How is the subsidy cost calculated, and what factors influence the subsidy cost of a TIFIA direct loan?
Answer The subsidy cost of a TIFIA direct loan is calculated by using project cashflows, along with the project’s credit rating and repayment source, to determine default and recovery rates. Historical information on recovery and default rates are based on S&P data, including the S&P Capital Adequacy Model. The Office of Management and Budget (OMB) Credit Subsidy Calculator is then used to calculate the subsidy cost, which is a percentage of the TIFIA loan amount. Consistent with the Federal Credit Reform Act of 1990 and OMB requirements, the subsidy cost of a loan is affected by recovery assumptions, allowance for defaults, the borrower’s interest rate, and fees. The subsidy cost of a TIFIA loan is most heavily influenced by factors that fall into the recovery category and the allowance for defaults category, although the project’s interest rate will have some effect on the subsidy cost, with a higher interest rate marginally reducing the subsidy cost. Recovery assumptions are affecte
