TABLE 1: ELIGIBLE ENVIRONMENTAL SECTORS   Priority Sectors   Water supply Water conservation Wastewater treatment Municipal solid waste   Expanded Mandate Sectors   Air quality improvement Clean & renewable energy Energy efficiency Industrial and hazardous waste Public transportation

 

The primary purpose of the NADB is to facilitate financing for the development, execution and operation of environmental infrastructure projects located in the U.S.-Mexico border region and certified by the Border Environment Cooperation Commission (BECC). In accordance with its charter, NADB may provide loans for infrastructure projects with a demonstrable and reasonable assurance of repayment. This webpage outlines the eligibility and evaluation criteria, general financing terms, and procedures for the NADB’s Loan Program.

Eligibility

Under its charter, NADB is authorized to make loans to both public and private sector borrowers, operating within the United States and Mexico. Any project, regardless of community size or project cost, is eligible for financing and other forms of assistance from NADB, if it meets all three of the following eligibility criteria:

• The project must be located within 100 kilometers (62 miles) north of the international border in boundary in the four U.S. states of Texas, New Mexico, Arizona and California and within 300 kilometers (about 186 miles) south of the border in the six Mexican states of Tamaulipas, Nuevo Leon, Coahuila, Chihuahua, Sonora, and Baja California.
• It must remedy an environmental and/or human health problem. A list of some eligible environmental sectors is provided in the Table 1.
• It must be certified by the Border Environmental Cooperation Commission (BECC).

Through its Loan Program, NADB is prepared to finance a portion of the capital costs of a project. Eligible capital costs may include the acquisition of land and buildings; site preparation and development; system design, construction, rehabilitation, and improvements; and the procurement of necessary machinery and equipment.

General Evaluation Criteria

NADB carefully reviews each project proposal to ensure that the project is technically, environmentally, financially and economically sound; that the project sponsor has the institutional, managerial and structural capability to carry out the project; and that the project meets the standards of the financial community in terms of viability, security, and legal structure. In evaluating a loan application, NADB is primarily concerned with the following factors:

Technical criteria:

• The project is part of a long-term master plan that promotes the most efficient use of all resources.
• The proposed technology is appropriate and effective.
• The project contains a comprehensive operations and maintenance plan.

Economic criteria:

• The service area can sustain a sufficient level of user fees or other revenue or income streams to repay the debt.

Financial criteria:

• There is a demonstrable and reasonable assurance of repayment at the time of funding.
• The project is self-sustaining through user fees or other revenue or income streams in order to repay all debts, cover operations and maintenance costs, and create reserves.

Legal/regulatory criteria:

• The project meets all the applicable legal and regulatory requirements of its locality.
• The proposed procurement procedures are fair, reasonable, competitive and transparent.

Sponsor criteria:

• Project sponsors, borrowers and guarantors must demonstrate their technical, managerial and financial capabilities for carrying out their respective obligations.
• Project sponsors, borrowers or guarantors must have the legal authority to set and increase user fees and rates.

	TABLE 2: TYPES OF FINANCIAL SUPPORT
	Direct loans Interim financing Participation in municipal bond issues

Types of Financing Available

NADB works closely with project sponsors to structure appropriate and affordable financing packages to meet the specific needs of each community. NADB can provide financing in a number of ways, including those shown in Table 2.

General Financing Terms

All NADB project financing operations must be structured with a view toward preserving the bank’s resources and credit rating for the benefit of current and future border residents. Funding from other sources in the form of grants, equity or cofinancing is required as NADB generally cannot finance more than 85 percent of the eligible costs of a project.  However, in the case of projects with eligible costs of up to and including US$1 million, NADB may provide a loan for up to 100 percent of those costs, depending on project risks and other characteristics.

Loan maturities generally will range up to 25 years, depending on individual project requirements, but cannot exceed the useful life of the project. Grace periods for principal repayment are negotiable and may cover the anticipated project construction and start-up phase. The borrower must maintain the debt coverage ratio set by NADB at the time of funding, usually a minimum of 1.2.

Loans must be paid back in the currency in which they are originally funded. An exchange rate hedging mechanism is available to protect against currency risks, where necessary. Exchange risk coverage will be available for both the NADB component of a project’s financing package, and any other public or private credit component of a NADB-sponsored project.

NADB loans must be secured with collateral in the form of project and/or borrower cash flows or other assets. The value of the collateral must be greater than the unpaid balance of the loan. Third-party guaranties are not required, unless needed to demonstrate a reasonable assurance of repayment or to support collateral requirements.

	TABLE 3: STANDARD FINANCING CHARGES FOR MARKET-RATE LOANS
	Fees
	Application fee: $1,500 - $2,500, depending on the amount of the loan requested Commitment fee: 3/4 of one percent per annum on undisbursed loan balances
	Interest Rate
	Base rate: Related to the yield on U.S. treasury securities of comparable maturity Administrative margin: Between 100-150 basis points Risk exposure spread: 0-75 basis points, depending on applicant’s creditworthiness and project risk

The terms and conditions of NADB financing will be appropriate to the project financed. In making a loan, NADB must be reimbursed for its expenses, including legal fees and loan supervision costs, as well as receive suitable compensation for its risk.  A list of standard financing fees is provided in Table 3.

Interest Rates

Interest rates for particular loans are established at loan closing, and payments may be made on a monthly, quarterly or semi-annual basis. NADB currently offers two interest rate structures: market-based rates and lower-than-market rates under its Low-Interest Rate Lending Facility (LIRF).  LIRF loans may be made to public borrowers who meet the applicable eligibility requirements. Loans to private borrowers will be at market rates. 

For market-rate loans, NADB charges an interest rate that is composed of a base rate plus an administrative margin and a risk exposure spread (see Table 3).  An example of current NADB market rates is available at Sample Interest Rates (pdf).

Under LIRF, a limited amount of loans may be provided at lower-than-market rates.  All of the eligibility and evaluation criteria, as well as the general terms of financing established in the NADB’s Loan Policies and Procedures apply to LIRF loans, with the following exceptions:

• Eligibility.  LIRF loans are only available to non-investment grade governmental borrowers and for projects in the Bank’s priority sectors: water, water conservation, wastewater and municipal solid waste.  Projects in other environmental sectors under the bank’s expanded mandate are not eligible. Moreover, projects must be located within 100 kilometers (62 miles) north of the international border in boundary in the four U.S. states of Texas, New Mexico, Arizona and California and within 200 kilometers (about 124 miles) south of the border in the six Mexican states of Tamaulipas, Nuevo Leon, Coahuila, Chihuahua, Sonora, and Baja California.

• Financing Limits. The maximum amount of a LIRF loan that may be approved for a single project is US$16 million.  Any loan amount exceeding US$16 million shall be at a NADB market rate.

• Fees and other expenses. Under LIRF, project sponsors will have to pay the same application fee as for market-rate loans, as well as reimburse the NADB for its expenses, including legal fees and loan supervision costs. The Bank will also charge a commitment fee of 1/4 of one percent per annum on the undisbursed balance of the loan.

• Interest Rates. Under LIRF, interest rates are composed of the following elements:  
  • Base rate: For loans with maturities of up to five years, the one-year consumer price index inflation forecast of the Philadelphia Federal Reserve Bank’s (PFRB) Survey of Professional Forecasters (CPI) will serve as the base interest rate. For LIRF loans with terms of between five and ten years, the PFRB’s ten-year CPI will serve as the base interest rate.  The Philadelphia Federal Reserve updates this forecast quarterly, and it is available on the Internet at: www.phil.frb.org/files/spf/cpie1.txt.  For loans with maturities longer than ten years, the base interest rate will be established by taking the ten-year inflation forecast and adding one basis point for each additional year.
  • Administrative margin: 50 basis points to cover loan’s administrative expenses.
  • Risk exposure spread: generally ranging between 30 and 75 basis points, depending upon the borrower’s creditworthiness and project risk.

For an example of LIRF interest rates in both dollars and pesos, see Sample Interest Rates (pdf).

Operation

Application Procedures

Step 1	NADB, in coordination with the BECC precertification process, performs a preliminary review to determine project eligibility and to ensure all pertinent information is provided.
Step 2	Project sponsor formally submits a loan application to NADB, along with the corresponding fee.
Step 3	Applicant and NADB sign an acceptance agreement regarding the comprehensive analysis of the project proposal and payment of the NADB’s expenses.

NADB Review and Approval Procedures

Step 1	BECC and NADB perform a comprehensive analysis of the project, including financial feasibility, project risks, and available sources of financing.
Step 2	NADB staff structures an appropriate financing package for the project based on the community’s repayment capacity and the availability of other sources of financing.
Step 3	BECC and NADB submit a joint certification and financing proposal to their Board of Directors for approval.
Step 4	NADB issues a Financing Commitment approved by its Board.
Step 5	Applicant and NADB negotiate final documentation, including procurement procedures
Step 6	Applicant and NADB sign loan agreement.
Step 7	NADB disburses funds according to the approved schedule and established norms.
Step 8	NADB monitors the project through financial and technical audits and reports.

For more detailed information, see Loan Policies and Procedures.

Additional Assistance

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