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The U.S. Department of Transportation (USDOT) has proposed new regulations for the Railroad Rehabilitation & Improvement Financing (RRIF) program that will make it harder and more expensive for short lines to apply for loans, according to the American Short Line and Regional Railroad Association's (ASLRRA) latest newsletter.

Proposed in June, the regulations would require short lines seeking a RRIF loan to "have and always maintain an equity contribution of at least 20 percent of total project costs."

"Such a requirement would appear redundant given that short lines must repay RRIF loans, be collateralized at more than 100 percent of the value of the loan and pay a credit risk premium up front before receiving the loan," said Adam Nordstrom, a partner in ASLRRA lobbyist firm Chambers, Conlon & Hartwell L.L.C., in the newsletter. "The undefined and vague 20 percent equity requirement appears to serve no security purpose, but instead places RRIF loans further beyond the reach of short lines."

The proposed rules also would favor railroads with an investment grade credit rating and a debt-to-equity ratio of less than one, he said. Since 1998, the Federal Railroad Administration (FRA) — which administers the loans — has approved 21 RRIF applications and "not a single one of those railroads had an investment grade rating, and only four of those railroads appear to have had a debt-to-equity ratio of less than one," said Nordstrom, adding that most short lines don't have and cannot obtain such a rating.
 
In addition, the proposed regulations would prioritize projects that identify and quantify public benefits to be gained by RRIF financing, creating criteria that are highly subjective and could be used to reject almost any loan application, he said.

The USDOT is accepting comments on the proposed rules until Aug. 26. Under the RRIF program, the FRA is authorized to provide direct loans and loan guarantees up to $35 billion — with $7 billion set aside for regionals and short lines — to acquire, improve or rehabilitate intermodal or rail equipment or facilities; refinance outstanding debt incurred for those purposes; or develop or establish new intermodal or railroad facilities.