COMPLIANCE & DISCLOSURE FOR FINANCED PROJECTS

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1 COMPLIANCE & DISCLOSURE FOR FINANCED PROJECTS 92 nd Transportation Short Course

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3 Project Financing Comes with Strings! With Great Power Comes Great Responsibility ALL lenders want assurances that they will be repaid. Those assurances come in the form of compliance responsibilities. Financial covenants, general covenants and compliance with law. 3

4 Types of Compliance Responsibilities Compliance with State and Federal Laws Provide Routine Financial & Operating Reports Compliance with Financial Covenants Debt Service and O&M Reserve Fund Requirements Covenant to Maintain Toll Rates Provide Timely Notice of Certain Events Project Delays (5 days) Developer Default (5 days) Actual or Threatened Litigation 4

5 General Promises under Debt Agreements Certify compliance with the Toll Rate Covenant and the Maintenance Reserves Requirement Certify that no Events of Default have occurred under the TIFIA Loan Ensure compliance with the FHWA Oversight Agreement Ensure appropriate use of bond and loan proceeds under the Agreements, and state and federal laws Deposit certain Liquidated Damages into the Trust Deposit Insurance Loss Proceeds into the Trust Require contractors and subcontractors to obide by all laws Employ a GEC until debt is paid off Enforce all covenants of the Development Agreement and any Maintenance Agreements Promote the Project to the travelling public and maintain signage Keep accurate records of revenues collected Maintain Project Records until 5 years after debt paid off Obtain TIFIA consent prior to entering into any Additional Project Contract (longer than 7 years and in excess of $5 million) 5

6 Consequences of Non-Compliance Event of Default Within our ability to control: Development Default Misrepresentation Default Covenant Default related to TxDOT responsibilities Default under the project agreements Outside our ability to control but still responsible: Inability to pay loan/debt payments Covenant Default related to Developer actions Bankruptcy of any member of Developer team not cured 6

7 Events of Default Development & Misrepresentation Default Development Default Failure to assure progress Failure to complete the Project in accordance with the Financial Plan Misrepresentation Default Providing false information related to: Existence of debarment action Compliance with NEPA TxDOT s or Developer s compliance with federal anticorruption and anti foreign money laundering laws 7

8 Events of Default Covenant & Payment Default Covenant default failure to perform any promise under debt agreements such as failure to: Provide timely notices Maintain financial covenants Maintain project records Provide required reports Payment default failure of TxDOT to make debt payments Consequence interest rate increases by 2% per year 8

9 Events of Default Consequences: Suspend disbursements of loan proceeds TIFIA pursue remedies through legal actions TxDOT s inability to use TIFIA in the future or suspension or debarment from other federal programs 9

10 What is disclosure? DISCLOSURE: Merriam-Webster: the act of making something known; the act of making new or secret information known. Financial Dictionary: the voluntary or required release of information relevant to a debt, company, fund, etc. 10

11 Securities Law Disclosure and Duties of Debt Issuers Regulated by the Securities and Exchange Commission (SEC) Rule 15c2-12 Issuers must provide: Information with the initial issuance of debt Annual updates to operating and financial information Disclosure of certain events at occurrence Rule 10b-5--Issuers must not: Make a misstatement of material fact Omit a material fact 11

12 Methods of Disclosure Formal Methods Electronic Municipal Market Access (EMMA) Primary Offering documents, Continuing Disclosure reports, Event Notices Other released information: Websites Tabloids & Fact Sheets Open Records Production Speeches or Public Meetings & Hearings Press Releases Media Inquiries Policy Statements 12

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15 Consequences of Improper Disclosure Investors have the right to take legal action or sue TxDOT Administrative or judicial enforcement action against TxDOT and possibly staff Civil Penalties Cease and Desist Order Ban from future debt 15

16 Responsible Disclosure What Duties as a Debt Issuer Provide on-going disclosure of financial and operating data Provide complete, accurate information Prevent selective disclosure How Forms of Disclosure Website postings (EMMA) Annual reports Meetings and calls Press releases and media responses Why Penalties & Consequences SEC enforcement actions Impedes market fairness which may diminish investors confidence in TxDOT s ability to manage debt Lower credit ratings and higher borrowing cost, if any IMPERATIVE Candid information exchange with Enterprise Committees Careful dissemination of Projectrelated information 16

17 Questions? Questions Jennifer Wright Project Finance, Debt and Strategic Contracts, TxDOT