority ("AIFA"). AIFA would be an independent agency funded by a one-time appropriation of $10 billion and would be authorized to provide direct loans and loan guarantees to eligible infrastructure projects. Within the renewable energy sector, this includes the new construction of projects involving pollution reduced energy generation, transmission and distribution, storage, and energy efficiency enhancements for buildings.
In order to be considered for financing by AIFA, an eligible project must have projected project costs that are equal to or exceed $100 million, of which up to 50 percent are eligible for AIFA financing. The term of the financing can be no longer than 35 years and scheduled repayment of principal and interest on direct loans must commence no later than 5 years after substantial completion of a project. AIFA financings are required to be subject to credit and security terms which are commonly seen in project financings and will be subject to Buy-American and Davis-Bacon Act requirements.
Projects financed by AIFA would also be subject to a credit risk assessment. This assessment includes an inter-agency review process with the federal Office of Management and Budget and requires that a project's senior debt obtain a baseline investment grade credit rating. In addition, a credit fee will be factored into the financing which will be in addition to the base interest rate applicable to the loan.
The proposed bill includes a specific set of considerations for AIFA to consider when evaluating applicant projects in the energy infrastructure space. The proposed criteria include the public benefit of the project, with priority being given to projects that contribute to regional or national economic growth, lead to job creation and mitigate environmental concerns; the development plan of the project, including the economics and viability of the project, the structure of the proposed financing and the creditworthiness and financial support of the project sponsors; the likelihood that AIFA assistance will cause the development of the project to proceed more promptly and with lower costs for financing than would be the case without AIFA assistance; the extent to which AIFA assistance maximizes private investment in infrastructure development; and programmatic factors such as the size, geographic location and sector of the project in an effort to maximize the diversity of projects financed by AIFA.
The AIFA program seems similar in nature to the Transportation and Infrastructure Finance and Innovation Act (TIFIA) program, which finances transportation projects. The Federal Highway Administration claims that every dollar of federal spending under TIFIA can generate up to $30 in total public and private investment. If AIFA can generate similar leverage, a $10 billion investment may be capable of providing significant stimulus. The final form of this program is yet to be determined, as it still must navigate through both houses of Congress, but some program of this nature may have more traction in the short term as efforts to stimulate the economy and create jobs continue. Potential investors in domestic infrastructure would be well advised to track the progress of this program going forward.
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