Getting to Know LPO: Guidance on Paying Credit Subsidy Cost for Title 17 Borrowers

The Federal Credit Reform Act of 1990 (FCRA) requires agencies to estimate the cost to the government of extending or guaranteeing credit. This cost, referred to as credit subsidy cost, equals the net present value of estimated cash flows from the government minus estimated cash flows to the government over the life of the loan and excluding administrative costs.

The credit subsidy cost is calculated prior to loan closing by LPO using a model provided by the Office of Management and Budget (OMB).

Absent appropriated amounts from Congress to cover credit subsidy cost, borrowers in the Title 17 Innovative Energy Loan Guarantee Program are required to directly pay the non-refundable credit subsidy cost prior to, or at the time of, closing.

Under the Program’s regulations, LPO has authority to include a risk-based charge that, together with the principal and interest on the guaranteed loan, or at such other times as DOE may determine, is payable on specified dates during the term of a Guaranteed Obligation. The risk-based charge is intended to make DOE’s charges and costs consistent with the commercial markets and other federal credit programs.

The risk-based charge, while distinct from the credit subsidy cost, may affect that fee by increasing expected inflows to the government that are considered in calculating the amount of the credit subsidy cost.

The specifics of each transaction are unique, and potential borrowers should discuss payment of credit subsidy cost and a risk-based charge with their LPO staff contact during the pre-application consultation process. To request a pre-application consultation, please email [email protected] or call 202-538-8336.