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Feds Poised to Loan Millions Based on “Placeholder”


Suppose you are applying for a loan to buy a house. You’ve been working with a lender for the past two years and today you’re ready to get loan approval. You stated your income on the loan application as, let’s say $100,000. But in reality you don’t know if that number is $100,000 or $25,000.  You walk into the meeting and explain to the lender that the number is “just a placeholder” and you won’t know the amount until ten days after you close on the house.

Think you would get a loan?

Revenue Sharing Provision Boon for NCDOT

That’s the scenario facing the federal office tasked with approving $189 million in taxpayer-backed loans to Cintra.

As we reported last week, the contract between NCDOT and Cintra contains a “revenue sharing provision.” NCDOT collects a sliding percentage of annual toll revenues.  Like income tax brackets, the higher the toll revenues the higher the percentage.  At the highest “bracket”, NCDOT collects 75% of toll revenues.

From NCDOT’s perspective that may be a wonderful thing and it may explain why they are so determined to push this deal through.  But from lender’s perspective this is cause for concern.  It basically means only a quarter of toll revenues will be available to pay off the loan.

I bounced this off of Cornelius Comissioner Dave Gilroy, a vocal opponent of I-77 tolling. He’s a Harvard MBA and runs his own financial services business. He knows a thing or two about finance.

Gilroy initially greeted this news with skepticism. Any lender, he said, is going to insist on getting paid first. So I showed him the clause in the contract that puts NCDOT first in line:


So there it is in black and white- NCDOT gets paid first.

The clause refers to “operations and maintenance” but that’s not the important part of the paragraph- those terms are not capitalized so they are not defined in the contract.  What’s important is  “all amounts due to NCDOT under Section 5.3″.   Section 5.3 is the revenue sharing clause.

Given that understanding  Gilroy reiterated his opposition to this project saying “nothing about this monstrous project has made sense from the very beginning. This latest set of questions about debt service is just the latest example.”

Cintra Negotiating in Bad Faith?

The federal agency tasked with approving the taxpayer backed loans is run out of the federal DOT. The program is called the Transportation Infrastructure Finance and Innovation Act, or TIFIA.   Cintra was supposed to close on over $200 million in TIFIA loans in January but missed the deadline.  At the beginning of March they reduced their loan request to $189 million.

On March 25th at 2pm TIFIA and Cintra were scheduled to meet for loan approval. At around 12:30pm we sent a memo to the TIFIA office regarding the revenue sharing issue. Their meeting was postponed until the following day, and then rescheduled for today, April 1st. In the interim our numerous attempts to contact the TIFIA office were met with terse responses (“I’ve forwarded this to the FOIA control department” or “You need to contact Public Affairs”).

This wagon-circling leads us to believe the TIFIA office was not aware of the revenue sharing provision until we brought it to their attention.

As further evidence, NCDOT’s Letter of Interest sent back in 2012 never made mention of this provision. Instead it implied all of the toll revenues will be available for debt service:


Note there is no mention of a revenue sharing provision even though this was contemplated at the time and ultimately adopted into the agreement.

NCDOT & Cintra have been negotiating with the TIFIA office for two years. We cannot find any instance where they have mentioned the revenue sharing provision.   Perhaps this was disclosed in the loan application, but we do not know because both TIFIA and NCDOT denied our FOIA request for a copy.

“Simply Placeholders”

Even with all of the revenues going toward debt service the financial case for I-77 is dubious at best; it would have to be the second highest grossing toll lane in history while serving the second smallest metro area.  After seven months of trying Cintra was unable to obtain financing and needed to sweeten the deal. Now comes the revelation that only a quarter of toll revenues may be available for debt service.

Once we understood the magnitude of this discovery we contacted the local media.  Some reporters are still investigating this and one received a statement from NCDOT.  This is not a problem, the NCDOT official asserted, because the contract has a clause that says these “revenue bands” will be revised ten daysafter financial close.

“The numbers that are there now are simply placeholders and cannot be used to draw conclusions about any financial aspects of the project,” the NCDOT official concluded.

In other words, right now we don’t know if NCDOT’s 75% cut starts at revenues above ten dollars or ten million dollars, and we won’t know until after the loan is approved.

Which raises the question: why on earth would anyone approve a loan under those circumstances?

TIFIA to Meet on Loan Approval Today

Perhaps it’s fitting that today, April 1st, Cintra and TIFIA are meeting for loan approval.

Because only a fool would loan money based on a placeholder.

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