WIFIA Water Infrastructure Finance and Innovation Act: An Introduction

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1 WIFIA Water Infrastructure Finance and Innovation Act: An Introduction February 13, 2014 Jim Ziglar, Jr. Deloitte Transactions and Business Analytics LLP

2 Infrastructure and Public-Private Partnerships at Deloitte Global advisor in the Infrastructure sector with a particular focus on Public-Private Partnerships ( PPPs ) and Project Finance Dedicated practices in the DTTL network of member firms in US, Canada, Mexico, UK, Spain, CEE, and Australia 500-person Global Community of Practice Teams complemented with specialists in Consulting, Tax, M&A, Valuations, Capital Projects, Capital Efficiency and Research Public and Private Sector clients Planning Infrastructure Asset Infrastructure Services We advise across the Infrastructure Lifecycle. Strategic Services project prioritization and structuring Transaction Services partner selection and capital raising, tax and accounting bid support Operating Services construction and operational support, performance monitoring, operations improvement consulting, valuation services, tax and other financial reporting support For information, contact Deloitte Touche Tohmatsu Limited.

Valuations, Capital Projects, Capital Efficiency and Research Public and Private Sector clients Planning Infrastructure Asset Infrastructure Services We advise across the Infrastructure Lifecycle.

3 Why Was WIFIA Created? It is estimated that $1 trillion will need to be invested in existing and new water and sewer infrastructure over the next 25 years Replacement of facilities approaching the end of their useful life Expansion of facilities due to population and economic growth and demographic shifts On average, this means approximately $40 billion of new money needs will need to be met in each year Current sources of capital are not generating that much volume in each year For the past 10 years, the municipal market has done an average of $22 billion / year in transactions involving new money for water and sewer, $0.4 billion for flood control EPA s Clean Water State Revolving Fund has provided an average of $5 billion / year in recent years EPA s Drinking Water State Revolving Fund has provided roughly $1 billion / year recently This leaves a gap of roughly $12 billion / year that may need to be met by new sources of capital Many traditional project finance sources of capital (bank loans, project debt, etc.) are not as attractive It was perceived that an additional low-cost, long-term financing mechanism could benefit the market TIFIA program and other Federal programs are perceived as having provided such capital and stimulated additional and innovative private investment in the Transportation and other sectors Sources: American Water Works Association, American Water, Securities Data Corporation, EPA website, Deloitte Analysis For information, contact Deloitte Touche Tohmatsu Limited. 3

Expansion of facilities due to population and economic growth and demographic shifts On average, this means approximately $40 billion of new money needs will need to be met in each year Current

4 Funding/Financing Funding is the revenue and committed capital that pay for the creation and ongoing maintenance of an asset or service Financing is the financing instruments and capital structure that are used to leverage or securitize the funding revenues $ Sources: Financing Traditional Revenue bonds SRF loans Infrastructure banks Innovative Project finance loans Taxable bonds PABs Mezzanine, sub debt Investor Equity Funding Leverage with USER FEES State and local resources Other operating revenues Federal funds New Taxes (Sales, payroll, etc.) $ Uses: Construction Costs O&M Costs For information, contact Deloitte Touche Tohmatsu Limited.

Infrastructure banks Innovative Project finance loans Taxable bonds PABs Mezzanine, sub debt Investor Equity Funding Leverage with USER FEES State and local

5 What is WIFIA? Program Details Created by Title V of the Water Resources Reform and Development Act of 2014, and patterned after TIFIA (Transportation Infrastructure Financing and Innovation Act) TIFIA currently receives roughly $1 billion / year, which is estimated to be able to make roughly $10 billion in loans. The total five-year authorization for WIFIA is $350 million, equally split between EPA and the Army Corps, beginning with $40 million in 2015 It is estimated that the appropriation could be leveraged between 10:1 33:1, depending on the project $2.2 million of the funds may be used for the administrative expenses of each program for each of those fiscal years. Only the $2.2 million appropriation for EPA administrative expenses was made for FY 2015 Will be co-administered by the Environmental Protection Agency (EPA) and the Army Corps (USACE) Army Corps of Engineers Flood control projects Inland waterways / navigation Environmental Protection Agency Drinking water projects Wastewater projects For information, contact Deloitte Touche Tohmatsu Limited. 5

receives roughly $1 billion / year, which is estimated to be able to make roughly $10 billion in loans.

6 Structural Similarities and Differences to TIFIA Can issue loans or loan guarantees Up to 35-year loans Similarities Interest rate set at Treasury rates of similar maturity Payment deferral of up to 5 years after substantial completion Will be able to cover administrative costs and consulting costs from fees charged to applicants Will be able to use appropriations to pay loan and loan guarantee subsidy cost Ability to subordinate with a springing lien Differences Minimum project size of $20 million Additional project section criteria above creditworthiness (a selection is below) - National/Regional significance and impact - Extent of additional financing sources - Ability of WIFIA assistance to accelerate development - Innovation - Environmental impact of project - Readiness to proceed For EPA program, SRFs given right of first refusal Unable to lend to projects that use tax-exempt bonds for part of the capital structure Investment-grade rating requirement on senior lien Can led up to 49% of eligible costs Davis-Bacon and Buy American standards apply For information, contact Deloitte Touche Tohmatsu Limited. 6.

subsidy cost Ability to subordinate with a springing lien Differences Minimum project size of $20 million Additional project section criteria above creditworthiness (a selection is below) -

7 Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. Deloitte has in the region of 200,000 professionals, all committed to becoming the standard of excellence. This publication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively, the Deloitte Network ) is, by means of this publication, rendering professional advice or services. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. No entity in the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this publication For information, contact Deloitte Touche Tohmatsu Limited. 7

Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries.

quality of life. spending water and rebuild its project s costs cost of infrastructure for every

quality of life. spending water and rebuild its project s costs cost of infrastructure for every A Cost Effective Approach to Increasing Investment in Water Infrastructure: The Water Infrastructure Finance and Innovation Authority (WIFIA) Background. High-quality and quality of life in the United