Proposed Rule2023-08243
Amendment to the Federal Ship Financing Program Regulations; Financial Requirements
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
April 25, 2023
Issuing agencies
Transportation DepartmentMaritime Administration
Abstract
This document serves to inform interested parties and the public that the Maritime Administration (MARAD) proposes to amend its regulations implementing the Federal Ship Financing Program's (Title XI Program) financial requirements. This action is necessary to implement statutory changes and update the existing financial requirements imposed on Title XI Program obligors to align with more up-to-date vessel financing and federal credit best practices. MARAD solicits written comments on this rulemaking.
Full Text
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<title>Federal Register, Volume 88 Issue 79 (Tuesday, April 25, 2023)</title>
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[Federal Register Volume 88, Number 79 (Tuesday, April 25, 2023)]
[Proposed Rules]
[Pages 24962-24967]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-08243]
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DEPARTMENT OF TRANSPORTATION
Maritime Administration
46 CFR Part 298
[Docket Number MARAD-2023-0086]
RIN 2133-AB98
Amendment to the Federal Ship Financing Program Regulations;
Financial Requirements
AGENCY: Maritime Administration, Department of Transportation.
ACTION: Notice of proposed rulemaking; request for comments.
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SUMMARY: This document serves to inform interested parties and the
public that the Maritime Administration (MARAD) proposes to amend its
regulations implementing the Federal Ship Financing Program's (Title XI
Program) financial requirements. This action is necessary to implement
statutory changes and update the existing financial requirements
imposed on Title XI Program obligors to align with more up-to-date
vessel financing and federal credit best practices. MARAD solicits
written comments on this rulemaking.
DATES: Written comments are requested on or before June 26, 2023.
ADDRESSES: Your comments should refer to DOT Docket Number MARAD-2023-
0086 and may be submitted by any of the following methods:
<bullet> Federal eRulemaking Portal: <a href="http://www.regulations.gov">www.regulations.gov</a>. Search
``MARAD-2023-0086'' and follow the instructions for submitting
comments.
<bullet> Email: <a href="/cdn-cgi/l/email-protection#c694b3aaa3aba7adafa8a1b5e88b8794878286a2a9b2e8a1a9b0"><span class="__cf_email__" data-cfemail="87d5f2ebe2eae6eceee9e0f4a9cac6d5c6c3c7e3e8f3a9e0e8f1">[email protected]</span></a>. Include ``MARAD-2023-
0086'' in the subject line of the message.
<bullet> Mail/Hand-Delivery/Courier: Docket Management Facility;
U.S. Department of Transportation, 1200 New Jersey Avenue SE, Room W12-
140, Washington, DC 20590. If you would like to know that your comments
reached the facility, please enclose a stamped, self-addressed postcard
or envelope. The Docket Management Facility is open 9:00 a.m. to 5:00
p.m. E.T., Monday through Friday, except on Federal holidays.
You may view the public comments submitted on this rulemaking at
<a href="http://www.regulations.gov">www.regulations.gov</a>. When searching for comments, please use the Docket
ID: MARAD-2023-0086. An electronic copy of this document may also be
downloaded from the Office of the Federal Register's website at
<a href="http://www.FederalRegister.gov">www.FederalRegister.gov</a> and the Government Publishing Office's website
at <a href="http://www.GovInfo.gov">www.GovInfo.gov</a>.
[[Page 24963]]
Note: If you mail or hand-deliver your input, we recommend that you
include your name and a mailing address, an email address, or a
telephone number in the body of your document so that we can contact
you if we have questions regarding your submission. If you submit your
inputs by mail or hand-delivery, they must be submitted in an unbound
format, no larger than 8\1/2\ by 11 inches, single-sided, suitable for
copying and electronic filing.
Instructions: All submissions received must include the agency name
and docket number or Regulation Identifier Number (``RIN'') for this
rulemaking. All comments received will be posted without change to the
docket at <a href="http://www.regulations.gov">www.regulations.gov</a>, including any personal information
provided. For detailed instructions on submitting comments and
additional information on the rulemaking process, see the section
entitled Public Participation.
To avoid duplication, please use only one of the above methods. See
the ``Public Participation'' section below for instructions on
submitting comments, including collection of information comments, if
any, for the Office of Information and Regulatory Affairs, Office of
Management and Budget. Unless there is a request for confidential
treatment, all comments received will be posted without change to
<a href="http://www.regulations.gov">http://www.regulations.gov</a>, including any personal information
provided.
FOR FURTHER INFORMATION CONTACT: David M. Gilmore, Director, Office of
Marine Financing, at (202) 366-5737, or via email at
<a href="/cdn-cgi/l/email-protection#96fbf7e4fff8f3f0fff8f7f8f5fff8f1d6f2f9e2b8f1f9e0"><span class="__cf_email__" data-cfemail="600d0112090e0506090e010e03090e0720040f144e070f16">[email protected]</span></a>. You may send mail to Mr. Gilmore at Department
of Transportation, Maritime Administration, Office of Marine Financing,
1200 New Jersey Avenue SE, Washington, DC 20590. If you have questions
on viewing the Docket, call Docket Operations, telephone: (800) 647-
5527.
SUPPLEMENTARY INFORMATION:
Background
The Secretary of Transportation, through MARAD, is authorized to
provide guarantees of debt (obligation guarantees) to finance all types
of vessel construction and shipyard modernization and improvement,
except for fishing vessels. The Title XI Program is a loan guarantee
program, administered by MARAD, which was established under Title XI of
the Merchant Marine Act, 1936, Public Law 74-835, codified at 46 U.S.C.
Chapter 537, as amended (the ``Act''). Title XI provides for the full
faith and credit of the United States, acting by and through the
Maritime Administrator, for the payment of debt obligations for: (1)
U.S. shipowners for the purpose of financing or refinancing U.S. flag
vessels constructed, reconstructed, or reconditioned in U.S. shipyards;
and (2) U.S. shipyards for the purpose of financing advanced
shipbuilding technology and modern shipbuilding technology of a
privately-owned shipyard facility located in the U.S. As the Title XI
Program guarantees full payment of the obligation's unpaid principal
and interest in the event of a default by the borrower, both the
statute and regulations contain several criteria and requirements
intended to reduce the risk of a loan default. Though the Title XI
Program regulations have been amended over the years, the current
financial requirements and limitations remain substantially the same as
when MARAD introduced them in 1978. As lending practices have evolved,
MARAD's regulatory standards have not changed to reflect modern lending
practices for vessel financing. For example, when the regulations where
implemented, certain leases were not included as an expense under
generally accepted accounting principles (GAAP), but today GAAP
requires that all leases be included as an expense. Today, retained
earnings are also expected to be included in any calculation of equity
or net worth pursuant to GAAP. Accordingly, the proposed modifications
to the regulations will eliminate confusion and align the Title XI
Program regulations with modern accounting standards.
Prior to execution of a guarantee, MARAD is bound by statute to,
among other things, make determinations of economic soundness of the
project and the financial and operating capability of the applicant. To
that end, the Title XI regulations currently require each borrower, and
operator if applicable, to have and maintain: (1) working capital of at
least $1; (2) at least 90 percent of its equity as shown on the last
audited balance sheet; and (3) long-term debt not to exceed twice its
equity. By this notice of proposed rulemaking, MARAD proposes to
modernize its financial review process by removing static financial
covenants and loan thresholds and replacing them with a review and
evaluation of the creditworthiness of each borrower based on revenue
metrics based on federal credit and maritime lending best practices.
The use of these revenue metrics is intended to improve the quality of
MARAD financial requirements applied to new borrowers. As part of its
regular programmatic evaluation process, MARAD frequently seeks
feedback from potential applicants and borrowers on its processes.
Potential applicants have advised MARAD that the challenges caused by
the regulatory requirements are a reason why they will not use the
program. Borrowers also have cited the incompatibility of Title XI debt
financial covenants with the other lender covenants as an obstacle in
the prompt processing and approval of loan guarantee applications.
The ``National Defense Authorization Act for Fiscal Year 2020,''
(Pub. L. 116-92; December 20, 2019) (``NDAA 2020'') established the
Federal Financing Bank as the ``preferred lender'' for the Title XI
Program. Additionally, the NDAA 2020 directed MARAD to periodically
review Title XI application procedures and documents to assure they
``meet current commercial best practices to the extent permitted by
law.'' The 2020 NDAA also provided that MARAD establish a process for
expedited consideration of low-risk applications which would ``utilize,
to the extent practicable, relevant Federal and industry best practices
found in the maritime and shipbuilding industries.'' As a result, MARAD
identified best practices from federal credit programs that make loans
and obligation guarantees similar to the Title XI Program. MARAD
considered a review of federal credit practices that identified the
Title XI Program was the only program with regulatorily-imposed
financial covenants and thresholds.\1\ This deviation from federal
credit best practices was highlighted as a significant hinderance to
the Title XI Program's ability to tailor the terms of credit assistance
to address the characteristics of a specific project.
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\1\ U.S. Department of Transportation, Maritime Administration,
Federal Credit and Maritime Lending Industry Best Practices, June
2020. Available at <a href="https://www.maritime.dot.gov/grants/title-xi/statute-regulations-and-guidance">https://www.maritime.dot.gov/grants/title-xi/statute-regulations-and-guidance</a>.
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Restrictions on the flexibility of the program limit the program's
ability to succeed. Reliance on the current static metrics and limited
amortization requirements prevent the Title XI Program from adjusting
its financial terms and conditions and debt amortization when best
credit practices would recommend otherwise. The proposals are intended
to attract a higher volume of high-quality applicants and mitigate risk
to the U.S. government.
Moreover, with the implementation of the Federal Financing Bank as
the preferred lender for Title XI obligation guarantees, there is no
longer a need for the strict uniformity in the regulatory structure of
the guaranteed obligations. Previously, Title XI guaranteed debt was
marketed to the public through
[[Page 24964]]
investment banks. This created a need for uniformity to encourage the
purchase of the debt by entities not familiar with maritime financings
and to allow for easier resale by a debt purchaser to a third-party at
a future date. The expectation of uniformity by the market limited the
payment schedule options available for Title XI Program participants in
circumstances where it may have been in the U.S. government's best
interest to structure the debt differently to mitigate risk.
Due to the length of time since the regulations were last updated,
the availability of modern financial requirements of similar federal
programs, the evolving maritime environment, changes to federal credit
and maritime lending best practices, and updates to the Title XI
statute, MARAD proposes to amend its regulations. These proposed
amendments would include permitting MARAD to use financial
requirements, consistent with federal credit and maritime lending best
practices for entities having a similar credit rating that MARAD
determines are necessary and appropriate to protect the interest of the
United States. The proposed amendments would also allow MARAD to use
alternative methods of amortization, other than level principal or
level debt payment, when an independent financial advisor approved by
MARAD conducts independent analysis and review and demonstrates that
such other method is in the best interests of the United States.
The proposed rule is intended to update the lending parameters in
the current regulations, which no longer best achieve the intended
purpose of minimizing the risk of Title XI Program defaults and to
better align the lending practices to reflect federal credit and
maritime lending best practices. Additionally, MARAD expects that the
proposed regulations would reduce the economic burden on applicants in
complying with Title XI Program requirements that are inconsistent with
other lending instruments. MARAD also expects that the updated lending
parameters should encourage the construction of vessels in United
States shipyards which otherwise would not meet the current constrained
Title XI Program financial requirements.
Public Participation
How do I submit comments on the proposed rule?
Include the docket number in your comments to ensure that your
comments are correctly filed in the Docket. We encourage you to provide
concise comments; however, you may attach additional documents as
necessary. There is no limit on the length of the attachments. Please
submit your comments, including the attachments, following the
instructions provided under the above-entitled heading ADDRESSES.
MARAD will consider all comments received before the close of
business on the comment closing date indicated above under DATES. To
the extent possible, MARAD will also consider comments received after
that date.
For access to the docket to submit or read comments received, go to
the Docket Management Facility, U.S. Department of Transportation, 1200
New Jersey Avenue SE, West Building, Room W12-140, Washington, DC
20590. The Docket Management Facility is open 9:00 a.m. to 5:00 p.m.,
Monday through Friday, except on Federal holidays. To review documents,
read comments or to submit comments, the docket is also available
online at <a href="http://www.regulations.gov">www.regulations.gov</a>., keyword search ``MARAD-2023-0086.''
Please note that even after the comment period has closed, MARAD
will continue to file relevant information in the Docket as it becomes
available. Further, some people may submit late comments. Accordingly,
MARAD recommends that you periodically check the Docket for new
material.
Will my comments be made available to the public?
Before including your address, phone number, email address or other
personal information in your comment, be aware that your entire
comment, including your personal identifying information, will be made
publicly available.
May I submit comments confidentially?
If you wish to submit comments under a claim of confidentiality,
you should submit your complete submission, including the information
you claim to be confidential business information, to the Department of
Transportation, Maritime Administration, Office of Legislation and
Regulations, MAR-225, W24-220, 1200 New Jersey Avenue SE, Washington,
DC 20590. When you submit comments containing information claimed to be
confidential information, you should include a cover letter setting
forth with specificity the basis for any such claim and, if possible, a
summary of your submission that can be made available to the public.
I. Regulatory Analyses and Notices
Privacy Act
Anyone can search the electronic form of all comments received into
any of our dockets by the name of the individual submitting the comment
(or signing the comment, if submitted on behalf of an association,
business, labor union, etc.). For information on DOT's compliance with
the Privacy Act, please visit <a href="https://www.transportation.gov/privacy">https://www.transportation.gov/privacy</a>.
Executive Order 12866 (Regulatory Planning and Review), 13563
(Improving Regulation and Regulatory Review) and DOT Regulatory
Policies and Procedures
Under Executive Order (E.O.) 12866 (58 FR 51735, October 4, 1993),
supplemented by EO13563 (76 FR 3821, January 18, 2011) and USDOT
policies and procedures, a determination must be made whether a
regulatory action is ``significant,'' and therefore subject to the
Office of Management and Budget (OMB) review and the requirements of
the Order. The Order defines ``significant regulatory action'' as one
likely to result in a rule that may: (1) Have an annual effect on the
economy of $100 million or more or adversely affect in a material way
the economy, a sector of the economy, productivity, competition, jobs,
the environment, public health or safety, or State, local, or tribal
government or communities. (2) Create a serious inconsistency or
otherwise interfere with an action taken or planned by another Agency.
(3) Materially alter the budgetary impact of entitlements, grants, user
fees, or loan programs or the rights and obligations of recipients
thereof. (4) Raise novel legal or policy issues arising out of legal
mandates, the President's priorities, or the principles set forth in
the E.O.
This notice of proposed rulemaking has been determined to be a
significant regulatory action under section 3(f) of E.O. 12866. The
rule was therefore reviewed by the Office of Information and Regulatory
Affairs (OIRA) within OMB prior to publication.
Analysis of Benefits and Costs
The Title XI Program guarantees full payment of the obligation's
unpaid principal and interest in the event of a default by the
borrower. Both the statute and MARAD's implementing regulations also
contain several criteria and requirements intended to reduce the risk
of a loan default. Though the Title XI Program regulations have been
amended over the years, the current financial requirements and
limitations remain substantially the same as when
[[Page 24965]]
they were introduced in 1978. As lending practices have evolved, the
regulatory standards have not changed to reflect current lending
practices for vessel financing.
Benefits
The major benefits of amending Part 298 will be to: (1) modernize
MARAD's financial review process by removing static financial covenants
and loan thresholds and replacing them with best practices intended to
improve the quality of MARAD financial reviews; and (2) allow MARAD to
examine more indicators of financial health, thus improving MARAD's
ability to accurately assess applicants and to better mitigate
financial risk to the Government.
Costs
MARAD does not believe that the rulemaking is likely to impose
quantifiable or nonquantifiable costs. The primary function of this
regulatory change is to modernize MARAD financial review methods and
processes, thereby improving MARAD's ability to evaluate applicants.
Analysis of Alternatives
On December 20, 2019, the NDAA 2020 directed MARAD ``to utilize, to
the extent practicable, relevant Federal and industry best practices
found in the maritime and shipbuilding industries.'' In considering
potential alternatives, MARAD reviewed a number of federal credit
programs that make loans and obligation guarantees similar to the Title
XI Program. MARAD considered a review of federal credit practices that
identified the Title XI Program as the only Federal program with
regulatorily-imposed financial covenants and thresholds.\2\ The report
found that the static regulatory requirements significantly hindered
the Title XI Program's ability to tailor the terms of credit assistance
to address the characteristics of a specific project. MARAD considered
the report's findings in light of its current practices and proposed in
this NPRM amendment to conform to the report's findings.
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\2\ U.S. Department of Transportation, Maritime Administration,
Federal Credit and Maritime Lending Industry Best Practices, June
2020. Available at <a href="https://www.maritime.dot.gov/grants/title-xi/statute-regulations-and-guidance">https://www.maritime.dot.gov/grants/title-xi/statute-regulations-and-guidance</a>.
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Executive Order 13132 (Federalism)
MARAD has examined the rule pursuant to E.O. 13132 (64 FR 43255,
August 10, 1999) and concluded that no additional consultation with
States, local governments, or their representatives is mandated beyond
the rulemaking process. The Agency has concluded that the rulemaking
would not have sufficient federalism implications to warrant
consultation with State and local officials or the preparation of a
federalism summary impact statement. The rule will not have
``substantial direct effects on the States, on the relationship between
the national government and the States, or on the distribution of power
and responsibilities among the various levels of government.''
Executive Order 13175 (Consultation and Coordination With Indian Tribal
Governments)
MARAD has determined that this rulemaking, in which MARAD proposes
to amend its regulations implementing the Title XI Program financial
requirements to implement statutory changes and update the existing
financial requirements imposed on Title XI Program obligors, will not
significantly or uniquely affect the communities of Indian tribal
governments when analyzed under the principles and criteria contained
in E.O. 13175 (Consultation and Coordination with Indian Tribal
Governments). Therefore, the funding and consultation requirements of
this Executive Order do not apply.
Executive Order 12372 (Intergovernmental Review)
The requirements of E.O. 12372 regarding intergovernmental
consultation on Federal programs and activities do not apply to this
rulemaking, because it would not directly affect the interests of State
and local governments.
Regulatory Flexibility Act
The Regulatory Flexibility Act of 1980 requires MARAD to assess
whether this rulemaking would have a significant economic impact on a
substantial number of small entities and to minimize any adverse
impact. Potential applicants to the Title XI program are vessel owners
and operators, as well as shipyard owners. These industries fit under
NAICS codes 336611, Ship Building and Repairing and NAICS codes 483111-
483212, which cover different types of transportation by vessel and
would include vessel owners and operators.\3\ The SBA defines a small
business under NAICS code 36611 as a business with 1,250 employees or
less and under NAICS code. The SBA defines small businesses under NAICS
codes 483111-483212 as businesses with 500-1,500 employees or less,
depending on the specific NAICS code.
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\3\ These NAICS codes are 483111/483112 Deep Sea Freight/
Passenger Transportation, 483113/483114 Coastal and Great Lakes
Freight/Passenger Transportation, and 4832111/483212 Inland Water
Freight/Passenger Transportation. Navigational Services to Shipping,
under NAICS code 488330 may also be applicable. SBA defines a small
business under this NAICS code as having an average annual revenue
of $41.5 million or less.
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The Title XI Program guarantees full payment of the obligation's
unpaid principal and interest in the event of a default by the
borrower. The program maintains a $5000 application fee, a fee that has
not increased in 30 years and would remain unchanged by this proposal.
MARAD also estimates that the application process currently takes
approximately 150 hours, a figure that would also remain unchanged by
this proposal. The program provides substantial financial assistance to
maritime industry participants, and the proposed changes are intended
to eliminate challenges caused by the regulatory requirements, a reason
cited by stakeholders as to why they will not use the program. The
proposed rule is also intended to make Title XI debt financial
covenants compatible with other lender covenants, which stakeholders
cited as an obstacle in the prompt processing and approval of loan
guarantee applications. MARAD intends for the proposed changes, if
finalized, to attract a higher volume of high-quality applicants to the
program. Based on the foregoing, MARAD certifies that this rulemaking
will not have a significant economic impact on a substantial number of
small entities.
Executive Order 12988 (Civil Justice Reform)
E.O. 12988 requires that agencies promulgating new regulations or
reviewing existing regulations take steps to minimize litigation,
eliminate ambiguity and to reduce burdens on the regulated public.
MARAD has reviewed this rulemaking and has determined that this
rulemaking action conforms to the applicable standards in sections 3(a)
and 3(b)(2) of E.O. 12988, Civil Justice Reform,
Unfunded Mandates Reform Act of 1995
The Unfunded Mandates Reform Act of 1995 requires Agencies to
evaluate whether an Agency action would result in the expenditure by
State, local, and tribal governments, in the aggregate, or by the
private sector, of $100 million or more (adjusted annually for
inflation) in any 1 year, and if so, to take steps to minimize these
unfunded mandates. This action will not result in additional
expenditures by State, local, or tribal governments or by any members
of the private sector. Therefore, MARAD has
[[Page 24966]]
not prepared an assessment pursuant to the Unfunded Mandates Reform
Act.
Regulation Identifier Number (RIN)
A regulation identifier number (RIN) is assigned to each regulatory
action listed in the Unified Agenda of Federal Regulations. The
Regulatory Information Service Center publishes the Unified Agenda in
April and October of each year. The RIN number contained in the heading
of this document can be used to cross-reference this action with the
Unified Agenda.
Paperwork Reduction Act
Under the Paperwork Reduction Act of 1995 (PRA), a person is not
required to respond to a collection of information by a federal agency
unless the collection displays a valid OMB control number. This
rulemaking amends an existing regulation without any change to the
contemplated submission of information which might otherwise result in
a change to the applicant's burden hours. Therefore, the rulemaking can
rely on the existing information collected under OMB control number
2133-0018. Information submitted by applicants to the program will
continue to be used to evaluate an applicant's project and
capabilities, make the required determinations, and administer any
agreements executed upon approval of loan guarantees.
Clarity of Regulations
E.O. 12866 requires each Agency to write regulations that are easy
to understand. We invite your comments on how to make this proposed
rule easier to understand, including answers to questions such as the
following:
(1) Are the requirements in the proposed rule clearly stated?
(2) Does the proposed rule contain technical language or
terminology that interferes with its clarity?
(3) Does the format of the proposed rule (grouping and order of
sections, use of headings, paragraphs, etc.) aid or reduce its clarity?
(4) Would the rule be easier to understand if it were divided into
more but shorter sections (a ``section'' appears in bold type and is
preceded by the symbol ``Sec. '' and a numbered heading; for example,
``Sec. 393.21 Who can apply?'')
(5) Is the description of the proposed rule in the SUPPLEMENTARY
INFORMATION part of this preamble helpful in understanding the proposed
rule?
(6) What else could we do to make the proposed rule easier to
understand?
Send a copy of any comments that concern how we could make this
proposed rule easier to understand to: Division of Legislation and
Regulations, Department of Transportation, Maritime Administration,
Office of the Chief Counsel, Room W24-220, 1200 New Jersey Ave. SE,
Washington, DC 20590. You may also email the comments to this address:
<a href="/cdn-cgi/l/email-protection#abf9dec7cec6cac0c2c5ccd885e6eaf9eaefebcfc4df85ccc4dd"><span class="__cf_email__" data-cfemail="9ac8eff6fff7fbf1f3f4fde9b4d7dbc8dbdedafef5eeb4fdf5ec">[email protected]</span></a>. Please include the RIN number or docket
number for this rule in your submission.
List of Subjects in 46 CFR Part 298
Obligation guarantees.
For the reasons described in the preamble, the Maritime
Administration proposes to amend 46 CFR part 298 to read as follows:
PART 298--OBLIGATION GUARANTEES
Subpart B--Eligibility
0
1. Amend Sec. 298.13 by revising paragraphs (d) introductory text,
(d)(2)(ii), (d)(3) introductory text, (e) introductory text, (e)(3)(i),
and (f) through (i) to read as follows:
Sec. 298.13 Financial requirements.
* * * * *
(d) Financial definitions. For the purpose of this section and
Sec. Sec. 298.35, 298.36, and 298.42 of this part:
(2) * * *
(ii) In determining current liabilities, you must deduct any excess
of unterminated voyage expenses over unterminated voyage revenue.
(3) ``Equity'' or ``Net Worth'' means, as of any date, (the total
of paid-in-capital stock, paid-in surplus, earned surplus, retained
earnings, and appropriated surplus,) and all other amounts that would
be included in net worth in accordance with GAAP, but does not include:
* * * * *
(e) Applicability. The financial resources must be adequate to meet
the financial terms MARAD requires pursuant to paragraph (f) of this
section.
(3) * * *
(i) A pro forma balance sheet at the time of the application; and
* * * * *
(f) Financial requirements at Closing. As a condition of
disbursement of a guaranteed loan, the Company must demonstrate
financial performance that supports a reasonable prospect of repayment
taking into account foreseeable negative economic conditions.
(1) The financial requirements of this section are applicable to
Companies qualifying under one of the following three categories:
(i) Owner as vessel operator, where the owner is to be the vessel
operator;
(ii) Lessee or charterer as operator, where the lessee or charterer
is to be the vessel operator; or
(iii) Owner as general shipyard facility, where the owner of a
shipyard project is a general shipyard facility.
(2) Qualifying financial performance will be substantiated by
financial results over at least the trailing 12 quarters and/or
demonstrated by pro-forma financial performance that is underpinned by
reasonable assumptions.
(3) Qualifying creditworthiness will be substantiated by reviewing
and evaluating applicants based on revenue metrics which include the
following non-exhaustive list:
(i) Market factors;
(ii) Strategic positioning;
(iii) Management and governance;
(iv) Pro-forma financial strength;
(v) Project specific factors; and
(vi) Loan terms.
(g) Adjustments to financial requirements at Closing. If the owner,
although not operating a vessel, assumes any of the operating
responsibilities, MARAD may adjust the financial requirements of the
owner and operator by increasing the requirements of the owner and
decreasing those of the operator.
(h) Subordinated debt considered to be equity. With MARAD approval,
part of the equity requirements applicable under paragraph (c) of this
section may be satisfied by debt, fully subordinated by a subordination
agreement with MARAD, as to the payment of principal and interest on
the Secretary's Note and any claims secured as provided for in the
Security Agreement or the Mortgage. Repayment of subordinated debt may
be made only from funds available for payment of dividends or for other
distributions, in accordance with requirements of the Title XI Reserve
Fund and Financial Agreement (described in section 298.35). Such
subordinated debt must not be secured by any interest in property that
is security for Guarantees under Title XI, unless the obligor and the
lender enter into a written agreement approved by MARAD. The written
agreement must provide, among other things, that if any Title XI
financing or advance by us to the obligor occurs in the future, such
security interest of the lender must become subordinated to any
indebtedness to MARAD incurred by the obligor and to any security
interest obtained by MARAD in that property or other property, with
respect to the subsequent indebtedness.
(i) Modified requirements. MARAD may waive or modify the financial
terms or requirements otherwise applicable under sections 298.35 and
298.42, upon
[[Page 24967]]
determining that there is adequate security for the guarantees or that
such waiver or modification is in the best interests of the United
States. MARAD may impose similar financial requirements on any person
providing other security for the guarantees.
Subpart C--Guarantees
Sec. 298.21 [Amended]
0
2. Amend Sec. 298.21, in paragraph (b)(1), by removing the word
``Equity'' and adding in its place the word ``equity''.
0
3. Amend Sec. 298.22 by revising paragraph (b) to read as follows:
Sec. 298.22 Amortization of Obligations.
* * * * *
(b) Usually, the payment of principal (amortization) must be made
semi-annually, but in no event less frequently than on an annual basis,
and in either case the amortization must be in equal payments of
principal (level principal), unless MARAD approves the periodic payment
of a constant aggregate amount, comprised of both interest and
principal components that are variable in amount (level payment). No
other proposed method of amortization will be allowed that would reduce
the amount of periodic amortization below that determined under the
level principal or level payment basis at any time prior to maturity of
the obligations, except where a third-party expert approved or engaged
by MARAD conducts an independent analysis and review of a project and
structure of an obligation and demonstrates that such other method is
in the best interests of the United States.
Subpart D--Documentation
0
4. Amend Sec. 298.35 by revising the introductory text of paragraphs
(b)(2) and (d) to read as follows:
Sec. 298.35 Title XI Reserve Fund and Financial Agreement.
* * * * *
(b)* * *
(2) Supplemental covenants which may become applicable. Unless,
after giving effect to such transaction or transactions, during any
fiscal year of the Company, the Company must remain in compliance with
financial terms and requirements specified by MARAD based on the
agency's evaluation for financial performance and creditworthiness and
appropriate to protect the interest of the United States. The Company
must not, without prior MARAD written consent:
* * * * *
(d) Deposits. Unless the Company, as of the close of its accounting
year, was subject to and in compliance with the financial terms
required by paragraph (b)(2) of this section, the Company must make one
or more deposits to MARAD to be held by the Depository (the Title XI
Reserve Fund), as further provided for in the depository agreement. The
amount of deposit for any year, or period less than a full year, where
applicable, will be determined as follows:
* * * * *
(Authority: National Defense Authorization Act for Fiscal Year 2020,
Pub. L. 116-92, 46 U.S.C. chapter 537, 49 CFR 1.93(a))
By order of the Maritime Administrator.
T. Mitchell Hudson, Jr.,
Secretary, Maritime Administration.
[FR Doc. 2023-08243 Filed 4-24-23; 8:45 am]
BILLING CODE 4910-81-P
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</html>Indexed from Federal Register on April 25, 2023.
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