42 U.S.C. § 16373 — Secured loans

(a) Agreements: The Secretary may agree with one or more borrowers to make secured loans. The money must be used to finance an eligible project's costs, to refinance interim construction financing for an eligible project, or to refinance long-term project debt or federal credit instruments, if doing so frees up money to complete, improve, or expand a project that is selected under section 16372 or otherwise meets that section's requirements. Loan proceeds may also be used to pay certain fees the Secretary collects under subsection (b)(7). Risk assessment: Before signing any such agreement, the Secretary — consulting with the Office of Management and Budget — must determine an appropriate credit subsidy amount for the loan, considering the same creditworthiness factors used under section 16372(b)(2). (b) Terms and limitations: The Secretary sets the loan's terms, conditions, covenants, representations, warranties, and audit requirements as it decides is appropriate. Maximum amount: A loan can't exceed 80 percent of the project's reasonably anticipated eligible costs. Payment: The loan must be payable from user fees, public-private partnership payments, or other revenue that also secures or funds the project. Interest rate: Normally the rate can't be lower than the yield on U.S. Treasury securities of similar maturity as of the loan's signing date. Limited buydowns: If rates rose between the date an acceptable application was submitted (or a master credit agreement was signed) and the date the loan is finally executed, the Secretary may lower the rate back down — but not below the Treasury yield from that earlier date, and never by more than 1.5 percentage points (150 basis points). Maturity date: The loan must fully mature by the earlier of 35 years after the project is substantially complete, or the end of the useful life of the asset being financed, if that's shorter. Nonsubordination: Normally the loan can't be subordinated to other project debt if the borrower goes bankrupt, insolvent, or is liquidated. Preexisting indenture exception: The Secretary must waive this rule for a public agency borrower financing ongoing capital programs with outstanding senior bonds under a preexisting indenture, if the loan is rated "A" or higher and is secured by revenue not tied to the project's own performance, such as a tax-backed or system-backed revenue pledge. If the Secretary waives nonsubordination this way, the government's maximum credit subsidy can't exceed 10 percent of the loan's principal, and the borrower must pay any remaining subsidy cost. Fees: The Secretary may collect a fee of up to $3,000,000 at or after loan closing, to cover the government's costs of providing the loan. That fee can be added to the loan's principal if the Secretary and borrower agree. Maximum Federal involvement: Combined with any grant under section 16374, total federal assistance for a project can't exceed 80 percent of its eligible costs. (c) Repayment: Schedule: The Secretary sets a repayment schedule for each loan, based on the project's projected cash flow and useful life. Commencement: Scheduled principal or interest repayments must start no later than 5 years after the project is substantially complete. Deferred payments: If, after substantial completion, the project can't generate enough revenue above reasonable operating expenses to make its scheduled payments, the Secretary may let the borrower add the unpaid principal and interest to the loan's outstanding balance — but only if the project meets criteria the Secretary sets, including standards for a reasonable prospect of eventual repayment. Deferred amounts keep accruing interest until fully repaid, and get amortized over the loan's remaining term. Prepayment: Excess project revenue left after satisfying required debt service and reserve requirements may be used each year to prepay the loan, penalty-free. The loan may also be prepaid anytime, penalty-free, using proceeds from non-federal refinancing. (d) Sale of secured loans: After a project is substantially complete, and after notifying the borrower, the Secretary may sell the loan to another entity or reoffer it into capital markets, if the sale can be made on favorable terms — but the Secretary can't change any original loan term without the borrower's written consent. (e) Loan guarantees: Instead of a direct loan, the Secretary may guarantee a loan from another lender, if the guarantee's budgetary cost is about the same as, or less than, a direct loan's cost. The guarantee's terms must otherwise match secured-loan requirements, except the interest rate and any prepayment terms are negotiated between the borrower and lender, subject to the Secretary's consent.