The National Telecommunications and Information Administration (“NTIA”) has adopted a “Programmatic Waiver” of its letter of credit (“LOC”) requirement for subgrantees of funding under the $42.5 billion Broadband Equity, Access and Deployment (“BEAD”) program created by the Infrastructure and Investment Job Act (“IIJA”). This is big news for small and mid-size public and private entities that might not otherwise have been able to meet the LOC requirements.
The NTIA adopted the LOC requirement in its Notice of Funding Opportunity (“NOFO”), establishing regulations for allocation and administration of BEAD funding. The LOC was intended to ensure the performance of subgrantees receiving BEAD grant money from states and territories. As originally adopted, all subgrantees of BEAD funding were required to secure an irrevocable standby letter of credit in a value of no less than 25 percent of the subaward amount for the duration of the project construction.
The LOC had to be obtained from a qualified FDIC-insured bank. Typically, banks require that a LOC be collateralized by cash or a cash-equivalent. As a result, BEAD subgrantee awardees would effectively be required to have access to a large amount of capital that they could set aside throughout the grant term.
The LOC requirement quickly became a flashpoint for controversy. Many small, mid-sized, and non-traditional broadband providers – the very entities that the IIJA directed the BEAD program to include – argued that the LOC would be prohibitively expensive, particularly when coupled with a minimum 25 percent “match” requirement. The costs of the LOC and the fact that the LOC requirement may not be well-suited to achieving its goals[i] generated a concerted effort this summer and early fall to have the NTIA revisit its rules.[ii]
NTIA responded to these concerns by adopting a programmatic waiver modifying the LOC requirement for all subgrantees of BEAD funding. Specifically, the waiver:
- Allows the Use of Performance Bonds. The waiver permits a subgrantee to provide a performance bond equal to 100% of the BEAD subaward amount in lieu of a letter of credit, provided that the bond is issued by a company holding a certificate of authority as an acceptable surety on federal bonds as identified in the Department of Treasury Circular 570.[iii][iv]
- Allows Credit Unions to Issue LOCs. The NOFO requires subgrantees to obtain a LOC from a U.S. bank with a safety rating issued by Weiss of B− or better.[v] The waiver permits subgrantees to fulfill the LOC requirement (or any alternative permitted under the waiver) by utilizing any United States credit union that is insured by the National Credit Union Administration and that has a credit union safety rating issued by Weiss of B− or better.
- Allows Eligible Entities to Reduce the Obligation Upon Completion of Milestones. The waiver allows an Eligible Entity (a state or territory recipient of funding allocation from NTIA) to reduce the amount of the letter of credit obligation below 25% over time or reduce the amount of the performance bond below 100% over time, upon a subgrantee meeting deployment milestones specified by the state or territory.
- Allows for an Alternative Initial LOC or Performance Bond Percentage. The NOFO requires that the initial amount of the letter of credit be 25% of the subaward (or the initial amount of the performance bond be 100% of the subaward under the option described above). The programmatic waiver allows the initial amount of the letter of credit or performance bond to be 10% of the subaward amount during the entire period of performance when an Eligible Entity issues funding on a reimbursable basis consistent with Section IV.C.1.b of the NOFO, and reimbursement is for periods of no more than six months each. Given the likelihood that Eligible Entities will extensively employ a reimbursement approach, this alternative is particularly significant.
NTIA’s programmatic waiver appears to provide much-needed relief and flexibility for potential BEAD subgrantees who might otherwise have been precluded from fully participating in the BEAD program.[vi]
[i] The NTIA LOC requirement was largely based on a LOC requirement established by the Federal Communications Commission in connection with its Rural Digital Opportunity Fund, an entirely different program.
[iv] Where a performance bond is utilized, the requirement that the subgrantee provide an opinion letter from bankruptcy counsel affirming that the letter of credit proceeds would not be treated as property of the subgrantee’s estate under the Bankruptcy Code is waived.
[v] Weiss Ratings (formerly Weiss Research) is a financial ratings service that is often utilized to establish benchmarks in the financial and banking industry. https://weissratings.com/en/credit-unions
[vi] Note, the NTIA adopted a nearly identical LOC requirement under its Middle Mile Grant program. The LOC programmatic waiver does not apply to the NTIA Middle Mile Grant program.