Loan Portfolio Analysis at the U.S. Department of Energy
Challenge: The U.S. Department of Energy (DOE) Loan Program Office (LPO) new clean energy credit programs, Advanced Technology Vehicles Manufacturing (ATVM) and Title XVII, have portfolios of direct loans and loan guarantees that exceed $25 billion to date. DOE requires loan portfolio analysis to measure the risk and magnitude of potential future losses arising from risk exposure, including the creation of cash flow models to estimate a probability of net default for each loan program, and periodic credit subsidy estimation as required under the federal credit reform.
Solution: Summit’s multi-year engagement with these high-profile programs center on the creation of two complex Office of Management and Budget (OMB)-compliant credit subsidy cash flow models used to forecast the cost of loan guarantees to DOE. These models, whose input and assumptions are consistent with credible programmatic and underwriting data, are also used to provide annual loan budget formulation and re-estimate subsidy calculations for corporate finance-driven ATVM programs as well as project finance-driven Title XVII programs. Each model is compliant with the requirements set forth under federal credit reform guidelines, particularly OMB Circular A-11. As part of this engagement, Summit leads the annual re-estimate subsidy calculations for both the ATVM and Title XVII programs, supporting DOE in updating and validating inputs, operating and maintaining the approved cash flow models, and providing technical analysis to explain estimated subsidies. For the OMB and external auditors, Summit also prepares re-estimate memos summarizing the results of the Financing Account Interest Calculation, technical re-estimates, and interest rate re-estimates. For budget formulation, Summit leads the subsidy analyses and works with the DOE and OMB to align all formulation assumptions used as model inputs.