Creating collateral security packages

Types of collateral

What types of collateral and security interests are available?

All present and after-acquired property interests of a project company can be used as collateral. Generally, in the United States, the types of collateral can be divided into real property and personal property. Security interests in a wide range of personal property interests, such as contracts, licences, equipment, receivables, bank accounts, securities and general intangibles, as well as the cash flow resulting from any of the above, are governed by a set of relatively uniform rules across all states (the Uniform Commercial Code (UCC)). A type of personal property that may serve as collateral and may be of particular interest to lenders is an equity interest, whether certificated or not, in the project company, which provides lenders with a practical means of enforcing on their collateral package. Security interests in real property interests, such as fee simple interests, leasehold interests and easements, are usually created through mortgages or deeds of trust governed by real estate laws that may be subject to a somewhat greater degree of variation from state to state.

Collateral perfecting

How is a security interest in each type of collateral perfected and how is its priority established? Are any fees, taxes or other charges payable to perfect a security interest and, if so, are there lawful techniques to minimise them? May a corporate entity, in the capacity of agent or trustee, hold collateral on behalf of the project lenders as the secured party? Is it necessary for the security agent and trustee to hold any licences to hold or enforce such security?

The UCC sets forth the rules for the creation, perfection and enforcement of most security interests over personal property. Security interests over real property must be created and perfected in accordance with the laws of the state in which the real property is situated.

Most personal property security interests that are subject to the UCC can be perfected by filing a financing statement, indicating the names of the debtor and the secured party and describing the collateral in reasonable detail as to permit its identification, in the state in which the debtor is organised (or with respect to some types of debtors, where their principal office is located). For debtors organised outside the United States, UCC financing statements may be filed with the central filing office for the District of Columbia. However, for some types of collateral, the secured parties must obtain control or possession thereof to perfect their security interest. Perfection by control is required, for example, for deposit accounts. Generally, perfection through control over deposit accounts is achieved through an account control agreement that grants the secured party the right to control the applicable account to the exclusion of the debtor, although this right is often limited to the period during which an event of default has occurred and is continuing. Further, for certain types of personal properties, perfection may be achieved in more than one way.

Security interests in real property are perfected by filing a mortgage or deed of trust in the state where the property is located. Typically, a mortgage instrument must describe the property and debt and identify both the mortgagee and mortgagor.

Priority is generally established by the party that is first in time to perfect a security interest over collateral. However, where perfection by a means other than filing is permitted, the chosen form of perfection may affect the priority of the security interest: a party having control of such collateral will generally have priority over a party that has only made a filing, regardless of when the relevant filing was made. There are also certain types of liens that are given priority as a matter of law, such as mechanic’s liens and certain tax liens.

The fees for filing UCC financing statements vary from state to state, but are generally not significant in nature. Fees associated with filing a mortgage instrument also depend on the laws of the relevant state and are often significant.

Collateral agents or trustees, who are typically, but not necessarily, banks, are commonly used to hold collateral on behalf of the project lenders as the secured parties. In the event of a bankruptcy of a collateral agent or trustee, if the collateral agency arrangement has been properly documented, the collateral held by such agent or trustee should be segregated and not be deemed part of the estate.

Assuring absence of liens

How can a creditor assure itself as to the absence of liens with priority to the creditor’s lien?

There is no centralised national registry of mortgages or security interests in personal property. Lenders typically assure themselves as to the absence of liens by conducting searches of existing UCC filings, tax liens, judgments and insolvency proceedings in all applicable jurisdictions. There are private companies that specialise in conducting such searches on behalf of lenders, and the lenders in project financings typically have such searches conducted or updated as close as possible to the proposed closing date. To the extent a search reveals an existing lien, additional due diligence is necessary to determine the nature and extent of the underlying secured obligation and whether the lien has been terminated or otherwise ceased to be effective. In respect of real property, lenders typically rely on both lien searches and title insurance to provide assurances of the priority of their lien.

Enforcing collateral rights

Outside the context of a bankruptcy proceeding, what steps should a project lender take to enforce its rights as a secured party over the collateral?

Financing documents typically include an express set of non-exclusive remedies available to the secured parties in case an event of default occurs.

Article 9, Part 6 of the UCC sets out statutory remedies that are available to secured parties, whether or not listed in the applicable financing documents. These statutory remedies include the right to collect on collateral such as accounts receivables, the right to repossess collateral, the right to sell or dispose of collateral and the right to retain collateral in total or partial satisfaction of the debt.

There are limitations on the right of lenders to exercise statutory remedies set forth in the UCC. For example, although the UCC permits dispositions of collateral through both public and private sales, secured parties must provide notice to the debtor and other secured parties before disposing of collateral and secured parties are prohibited from purchasing their collateral through a private sale, unless there is a recognised market for such collateral or it is the subject of a widely distributed price quotation.

Enforcement of security interests in real property is governed by state laws. The two most common methods of enforcement are judicial and non-judicial foreclosure. Many states require judicial foreclosure, whereby a local court issues a judgment ordering that the real property must be sold at a public auction and that the proceeds thereof be applied to satisfaction of the secured debt. In states that allow non-judicial foreclosure, a lender may be able to sell the real property collateral in a private sale without commencing judicial proceedings. However, notice periods will generally apply and a non-judicial foreclosure will generally be permitted only where the mortgage instrument includes a clause giving the lender the power of sale outside judicial proceedings. In some states, debtors who have defaulted on a mortgage may have the right to redeem a property that is subject to foreclosure proceedings, either by repaying the lender all amounts owed (including interest and costs) prior to the completion of a foreclosure proceedings or, where permitted by statute, by paying the price paid for the real property in the foreclosure proceedings within a specified period following the completion of foreclosure proceedings.

Enforcing collateral rights following bankruptcy

How does a bankruptcy proceeding in respect of the project company affect the ability of a project lender to enforce its rights as a secured party over the collateral? Are there any preference periods, clawback rights or other preferential creditors’ rights with respect to the collateral? What entities are excluded from bankruptcy proceedings and what legislation applies to them? What processes other than court proceedings are available to seize the assets of the project company in an enforcement?

Liquidation and reorganisation proceedings in the United States are governed by Chapters 7 and 11, respectively, of the US Bankruptcy Code. Generally, the commencement of bankruptcy proceedings under the US Bankruptcy Code will result in an automatic stay that will pre-empt any other enforcement actions, including foreclosure proceedings under state law. Lenders can seek relief from the automatic stay to take specific actions against a debtor with the approval of the US bankruptcy court.

Security interests granted or perfected within 90 days of a bankruptcy (or one year if granted to an insider) may be subject to avoidance if they are deemed preferential transfers that would enable the secured creditor to recover more than it would have received through the proceeds of a liquidation. Transfers made within a two-year look-back period prior to a bankruptcy may be classified as fraudulent transfers and may be subject to clawback if certain facts can be established, including that the company was insolvent at the time of the transfer, or was rendered insolvent by the transfer, or the intent of the transfer was to defraud creditors.

The claims of certain involuntary creditors such as employees and taxing authorities may be given preferential treatment in bankruptcy proceedings. Foreign creditors are given equal treatment to US creditors under the US Bankruptcy Code.

Foreign exchange and withholding tax issues

Restrictions, controls, fees and taxes

What are the restrictions, controls, fees, taxes or other charges on foreign currency exchange?

The United States does not currently impose exchange controls or taxes on the exchange of foreign currency. The federal government, however, monitors large foreign exchanges and requires the persons involved in such transactions to make full and accurate disclosures of such transactions. Moreover, persons involved in such transactions should consult the rules of the Office of Foreign Assets Control, which impose economic and trade sanctions in certain instances.

Investment returns

What are the restrictions, controls, fees and taxes on remittances of investment returns (dividends and capital) or payments of principal, interest or premiums on loans or bonds to parties in other jurisdictions?

Foreign investors may generally remit profits abroad. However, payments and remittances to parties in certain countries or to certain specific companies or individuals may be restricted pursuant to sanctions imposed by the Treasury Department.

Dividends, interest, royalties and service fees may be subject to tax withholding at a rate of 30 per cent, unless certain conditions are satisfied or certain exemptions, such as treaty exemptions, apply.

Foreign earnings

Must project companies repatriate foreign earnings? If so, must they be converted to local currency and what further restrictions exist over their use?

US companies are not required to repatriate foreign earnings. However, profits realised in a foreign country may still be subject to taxation by the United States.

May project companies establish and maintain foreign currency accounts in other jurisdictions and locally?

Although the United States does not prohibit offshore accounts, such accounts may still be subject to taxation domestically. The Internal Revenue Service (IRS) requires US persons with a financial interest in or signature authority over a foreign financial account with funds exceeding US$10,000 to report such holdings by the end of June every year. Accounts of non-US entities controlled by a US company may also need to file a Report of Foreign Bank and Financial Accounts. A filing is required if the funds in foreign financial accounts exceeded the IRS threshold at any point during the calendar year, and non-compliance can result in significant penalties.

There is no prohibition on local banks accepting deposits and holding deposit accounts in foreign currency. However, it is not very common to find a project company in the US opening any such account.

Foreign investment issues

Investment restrictions

What restrictions, fees and taxes exist on foreign investment in or ownership of a project and related companies? Do the restrictions also apply to foreign investors or creditors in the event of foreclosure on the project and related companies? Are there any bilateral investment treaties with key nation states or other international treaties that may afford relief from such restrictions? Would such activities require registration with any government authority?

The United States generally places very few restrictions on foreign investment. However, some restrictions do apply to the ownership of certain natural resources and production facilities and certain assets that are deemed material for national security.

For example, deposits of certain natural resources, including oil, oil shale, coal and gas, and lands containing such deposits that are owned by the United States may only be sold to US citizens or US entities. Similarly, licences for the construction and operation of facilities for the development, transmission or utilisation of power on land controlled by the federal government may only be issued to US citizens or US corporations.

Foreign investment or ownership in a project may also be subject to national security-based reviews and restrictions. Under the Foreign Investment and National Security Act of 2007, the Committee on Foreign Investment in the United States (CFIUS) holds the power of review for transactions involving foreign investment or control over a US business that may have an impact on national security. CFIUS can recommend to the President of the United States to suspend, block, or renegotiate such a transaction. CFIUS has the authority to review a transaction where a change of control would result from foreclosure.

The US is party to some free trade agreements that provide protections to foreign investors, including multilateral treaties such as the North American Free Trade Agreement and the Dominican Republic-Central American Free Trade Agreement, and bilateral free trade agreements with countries such as Chile, Colombia, Peru, Singapore and Korea. Generally, registration with a government authority is not required for a foreign investor to benefit from these treaties.

Insurance restrictions

What restrictions, fees and taxes exist on insurance policies over project assets provided or guaranteed by foreign insurance companies? May such policies be payable to foreign secured creditors?

While there are no general restrictions on obtaining insurance policies issued or guaranteed by foreign insurance companies, certain restrictions, conditions and tax implications may apply to the issuance of such policies. For example, a federal excise tax may be levied on the premiums paid to foreign insurance companies for certain types of insurance and reinsurance coverage. In addition, many states provide certain guarantees for insurance policies issued by insurers that meet state regulatory requirements and these guarantees may not be available for insurance policies issued by foreign insurance companies that are not deemed admitted to conduct business in the relevant jurisdiction.

Worker restrictions

What restrictions exist on bringing in foreign workers, technicians or executives to work on a project?

US companies must apply for work authorisation for foreign workers under the Immigration Reform and Control Act of 1986, and must verify each worker’s immigration status that permits him or her to lawfully work in the United States and maintain specified employment documentation for each new foreign national hire. Employers may sponsor foreign workers for a number of temporary visa categories, eligibility for which will depend on the experience and qualifications of the worker. Some of the free trade agreements entered into by the United States create special categories of workers that may apply for special visa categories that allow them to work in the United States.

Equipment restrictions

What restrictions exist on the importation of project equipment?

All imported equipment or products must be declared with the US Customs and Border Protection Agency. Customs duties or tariffs apply, but can, in some cases, be reduced or eliminated in accordance with the relevant trade agreement that governs the trade relationship with the exporting country. The Office of Foreign Assets Control administers and enforces import restrictions and bans on a number of countries and persons.

Nationalisation laws

What laws exist regarding the nationalisation or expropriation of project companies and assets? Are any forms of investment specially protected (from nationalisation or expropriation)?

The United States government or any state government may seize private property without consent, provided that the private property owner receives just compensation under the doctrine of eminent domain. While the power of eminent domain is limited by the Takings Clause of the Fifth Amendment and the Due Process Clause of the Fourteenth Amendment of the United States Constitution, the US Supreme Court has expanded the definition of ‘public use’ regarding eminent domain to allow private development of projects that serve a ‘public purpose’.

In addition to the protections provided by the Fifth Amendment, many multilateral and bilateral investment treaties (including free trade agreements) include expropriation provisions that offer protections to foreign investors.

Fiscal treatment of foreign investment

Incentives

What tax incentives or other incentives are provided preferentially to foreign investors or creditors? What taxes apply to foreign investments, loans, mortgages or other security documents, either for the purposes of effectiveness or registration?

There are few tax incentives or other incentives provided preferentially to foreign investors or creditors. While no federal taxes apply to loans, mortgages or other security documents for the purposes of effectiveness or registration, some states do levy taxes on security documents (particularly mortgages) for such purposes.

Government authorities

Relevant authorities

What are the relevant government agencies or departments with authority over projects in the typical project sectors? What is the nature and extent of their authority? What is the history of state ownership in these sectors?

US federal agencies share responsibility with state and, in some cases, local agencies for regulating projects. The agencies with authority to regulate a project will depend on the jurisdiction and the industry involved. Natural resources, transportation, energy and telecommunications are regulated by federal agencies such as the US Department of Energy, the US Department of Transportation, the Environmental Protection Agency, the Federal Communications Commission and the Federal Energy Regulatory Commission. The nature and extent of their authority rests on the Constitution, federal statutes, state statutes and what is known as Chevron deference (ie, a principle of administrative law that requires courts to defer to the reasonable interpretation of statutes made by the agency in charge of enforcing them). Federal statutes, federal regulations, state statutes, state regulations and case law have shaped the nature and extent of the authority of the relevant federal agencies.

The federal government and state governments have held varying levels of ownership in the infrastructure sector (particularly as it relates to energy and transportation projects) over time in various forms through direct ownership or control, public corporations or joint ventures.

Regulation of natural resources

Titles

Who has title to natural resources? What rights may private parties acquire to these resources and what obligations does the holder have? May foreign parties acquire such rights?

The federal government, state governments and private citizens may all hold title and rights to land and the oil, gas and minerals under it. Such title and rights are governed principally by state law, and the treatment varies from state to state. Title to the surface rights over a parcel of land does not necessarily imply ownership of all natural resources below the surface of such land, as surface rights and mineral rights are treated as separate legal estates in many states. The obligations imposed on the holder of a mineral estate will vary depending on the jurisdiction and may depend on whether the mineral estate or the surface estate is considered the dominant estate. In some states, mineral rights may be deemed to be abandoned if they are not developed within a certain period.

There are certain restrictions on the foreign ownership of natural resources. For example, deposits of oil, gas and many types of minerals and lands owned by the United States that contain such deposits may only be acquired by US citizens or entities.

Native American nations are classified as ‘domestic dependent nations’, meaning that they exercise qualified sovereignty over their tribal lands and the natural resources associated with such lands. Tribal agreements with outside entities are governed by both state and federal law. US case law has gradually sharpened the scope of tribal sovereignty. Accordingly, rights to natural resources within tribal lands may be affected by the rights of Native American nations.

Royalties and taxes

What royalties and taxes are payable on the extraction of natural resources, and are they revenue- or profit-based?

The US federal government does not impose any blanket taxation on the extraction of natural resources, though there is a federal excise tax applicable to the production of coal. The federal government does impose fixed royalties on the natural resources extracted under federal leases, which have varied in amount over time. Royalties imposed under state leases will vary depending on the resource and the jurisdiction. Income taxes or corporate taxes may also apply to profits made from the extraction of natural resources.

Export restrictions

What restrictions, fees or taxes exist on the export of natural resources?

Exports of natural resources usually require prior approval from the relevant federal regulatory agency. For example, the Department of Energy must approve exports of natural gas. The United States does not tax exports generally, as the Supreme Court has found export taxes to be unconstitutional.

Legal issues of general application

Government permission

What government approvals are required for typical project finance transactions? What fees and other charges apply?

The government approvals required for a project finance transaction will depend on the industry involved and the jurisdiction of the project. Typically, project finance transactions will require approvals on the federal, state and local level. For example, electric power projects are regulated at the federal level by the Federal Energy Regulatory Commission (FERC) as well as at the state level. FERC is responsible for regulating all wholesale sales of electric power and state authorities have responsibility for regulating electric power generation, transmission and distribution assets. For example, to the extent an interconnection agreement is not fully consistent with an approved tariff, the non-conforming interconnection agreement must be approved by FERC. Environmental approvals at the federal, state and local level, depending on the characteristics of the project, will typically be required and they are discussed further below. Depending on where the project is located, a significant number of local construction and operating permits may be required based on local ordinances. Also, as previously mentioned, depending on the type of infrastructure, CFIUS clearance may be required.

Registration of financing

Must any of the financing or project documents be registered or filed with any government authority or otherwise comply with legal formalities to be valid or enforceable?

Pursuant to article 9 of the UCC, security over most types of personal property must be perfected through filing a UCC financing statement in the relevant jurisdiction.

Mortgages or deeds of trust over real property must be recorded in the jurisdiction where the real property is situated.

As a general matter, with the exception of certain real estate documents (which often must be notarised and include certain language required by the local filing office), the financing and project documents are not subject to legal formalities such as notarisation or apostillation.

Arbitration awards

How are international arbitration contractual provisions and awards recognised by local courts? Is the jurisdiction a member of the ICSID Convention or other prominent dispute resolution conventions? Are any types of disputes not arbitrable? Are any types of disputes subject to automatic domestic arbitration?

The United States is a member of the ICSID Convention, the New York Convention and the Panama Convention.

The Federal Arbitration Act (FAA) implements the New York Convention and the Panama Convention and promotes arbitration. If the arbitration is of a commercial nature, a foreign party or property situated abroad is involved or there is some reasonable relationship with a foreign state, the international arbitration provisions of the FAA will apply. If these conditions are not met, the FAA’s domestic arbitration provisions will apply. Any party to an arbitration that is subject to these conventions may apply to the district court of the United States for an order confirming the award as against any other party, as long as it is brought within three years after the arbitral award is made. The district courts having jurisdiction over the enforcement of an arbitration award will be those in which an action could be brought except for the arbitration agreement or those in the district and division that embraces the seat of the arbitration if such seat is within the United States. The court should confirm the award unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the applicable convention.

Access to arbitration is not available in certain criminal and family law matters, in disputes where civil penalties may apply and in certain employment and civil rights matters.

Law governing agreements

Which jurisdiction’s law typically governs project agreements? Which jurisdiction’s law typically governs financing agreements? Which matters are governed by domestic law?

It is typical for project agreements to be governed by either the laws of the state in which the project is situated or by New York law. In particular, there are many states that consider certain provisions under laws applicable to construction contracts, including terms of payments or warranties, to be matters of public policy. Therefore, the law of the state where the project is located may override a choice of law in a construction contract.

Given the extensive experience of New York courts in hearing cases involving financing agreements and the well-established case law in this area, financing agreements are most often governed by New York law.

Security documents, such as mortgages, may be required to be governed by the law in which the secured property is located. In connection with personal property, although a security interest could be created by the law of any state (subject to applicable conflict of laws rules), in the case of possessory security interests and security interests in negotiable documents, goods, instruments, money, tangible chattel paper or as-extracted collateral, perfection of the security interest may be required to be done in accordance with the laws of the state where the collateral or the wellhead or minehead is located.

Submission to foreign jurisdiction

Is a submission to a foreign jurisdiction and a waiver of immunity effective and enforceable?

The submission to a foreign jurisdiction is generally enforceable.

Waivers of sovereign immunity are also enforceable pursuant to the Foreign Sovereign Immunities Act.

Environmental, health and safety laws

Applicable regulations

What laws or regulations apply to typical project sectors? What regulatory bodies administer those laws?

A typical project will be subject to regulations at the federal, state and local level, with each jurisdiction able to adopt its own regulations as long as they do not conflict with those of the level above.

Certain projects, including those receiving funds from federal programmes, such as the Title XVII Loan Guarantee Program of the US Department of Energy or the Transportation Infrastructure Finance and Innovation Act of 1998 (TIFIA) Loan Program of the US Department of Transportation, may be subject to performance of an environmental assessment under the National Environmental Policy Act.

Projects may also be subject to various statutes primarily administered by the Environmental Protection Agency, such as the Clean Air Act, the Clean Water Act, the Safe Drinking Water Act, the Endangered Species Act, the Resource Conservation and Recovery Act, the Toxic Substances Control Act and the Oil Pollution Act.

Many federal environmental laws also delegate administration and enforcement responsibilities to state agencies and additional state and local regulations may apply.

Project companies

Principal business structures

What are the principal business structures of project companies? What are the principal sources of financing available to project companies?

Project companies are typically formed as special purpose vehicles that are structured to be ‘bankruptcy remote’ and most commonly take the form of limited liability companies and limited partnerships, so that they can elect to be non-taxable entities. It is common for a project company to be formed as a joint venture between two or more entities.

There are multiple sources of financing available for project companies, and projects are often financed through multiple sources. Bilateral or syndicated commercial bank loans are a major source of financing, but financing may also be available from a variety of other sources, including private equity investors, the ‘term loan B’ market or through the issuance of debt or equity securities, which are typically structured as Rule 144A/Regulation S project bonds or 4(a)(2) private placements. Financing for certain projects may also be available through government programmes such as the US Department of Energy’s Loan Guarantee Program or various state-administered clean energy funds and municipal bond programmes. In addition, private activity bonds may be issued by a government vehicle that on-lends the bond proceeds to the project. Private activity bonds may be tax free if certain conditions are satisfied. Subject to satisfaction of other conditions, such tax treatment is available for certain surface transportation projects, for example.

Public-private partnership legislation

Applicable legislation

Has PPP-enabling legislation been enacted and, if so, at what level of government and is the legislation industry-specific?

A majority of states and Puerto Rico now have some form of PPP-enabling legislation, and a number of the states that do not have PPP-enabling legislation have PPP bills in various stages of legislative consideration. However, there is a substantial lack of uniformity in PPP laws from state to state. In some cases, the enabling legislation is industry-specific (most commonly relating to transportation) and in others it grants general authority to pursue a PPP transaction.

Some agencies of the federal government, such as the National Park Service, the US Department of Veterans Affairs and the Postal Service have entered into some PPP projects based on authority granted in specific statutes. More importantly, the federal government has recently enacted or announced a number of initiatives to encourage the use of PPPs in transportation infrastructure projects other sectors, including the authorisation of the Water Infrastructure Finance and Innovation Authority and the continued funding of the loan programmes under TIFIA and the Railroad Rehabilitation & Improvement Financing Program.

PPP - limitations

Legal limitations

What, if any, are the practical and legal limitations on PPP transactions?

Practical and legal limitations vary by state, especially because there are still a number of states without any PPP-enabling legislation.

Currently, long review periods for acquisition of environmental approvals have significantly delayed the procurement of many projects. This seems particularly due to activism by local communities and environmental activists. Authorities seeking to procure projects under a PPP model have become very careful about compliance with environmental approval processes and expanded community outreach, which has caused some delays in awarding projects.

PPP - transactions

Significant transactions

What have been the most significant PPP transactions completed to date in your jurisdiction?

Some of the significant PPP transactions that have recently been completed in the United States include the sale and refinancing of the Chicago Skyway in Illinois, the Pennsylvania Rapid Bridge Replacement project, the Purple Line Light Rail Project in Maryland, the LaGuardia Central Terminal Building Replacement Project in New York, the Denver Airport Great Hall, the Ohio State University Energy Project, the Virginia Outside the Beltway I-66 Project, the Colorado I-70 East Project, the LAX Consolidated Rent-A-Car, the LAX Automated People Mover and the Newark Liberty International Airport Consolidated Rent-A-Car.

UPDATE & TRENDS

Recent developments

In addition to the above, are there any emerging trends or ‘hot topics’ in project finance in your jurisdiction?

Key developments of the past year30 In addition to the above, are there any emerging trends or ‘hot topics’ in project finance in your jurisdiction?

Project finance activity by loan volume in the United States has continued to grow over the long term, reflecting a return to the market of traditional project finance lenders (particularly European commercial banks) and an increased interest by more recent entrants such as private equity debt funds and an increased participation by development banks. Activity during 2018, in terms of amount of debt, increased by over $11 billion compared with 2017, reflecting significant liquidity in the market.

As in previous years, the greater portion of the projects that came to the market fell within the power and oil and gas sectors. Also similarly to the previous year, a substantial majority of the project financing transactions that closed during 2018 in the United States were for new construction, though refinancing of existing projects saw a higher volume. In addition to financing for construction of new projects, developers continued to look for alternative ways to realise on their investments and redeploy capital as a significant number of projects reached a mature stage.

Prior to the change in administration, the federal government had implemented policies and actions that would incentivise project finance activity in the near and medium term. The Environmental Protection Agency released the Clean Power Plan Proposal, which aims at cutting greenhouse gas emissions by 30 per cent by 2030 from 2005 levels, setting specific goals that states must meet. However, enforcement of the Clean Power Plan was delayed by litigation and in June 2019 the Environmental Protection Agency under the current administration repealed the rule and issued a replacement plan, the Affordable Clean Energy Rule, allowing states to set their own carbon emission standards for coal-fired power plants. The US Department of Energy has issued a significant number of licences authorising US companies to export liquid natural gas. In 2015, the US Department of Energy also issued a new Title XVII loan guarantee solicitation for applications for the financing of innovative renewable energy and energy efficiency projects located in the United States. Congress passed the Water Infrastructure Finance and Innovation Act that creates a low interest rate loan programme to partially fund water and waste water infrastructure projects. In September 2015, the federal government introduced the Build America Transportation Investment Center, which serves as a national P3 resource for states, municipalities and project sponsors. In addition, a number of US states have also created centres of excellence, committees and similar resources for PPPs. In December 2015, a long-term surface transportation bill (the Fixing America’s Surface Transportation Act), was finally adopted after more than 30 short-term extensions had been approved. This legislation authorises the funding of road, bridge and mass transit projects through 2020. In 2016, the federal government created the Build America Bureau to serve as the single point of contact and coordination for states, municipalities and project sponsors looking to explore ways to access private capital in PPPs. The Build America Bureau combines the TIFIA and the Railroad Rehabilitation and Improvement Financing loan programmes, Private Activity Bonds, and the Infrastructure for Rebuilding America (formerly Fostering Advancements in Shipping and Transportation for the Long-term Achievement of National Efficiencies) grant programme under a single agency. These actions create the opportunity to bring more projects to the market, whether by improving the terms on which they can be financed or facilitating new infrastructure development.

The current administration put forward a plan in 2018 to invest up to US$200 billion in federal funds in infrastructure with the goal of stimulating at least US$1.3 trillion in new investment by states, local government and private investors over the next ten years. A number of practical questions were raised about the plan, and it was not voted on in the previous Republican-led Congress. In 2019, Democratic leaders in Congress sought support from the current administration for legislation to invest up to $2 trillion in infrastructure, but recent talks about the proposal collapsed. While progress on a comprehensive infrastructure bill therefore appears to be stalled, at least in the near term, there has been incremental action taken at the federal level to fund existing incentives and create new incentives. In June 2019, the US House of Representatives approved legislation that would increase funding for transportation projects, providing a total of US$86.6 billion in budgetary resources for the Department of Transportation. Among other things, the bill includes funding for a number of existing grant programmes, and for the federal share of the Gateway tunnel project between New Jersey and New York. Two new bills extending the federal Investment Tax Credit for offshore wind developments have also been recently introduced in the House.

The generally positive developments described above do not mean that there are no challenges for the project finance market. The continuing low oil prices, which have caused and may continue to cause some projects to no longer be financeable, is perhaps one of the most salient, particularly considering that a larger portion of the project finance activity in recent times has been precisely in the oil and gas sector. However, companies facing distress as a result of such lower prices may become attractive targets, developing a market for acquisition and refinancing of existing projects. Some natural gas pipeline projects have been delayed or halted due to regulatory and judicial challenges. The full impact of the recent tax reform bill and tariffs imposed on, among others, imported steel and aluminium and solar panels remains to be seen, although to date the adverse effects on deal volume have not been as significant as industry observers initially anticipated. Finally, the withdrawal of the United Kingdom from the European Union (the terms of which are currently being negotiated), and the currency, stock and debt market disruptions that may be created by it (even if they are brief) may require some European lenders to reassess investment strategies in light of capital requirements and other regulatory considerations as they consider relocation of their operations.

In summary, the pipelines of new projects and projects achieving maturity, together with the opportunities created by legacy policy and the liquidity available in the market, appear to ensure a healthy near future for project financing in the United States.