Railroad development typically entails significant upfront capital investments. The time to recover returns can be many decades. This can make it difficult to marshal financing, particularly for smaller railroads or public entities. The Railroad Rehabilitation & Improvement Financing (RRIF) loan program can be an attractive option to finance a wide range of rail investments.
The Program and Eligibility
RRIF was established by Congress in 1998 to help support development of the US rail system. The program authorizes the U.S. Department of Transportation to provide direct loans and loan guarantees out of a $35 billion pool of revolving credit. To date, over $5 billion has been provided through 36 loans, ranging in size from tens of thousands of dollars up to $2.5 billion. RRIF has been successfully combined with loans from the Transportation Infrastructure Finance and Innovation (TIFIA) program, and many other types of public and private debt and equity financing.
|Organization||Borrower||Mode||Year||Amt. ($ millions)|
|Arkansas and Missouri Railroad Co.||Private||Freight||2015||$6.8|
|New York MTA||Public||Passenger||2015||$967.1|
|Alameda Corridor Transportation Authority||Public||Freight||2012||$83.7|
|Kansas City Southern Railway Company||Private||Freight||2012||$56.6|
|NW Pacific Railroad Company/North Coast RR Authority||PPP||Freight||2011||$3.2|
|Denver Union Station Project Authority||Public||Passenger||2010||$155.0|
|Great Lakes Central Railroad||Private||Freight||2010||$17.0|
|Georgia & Florida Railways||Private||Freight||2009||$8.1|
|Permian Basin Railways, Inc||Private||Freight||2009||$64.4|
|Iowa Interstate Railroad||Private||Freight||2008||$31.0|
|Nashville and Eastern Railroad||Private||Freight||2007||$4.0|
|Nashville and Eastern Railroad||Private||Freight||2007||$0.6|
|Columbia Basin Railroad||Private||Freight||2007||$3.0|
|Great Western Railway||Private||Freight||2007||$4.0|
|Virginia Railway Express||Public||Passenger||2007||$72.5|
|R.J. Corman Railway||Private||Freight||2007||$11.8|
|R.J. Corman Railway||Private||Freight||2007||$47.1|
|Dakota, Minnesota & Eastern Railroad||Private||Freight||2007||$48.0|
|Iowa Northern Railroad||Private||Freight||2006||$25.5|
|Wheeling & Lake Erie Railway||Private||Freight||2006||$14.0|
|Iowa Interstate Railroad||Private||Freight||2006||$9.35|
|Great Smoky Mountains Railroad||Private||Freight||2005||$7.5|
|The Montreal, Maine & Atlantic Railway||Private||Freight||2005||$34.0|
|Iowa Interstate Railroad||Private||Freight||2005||$32.7|
|Stillwater Central Railroad||Private||Freight||2004||$4.6|
|Wheeling & Lake Erie Railway||Private||Freight||2004||$25.0|
|Arkansas & Missouri Railroad||Private||Freight||2003||$11.0|
|Nashville and Western Railroad||Private||Freight||2003||$2.3|
|Dakota, Minnesota & Eastern Railroad||Private||Freight||2003||$233.0|
|Mount Hood Railroad||Private||Freight||2002||$2.1|
RRIF direct loans may fund up to 100% of a railroad project, with repayment periods of up to 35 years, at interest rates equal to those for the nearest equivalent term US Treasury securities. Deferrals of up to five years after project completion are possible. RRIF loans may be used to:
Acquire, improve, or rehabilitate intermodal, rail freight or passenger equipment or facilities, including track, bridges, yards, buildings, stations, maintenance shops, locomotives and rolling stock;
Develop or establish new intermodal or railroad facilities (such as terminals);
Refinance outstanding debt (including capital leases) incurred for these eligible purposes;
Finance eligible transit-oriented development (TOD) investments (for a limited application period through 2019).
RRIF may not be used for operating expenses. RRIF is generally used for new capital expenditures but past loans have included significant refinancing components.
Eligible applicants for RRIF loans include: railroads; state and local governments; government sponsored authorities or corporations; and a group of two or more entities (which may include private companies) at least one of which is a railroad, participating in a joint venture. Any private freight shipper who is “captive” to a single railroad is also eligible to receive RRIF loan funds as a sole applicant in order to finance building a connection to the infrastructure of a second railroad.
Collateral may be offered to reduce the risk premium charged by the government and can include the funded capital improvements or other assets, as well as secured revenue streams such as taxes or user fees.
The Application Process
RRIF applications are managed through a U.S. DOT agency, the National Surface Transportation and Innovative Finance Bureau. The Bureau provides a lender which is sector-specific; applicants will deal with DOT personnel familiar with the transportation industry and who understand the unique aspects of the rail sector.
The process begins with an information session with Bureau staff at U.S. DOT. Applications go through a defined process including engineering, legal, financial, safety and environmental reviews. An independent contractor will conduct a thorough credit risk analysis for DOT’s consumption. The DOT Credit Council and the White House Office of Management and Budget make decisions on key loan terms and credit risk premiums. While loan recipients often find the application process grueling, they have generally been pleased with the execution of RRIF financing.
Most successful applicants for RRIF loans hired an external advisor for assistance with application preparation. The scope of services provided by such advisors will vary. Seneca is one of the firms that regularly provide this assistance. We have supported applications for public and private entities, for projects involving both freight and passenger operations, and for financing requests ranging from tens to hundreds of millions of dollars.
For Additional Information
Interested parties should start by reviewing the basic legal documentation for the loan program including the authorizing statutes (45 U.S.C. 821-3 & 6) and the RRIF Program Guide. Applicants should also review the requirements for the National Environmental Policy Act (NEPA) and Buy America requirements. For more information on how Seneca can specifically support your efforts to secure financing for your infrastructure project, please contact us.