Obligation Guarantees
Federal RegisterMar 31, 1994
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DEPARTMENT OF TRANSPORTATION
Maritime Administration
46 CFR Part 298
[Docket No. R-151]
RIN 2133-AB09
Obligation Guarantees
AGENCY: Maritime Administration, Department of Transportation.
ACTION: Interim final rule.
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SUMMARY: The Maritime Administration (``MARAD'') is issuing this
interim final rule which amends its regulations implementing Title XI
of the Merchant Marine Act, 1936, as amended (``Act''), in order to
carry out the provisions of Subtitle D of Title XIII, Public Law 103-
160, enacted on November 30, 1993. Subtitle D of Title XIII authorizes
the Secretary of Transportation (``Secretary'') to guarantee
obligations issued to finance the construction, reconstruction, or
reconditioning of eligible export vessels and for shipyard
modernization and improvement. While Title XI of the Act is applicable
to financing assistance for all types of vessel construction, that part
of the Title XI program related to fishing vessels is administered by
the National Oceanic and Atmospheric Administration of the Department
of Commerce, (NOAA), pursuant to NOAA regulations, which appear at 50
CFR part 253. Subtitle D of Title XIII directs the Secretary to
prescribe interim 2 regulations within 90 days after the date of
enactment and a final rule within 270 days after enactment.
DATES: This interim final rule is effective March 31, 1994. Comments
are requested and must be received on or before May 31, 1994.
ADDRESSES: Send an original to the Secretary, Maritime Administration,
room 7300, Department of Transportation, 400 Seventh Street, SW.,
Washington, DC 20590. All comments will be made available for
inspection during normal business hours at the above address.
Commenters wishing MARAD to acknowledge receipt of comments should
enclose a stamped self-addressed envelope or postcard.
FOR FURTHER INFORMATION CONTACT: Mitchell D. Lax, Director, Office of
Ship Financing. Telephone 202-366-5744.
SUPPLEMENTARY INFORMATION: Title XI of the Act, 46 App. U.S.C. 1271 et
seq., authorizes the Secretary to provide guarantees of debt
(``obligation guarantees'') issued for the purpose of financing or
refinancing the construction, reconstruction or reconditioning of
vessels built in United States shipyards. Applications for obligation
guarantees are made to MARAD acting under authority delegated by the
Secretary to the Maritime Administrator (``Administrator''). Prior to
execution of a guarantee, MARAD must, among other things, make
determinations of economic soundness of the project, financial and
operating capability of the applicant. Prior to amendment by Public Law
103-160, guarantees could be issued only for debt issued by United
States citizens.
The Title XI program enables owners of eligible vessels to obtain
long-term financing on terms and conditions and at interest rates
comparable to those available to large and financially strong
corporations. Funds secured by the obligation guarantees that are used
for financing a vessel are borrowed in the private sector.
Public Law 103-160, cited as the ``National Defense Authorization
Act for Fiscal Year 1994'' (``Authorization Act''), was enacted on
November 30, 1993. Subtitle D of Title XIII of the Authorization Act,
cited as the ``National Shipbuilding and Shipyard Conversion Act of
1993'' (``Shipbuilding Act''), establishes ``a National Shipbuilding
Initiative (NSI) program to be carried out to support the industrial
base for national security objectives by assisting in the
reestablishment of the United States shipbuilding industry as a self-
sufficient internationally competitive industry.'' It adds new sections
1111 and 1112 to the Act.
New section 1111 provides that the Secretary may guarantee
obligations for eligible export vessels in accordance with the terms
and conditions of Title XI applicable to vessels documented under
United States law. Alternatively, the Secretary may guarantee
obligations in accordance with such other terms as the Secretary
determines to be more favorable than the terms otherwise provided in
Title XI and to be compatible with export credit terms offered by
foreign governments for the sale of vessels built in foreign shipyards.
Section 1111 also establishes an Interagency Council to ``obtain
information on shipbuilding loan guarantees, on direct and indirect
subsidies, and on other favorable treatment of shipyards provided by
foreign governments to shipyards in competition with United States
shipyards.'' It specifies the purpose for the Interagency Council, how
the Interagency Council shall operate and its composition.
New section 1112 provides that the Secretary may guarantee the
payment of the principal of, and the interest on, an obligation for
advanced shipbuilding technology and modern shipbuilding technology of
a general shipyard facility located in the United States. The new
section defines the following terms: (1) ``advanced shipbuilding
technology,'' (2) ``modern shipbuilding technology,'' and (3) ``general
shipyard facility.''
The Act presently provides a limitation of 75 percent or 87\1/2\
percent of the amount of actual cost which can be guaranteed, depending
on the category of vessel financed. However, in 1985 MARAD formalized
the policy begun in 1982 of issuing guarantees of no more than 75
percent of the actual cost of a project in reaction to the growing
number of defaults in several industry segments. The formalization was
in the form of amended regulations which now require a 25 percent
equity contribution in every case. MARAD gave as its reasons for the
amendment the need to strengthen new guarantees, the reduction of the
cash flow required to service the Title XI debt, and the reduction of
project breakeven revenue requirements. The Shipbuilding Act prohibits
the Secretary from establishing by rule, regulation or procedure any
percentage within any statutory limitation that is intended to be
applied uniformly to all guarantees that are subject to the limitation.
Subtitle D of Title XIII also makes conforming amendments to Title
XI of the Act to reflect the new authority of the Secretary to issue
guarantees of debt obligations used to finance eligible export vessels
and shipyard modernization and improvement, and restricts guarantees
for shipyard modernization and improvement to not more than 12\1/2\
percent of the funds available per year for loan guarantees, from funds
transferred from the Secretary of Defense pursuant to section 108 of
the National Defense Authorization Act for Fiscal Year 1994.
As noted, the provisions of the Shipbuilding Act that require
changes in MARAD's regulations became effective on November 30, 1993.
MARAD has concluded that it is imperative in the interest of all
concerned to publish amendments to its Title XI regulations, as an
interim final rule, effective on publication, to permit implementation
of the new law without delay which could adversely impact the NSI
program. This interim final rule is intended to minimize transitional
uncertainty, while allowing subsequent fine-tuning of these regulations
based on the opportunity for considered evaluation of comments from
interested parties before adopting a final rule.
In addition to soliciting comments on the interim amendments to the
Title XI regulations outlined in this interim final rule, we are hereby
entertaining industry and other public comments on two additional
areas. The first deals with the issuance by the Secretary of a letter
of interest, in lieu of a letter commitment, upon receipt of a request
for guarantees. A letter of interest will not be a financial offer but,
rather, an indication of what terms will be considered by the Secretary
if a complete application is filed and a letter commitment is to be
issued at a later date. It has been suggested that the Secretary might
want to consider this approach, in order to afford interested parties
the opportunity to explore the possibility of obtaining a loan
guarantee without incurring the substantial time and expense involved
in filing a complete application. Upon receipt of a request for a
commitment to execute guarantees for advanced or modern shipbuilding
technology or eligible export vessels, the Secretary may perform a
preliminary review of the request and after evaluating a portion of the
proposed Title XI project on a technical, financial, and/or economic
viability basis (i.e. economic-long term vessel charter commitment or
technical-shipyard ability to construct a vessel), the Secretary may
issue, within 10 days of receipt of the Title XI request, a letter of
interest. The requestor thereby could be given a preliminary indication
as to whether the number and type of vessels contemplated, or the type
of technology, would be acceptable if certain terms and conditions
specified by the Secretary are satisfied. We invite comments on the
concept of a Letter of Interest, particularly in regard to its scope,
limitations, and timing. If the requestor can satisfy this set of
conditions, processing of the application for guarantees would move
very quickly.
The second issue on which we are soliciting public comments is the
establishment of a deadline for processing a complete Title XI
application. The Title XI regulations presently give no fixed deadline
for the Secretary to act on a Title XI application once all information
is considered complete. Hence, we are soliciting comments on the
establishment of a 9 requirement that the Secretary will act on a Title
XI application within a specified amount of time, such as 60 days, of
when the application is considered complete by the Secretary.
A separate Notice of Proposed Rulemaking will be published at a
later date which will propose modifications to the Title XI regulations
to improve administration of the entire Title XI program. Such
modifications are not addressed in this interim rule because they are
not required to implement the amendments to Title XI resulting from
enactment of the Shipbuilding Act.
Whenever reference is made in these regulations to forms prescribed
by MARAD for applications or other filing requirements, the format of
such forms in effect prior to the effective date of these regulations
may be used pending revision and issuance of new forms to be approved
by the Office of Management and Budget. To the extent necessary to
reflect statutory requirements, any form submitted may be modified or
supplemented to facilitate processing, but, until new forms have been
approved, these regulations do not require more extensive paperwork or
reporting requirements than exist 10 under the present Title XI
regulations. Indeed, with the exemptions provided herein, those
requirements should be less burdensome in the aggregate. Any additional
burden imposed at this time in particular circumstances is derived from
statutory requirements and not from exercise of regulatory discretion.
Discussion of Rulemaking Text
To implement provisions in Subtitle D of Title XIII of the
Shipbuilding Act, MARAD is amending its Obligation Guarantees
regulations at 46 CFR part 298, summarized as follows:
Subpart A--Introduction
Section 298.1 Purpose.
Section 298.1, Purpose, is self-explanatory.
Section 298.2 Definitions.
Section 298.2, Definitions, is intended to provide convenient 11
reference to the meaning of significant terminology used in Part 298,
based principally on statutory derivation, reflecting the letter
redesignations of the paragraphs, whenever applicable.
Paragraph (a), ``Act,'' remains unchanged.
Paragraph (b), ``Actual Cost,'' is derived from 46 U.S.C. 1271 (f),
modified expressly to reflect the addition of advanced or modern
shipbuilding technology as being assets to which the term also applies.
Paragraph (c), ``Advanced Shipbuilding Technology,'' is a new
paragraph added to Sec. 298.2 and recites the statutory definition in
the new paragraph (d)(1) to section 1112 of the Act.
Paragraph (d), ``Affiliate or Affiliated,'' remains unchanged.
Paragraph (e), ``Closing,'' is modified to recognize the fact the
definition of a Preferred Mortgage shall not apply to advanced or
modern shipbuilding technology where the Secretary shall obtain an
enforceable first mortgage with such equipment.
Paragraph (f), ``Depository,'' is amended to reflect the
recognition that, with regard to eligible export vessels, flexibility
should be permitted to allow as depositories banks or other financial
institutions organized and doing business under the laws of a foreign
country, which institutions are found to be acceptable to the Secretary
and accept deposits for the Title XI program.
Paragraph (g), ``Depreciated Actual Cost,'' is derived from 46
U.S.C. 1271 (g), modified expressly to reflect: (1) The addition of
advanced or modern shipbuilding technology, (2) the addition of the
words ``or manufacturer'' after ``shipbuilder'' wherever it occurs to
reflect the manufacturing of advanced or modern shipbuilding
technology, and (3) the recognition of an appropriate residual value
for advanced or modern shipbuilding technology.
Paragraph (h), ``Documentation,'' remains unchanged.
Paragraph (i), ``Eligible Export Vessel,'' is a new provision added
to Sec. 298.2 and recites the statutory definition in the new paragraph
(o) of section 1101 of the Act.
Paragraph (j), ``Eligible Shipyard,'' adds a new definition and
reflects the criteria outlined in section 1358 of the Authorization Act
in order for a shipyard to be eligible to receive Title XI guarantees.
Paragraph (k), ``General Shipyard Facility,'' adds a new definition
reciting the statutory definition in new paragraph (d)(3) to section
1112 of the Act.
Paragraph (l), ``Guarantee,'' remains unchanged.
Paragraph (m), ``Guarantee Fee,'' remains unchanged.
Paragraph (n), ``Indenture Trustee,'' remains unchanged.
Paragraph (o), ``Letter Commitment,'' remains unchanged.
Paragraph (p), ``Maritime Administration,'' remains unchanged.
Paragraph (q), ``Modern Shipbuilding Technology,'' is a new
paragraph added to Sec. 298.2 and recites the statutory definition in
the new paragraph (d)(2) to section 1112 of the Act.
Paragraph (r), ``Mortgage,'' is derived from 46 U.S.C. 1271 (a) and
is modified to: (1) Include the definition of a Preferred Mortgage as
defined in 46 U.S.C. 31322 with respect to an eligible export vessel to
be documented under the laws of a country other than the United States,
and (2) recognize the fact that the definition of a Preferred Mortgage
under chapter 313 of Title 46, United States Code, shall not apply to
advanced or modern shipbuilding technology where the Secretary shall
obtain an enforceable first mortgage with such equipment.
Paragraph (s), ``Obligation,'' remains unchanged.
Paragraph (t), ``Obligee,'' remains unchanged.
Paragraph (u), ``Obligor,'' remains unchanged.
Paragraph (v), ``Paying Agent,'' remains unchanged.
Paragraph (w), ``Person,'' remains unchanged.
Paragraph (x), ``Preferred Mortgage,'' is modified expressly to
reflect: (1) The addition of eligible export vessels, (2) with regard
to eligible export vessels, that the mortgagee may be a person approved
by the Secretary after disclosure of that person's identity during the
application process, and (3) removing paragraph (4)(vi) the text of
which, as amended, is now in paragraph (4)(iv).
Paragraph (y), ``Secretary,'' remains unchanged.
Paragraph (z), ``Secretary's Note,'' remains unchanged.
Paragraph (aa), ``Security Agreement,'' remains unchanged.
Paragraph (bb), ``Vessel,'' is modified expressly to reflect that,
with the expansion of the Title XI program to include eligible export
vessels, eligible export vessels cannot be documented under the laws of
the United States nor owned by a United States citizen.
Section 298.3 Applications
Section 298.3, Applications, is self-explanatory. Paragraphs (a)
through (d) remain unchanged. Paragraph (e) is amended to reflect the
priority to be assigned to applications from shipyards that have
engaged in the naval vessel construction as prescribed in section 1359
(a)(3) of the Shipbuilding Act and that have pilot projects for
shipyard modernization and ship construction. In addition, language is
added that cites the new subsection (g)(1) to section 1103 of the Act
added by the Shipbuilding Act. The new statutory requirement prohibits
the Secretary from issuing a commitment to guarantee obligations for an
eligible export vessel unless, after considering three findings, the
Secretary determines that the issuance of a commitment to guarantee
obligations for an eligible export vessel will not result in the denial
of an economically sound application to issue Title XI for vessels
documented under the laws of the United States to be operated in the
domestic or foreign commerce of the United States.
Section 298.10 Citizenship
Section 298.10, Citizenship, paragraphs (a) through (d) remain
unchanged. A new paragraph (e) is added to exempt eligible export
vessels and eligible shipyards from complying with the United States
citizenship requirements. Such modification conforms to the amendment
of subsection (a)(1) of section 1104A of the Act resulting from
enactment of the Shipbuilding Act, which deletes the United States
citizenship requirement.
Section 298.11 Vessel Requirements
Section 298.11, Vessel requirements, paragraphs (a), (b), and (d)
remain unchanged. Paragraph (c) is modified to permit a deviation from
previous MARAD policy of limiting vessel certifications to the American
Bureau of Shipping, with regard to eligible export vessels, allowing
vessel classification by members of the International Association of
Classification Societies (IACS) (classification societies to be ISO-
9000 certified) with appropriate certificates required at delivery. In
addition, conforming language is included which parallels the language
amending section 1104A (b)(6) of the Act, requiring eligible export
vessels to comply with all applicable laws, rules and regulations as to
condition and operation, including, but not limited to, those
administered by the appropriate national flag authorities under a
treaty, convention, or other international agreement to which the
United States is a party.
Section 298.12 Applicant and Operator's Qualifications
Section 298.12, Applicant and operator's qualifications, paragraphs
(a), (d), and (e) remain unchanged. Paragraphs (b)(1)(ii) and (c)(4)
are amended to provide for the submission of identifying information on
the country in which the applicant is incorporated and whether or not
the applicant has been in default within the past five years with
regard to an eligible export vessel application. Paragraph (f) is
amended in two subdivisions. The first contains the current text and
applies in the case of an applicant for a vessel financing guarantee.
The second contains a new provision and deals with the case of an
eligible shipyard which is an applicant for a financing guarantee for
advanced or modern shipbuilding technology. In this instance, the
applicant shall submit a detailed statement showing its ability to
successfully construct/reconstruct vessel(s), including certain
information on all management personnel concerned with the physical
operation of the shipyard, including union affiliations and existing
contracts necessary to the management and operation of the shipyard.
Section 298.13 Financial Requirements
Section 298.13, Financial requirements, is modified to reflect the
financial requirements to be placed upon applicants in the new area of
advanced or modern shipbuilding technology. A new paragraph (a)(2)(ii)
is added to this section which parallels the applicable portions of
paragraph (a)(2)(i), referring to advanced or modern shipbuilding
technology, and the references in paragraph (a)(2)(iv) are renumbered
accordingly. Paragraph (a)(3) of this section is amended by deleting
references to the existing regulatory limitation for guarantees of up
to 75 percent of the cost of a Title XI project, since the new
statutory language in section 1104A(i) of the Act, prohibits the
Secretary from uniformly imposing by rule, regulation, or procedure a
lower financing percentage than that permitted by statute (75 percent
or 87\1/2\ percent financing for the type of vessel in question or up
to 87\1/2\ percent for advanced or modern shipbuilding technology).
In addition, modifications are made in paragraph (a)(3) to reflect
the addition of advanced or modern shipbuilding technology to be
financed or refinanced under Title XI as provided by the new section
1112 of the Act. Paragraphs (b)(5), (b)(6), (c)(1), and (c)(2) are also
amended to reflect the addition of advanced or modern shipbuilding
technology to be financed or refinanced under Title XI as provided by
the new section 1112 of the Act. New paragraphs (d)(3) and (e)(3) are
added to this section to reflect the same financial requirements that
shall be placed on an owner of a general shipyard facility as on a
vessel owner as operator.
Section 298.14 Economic Soundness
In section 298.14, Economic soundness, modifications are made
throughout the section to reflect the addition of advanced or modern
shipbuilding technology to be financed or refinanced under Title XI as
provided by the new section 1112 of the Act. In addition, Appendix B--
Forms to be Used in Computing IRR is deleted as a general housekeeping
matter. On August 6, 1992, a final rule became effective whereby
paragraph (b)(4) of Sec. 298.14 was removed in its entirety in order to
shift the computation of the IRR to MARAD from Title XI applicants.
Appendix B outlines the schedules that were previously required to be
completed for the Title XI applicant to compute the IRR of its project.
The fact that Appendix B was not deleted at that time was an oversight
by MARAD.
Section 298.15 Investigation Fee
Section 298.15, Investigation Fee, remains unchanged.
Section 298.16 Substitution of Participants
Section 298.16, Substitution of participants, modifies paragraph
(b) to reflect the addition of advanced or modern shipbuilding
technology to be financed or refinanced under Title XI, as provided by
the new section 1112 of the Act.
Section 298.17 Evaluation of Applications
Section 298.17, Evaluation of applications, adds a new sentence and
two new paragraphs. A new sentence outlines what terms shall be
considered by the Secretary in determining the amount of equity which
must be provided by the applicant. Paragraph (e) reflects the priority
that the Secretary shall give to applications from shipyards that have
engaged in naval vessel construction as provided in section 1359(a)(1)
of the Shipbuilding Act. New paragraph (f) permits the Secretary, in
evaluating project applications for advanced or modern shipbuilding
technology, to consider whether the application provides for guarantees
which extend for a period less than or equal to the technological life
of the asset.
Section 298.18 Financing Advanced or Modern Shipbuilding Technology
New section 1112(a) of the Act allows the Secretary to guarantee
obligations for advanced or modern shipbuilding technology of a general
shipyard facility located in the United States. New Sec. 298.18
reflects this authority. Paragraph (a) sets forth the initial criteria
the applicant must meet and paragraph (b) specifies the conditions that
must be satisfied and paragraph (c) identifies factors the Secretary
may consider when deciding among applications.
Section 298.19 Financing Export Vessels
New section 1111(a) of the Act allows the Secretary to guarantee
obligations for eligible export vessels, and new Sec. 298.19 reflects
this authority. Paragraphs (a) and (c) set forth specific language in
the statute regarding termination of the eligible export vessel Title
XI program and the required Department of Defense approval. Paragraph
(b) sets forth the determination to be made by the Secretary as to the
creditworthiness of the country to which the vessel is to be exported.
Section 298.20 Term, Redemptions and Interest Rate
Paragraphs (a) and (b) of Sec. 298.20, Term, redemptions and
interest rate, are amended to reflect the addition of advanced or
modern shipbuilding technology to be financed or refinanced under Title
XI, as provided by the new section 1112 of the Act, and limits the
maturity date for Title XI Obligations for advanced or modern
shipbuilding technology to the technological life of the advanced or
modern shipbuilding technology. Paragraph (c) is amended to reflect
that with respect to guarantees for all transactions other than for
U.S.-flag vessels owned by U.S. citizens, the Secretary will use his
discretion to determine the interest rate with respect to each
application.
Section 298.21 Limits
Section 298.21, Limits, presently establishes a limitation of 75
percent or 87\1/2\ percent of the actual cost of the vessels for
guarantees, whichever is applicable under the provisions of section
1104(b)(2) of the Act, for the obligation guarantees to be issued.
Amendments are as follows:
Paragraph (a) includes advanced shipbuilding technology or modern
shipbuilding technology within the statutory financing limitation.
Paragraph (a)(2) includes advanced shipbuilding technology or
modern shipbuilding technology within the statutory financing
limitation.
Paragraph (b) includes advanced shipbuilding technology or modern
shipbuilding technology as the basis for actual cost determinations.
Paragraph (c) adds two new provisions, paragraphs (c)(14) and (15)
with respect to the actual cost determination for advanced or modern
shipbuilding technology. Paragraph (c)(14) generally excludes from
actual cost any amount payable to the manufacturer of advanced or
modern shipbuilding technology for early delivery of equipment to the
shipyard. Paragraph (c)(15) excludes from actual cost predelivery
expenses which may not be properly capitalized as costs of the
technology under Generally Accepted Accounting Principles.
Paragraph (d) includes advanced or modern shipbuilding technology
as requiring substantiation of actual cost prior to payment from an
escrow or construction fund and prior to final actual cost
determination by the Secretary.
Paragraph (f) includes modern or advanced shipbuilding technology
as an example of where the obligor may receive moneys in respect of
construction and sets forth the ensuing requirements in such case.
Paragraph (g) includes, with respect to the 75 percent or 87\1/2\
percent limitation on the amount of guarantees, a reference to advanced
or modern shipbuilding technology.
Section 298.22 Amortization of Obligations
Section 298.22, Amortization of Obligations, is amended to include
amortization requirements for advanced or modern shipbuilding
technology which are the same as those for vessels. A new paragraph (c)
is added after redesignated paragraphs (a) and (b) to comport with new
section 1111 (a)(2) of the Act and provides that amortization for an
eligible export vessel may be in accordance with more favorable terms
as the Secretary determines to be compatible with export credit terms
offered by foreign governments for the sale of vessels built in foreign
shipyards.
Section 298.23 Refinancing
Section 298.23, Refinancing, is amended to provide that the
Secretary may approve the issuance of guarantees secured by advanced or
modern shipbuilding technology for the refinancing of existing Title XI
debt. The requirements for such refinancing are the same as presently
provided for vessels.
Section 298.27 Lease Payments
Section 298.27, Lease Payments, is amended to provide that if
obligation payments depend on the lease of advanced or modern
shipbuilding technology, the lease is subject to the Secretary's
approval.
Section 298.28 Advances
Section 298.28, Advances, amends paragraph (a)(2)(i), in connection
with determining adequate security for an advance, to provide for the
evaluation by the Secretary of existing and future market conditions
for advanced or modern shipbuilding technology held as collateral.
A new paragraph (a)(2)(iv) provides for the evaluation by the
Secretary of any other available collateral on the General Shipyard
Facility equipment, land, and/or assets.
Section 298.31 Mortgage
In Sec. 298.31, Mortgage, paragraph (a) is amended to include a
provision for the production of evidence of the Secretary's security
interest in advanced or modern shipbuilding technology. Because a
mortgage may not be available, desirable, timely or enforceable, the
Secretary may seek alternative forms of security. If a mortgage is
required, it shall be executed in favor of the Secretary, filed with
the proper state authorities, and delivered to the Secretary after
being recorded.
Paragraph (a) also requires, with respect to foreign mortgages for
eligible export vessels, that to ensure the validity and worldwide
enforceability of such mortgages, the Secretary will require the
obligor to obtain satisfactory legal opinions and foreign counsel. Such
mortgages are required to be filed with the proper foreign authorities
and delivered to the Secretary after being recorded.
Paragraph (c) includes provision for the placement of a mortgage on
advanced or modern shipbuilding technology as security for the
guarantee and for a requirement by the Secretary for additional
collateral in the event such mortgage is not sufficient.
Section 298.32 Required Provisions in Documentation
Section 298.32, Required Provisions in Documentation, is amended to
include in paragraph (a)(1) the furnishing of satisfactory insurance or
performance bond by the manufacturer of advanced or modern shipbuilding
technology.
Paragraph (a)(2) is amended to require that a representative of the
Secretary be allowed access to advanced or modern shipbuilding
technology or related work projects for the purpose of inspection and
observation that such technology is being constructed, reconstructed or
reconditioned in accordance with plans and specifications approved by
the Secretary.
Paragraph (a)(3) is amended to require the submission to the
Secretary, upon request, of plans for advanced or modern shipbuilding
technology.
Paragraph (b)(2) is amended to provide for the assignment, as
required by the Secretary, of rights to receive all moneys which may
become due with respect to the construction of advanced or modern
shipbuilding technology.
Paragraph (b)(3) is amended to provide for the assignment, as
required by the Secretary, of any agreements relating to the use of
advanced or modern shipbuilding technology and all hire payable
thereunder.
Paragraph (b)(4) excepts the obligor for debt underlying the
guarantees for eligible export vessels from covenanting to file annual
affidavits of continuing United States citizenship. The paragraph also
includes a covenant requirement for the warranty of lien free title to
advanced or modern shipbuilding technology and for maintenance of
registry under the laws of a foreign country for an eligible export
vessel.
A new paragraph (b)(8) requires covenants to maintain shipyard
insurance on advanced or modern shipbuilding technology in an amount
equal to the greater of 110 percent of the outstanding obligations or
up to the full commercial value of the technology.
A new paragraph (b)(9) requires covenants to maintain additional
types of insurance as may be required, such as political risk, for
eligible export vessels to reflect any political, financial or economic
risk in a foreign country.
Section 298.33 Escrow Fund
Paragraph (b) is amended to include advanced or modern shipbuilding
technology as security for the guarantees when calculating the deposit
of principal and in the formula for such calculation.
Paragraph (c) is amended to include multiple advanced or modern
shipbuilding technology as security for the guarantees when calculating
the deposit of principal and in the formula for such calculation.
Paragraph (e) is amended to include escrow fund disbursement prior
to the guarantee termination date under certain conditions for advanced
or modern shipbuilding technology.
Paragraph (g) is amended to provide for escrow fund disbursement
under certain conditions for advanced or modern shipbuilding technology
in the event of requisition of title, termination of construction
contract or total loss.
Paragraph (h) is amended to include a provision for escrow fund
disbursement upon a specified termination date under certain conditions
for advanced or modern shipbuilding technology.
Section 298.34 Construction Fund
Section 298.34, Construction Fund, is amended in paragraph (b) to
include disbursements from the construction fund prior to delivery of
the advanced or modern shipbuilding technology.
Section 298.35 Reserve Fund and Financial Agreement
Section 298.35, Reserve Fund and Financial Agreement, is amended in
paragraph (b)(1)(i), with respect to continuous covenants, to require
the consent of the Secretary before the company can enter into a
service, management or operating agreement with respect to advanced or
modern shipbuilding technology.
Paragraph (c)(1)(i), with respect to financial covenants for
companies meeting the special financial requirements, is amended to
require the consent of the Secretary before the company can enter into
a service, management, or operating agreement for advanced or modern
shipbuilding technology.
New paragraph (b)(1)(v) is added to require the consent of the
Secretary before the company can sell, transfer or lease advanced or
modern shipbuilding technology or transfer such technology to an
affiliate.
A new paragraph (c)(1)(vii) is added to require the consent of the
Secretary before the company can sell, transfer, or lease advanced or
modern shipbuilding technology or transfer such technology to an
affiliate.
Paragraph (d) is amended to include a provision that, in the case
of advanced or modern shipbuilding technology, the company shall
compute its reserve fund net income in the manner prescribed by the
Secretary.
Section 298.36 Annual Guarantee Fee
Section 298.36, Annual Guarantee Fee, is amended in paragraph (a)
to specify the guarantee fee rates in general for advanced or modern
shipbuilding technology.
Paragraph (c) is amended to specify variable guarantee fee rates
prior to delivery of advanced or modern shipbuilding technology.
Paragraph (d) is amended to specify variable guarantee fee rates
after delivery of advanced or modern shipbuilding technology.
Section 298.37 Examination and Audit
Section 298.37, Examination and audit, is amended to include the
right of the Secretary to examine and audit under specified conditions
the books and records pertaining to any person having a financial
interest in advanced or modern shipbuilding technology.
Section 298.39 Exemptions
New section 1111(a)(2) of the Act provides that the Secretary may
guarantee obligations for eligible export vessels in accordance with
such other terms as the Secretary determines to be more favorable than
the terms otherwise provided in Title XI and to be compatible with
export credit terms offered by foreign governments for the sale of
vessels built in foreign shipyards. Accordingly, Sec. 298.39,
Exemptions, is amended to include a provision for the exemption of an
applicant from any requirement of Part 298 if the Secretary makes a
written determination that such exemption would assist in creating
financing terms that would be compatible with export credit terms for
the sale of vessels built in foreign shipyards.
Section 298.41 Remedies After Default
Section 298.41, Remedies after default, is amended in paragraph (b)
to provide that the Secretary, after default and before making payment,
may take advanced or modern shipbuilding technology and hold, lease,
charter, operate or use such technology.
Section 298.42 Reporting Requirements--Financial Statements
A requirement to meet generally accepted auditing or accounting
standards may be unduly burdensome in the case of eligible export
vessels. Accordingly, the introductory paragraph of Sec. 298.42,
Reporting requirements--financial statements, is amended to provide
that in the case of such vessels, the company accounts shall be audited
at least annually and the Secretary may require that the financial
statements be in accordance with generally accepted accounting
principles by accountants, as otherwise described in Sec. 298.42, or by
independent public accountants licensed to practice by the regulatory
authority or other political subdivision of a foreign country, provided
such accountants are satisfactory to the Secretary.
Rulemaking Analyses and Notices
Executive Order 12886 (Regulatory Planning and Review) and Other
Requirements of Law
This rulemaking has been reviewed under Executive Order 12866, and
it has been determined that it is a significant regulatory action since
it is likely to result in a rule that may have an annual effect on the
economy of $100 million or more. Initial Regulatory Assessments have
been prepared and are available in the docket for inspection or copying
where indicated under ``ADDRESS.'' In summary, the Initial Regulatory
Assessments finds that the cost of the Title XI program over the first
two years is $144 million, resulting in an average annual cost of $72.0
million. Assuming that there is demand for maximum guarantees and
guarantees will range from 70 percent to 87\1/2\ percent of actual cost
of the vessel and shipyard modernization and improvement projects, the
value of the vessels, capital goods and other assets produced over the
first two years of the program will be about $1.85 billion. Further, it
is estimated that new Title XI guarantees could generate 19,440 man-
years of employment for U.S. shipyard workers, which translates into
employment for 9,720 workers over a period of two years.
MARAD is publishing these amendments as an interim final rule as
authorized by section 1362 of Public Law 103-160, which requires the
Secretary to prescribe regulations within 90 days as necessary to carry
out the Secretary's responsibilities under Title XI.
This rulemaking document has been reviewed by the Office of
Management and Budget under Executive Order 12866, ``Regulatory
Planning and Review.''
Federalism
MARAD has analyzed this rulemaking in accordance with the
principles and criteria contained in Executive Order 12612 and has
determined that these regulations do not have sufficient federalism
implications to warrant the preparation of a Federalism Assessment.
Regulatory Flexibility Act
MARAD certifies that this regulation will not have a significant
economic impact on a substantial number of small entities.
Environmental Assessment
MARAD has considered the environmental impact of this rulemaking
and has concluded that an environmental impact statement is not
required under the National Environmental Policy Act of 1969.
Paperwork Reduction Act
This rulemaking contains reporting requirements that have
previously been approved by the Office of Management and Budget
(Approval No. 2133-0018).
List of Subjects in 46 CFR Part 298
Loan programs--transportation, Maritime carriers, and Mortgages.
Accordingly, 46 CFR part 298 is amended as follows:
PART 298--[AMENDED]
1. The authority citation is revised to read as follows:
Authority: 46 App. U.S.C. 1114(b), 1271 et seq.; 49 CFR 1.66.
2. Section 298.1 is revised to read as follows:
Sec. 298.1 Purpose.
This part prescribes regulations implementing the provisions of
Title XI of the Merchant Marine Act, 1936, as amended, governing
Federal ship financing assistance (46 App. U.S.C. 1271 et seq.).
Sec. 298.2 [Amended]
3. Section 298.2, Definitions, is amended as follows:
a. By amending existing paragraph (b), Actual Cost, by inserting
after the word ``Vessel'', everywhere it appears, the words ``or
Advanced or Modern Shipbuilding Technology''.
b. By amending existing paragraph (d), Closing, by removing the
word, ``Preferred''.
c. By amending existing paragraph (e), Depository, by removing the
period at the end, inserting a comma in its place and adding thereafter
the phrase, ``but in the case of an Eligible Export Vessel, can also
mean a bank or other financial institution organized and doing business
under the laws of a foreign country, which is authorized under such
laws to exercise corporate trust powers, is found to be acceptable by
the Secretary, and accepts deposits for purposes of implementing the
program authorized by Title XI of the Act''.
d. By amending existing paragraph (f), Depreciated Actual Cost, by
inserting after the word ``Vessel'', each time it appears, the phrase,
``or Advanced or Modern Shipbuilding Technology''; after the word,
``shipbuilder'', the words, ``or manufacturer''; and after the last
word in the parenthesis the words, ``or, in the case of Advanced or
Modern Shipbuilding Technology, a residual value as appropriate''.
e. By amending existing paragraph (m), Mortgage, by substituting a
comma for the period and adding the words, ``or an enforceable
Preferred Mortgage, as defined in 46 U.S.C. 31322, with respect to an
Eligible Export Vessel, or an enforceable first mortgage with respect
to Advanced Shipbuilding Technology (as defined in paragraph (c) of
this section) or with respect to Modern Shipbuilding Technology (as
defined in paragraph (q) of this section).''.
f. By amending existing paragraph (s), Preferred Mortgage, as
follows: (1) In paragraph (s)(3) by inserting before the semi-colon the
words, ``or covers an Eligible Export Vessel'';
(2) By removing ``; or'' at the end of paragraph (s)(4)(v) and
adding in its place a period; and
(3) By removing paragraph (s)(4)(vi).
g. By amending existing paragraph (w), Vessel, by removing the
period at the end of the definition, adding a semi-colon, and inserting
thereafter the words, ``except that an Eligible Export Vessel may not
be owned by citizens of the United States nor documented under the laws
of the United States''.
h. By redesignating paragraphs (c) through (g), (h) through (l),
and (m) through (w) as paragraphs (d) through (h), (l) through (p), and
(r) through (bb), respectively, and adding new paragraphs (c), (i),
(j), (k), and (q), and by revising newly designated paragraph
(x)(4)(iv) to read as follows:
Sec. 298.2 Definitions.
* * * * *
(c) Advanced Shipbuilding Technology means: (1) Numerically
controlled machine tools, robots, automated process control equipment,
computerized flexible manufacturing systems, associated computer
software, and other technology for improving shipbuilding and related
industrial production which advance the state-of-the-art; and
(2) Novel techniques and processes designed to improve shipbuilding
quality, productivity, and practice, and to promote sustainable
development, including engineering design, quality assurance,
concurrent engineering, continuous process production technology,
energy efficiency, waste minimization, design for recyclability or
parts reuse, inventory management, upgraded worker skills, and
communications with customers and suppliers.
* * * * *
(i) Eligible Export Vessel means a vessel constructed,
reconstructed, or reconditioned in the United States for use in world-
wide trade which will, upon delivery or redelivery, be placed under or
continued to be documented under the laws of a country other than the
United States.
(j) Eligible Shipyard means a private shipyard located in the
United States.
(k) General Shipyard Facility means: (1) For operations on land--
any structure or appurtenance thereto designed for the construction,
repair, rehabilitation, refurbishment or rebuilding of any Vessel (as
defined in title 1, United States Code) and including graving docks,
building ways, ship lifts, wharves, and pier cranes; the land necessary
for any structure or appurtenances; and, equipment that is for use in
connection with any structure or appurtenance and that is necessary for
the performance of any function referred to in this paragraph; and
(2) For operations other than on land, any vessel, floating drydock
or barge built in the United States and used for, equipped to be used
for, or of a type that is normally used for activities referred to in
paragraph (k)(1) of this section.
* * * * *
(q) Modern Shipbuilding Technology means the best available proven
technology, techniques, and processes appropriate to enhancing the
productivity of shipyards.
* * * * *
(x) * * *
(4) * * *
(iv) A person approved by the Secretary; or
* * * * *
Sec. 298.3 [Amended]
4. Section 298.3, Applications, is amended by designating the text
following the heading of paragraph (e) as introductory text, adding two
sentences to the end of paragraph (e) introductory text, and adding
paragraphs (e)(1) through (e)(3) to read as follows:
Sec. 298.3 Applications.
* * * * *
(e) * * * In regard to shipyards, priority will be given to
applications from General Shipyard Facilities that have engaged in
naval vessel construction and that have pilot projects for shipyard
modernization and vessel construction. With regard to Eligible Export
Vessels, the Secretary may not issue a commitment to guarantee
Obligations for an Eligible Export Vessel unless the Secretary
determines, in the sole discretion of the Secretary, that the issuance
of a commitment to guarantee obligations for an Eligible Export Vessel
will not result in the denial of an economically sound application to
issue a commitment to guarantee Obligations for vessels documented
under the laws of the United States operating in the domestic or
foreign commerce of the United States, after considering: (1) The
status of pending applications for commitments to guarantee obligations
for vessels documented under the laws of the United States and
operating or to be operated in the domestic or foreign commerce of the
United States;
(2) The economic soundness of the applications referred to in
paragraph (e)(1) of this section; and
(3) The amount of guarantee authority available.
* * * * *
5. Section 298.10 is amended by adding a new paragraph (e) to read
as follows:
Sec. 298.10 Citizenship.
* * * * *
(e) Exemption. With regard to Eligible Export Vessels and Eligible
Shipyards, the applicant and any other Person, (including, but not
limited to settlors, owner trustees, owner participants and bareboat
charterers) shall be exempted from complying with the provisions of
paragraphs (a) through (d) of this section.
Sec. 298.11 [Amended]
6. Section 298.11, Vessel requirements, is amended as follows:
a. By amending paragraph (c), Class, condition and operation., as
follows: (1) By adding after the words ``by the Secretary,'' in the
first sentence the words, ``or, in the case of an Eligible Export
Vessel, such standards as may be imposed by a member of the
International Association of Classification Societies (IACS)
(classification societies to be ISO-9000 certified), with appropriate
certificates required at delivery.''.
(2) By removing the words, ``and comply'' in the first sentence,
and inserting the words, ``The Vessel shall comply''.
(3) By removing the period after the words, ``International
Convention for Safety and Life at Sea'' and inserting ``, or, in
the case of an Eligible Export Vessel, of the appropriate national flag
authorities under a treaty, convention, or other international
agreement to which the United States is a party.''.
7. Section 298.12 is amended by revising paragraphs (b)(1)(i),
(b)(1)(ii) and (c)(4); by designating the existing text of paragraph
(f) following the heading as paragraph (f)(1); by removing the word
``The'' at the beginning of paragraph (f)(1) and adding the words ``In
the case of an applicant for a vessel financing guarantee, the''; and
by adding paragraph (f)(2) to read as follows:
Sec. 298.12 Applicant and operator's qualifications.
* * * * *
(b) Identity and ownership of applicant. * * *
(1) * * *
(i) Exact name of applicant and tax identification number of a U.S.
corporation;
(ii) State or country in which incorporated and date of
incorporation;
* * * * *
(c) Applicants: business and affiliations. * * *
* * * * *
(4) A statement of whether or not the applicant or any predecessor
or related company is now, or during the past 5 years has been, in
default under any agreement or undertaking: (i) With others, the United
States or a country other than the United States; or
(ii) Guaranteed or insured by the United States or a country other
than the United States.
* * * * *
(f) * * *
(2) In the case of an Eligible Shipyard which is an applicant for a
Guarantee for Advanced or Modern Shipbuilding Technology, a detailed
statement shall be submitted evidencing its ability to successfully
construct/reconstruct vessel(s), including name, education, background
of, and licenses, if any, held by all management personnel concerned
with the physical operation of the shipyard, union affiliations and
existing contracts necessary to the management and operation of the
shipyard.
8. Section 298.13, is amended as follows:
a. By redesignating paragraphs (a)(2)(ii) through (iv) as
paragraphs (a)(2)(iii) through (v), adding new paragraphs (a)(2)(ii),
(d)(3) and (e)(3), and revising the fourth through sixth sentences of
paragraph (a)(3) to read as follows:
Sec. 298.13 Financial requirements.
(a) * * *
(2) * * *
(ii) In the case of Advanced or Modern Shipbuilding Technology, a
detailed statement of the actual cost of such technology, including
those items which would normally be capitalizable. If any of the costs
have been incurred by written contracts, signed copies shall be
forwarded with the application. The applicant may be required to have
manufacturers submit back-up cost details and technical data. This
information shall be submitted in the format prescribed by the Title XI
application procedures.
* * * * *
(3) * * * If the applicant intends to utilize co-financing
(involving a blend of Title XI and private financing for the debt
portion), the terms and conditions of such financing shall be subject
to approval by the Secretary. The applicant shall demonstrate with
financial statements that at least 12\1/2\ percent of the construction
or reconstruction costs of the Vessel(s) or the cost of the Advanced
Shipbuilding Technology or Modern Shipbuilding Technology will be in
the form of equity and not additional debt. The applicant shall
disclose all of the Vessel(s), Advanced Shipbuilding Technology or
Modern Shipbuilding Technology financing in the format prescribed by
the Title XI application procedures.
* * * * *
(d) Primary financial requirements at Closing. * * *
* * * * *
(3) Owner as General Shipyard Facility. Where the owner of Advanced
or Modern Shipbuilding Technology is a General Shipyard Facility,
minimum requirements at Closing will be the same as those set forth in
paragraph (d)(1) of this section for an owner as operator.''
(e) Special financial requirements at closing. * * *
* * * * *
(3) Owner as General Shipyard Facility. Where the owner of Advanced
or Modern Shipbuilding Technology is a General Shipyard Facility,
special financial requirements at Closing will be the same as those
outlined in paragraph (e)(1) of this section for an owner as operator
insofar as they apply to such technology.
* * * * *
b. By amending redesignated paragraph (a)(2)(iv) by removing the
references ``(a)(2)(i) and (ii)'' and adding in lieu thereof
``(a)(2)(i) through (iii)''.
c. By amending paragraph (b)(5), Capitalizable Cost, to insert
immediately after the word, ``Vessel,'' where it first appears, the
words, ``or Advanced or Modern Shipbuilding Technology and those other
items which customarily would be capitalized as Vessel costs or
Advanced or Modern Shipbuilding Technology costs under generally
accepted accounting principles''.
d. By amending paragraph (b)(6), Depreciated Capitalized Cost, by
adding after the word, ``Vessel'', where it first appears, the words,
``or Advanced or Modern Shipbuilding Technology'', and removing the
words, ``of the Vessel''.
e. By amending paragraph (c)(1) by adding after the word,
``Vessels'', the words, ``or Advanced or Modern Shipbuilding
Technology''.
f. By removing the period at the end of paragraph (c)(2) and adding
the words, ``or in connection with other Advanced or Modern
Shipbuilding Technology financed under the Title XI program.''.
8. Section 298.14, is amended as follows:
a. By revising paragraph (a) introductory text to read as follows:
Sec. 298.14 Economic soundness.
(a) Economic Evaluation. No Letter Commitment for guarantees shall
be given by the Secretary without a finding that the proposed project,
with respect to which the Vessel(s) or Advanced or Modern Shipbuilding
Technology to be financed or refinanced under Title XI, will be
economically sound.
* * * * *
b. By amending paragraphs (a)(1)(ii) through (iv) by capitalizing
the first letter of the word, ``vessel'', each place it appears, and
inserting thereafter the words, ``or utilization of the Advanced
Shipbuilding Technology or Modern Shipbuilding Technology of a General
Shipyard Facility''.
c. Paragraph (a)(2)(i)(B) is amended by adding at the end, before
the semi-colon, the words, ``or, with respect to Advanced or Modern
Shipbuilding Technology, how the equipment will be employed, including
the number, type, and buyer of vessels for which it will be used''.
d. Paragraphs (a)(2)(i)(C) and (D) are amended by inserting after
the word, ``Vessel(s)'', the words, ``or Advanced or Modern
Shipbuilding Technology''.
e. Paragraph (a)(2)(i)(F)(1) is amended by inserting, before the
semi-colon, the words, ``or the new technology''.
f. Paragraph (a)(2)(ii), Revenues, is amended by inserting after
the word ``Vessel(s)'', the words, ``or the new technology''.
g. Paragraph (a)(2)(iii), Expenses, is amended in the introductory
text by adding after the word, ``expense'', the words, ``or expenses
associated with Advanced or Modern Shipbuilding Technology''.
h. Paragraph (b)(1) introductory text is amended by inserting after
the words, ``Vessel(s)'' and ``vessel'' (capitalizing the first
letter), each place it appears, the words, ``or new technology''.
Sec. 298.16 [Amended]
9. Section 298.16, Substitution of participants, is amended in
paragraph (b) by inserting after the word, ``Vessel'', the words, ``or
Advanced or Modern Shipbuilding Technology''.
10. Section 298.17, is amended by redesignating the introductory
text and paragraphs (a) through (d) as paragraph (a) introductory text
and paragraphs (a)(1) through (a)(4), respectively, and by adding new
paragraphs (a)(5), (a)(6) and (b), to read as follows:
Sec. 298.17 Evaluation of applications.
(a) * * *
(5) In the case of an Eligible Shipyard, the capability of the
shipyard to engage in naval vessel construction in time of war or
national emergency.
(6) In the case of Advanced or Modern Shipbuilding Technology, the
Guarantees extend for less than the technological life of the asset.
(b) In determining the amount of equity which must be provided by
the applicant, the Secretary shall consider the following:
(1) The financial strength of the company;
(2) Adequacy of collateral; and
(3) The term of the Guarantees.
Subpart B, Appendix B--[Removed]
10a. Subpart B is amended by removing Appendix B.
Sec. 298.20 [Amended]
11. Section 298.20, Term, redemptions and interest rate, is amended
as follows: a. Paragraph (a), In general, is amended as follows: (1) In
the first sentence of the introductory paragraph, by adding the words,
``or Advanced or Modern Shipbuilding Technology'', immediately
preceding the period.
(2) By removing the word ``and'' at the end of paragraph (a)(2), by
substituting ``; and'' for the period after paragraph (a)(3), by adding
paragraph (a)(4), and revising paragraph (c) to read as follows:
Sec. 298.20 Term, redemption and interest rate.
(a) * * *
(4) The technological life of the Advanced or Modern Shipbuilding
Technology.
* * * * *
(c) Interest rate. With respect to Guarantees for U.S.-flag Vessels
owned by U.S. citizens, the interest rate of each Obligation must be
determined by the Secretary to be reasonable, taking into account the
range of interest prevailing in the private market for similar loans
and the risks assumed by the Secretary. With respect to Guarantees for
all other transactions, the Secretary will use discretion to determine
the interest rate with respect to each application.
b. Paragraph (b), Required redemptions, is amended by adding after
the word, ``Vessels'', the words, ``or multiple Advanced Shipbuilding
Technology or Modern Shipbuilding Technology assets''.
Sec. 298.21 [Amended]
12. Section 298.21, Limits, is amended as follows:
a. Paragraph (a), Actual Cost basis, is amended by adding in the
second sentence of the introductory paragraph after the word,
``Vessels'', the words, ``or Advanced Shipbuilding Technology or Modern
Shipbuilding Technology asset(s)'', and in paragraph (a)(2), by adding
after the word, ``Vessel'', the words, ``or Advanced Shipbuilding
Technology or Modern Shipbuilding Technology''.
b. Paragraph (b), Actual Cost items, is amended by inserting after
the word, ``Vessel'', each place it appears, the words, ``or Advanced
Shipbuilding Technology or Modern Shipbuilding Technology''.
c. Paragraph (c), Items excludable from Actual Cost, is amended by
removing the word, ``and'', after paragraph (c)(12) and the period
after paragraph (c)(13), by inserting ``; and'' after paragraph
(c)(13); and by adding paragraphs (c)(14) and (c)(15) to read as
follows:
Sec. 298.21 Limits.
* * * * *
(c) * * *
(14) Generally not include any amount payable to the manufacturer
of the Advanced Shipbuilding Technology or Modern Shipbuilding
Technology for early delivery of the equipment to the General Shipyard
Facility; and
(15) Predelivery Advanced Shipbuilding Technology or Modern
Shipbuilding Technology expenses which may not be properly capitalized
by the General Shipyard Facility as costs of the technology under
Generally Accepted Accounting Principles.
* * * * *
d. Paragraph (d), Substantiation of Actual Cost, is amended by
inserting after the word, ``Vessel'', each place it appears, the words,
``or Advanced Shipbuilding Technology or Modern Shipbuilding
Technology''.
e. Paragraph (f), is amended by removing in the heading the words,
``of the Vessels'', and adding in the text after the word, ``Vessel'',
each place it appears, the words, ``or Advanced Shipbuilding Technology
or Modern Shipbuilding Technology''.
f. Paragraph (g) is amended by inserting after the word,
``Vessel'', each place it appears, the words, ``or Advanced
Shipbuilding Technology or Modern Shipbuilding Technology''.
Sec. 298.22 [Amended]
13. Section 298.22, Amortization of Obligations, is amended as
follows: a. By adding in the introductory paragraph, after the word,
``Vessel'', the words, ``or Advanced Shipbuilding Technology or Modern
Shipbuilding Technology'';
b. By redesignating paragraphs (1) and (2) as paragraphs (a) and
(b); and,
c. By removing the word, ``or'', after newly designated paragraph
(a), inserting ``; or'' in the place of the period after newly
designated paragraph (b), and adding a new paragraph (c) to read as
follows:
Sec. 298.22 Amortization of obligations.
* * * * *
(c) With regard to Eligible Export Vessels, in accordance with such
other terms as the Secretary determines to be more favorable and to be
compatible with export credit terms offered by foreign governments for
the sale of vessels built in foreign shipyards.
Sec. 298.23 [Amended]
14. Section 298.23, Refinancing, is amended by adding the following
sentence at the end of the section: ``Refinancing of Title XI debt only
shall be permitted for Advanced or Modern Shipbuilding Technology.''.
Sec. 298.27 [Amended]
15. Section 298.27, Lease payments, is amended by adding after the
word, ``Vessel'', the words, ``or Advanced Shipbuilding Technology or
Modern Shipbuilding Technology''.
Sec. 298.28 [Amended]
16. Section 298.28, Advances, is amended as follows: a. In
paragraph (a)(2)(i) by inserting after the word, ``Vessel(s)'' the
words, ``or Advanced Shipbuilding Technology or Modern Shipbuilding
Technology''.
b. By removing the word, ``and'', after paragraph (a)(2)(ii),
removing the period after paragraph (a)(2)(iii) and inserting in its
place ``; and'', and by adding a new paragraph (a)(2)(iv) to read as
follows:
Sec. 298.28 Advances.
(a) * * *
(2) * * *
(iv) Any other available collateral on other General Shipyard
Facility equipment, land, and/or assets.
* * * * *
17. Section 298.31, is amended as follows:
a. Paragraph (a) is revised to read as follows:
Sec. 298.31 Mortgage.
(a) In general. Under normal circumstances, a Guarantee shall not
be endorsed on any Obligation until the Secretary receives satisfactory
evidence of a Mortgage in one or more Vessels or a Mortgage or other
security interest in the Advanced Shipbuilding Technology or Modern
Shipbuilding Technology (the ``Technologies''), in favor of the
Secretary. During construction of a new Vessel or any of the
Technologies, a security interest may be perfected by a filing under
the Uniform Commercial Code. In order to ensure that the Secretary's
Mortgages or security interests are valid and have worldwide
enforceability, the Secretary shall require the Obligor to obtain legal
opinions in form and substance satisfactory to the Secretary from
independent, outside legal counsel satisfactory to the Secretary,
including, in the case of an Eligible Export Vessel, foreign legal
counsel. In the case where a Mortgage or security interest on the
financed assets may not be available or enforceable, the Secretary
shall require alternative forms of security. The Security Agreement
shall provide that upon delivery of a new Vessel or upon final
installation of the Technologies, or at the time Guarantees are issued
with respect to an existing Vessel or the Technologies, a Mortgage on
the Vessel and a Mortgage or other security interest on the
Technologies shall be executed in favor of the Secretary, unless the
Secretary determines that a Mortgage or a security interest is not
required in accordance with the preceding sentence. The Mortgage shall
be filed with the United States Coast Guard at the Vessel's port of
record, or with the proper foreign authorities with respect to an
Eligible Export Vessel, and with respect to assets of a General
Shipyard Facility a Mortgage and security interest shall be filed with
the proper authorities within the appropriate state and shall be
delivered to the Secretary after being recorded.
* * * * *
b. Paragraph (c), Adequacy of collateral, is amended by inserting
after the word, ``Vessel(s)'' or ``vessel(s)'', each time it appears,
the words, ``or Advanced or Modern Shipbuilding Technology''.
18. Section 298.32 is amended as follows: a. Paragraph (a)(1) is
amended by inserting after the word, ``shipyard'', each time it
appears, the words, ``or manufacturer of the Advanced Shipbuilding
Technology or Modern Shipbuilding Technology''.
b. Paragraphs (a)(2) and (a)(3) are amended by inserting after the
word, ``Vessel'', each time it appears, the words, ``or Advanced or
Modern Shipbuilding Technology''.
c. Paragraphs (b)(2) and (b)(3) are amended by inserting after the
word, ``Vessel'', in each paragraph, the words, ``or Advanced or Modern
Shipbuilding Technology''.
d. Paragraph (b)(4) is revised, paragraph (b)(6) is amended by
removing the word ``and'' at the end of the paragraph, paragraph (b)(7)
is amended by removing the period and adding in its place a semicolon,
and paragraphs (b)(8) and (b)(9) are added to read as follows:
Sec. 298.32 Required provisions in documentation.
* * * * *
(b) Assignments and general covenants from Obligor to Secretary. *
* *
* * * * *
(4) Covenants relating to the annual filing of satisfactory
evidence of continuing United States citizenship, in accordance with 46
CFR part 355, with the exception of Eligible Export Vessels; warranty
of Vessel or Advanced Shipbuilding Technology or Modern Shipbuilding
Technology title free from all liens other than those specifically
excepted; maintaining United States registry of the Vessel or registry
under the laws of a country other than the United States with regard to
an Eligible Export Vessel; compliance with the provisions of 46 U.S.C.
31301-31343; Notice of Mortgage, payment of all taxes (except if being
contested in good faith); annual financial statements audited by
independent certified or independent licensed public accountant.
* * * * *
(8) Covenants to maintain shipyard insurance on the Advanced
Shipbuilding Technology or Modern Shipbuilding Technology in an amount
equal to 110% of the outstanding Obligations or up to the full
commercial value of the technology, whichever is greater, and such
additional insurance as may be required by the Secretary; and
(9) Covenants to maintain additional types of insurance as may be
required by the Secretary with respect to Eligible Export Vessels, i.e.
political risk insurance, to cover such items as the political,
financial, and/or economic risk in a foreign country.
Sec. 298.33 [Amended]
19. Section 298.33, Escrow Fund, is amended in paragraphs (b), (c),
(e), (g) and (h) by inserting after the words, ``Vessel'', or
``Vessels'', wherever they appear, the words, ``or Advanced or Modern
Shipbuilding Technology''.
Sec. 298.34 [Amended]
20. Section 298.34, Construction Fund, is amended in paragraph (b)
by inserting after the word, ``Vessel'', the words, ``or Advanced or
Modern Shipbuilding Technology''.
Sec. 298.35 [Amended]
21. Section 298.35, Reserve Fund and Financial Agreement, is
amended as follows:
a. Paragraphs (b)(1)(i), (c)(1)(i) and (e) are amended by inserting
after the word, ``Vessel'', each place it appears, the words, ``or
Advanced or Modern Shipbuilding Technology''.
b. By adding paragraph (b)(1)(v), by removing the word, ``or,'' at
the end of paragraph (c)(1)(v), by removing the period and adding in
its place ``; or'' at the end of paragraph (c)(1)(vi), by adding
paragraph (c)(1)(vii), and by adding a new sentence after the
penultimate sentence in paragraph (d) introductory text to read as
follows:
Sec. 298.35 Reserve Fund and Financial Agreement.
* * * * *
(b) * * *
(1) * * *
(v) Sell, transfer, or lease any Modern or Advanced Shipbuilding
Technology financed with the assistance of Title XI guarantees or
transfer such technology to an Affiliate under any form of contract.
* * * * *
(c) * * *
(1) * * *
(vii) Sell, transfer, or lease any Advanced or Modern Shipbuilding
Technology financed with the assistance of Title XI guarantees or
transfer such technology to an Affiliate under any form of contract.
* * * * *
(d) * * * In the case of Advanced or Modern Shipbuilding
Technology, the Agreement shall provide that within 105 days after the
end of its accounting year, the Company shall compute its Reserve Fund
Net Income in the manner as may be required by the Secretary. * * *
* * * * *
Sec. 298.36 [Amended]
22. Section 298.36, Annual Guarantee Fee, is amended in paragraphs
(a), (c) and (d) by inserting after the word, ``Vessel'', whenever it
appears in the caption or in the text, the words, ``or Advanced or
Modern Shipbuilding Technology''.
Sec. 298.37 [Amended]
23. Section 298.37, Examination and audit, is amended in the first
and second sentences by inserting after the word, ``Vessel'', the
following: ``or Advanced or Modern Shipbuilding Technology''.
Sec. 298.39 [Amended]
24. Section 298.39, Exemptions, is amended by adding at the end a
sentence, reading, ``In the case of Eligible Export Vessels, the
Secretary may also exempt an applicant from any requirement of this
Part not required by law if the Secretary makes a written determination
that such exemption would assist in creating financing terms that would
be compatible with export credit terms for the sale of vessels built in
shipyards other than those in the United States.''.
Sec. 298.41 [Amended]
25. Section 298.41, Remedies after default, is amended in paragraph
(b) by adding after the word, ``Vessel'', each place it appears, the
words, ``or Advanced or Modern Shipbuilding Technology''.
Sec. 298.42 [Amended]
26. Section 298.42. Reporting requirements-financial statements, is
amended by adding the following sentence between the first and second
sentences of the introductory text, ``In the case of Eligible Export
Vessels, the accounts of the Company shall be audited at least
annually, and the Secretary may require that the financial statements
be in accordance with generally accepted accounting principles, by
accountants as described in the first sentence of this section or by
independent public accountants licensed to practice by the regulatory
authority or other political subdivision of a foreign country, provided
such accountants are satisfactory to the Secretary''.
27. Add new Secs. 298.18 and 298.19 to subpart B to read as
follows:
Sec. 298.18 Financing Advanced or Modern Shipbuilding Technology.
(a) Initial criteria. The Secretary may approve Guarantees issued
to finance Advanced or Modern Shipbuilding Technology at a General
Shipyard Facility. The Secretary will approve such Guarantees only upon
a finding by the Secretary that the Guarantees will aid in the
transition from naval shipbuilding to commercial ship construction for
domestic and export sales, encourage shipyard modernization, and
support increased productivity. The applicant shall provide a detailed
statement with the Guarantee application which will provide the basis
for such finding by the Secretary.
(b) Other conditions. Applications for loan guarantees under this
section shall not be approved unless the Secretary determines that the
following requirements have been met: (1) The term for such Guarantees
will not exceed the technological life of the assets being financed, as
determined by the Secretary;
(2) There is sufficient collateral to secure the Guarantee;
and
(3) Approval of the application will not preclude approval of any
other pending application for Advanced or Modern Shipbuilding
Technology Guarantees which, in the sole opinion of the Secretary,
would result in a more desirable use of appropriated funds. The
Secretary's opinion will take into consideration such factors as the
types of vessels which will be built by the shipyard, the productivity
increases which will be achieved, the geographic location of the
shipyard, the long-term viability of the shipyard, the soundness of the
financial transaction, any financial impact on other Title XI
transactions, and the furtherance of the goals of the Shipbuilding Act.
Sec. 298.19 Financing Export Vessels.
(a) Transmittal to Secretary of Defense. Upon receiving an
application for a loan Guarantee for an Eligible Export Vessel, the
Secretary shall promptly provide to the Secretary of Defense notice of
the receipt of the application. During the 30-day period beginning on
the date on which the Secretary of Defense receives such notice, the
Secretary of Defense may disapprove the loan guarantee based on the
assessment of the Secretary of the potential use of the Vessel in a
manner that may cause harm to United States national security
interests. The Secretary of Defense may not disapprove a loan Guarantee
under this section solely on the basis of the type of vessel to be
constructed with the loan Guarantee. The authority of the Secretary to
disapprove a loan Guarantee under this section may not be delegated to
any official other than a civilian officer of the Department of Defense
appointed by the President, by and with the advice and consent of the
Senate. The Secretary of Transportation may not make a loan guarantee
disapproved by the Secretary of Defense.
(b) Determinations by the Secretary. (1) If the loan Guarantee
commitment cost of any such Vessel is made available from funds
transferred from the Secretary of Defense pursuant to section 108 of
the National Defense Authorization Act for Fiscal Year 1994 (Pub. L.
103-160, 107 Stat. 1547), the Vessel must be of at least 5,000 gross
tons and found by the Secretary to be commercially marketable on the
international market.
(2) Such Guarantees shall not be approved unless: (i) The Secretary
finds that the construction, reconstruction or reconditioning of the
Vessel will aid in the transition of United States shipyards to
commercial activities or will preserve shipbuilding assets that would
be essential in time of war or national emergency; and
(ii) The owner of the Vessel agrees with the Secretary that the
Vessel shall not be transferred to any country designated by the
Secretary of Defense as a country whose interests are hostile to the
interests of the United States.
(3) The Secretary may approve Guarantees issued to finance Eligible
Export Vessels. Such Guarantee shall not be approved unless the
Secretary determines that the country, to which the Vessel is to be
exported, together with related institutions, is sufficiently
creditworthy. The Secretary's determination shall be based on
confidential risk assessments provided by the Export-Import Bank of the
United States and country risk analyses provided by the Inter-Agency
Country Risk Assessment System and shall take into account any other
factors related to the loan guarantee transaction deemed pertinent by
the Secretary.
Dated: March 29, 1994.
By Order of the Maritime Administrator.
James E. Saari,
Secretary, Maritime Administration.
[FR Doc. 94-7833 Filed 3-30-94; 8:45 am]
BILLING CODE 4910-81-P
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