Due Diligence

Davis-Bacon Act

National Environmental Policy Act (NEPA)

NEPA-related frequently asked questions can be found at Title XVII Environmental Compliance.


What is credit subsidy cost?

Credit subsidy cost has the same meaning as “cost of a loan guarantee” in section 502(5)(C) of the Federal Credit Reform Act of 1990 (2 U.S.C. 661a(5)(C)), which is the net present value, at the time the Loan Guarantee Agreement is executed, of the following estimated cash flows, discounted to the point of disbursement:

  1. Payments by the Government to cover defaults and delinquencies, interest subsidies, or other payments; less
  2. Payments to the Government including origination and other fees, penalties, and recoveries including the effects of changes in loan or debt terms resulting from the exercise by the Borrower, Eligible Lender or other Holder of an option included in the Loan Guarantee Agreement. Section 1702(b) of Title XVII provides that no guarantee shall be made unless (1) an appropriation for the cost of the guarantee has been made, (2) the Secretary has received from the applicant a payment in full for the cost of the guarantee and deposited the payment into the Treasury, or
  3. A combination of one or more appropriations under (1) and one or more payments from the applicant under (2) has been made that is sufficient to cover the cost of the guarantee. 

The applicant may not finance the payment of the credit subsidy cost through funds obtained from the federal government or through a loan made or guaranteed by the federal government, unless otherwise explicitly authorized by Congress. In accordance with FCRA, DOE must consult with OMB and obtain OMB’s approval of DOE’s calculation of the credit subsidy cost for each proposed loan guarantee prior to issuing any loan guarantee. Read for more on Credit-Based Interest Spread for Title 17. 

Who will pay the credit subsidy cost?

LPO has received $160 million in appropriated credit subsidy for Renewable Energy and Efficient Energy Projects. For a Qualifying Project the portion of the credit subsidy cost that DOE will pay is the amount of the credit subsidy cost that is above seven percent (7%), up to a total of $17,000,000. In all cases the applicant will pay the amount of the credit subsidy cost that is seven percent (7%) or less. LPO has not received any appropriated funds from Congress to pay the credit subsidy cost for projects applying under the Advanced Fossil Energy Projects solicitation. Accordingly, the credit subsidy cost must be paid by the borrower at closing.

How is the credit subsidy cost calculated?

Credit subsidy cost is a reserve established by the U.S. government to cover the risk of estimated shortfalls in loan repayments. It was established by the Federal Credit Reform Act of 1990 (“FCRA”) and represents the net present value of the estimated long-term cost to the U.S. government of the loan guarantee. Credit subsidy cost is primarily influenced by two key variables: Probability of default; and the “recovery” after default. These variables are used to “risk adjust” the borrower’s principal and interest payments to the government, and provide an estimate of payment shortfalls. Section 1702(b) of Title XVII provides that DOE must receive either an appropriation for the credit subsidy cost of a loan guarantee or, in lieu of an appropriation, a cash payment of such cost directly from the applicant.

What are the fee arrangements between Title XVII loan guarantee applicants and their professional advisors?

As a matter of policy, the Loan Programs Office strongly disapproves of fee arrangements with financial and/or other professional advisors to loan guarantee applicants that provide for payment of a contingent fee computed as a percentage of the amount of a loan guarantee issued by the Department (or of the underlying loan). Generally, the Loan Programs Office will require restructuring of any such fee arrangement as a condition to the issuance of a loan guarantee. Fees that are computed on other terms, such as a fixed fee or a time and materials fee, but payable only at closing, are acceptable. Applicants are advised to structure, or, if necessary, restructure, their fee arrangements accordingly, and to clearly disclose in their financial model the basis of computation of all advisory fees to be paid in connection with the project.

I am considering an application to LPO for my distributed energy project. The project will be developed in several phases, each of which can operate independently of the others...more

... I would like the guaranteed loan to be large enough to support all phases of the project, but I would like to pay the credit subsidy cost associated with the loan guarantee in installments, concurrent with the availability of the portion of the guaranteed loan applicable to each phase.  Is it possible to pay the credit subsidy cost in such a manner?

Yes, but there are special considerations. As a preliminary matter, Title XVII requires that the credit subsidy cost be paid at the time of issuance of a loan guarantee, which occurs at closing of a guaranteed loan. The credit subsidy cost is based on the size of a guaranteed loan and other relevant factors. In response to (a) an application for a qualified project that will be developed in phases, and (b) a request from an applicant to pay the credit subsidy cost for each phase at the time the guaranteed loan is made available for a phase, DOE would likely issue a separate conditional commitment applicable to each phase of the project (in effect, each phase would be financed with a separate guaranteed loan). In such an instance, at the closing of the guaranteed loan associated with a phase of the project, only the associated credit subsidy cost would be payable. It is important to note that issuance of the loan guarantee at the closing of a guaranteed loan for each phase would be subject to: 

  1. The satisfaction of the conditions precedent set forth in the conditional commitment,
  2. DOE’s right to terminate the conditional commitment pursuant to LPO’s regulations (see the definition of Conditional Commitment at 10 CFR §609.2), and
  3. The availability of authority and appropriations when the loan guarantee is issued. Finally, the application and facility fees, both of which are non-refundable, are payable based on the aggregate of the guaranteed loan amounts specified in each of the conditional commitments issued pursuant to an application. 

The facility fee is not payable until the first closing.