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Frequently Asked Questions (FAQs)
The following FAQs relate to the guidelines issued under the first solicitation.
1) Does DOE offer a screening service to assist a prospective Applicant
for a loan guarantee under the first Solicitation in determining whether its
project satisfies the eligibility requirements for the DOE Loan Guarantee
Program?
No. The Guidelines and Solicitation specify the categories of
projects that are eligible for consideration for a loan guarantee under
the first Solicitation. The only Pre-Applications that DOE will
consider under the first Solicitation must involve projects that employ
a technology that is within one of the categories specified in the Solicitation
and meet other statutory eligibility requirements. The sub-categories
mentioned in the Solicitation are only illustrative examples.
2) Will DOE act on Pre-Applications on a “first-in first-out” basis?
No. DOE will not complete its review of all Pre-Applications
until after the December 31, 2006, filing deadline, and will thereafter
announce which Project Sponsors will be invited to submit full Applications.
3) As Title XVII allows a loan guarantee for up to eighty percent (80%)
of the Project Cost of the facility that is the subject of the guarantee, why
has DOE expressed a preference to limit any loan guarantee issued under the
Guidelines to eighty percent (80%) of the total face value of any single debt
instrument?
Title XVII contains the requirement that there must be a reasonable prospect
of repayment of the principal and interest on the obligation of the borrower
for which a loan guarantee is issued. DOE believes that requiring
Project Sponsors and their Eligible Lenders to bear a significant part
of the financial risk of the project is consistent with policies for Federal
credit programs and will help ensure that they exercise due diligence and
use their best efforts to ensure repayment of the guaranteed portion of
the loan. While limiting its guarantee to eighty percent (80%) of
the face value of the loan would help achieve this objective, DOE will
entertain suggestions of other approaches which would secure the same result
in considering whether to issue a guarantee in excess of eighty percent
(80%) of the debt instrument.
4) As DOE has announced that any loan guarantee issued under the Guidelines
and first Solicitation will be subject to the “self-pay” provision
of Title XVII which requires that the Subsidy Cost be paid by the Borrower,
how will DOE calculate that Subsidy Cost for an Eligible Project chosen for
a loan guarantee?
The Subsidy Cost of a loan guarantee is the estimated long-term cost to the Federal government of a loan guarantee, calculated on a net present value basis, excluding administrative costs. The cost is based on estimated cash flows associated with the loan guarantee, including payments by the Government to cover defaults and delinquencies and other requirements, and payments to the Government including certain fees, penalties, and recoveries. This amount is to be calculated in accordance with the Federal Credit Reform Act of 1990 and Office of Management and Budget Circular A-11. Potential Applicants are encouraged to refer for assistance to the Federal Credit Reform Act of 1990, guidance issued by the Office of Management and Budget with respect thereto, and the President’s 2007 Budget, including the Appendix and Analytical Perspectives volumes and the Federal Credit Supplement. Project Sponsors should make an evaluation and indicate in their Pre-Applications the results of their calculations. DOE is working to develop a model to help it estimate the Subsidy Cost for individual projects.
5) Does DOE have a list of Eligible Lenders for the Loan Guarantee Program?
No. Eligible Lenders are those firms that satisfy the requirements of Section VI of the Guidelines.
6) Will DOE review a Pre-Application from a Borrower which does not
include a commitment letter from an Eligible Lender?
No. The Guidelines and Solicitation spell out in detail the information
to be included in a Pre-Application. This information includes a
letter from an Eligible Lender expressing its commitment to provide the required
debt financing necessary to construct and fully commission the project. DOE
expects that this letter will be subject to commercially reasonable conditions
governing disbursement commonly included in arm’s length debt financing
arrangements, and such other contingencies agreed upon by the Eligible Lender
and the Borrower and not found to be unacceptable to DOE.
7) Will DOE evaluate on a project-by-project basis the reasonableness
of the interest rate agreed to by the Borrower and Eligible Lender for the
guaranteed loan?
Yes. As stated in the Guidelines, a Pre-Application must include an
explanation of what impact the loan guarantee will have on the interest rate,
debt term, and overall financing structure for a project. This is because
Title XVII requires that before DOE issues a loan guarantee the Secretary
is to determine whether the interest rate on the guaranteed loan is reasonable,
taking into account the range of interest rates prevailing in the private
sector for similar Federal government guaranteed obligations of comparable
risk.
8) Why has DOE required that the guaranteed and non-guaranteed portions
of the debt instrument may only be resold on a pro-rata basis?
DOE’s guidelines state that the Department does not intend to allow “stripping” of
the guaranteed portion of the debt instrument from the non-guaranteed portion
for two reasons. The first is to preclude the guaranteed portion of
the loan from being sold as a debt instrument fully guaranteed by the Federal
Government in competition with traditional Federal debt instruments such as
Treasury securities. The second is to ensure that the Eligible Lender
and any subsequent holder of the debt instrument maintain the financial risk
in the project that was deemed appropriate when the guarantee was issued so
as to ensure continued performance of the due diligence required by the loan
documents and the best efforts of the holder to ensure full repayment of the
principal and interest of the debt instrument. In the upcoming Notice
of Proposed Rulemaking concerning the Title XVII loan guarantee program, the
Department will seek comment on this issue, among many others.
9) In case of default by the Borrower, will the holder of the non-guaranteed
portion of the debt instrument be allowed to share pari passu with
DOE in the proceeds from the sale of the assets securing the debt instrument?
No. Title XVII requires that DOE’s rights with respect to any
property acquired pursuant to a loan guarantee or related agreements be superior
to the rights of any other person. Thus by law, the holder of the non-guaranteed
portion of a debt instrument will not share in the proceeds from the sale
of the assets securing the debt instrument until DOE’s claim is paid
in full.
10) Does “within the United States” allow for projects
within the United States territories?
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