In my last update of the economic cost of WIFIA’s portfolio, The Cost of WIFIA’s FYE 21 Portfolio as of June 30, 2022, I noted that the analysis didn’t include loan commitments added since FYE 2021 or additional drawdowns. Since then, I added the 27 loans closed between FYE 2021 and 5/26/22, for a total portfolio at 6/30/22 of $15.3 billion, roughly in line with WIFIA’s website information. I also assumed that 25% of the portfolio had been drawn, versus the previous assumption of 12.5%, and that realized re-estimate losses on the drawn loans were about $100 million, versus the $25 million reported for FYE 2021.

As expected, the weighted average interest rate on the portfolio loans and loan commitments increased to about 1.8%, versus about 1.5% at FYE 2022 since rates have been rising in the interim.

Based on all that, if all WIFIA loan commitments had been drawn on 6/30/22 at the then-current 20Y UST of 3.4%, the realized funding loss would have been about $2.4 billion, the same estimate as before, as I had thought it would be. Although the portfolio’s weighted average rate is higher than at FYE 2021, portfolio volume is also greater, resulting in about the same estimated loss.

It’s not quite all bad. Note that if interest rates start to fall back to the 2.0% range, potential funding losses on the 6/30/22 portfolio will decrease more quickly than they would have with the FYE 2021 portfolio (the dotted line in the chart) since many of the recent loans will be at about that rate. A 20Y UST of 2.0%, for example would only result in a $300 million loss or 2% of the portfolio — instead of the $600 million or 5% that would have been incurred by funding the FYE 2021 portfolio. That’s much better, especially regarding the optics — but this result assumes WIFIA doesn’t reset the higher rate loan commitments downward. Given the program’s reset precedents, I’d imagine there’ll be some tough discussions if rates fall a lot, and resets will probably happen.

Of course, all of these economic cost analyses are only as good as the assumptions I’m making in the absence of direct data. The size and the closing dates of the loans are well-disclosed by WIFIA and there’s a ton of accurate UST rate data for those closing dates. I’m also pretty sure about the typical loan WAL of 20 years and FCRA methodology. But the amount of loan commitments drawn, and their realized re-estimate losses, are frankly guesstimates. Some information about the FYE 2021 portfolio did surface in White House budget appendices last year, but only indirectly and on a projected basis. Nevertheless, that data was broadly consistent with my assumptions at the time. It’ll be interesting to see what the next budget might disclose, especially regarding my assumption of $100 million of realized re-estimate losses for FY 2022. I’d predict that’s a minimum.