The Wifia Program’s one-page benefit summary makes the point that a Wifia loan can include a ‘customized repayment schedule’. That may not sound like much of a benefit to highly-rated public water systems with efficient access to the tax-exempt bond market (the vast majority of Wifia borrowers) since they can structure bond series with almost infinite flexibility.

But what the Program is really getting at is something that’s actually quite valuable: non-pro-rata amortization (the Program informally calls it ‘sculpting’) that allows the 51% bond tranche of a Wifia financing to amortize first and faster. This does two things. First, it means that over its term the average Wifia share of the financing is higher than the initial statutory 49% — closer to about 60%. Second, sculpting allows more utilization of a Wifia loan’s sweet spot, the US Treasury curve’s generally less positive slope (relative to munis, especially after 10 years) and specifically flat-forward rate beyond the 30-year market.

So, for a 40-year financing, the more you can replace later bond series with Wifia maturities, the better. The fact that Wifia Program explicitly allows this (subject of course to credit quality and other prudent criteria like asset life) is encouraging – the benefit can be confidently baked in at the planning stage.

Unsurprisingly, the numbers are big. In a sculpting analysis model of a typical Wifia loan (Aa3/AA- borrower, $100 million 40-year financing), debt service PV of the Wifia financing with pro-rata (‘51%’) amortization is about $3.6 million less than a comparable 100% bond financing . Nice. But with sculpted (‘100%’) amortization, this benefit rises to $5.7 million, nearly 60% increase.

As usual, I can’t include the macro-filled Excel model in the Download menu, but the .xlxs version there opens with the 100% sculpting case and a tab (51% case) that shows the pro-rata comparison.