Rule2026-17636
Vessel and Shipyard Financing, Regulatory Revision
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
August 28, 2026
Effective
August 28, 2026
Issuing agencies
Transportation DepartmentMaritime Administration
Abstract
This interim final rule revises MARAD regulations implementing the Vessel and Shipyard Financing Program (Title XI Program or the Program) financial and programmatic requirements. Specifically, MARAD implements statutory changes, updates the vessel project and shipyard project financing requirements imposed on Title XI Program borrowers, aligns the Title XI Program with modern Federal credit best practices, corrects numerous legal citations, improves accessibility by modernizing text, and removes obsolete references. This rule also streamlines the MARAD Title XI regulations by removing 14 of 34 sections of the existing regulations.
Full Text
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<title>Federal Register, Volume 91 Issue 166 (Friday, August 28, 2026)</title>
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[Federal Register Volume 91, Number 166 (Friday, August 28, 2026)]
[Rules and Regulations]
[Pages 55486-55497]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-17636]
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DEPARTMENT OF TRANSPORTATION
Maritime Administration
46 CFR Part 298
[Docket Number MARAD-2026-1288]
RIN 2133-AC05
Vessel and Shipyard Financing, Regulatory Revision
AGENCY: Maritime Administration (MARAD), U.S. Department of
Transportation (DOT).
ACTION: Interim final rule, request for comments.
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SUMMARY: This interim final rule revises MARAD regulations implementing
the Vessel and Shipyard Financing Program (Title XI Program or the
Program) financial and programmatic requirements. Specifically, MARAD
implements statutory changes, updates the vessel project and shipyard
project financing requirements imposed on Title XI Program borrowers,
aligns the Title XI Program with modern Federal credit best practices,
corrects numerous legal citations, improves accessibility by
modernizing text, and removes obsolete references. This rule also
streamlines the MARAD Title XI regulations by removing 14 of 34
sections of the existing regulations.
DATES: This interim final rule is effective August 28, 2026. Comments
must be submitted on or before October 27, 2026.
ADDRESSES: You may submit comments identified by DOT Docket Number
MARAD-2026-1288 by any of the following methods:
<bullet> Federal eRulemaking Portal: <a href="http://www.regulations.gov">www.regulations.gov</a>. Search
using the DOT Docket Number provided above and follow the instructions
for submitting comments.
<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., Monday through Friday, except on Federal holidays.
Note: We recommend that you include your name, mailing address,
or an email address, and 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.
All submissions received should include the agency name and docket
number or Regulation Identifier Number (RIN) for this rulemaking.
Instructions: 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.
FOR FURTHER INFORMATION CONTACT: David M. Gilmore, Director, Office of
Marine Financing, (202) 366-5737 or via email at
<a href="/cdn-cgi/l/email-protection#1f727e6d76717a7976717e717c7671785f7b706b31787069"><span class="__cf_email__" data-cfemail="ff929e8d96919a9996919e919c969198bf9b908bd1989089">[email protected]</span></a>. For those who use a telecommunications device
(TDD), please call the Federal Information Relay Service (FIRS) at 1-
800-877-8339 to contact the above individual during business hours. The
FIRS is available twenty-four hours a day, seven days a week, to leave
a message or question. You will receive a reply during normal business
hours. 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
about viewing the Docket, call Docket Operations, telephone: (800) 647-
5527.
SUPPLEMENTARY INFORMATION:
Electronic Access and Filing
This document and all comments may be viewed online through the
Federal eRulemaking portal at <a href="http://www.regulations.gov">www.regulations.gov</a>. An electronic copy
of this document may also be downloaded by accessing the Office of the
Federal Register's home page at: <a href="http://www.federalregister.gov">www.federalregister.gov</a>.
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>.
Background
Regulatory Review
Improvement of regulations is a continuous focus for DOT and MARAD.
For that reason, DOT and MARAD regularly and deliberately review their
rules in accordance with Executive Order (E.O.) 12866, Regulatory
Planning
[[Page 55487]]
and Review (Oct. 4, 1993), section 610 of the Regulatory Flexibility
Act, 49 CFR part 5, and DOT Order 2100.6B, Policies and Procedures for
Rulemakings. That process is summarized in Appendix D of DOT's semi-
annual regulatory agenda. In addition, E.O. 14192, Unleashing
Prosperity Through Deregulation (Feb. 6, 2025), and E.O. 14219,
Ensuring Lawful Governance and Implementing the President's
``Department of Government Efficiency'' Deregulatory Initiative (Feb.
19, 2025), directed agencies to scrutinize their regulations to reduce
unnecessary costs, clear barriers to emerging technology, and alleviate
unnecessary regulatory burdens.
MARAD is evaluating the continued accuracy of its rules and
determining whether they address current issues and provide the
regulated public with sound guidance. Accordingly, MARAD has identified
its Title XI Program regulations governing applications and
administrative procedures for consideration.
Title XI Program
The Maritime Administrator is authorized to provide guarantees of
debt (loan guarantees) to finance all types of U.S.-flagged vessel
construction (except for fishing vessels) and shipyard modernization
and improvement. The Title XI Program was established under Title XI of
the Merchant Marine Act, 1936, Public Law 74-835, as amended, and
codified at 46 U.S.C. ch. 537 (the Act). The Title XI Program provides
for the full faith and credit guarantee of the United States, acting by
and through the Maritime Administrator, for the payment of debt
obligations to: (1) U.S. shipowners for the purpose of financing or
refinancing U.S. flag vessels constructed, reconstructed, repaired, 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.
Because 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.
This interim final rule revises the Title XI regulations found at
46 CFR part 298. To assist owners and operators of United States
flagged vessels and shipyard owners, MARAD is revising the entire
regulation, which has remained substantially unchanged since 1978. The
rule modernizes the regulations and is intended to provide clarity to
improve administrative efficiencies and result in net cost savings to
the public and the Federal Government. A summary of the changes
includes the following:
Revisions to correct numerous citations in accordance with the
codification of the Act into 46 U.S.C. ch. 537, improve accessibility
by modernizing text, remove obsolete references, improve processing
times for projects, and provide a mechanism to prioritize applications
for expedited application approval.
Updates to the Title XI Program regulations are intended to
simplify application requirements and provide applicants and
participants with a better understanding of MARAD expectations for
program participation. The interim final rule eliminates 14 of the
current rule's 34 sections. Moreover, the current rule does not conform
to modern credit standards or accurately reflect the current process
for evaluating applications. At the time the Title XI Program
regulations were first promulgated in 1978, Federal credit standards
for agencies did not exist. This interim final rule incorporates modern
Office of Management and Budget (OMB) credit program requirements \1\
that mitigate the U.S. Government's risk associated with a credit
default.
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\1\ Office of Management and Budget, Circular No. A-129,
Policies for Federal Credit Programs and Non-Tax Receivable (2025),
available at: <a href="https://www.whitehouse.gov/wp-content/uploads/2025/08/a129.pdf">https://www.whitehouse.gov/wp-content/uploads/2025/08/a129.pdf</a>.
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MARAD loan agreements provide for a variety of applicants and
projects and include a number of component documents. Terms and
conditions found in the regulations are being removed and instead
provided for in MARAD's published loan agreement documents. The
application forms (MA-163 and MA-163A), and the borrower loan agreement
documents are found on MARAD's website at <a href="https://www.maritime.dot.gov/grants-finances/title-xi/title-xi-applications">https://www.maritime.dot.gov/grants-finances/title-xi/title-xi-applications</a>.
Fee reductions have been made to encourage greater program
participation. The current regulation has a $5,000 application fee.
MARAD believes that a reduced application fee of $1,000 will lower
barriers to entry for certain participants with limited resources for
capital investment. In addition, changes in the rule include the
restructuring of the former investigation fee (renamed the commitment
fee), which will benefit applicants by eliminating unnecessarily high
initial costs for larger projects.
Lastly, MARAD is removing text that is no longer supported by
statutory authority. For example, MARAD no longer performs financing of
eligible export vessels. Thus, the related regulatory text is being
removed.
Immediate Effective Date and Request for Comment
MARAD has analyzed this rule under 5 U.S.C. 553(b)(B) and (d)(3)
and determined that it has good cause to waive the prior opportunity
for notice and comment and delayed effective date ordinarily prescribed
by the Administrative Procedure Act (APA). MARAD nonetheless seeks
comment on this interim final rule and will consider comments received
in issuing any final rule.
Under the APA, 5 U.S.C. 553(b)(B), an agency may waive the
requirements for notice and public procedure when it finds, for good
cause, that such procedures are ``impracticable, unnecessary, or
contrary to the public interest.'' MARAD finds that the notice and
comment process is unnecessary in this instance. The revisions do not
impose new, substantive requirements on the public; rather, they codify
existing administrative processes, statutory updates, and established
Federal fiscal practices. The changes largely involve:
<bullet> Clarification and Modernization: Relocating existing
information to provide a more logical and accessible guide for program
applicants.
<bullet> Statutory Alignment: Updating the rule to reflect
legislative changes.
<bullet> Fiscal Safeguards: Incorporating standard OMB credit
program requirements, which are necessary to mitigate the risk of
default and protect the U.S. Government's interests. These standards
represent universal best practices in Federal financing.
Because the rule merely conforms existing regulations to current
statutory requirements and adopts standard Federal credit oversight
practices, it does not represent a discretionary policy shift that
would benefit from public input. These substantive policy choices, as
the parameters of these updates, are driven by law and government-wide
fiscal standards. Accordingly, MARAD finds that notice and comment are
unnecessary and the application of the 5 U.S.C. 553(b)(B) ``good
cause'' exception is warranted. For similar reasons, MARAD finds that
good cause exists under 5 U.S.C. 553(d)(3) for this rule to take
immediate effect.
Although this interim final rule is effective immediately, MARAD
seeks comment in response to this interim final rule in determining how
to proceed with any final rule. Any final rule may differ from today's
rule in
[[Page 55488]]
response to comments received. Comments are solicited from interested
members of the public on all aspects of the interim final rule. MARAD
is interested in information concerning whether the rule will be
comprehensive and effective at ensuring that all qualified vessel
operators may overcome potential obstacles to admission.
Comments must be submitted on or before the date indicated in the
DATES section at the beginning of this document. MARAD believes that
the 60-day comment period will allow commenters sufficient time to
address any issues raised by the interim final rule and still meet the
national security demands contemplated. See ``Public Participation''
section below.
Public Participation
How long do I have to submit comments?
We are providing a 60-day comment period.
How do I prepare and submit comments?
To ensure that your comments are correctly filed in the docket,
please include the docket number shown at the beginning of this
document in your comments.
Comments may be submitted to the docket electronically by logging
onto <a href="http://www.regulations.gov">http://www.regulations.gov</a>. Search using the docket number and
follow the online instructions for submitting comments. Please submit
your comments, including the attachments, following the instructions
provided under the above-entitled heading ADDRESSES.
Please note that pursuant to the Data Quality Act, for substantive
data to be relied upon and used by the agency, it must meet the
information quality standards set forth in the OMB and DOT Data Quality
Act guidelines. Accordingly, we encourage commenters to consult the
guidelines in preparing your comments. OMB's guidelines may be accessed
at <a href="https://www.federalregister.gov/documents/2002/02/22/R2-59/guidelines-for-ensuring-and-maximizing-the-quality-objectivity-utility-and-integrity-of-information">https://www.federalregister.gov/documents/2002/02/22/R2-59/guidelines-for-ensuring-and-maximizing-the-quality-objectivity-utility-and-integrity-of-information</a>. DOT's guidelines may be accessed at
<a href="https://www.transportation.gov/sites/dot.gov/files/docs/regulations/513/dot-information-quality-guidelines-2019.pdf">https://www.transportation.gov/sites/dot.gov/files/docs/regulations/513/dot-information-quality-guidelines-2019.pdf</a>.
How can I be sure that my comments were received?
If you wish for the Docket Management Office to notify you upon its
receipt of your comments, enclose a self-addressed, stamped postcard in
the envelope containing your comments. Upon receiving your comments,
the Docket Management Office will return the postcard by mail.
Will the agency consider late comments?
MARAD will consider all comments that the Docket Management Office
receives before the close of business on the comment closing date
indicated above under the DATES section of this rule. To the extent
possible, MARAD will also consider comments received after that date.
If the Docket Management Office receives a comment too late for MARAD
to consider in developing this action, MARAD will consider that comment
as an informal suggestion in future rulemaking actions.
How can I read the comments submitted by other people?
You may read the comments received by the Docket Management Office
at the address given above under ADDRESSES. The hours of the Docket
Management Office are indicated above in the same location. However,
you may also see the comments posted on <a href="http://www.regulations.gov">http://www.regulations.gov</a>. Go
to the website and follow the online instructions for accessing the
dockets.
Please note that, even after the comment closing date, MARAD will
continue to file relevant information in the docket as it becomes
available. Further, some people may submit late comments. Accordingly,
we recommend that you periodically check the docket for new material.
Summary of Changes to the Rule
MARAD is redesignating the section numbers and making updates to
incorporate statutory changes; apply current credit lending best
practices; and modernize regulatory language intended for simplicity,
clarity, and brevity.
The interim final rule revises 46 CFR part 298 into 20 consecutive
sections and removes subpart headings. Where noted, the rule identifies
sections to be eliminated as obsolete or burdensome, or where MARAD no
longer administers relevant statutory authority. In addition, static
and duplicative language found in the regulations is removed and
instead provided for in MARAD's published forms of application or as
terms within the borrower loan agreement documents. The applications
and the borrower loan agreement documents are found on MARAD's website
at <a href="https://www.maritime.dot.gov/grants/title-xi/closing-documents">https://www.maritime.dot.gov/grants/title-xi/closing-documents</a>.
Section 298.1 Purpose.
Identifies the purpose of the regulation for clarity and improved
accessibility.
Section 298.3 Definitions.
Groups all definitions into one section to improve overall
readability.
Section 298.5 General Credit Standards and Requirements. (Formerly,
Section 298.3 Applications)
Identifies the credit standards and eligibility requirements for
loan guarantee applications and summarizes the credit standards and
eligibility requirements into one section for clarity and improved
accessibility.
Section 298.7 Qualifications.
Consolidates qualification requirements (e.g., citizenship
requirements) for loan applications into one section for clarity and
improved accessibility. Also details the requirements for applying for
a Title XI loan guarantee.
Section 298.9 Prioritization of application.
Explicitly defines the prioritized application process for clarity
and improved accessibility. Defines objectives of the program to
clarify the intention of the statutory provision.
Section 298.11 Initial due diligence and approval
Defines MARAD's due diligence approval process for clarity and
improved accessibility.
Section 298.13 Closings.
Defines loan closing requirements; consolidates loan closing
language into one section for clarity and improved accessibility.
Section 298.15 Vessel project requirements.
Consolidates vessel project language into one section for clarity
and improved accessibility.
Section 298.17 Shipyard projects requirements.
Consolidates shipyard project language into one section for clarity
and improved accessibility.
Section 298.19 Actual Cost. (Formerly, Section 298.110
Citizenship).
Defines actual cost for vessels and shipyards to improve clarity
and accessibility.
Section 298.21 Foreign components. (Formerly, Section 298.11 Vessel
Requirements).
Transfers the foreign component reporting and waiver requirements
into a separate section for clarity and improved accessibility and
inserts modern language for conformity to the statute. Also, to ensure
that guarantee approvals are not delayed pending the review of waivers,
the new regulation provides that a foreign component waiver may be
granted post approval.
[[Page 55489]]
Section 298.23 Fees. (Formerly, Section 298.12 Applicant and
operator's qualifications).
Consolidates all fees into one section. The commitment fee replaces
the investigation fee. It also aligns the guarantee fee with the credit
subsidy fee, both of which are calculated the same way.
Section 298.25 Dual-use CCF. (Formerly, Section 298.13 Financial
requirements).
Sets forth the dual-use Capital Construction Fund (CCF) as a
standalone section for clarity and improved accessibility.
Section 298.27 Refinancing. (Formerly, Section 298.14 Economic
soundness).
Modernizes language for clarity and improved accessibility.
Section 298.29 Financing a vessel more than a year after delivery.
(Formerly, Section 298.15 Investigation fee).
Modernizes language for clarity and improved accessibility.
Section 298.31 Advances. (Formerly, Section 298.16 Substitution of
participants).
Makes minor and non-substantive revisions for clarity.
Section 298.33 Recourse against parties. (Formerly, Section 298.17
Evaluation of applications).
Incorporates language from the statute within one section for
clarity and improved accessibility.
Section 298.35 Mortgage. (Formerly, Section 298.18 Financing
Shipyard Projects).
Modernizes language for clarity and improved accessibility.
Section 298.37 Vessels of national interest. (Formerly, Section
298.19 Financing Eligible Export Vessels).
Defines vessels of national interest for conformity to the statute.
Section 298.39 Default and liquidation. (Formerly, Section 298.20
Term, redemptions, and interest rate).
Consolidates default and liquidation language into one section for
clarity and improved accessibility.
Rationale for Eliminated Sections
Former Section 298.21 Limits.
Cost basis requirements were transferred to section 298.3 for ease
of readability and accessibility.
Former Section 298.22 Amortization of obligations.
Certain requirements were transferred to section 298.3 for ease of
readability and accessibility.
Former Section 298.23 Refinancing.
The rule moves refinancing language to section 298.14.
Former Section 298.24 Financing a vessel more than a year after
delivery.
Section eliminated because language pertaining to financing a
vessel more than one year after delivery was relocated to section
298.15.
Former Section 298.25 Excess interest or other consideration.
Text is obsolete, outdated, and does not conform to current Title
XI Program general credit standards and Federal Financing Bank (FFB)
lending requirements. Risk premium language has been added to the
rule's definition of interest stated within section 298.2.
Former Section 298.26 Lease payments.
Lease payment language relocated to the borrower loan agreement.
Former Section 298.27 Advances.
Language pertaining to advances relocated to section 298.16.
Former Section 298.30 Nature and content of obligations.
Text is obsolete and unnecessary because lease payment language is
in the borrower loan agreement. Additionally, the Title XI Program uses
FFB as the preferred lender.
Former Section 298.31 Mortgage.
The rule transfers mortgage language to section 298.35.
Former Section 298.32 Required provisions in documentation.
Required provisions are found in the borrower loan agreement.
Former Section 298.33 Escrow fund.
Escrow fund language is in the borrower loan agreement.
Former Section 298.34 [Reserved].
Removes all sections titled ``Reserved'' throughout text for
simplicity and brevity.
Former Section 298.35 Title XI Reserve Fund and Financial
Agreement.
Title XI Reserve Fund and Financial Agreement language is found in
the borrower loan agreement.
Former Section 298.36 Guarantee fee.
Removed obsolete language and redundancy. Within the rule, all
Title XI Program fee language is consolidated into section 298.12 for
clarity and improved accessibility. The fee language aligns the
guarantee fee with the credit subsidy fee; both calculated using
similar methodology.
Former Section 298.37 Examination and audit.
The examination and audit language is found in the Title XI Program
loan agreement.
Former Section 298.38 Partnership agreements and limited liability
company agreements.
Language pertaining to partnerships and limited liability companies
has been partly relocated to section 298.7 and partly incorporated into
the Title XI Program loan agreement.
Former Section 298.39 Exemptions.
Current text language is outdated and unnecessary.
Former Section 298.40 Defaults.
Loan default language is transferred to section 298.20.
Former Section 298.41 Remedies after default.
The ``remedies after default language'' is found in the borrower
loan agreement.
Former Section 298.42 Reporting requirements-financial statements.
Reporting requirements pertaining to the financial statements are
found in the borrower loan agreement.
Former Section 298.43 Applicability of the regulations.
Text was deleted as obsolete and unnecessary.
Rulemaking Analysis and Notices
Executive Order 12866
This interim final rule is a significant regulatory action under
E.O. 12866, and therefore the rule was reviewed by the OMB. The rule is
not considered a major rule for purposes of congressional review under
the Congressional Review Act. This rule is limited to updating
administrative criteria, conforming to statutory requirements, updating
citations, addresses, and modernizing text.
Need for the Regulation
A complete revision of the regulations is necessary to address the
effects of time for an implementing regulation that has remained
substantially unchanged for 40 years. Through this proposed revision,
MARAD also incorporates changes to reflect statutory changes from the
National Defense Authorization Act for fiscal year 2020 (NDAA 2020).
Specifically, the NDAA 2020 repealed 46 U.S.C. 53732, removing eligible
export vessels from Title XI participation. The NDAA 2020 also added 46
U.S.C. 53719, which established the use of best practices. In addition,
the NDAA 2020 updated 46 U.S.C. 53703(c)(1)(C) and (D) to require MARAD
to recommend that certain financial covenants or financial ratios are
met by applicants. These updates represent important changes that will
better reflect how MARAD administers the program in the modern era.
Baseline
Under the no action baseline, applicants may overlook the Title XI
program as a financing option because the existing regulations are out
of step with typical Federal credit programs.
Costs
The revised rule does not impose any new or additional compliance
[[Page 55490]]
requirements or costs. The rule will not create new substantive
requirements. Many of the revisions are intended to conform with
statutory updates and some are simply incorporating best business
practices. The revised rule will apply current credit lending best
practices and use modern regulatory language intended for simplicity,
clarity, and brevity. Improvements are expected to result in
administrative efficiencies and welcomed parity with other Federal
credit programs which together should build applicant confidence in the
program.
Benefits
Improved administrative efficiency and modern best practices will
make the rule and the program more accessible and attractive to
industry. As a result, the Title XI program should garner better
prepared program participants that can best use the program for the
benefit of the maritime sector.
Transfers
This rule will reduce application fees from $5,000 to $1,000. These
application fees are transfer payments and are not classified as
benefits or costs.
Executive Order 14192
E.O. 14192 requires that for ``each new [E.O. 14192 regulatory
action] issued, at least ten prior regulations be identified for
elimination.'' Implementation guidance for E.O. 14192, issued by OMB
(Memorandum M-25-20, March 26, 2025), defines an E.O. 14192
deregulatory action as ``an action that has been finalized and has
total costs less than zero.'' This rule is a de minimis action and is
therefore neither regulatory nor deregulatory under E.O. 14192.
Executive Order 13132
MARAD analyzed this rulemaking in accordance with the principles
and criteria contained in E.O. 13132, Federalism, and has determined
that it has no substantial effect on the States, on the current
Federal-State relationship, or on the current distribution of power and
responsibilities among the various local officials. Nothing in this
document preempts any State law or regulation. Therefore, MARAD did not
consult with State and local officials on this rulemaking and did not
prepare a Federalism summary impact statement.
Executive Order 13175
This rulemaking, in which MARAD revises its regulations
implementing the Title XI Program financial and programmatic
requirements to implement statutory changes and update the existing
financial requirements imposed on Title XI Program participants, 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
E.O. 13175 do not apply.
Regulatory Flexibility Act
Under the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., rules
that are exempt from notice and comment under the APA are also exempt
from the RFA analytical requirements, including conducting a regulatory
flexibility analysis. See 5 U.S.C. 603(a). Because, as discussed above,
this rule is exempt from the APA notice and comment requirements, MARAD
is not required to conduct a regulatory flexibility analysis.
Privacy Impact Assessment
Section 522(a)(5) of the Transportation, Treasury, Independent
Agencies, and General Government Appropriations Act, 2005 (Pub. L. 108-
447, div. H, 118 Stat. 2809 at 3268) requires DOT and certain other
Federal agencies to conduct a privacy impact assessment of each rule
that will affect the privacy of individuals. This rulemaking improves
participation by incorporating modern credit best practices, defining
Program participation fees, and reducing the application fee. It does
not result in personally identifiable information (PII) being collected
or maintained in a Government-run website or IT system. Therefore,
MARAD did not conduct a Privacy Impact Assessment.
Unfunded Mandates Reform Act of 1995
The Unfunded Mandates Reform Act of 1995 (UMRA) 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 $206 million or more (as adjusted for inflation in
2025) in any one 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, the Agency has 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
The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (PRA)
requires that DOT consider the impact of paperwork and other
information collection burdens imposed on the public. The regulation
provides Title XI Program applicants with a restructured regulation
with modernized language for clarity to improve administrative
efficiencies for both the applicant and Title XI Program staff,
resulting in net cost savings to the public and the Government.
MARAD believes the interim final rule reduces an applicant's
paperwork burden by: (1) eliminating obsolete application submission
requirements; (2) providing updated language that organizes and
clarifies the text of both the vessel and shipyard applications to
mitigate the risk of an incomplete or erroneous application submission;
and (3) including the expedited application approval process for
applicants wishing to receive prioritization of an application. MARAD
collects Title XI Program applicant data using a vessel application
(MA-163) and shipyard application (MA-163A) when performing the OMB
approved information collection. The applications were most recently
approved in April 2025 (OMB Control Number 2133-0018 [Title XI Program
Obligation Guarantees--46 CFR part 298]; expiration Apr. 30, 2028).
During FY 2024, MARAD modernized the application language and
modernized the data collection process by incorporating electronic
submission capability. 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. Therefore, the
rulemaking relies on the existing information collected under OMB
control number 2133-0018.
Notwithstanding any other provision of law, a person is not
required to respond to a collection of information by a Federal agency
unless the
[[Page 55491]]
collection displays a valid OMB control number.
List of Subjects in 46 CFR Part 298
Loan guarantees, loan monitoring, vessel financing, shipyard
financing, loan programs--transportation, maritime carriers, mortgages,
reporting and recordkeeping requirements, vessels.
0
For the reasons described in the preamble, MARAD revises 46 CFR part
298 as set forth below:
PART 298-VESSEL AND SHIPYARD FINANCING
Sec.
298.1 Purpose.
298.3 Definitions.
298.5 General credit standards and requirements.
298.7 Qualifications.
298.9 Prioritization of applications.
298.11 Initial due diligence and approval.
298.13 Closings.
298.15 Vessel project requirements.
298.17 Shipyard project requirements.
298.19 Actual Cost.
298.21 Foreign components.
298.23 Fees.
298.25 Dual-use CCF.
298.27 Refinancing.
298.29 Financing a vessel more than a year after delivery.
298.31 Advances.
298.33 Recourse against parties.
298.35 Mortgage.
298.37 Vessels of national interest.
298.39 Default and liquidation.
Authority: 46 U.S.C. ch. 537; 49 CFR 1.93.
Sec. 298.1 Purpose.
The Vessel and Shipyard Financing Program supports new vessel
construction, vessel reconstruction, reconditioning, and repair, and
shipyard modernization in the United States through financing
guarantees.
Sec. 298.3 Definitions.
Act means ch. 537 of title 46 of the U.S. Code (46 U.S.C. 53701-
53735), as amended from time to time.
Actual Cost of a Vessel Project or Shipyard Project means the sum
of all amounts for a Vessel Project or Shipyard Project paid by the
Borrower (or related Person), as well as all amounts that MARAD
determines the Borrower will become obligated to pay under these
regulations.
Applicant means the Person applying for financing with the Program
(the prospective Borrower).
Application means the information contained in form MA-163 or MA-
163A for use by Applicants to apply for financing with the Program.
Borrower means any Person primarily liable for payment of principal
of and/or interest on any Note.
Capital Construction Fund (CCF) means the program authorized by ch.
535 of title 46 of the U.S. Code.
Citizen of the United States or U.S. Citizen means any Person who
is a United States citizen, or any entity organized under the laws of
any state that meets the requirements of 46 U.S.C. 50501.
Construction, Reconstruction, Reconditioning, or Repair means
designing, engineering, constructing, inspecting, outfitting, and
equipping processes performed during a Vessel Project.
Depository means the U.S. Department of Treasury, acting in its
capacity under 46 U.S.C. 53716.
Escrow Fund means any monies held as security under section 53715
of the Act.
Federal Financing Bank (FFB) means the corporate body and
instrumentality of the United States of America, authorized by the
Federal Financing Bank Act of 1973, as amended (12 U.S.C. ch. 24),
under the general supervision and direction of the Secretary of the
Treasury.
Financing Documents means all documents related to the collateral
securing repayment of any Note and all other assurances, undertakings,
and contractual arrangements associated with financing through the
Program.
Financing Documents Closing means the execution and release of the
Financing Documents and other related documents.
Generally Accepted Accounting Principles (GAAP) means the body of
conventions, rules, and procedures that define accepted accounting
practices, as promulgated by the Financial Accounting Standards Board
(FASB) and other authoritative sources recognized as setting standards
for the accounting profession in the United States. GAAP includes not
only broad guidelines of general application but also detailed
practices and procedures that constitute standards by which financial
presentations are evaluated.
Guarantee means a parent or affiliate guarantor's contractual
promise to repay indebtedness if a Borrower fails to repay as agreed.
Guarantee Fee means the fee payable to MARAD as consideration for
guaranteeing a Note. MARAD means the Maritime Administration, an agency
and operating administration of the U.S. Department of Transportation.
MARAD Guarantee means the contractual commitment of the United
States of America, represented by MARAD, to make payment to FFB, upon
demand, of the unpaid principal and interest of such Note, including
interest accruing between the date of default and the date of payment.
Mortgage means a Preferred Mortgage on any Vessel with respect to a
Vessel Project or a mortgage with respect to a Shipyard Project.
Note means a promissory note from the Borrower to FFB, which is
issued simultaneously with a MARAD guarantee of such promissory note to
FFB.
Note Closing means the execution of a Note or other evidence of
indebtedness and the related Note documents that are also either agreed
upon or executed.
Paying Agent means any Person appointed by the Borrower to pay the
principal or interest on a Note on behalf of the Borrower.
Person means any individual, estate, foundation, corporation,
partnership, limited partnership, limited liability company, joint
venture, association, joint-stock company, trust, unincorporated
organization or other acceptable legal business entity, government, or
any agency or political subdivision thereof.
Preferred Mortgage means a mortgage as defined at 46 U.S.C. 31322.
Program means the Vessel and Shipyard Financing Program authorized
by the Act.
Project means a Vessel Project or Shipyard Project.
Refinancing means newer debt that either replaces older debt or
reimburses an Applicant for previous expenditures.
Related Party means that term as defined by GAAP outlined in
paragraph 24 of Statement of Financial Accounting Standards No. 57,
Related Party Disclosures, as may be amended or its successor statement
if repealed and replaced.
Shipyard Project means a project that consists of either Advanced
Shipbuilding Technology or Modern Shipbuilding Technology, each as
defined in the Act, or both unless otherwise specified.
Useful Life means the period during which project property will, as
determined by MARAD, remain economically productive.
Vessel means a vessel as defined at 1 U.S.C. 3 and 46 U.S.C.
53701(14).
Vessel Project means a project that consists of the Construction,
Reconstruction, Reconditioning, or Repair of one or more Vessels.
Vessels of National Interest means Vessels determined under Sec.
298.37 of this part to be of importance for the support of U.S.
shipyards and the U.S. Merchant Marine.
[[Page 55492]]
Sec. 298.5 General credit standards and requirements.
(a) Principal. Unless explicitly stated otherwise in these
regulations or applicable statutes, the amount of any financing may not
exceed the maximum percent of Actual Cost, as such term is described in
Sec. 298.19 of this part; provided that MARAD may approve an amount
that is less than the maximum percent of Actual Cost, in accordance
with its credit determination.
(b) Term. The maturity date of the Note must be satisfactory to
MARAD and must not exceed the anticipated physical and economic life of
the Project. In addition, the maturity date of the note may be less
than but no more than:
(1) Twenty-five years from the date of delivery from the
shipbuilder of a single new Vessel that is to be security for the MARAD
Guarantee;
(2) Twenty-five years from the date of delivery from the shipyard
of the last of multiple Vessels that are to be security for the MARAD
Guarantee. The amount of the MARAD Guarantee will relate to the amount
of the depreciated Actual Cost of the multiple Vessels as of the
Financing Documents Closing;
(3) The earlier of twenty-five years from the date of original
delivery of a Reconstructed, or Reconditioned Vessel that is to be
security for the MARAD Guarantee, or the expiration of the remaining
Useful Life of the Vessel, as determined in MARAD's sole discretion; or
(4) The earlier of five years from the date of original delivery of
a Repaired Vessel that is to be security for the MARAD Guarantee, or at
the expiration of the remaining Useful Life of the Vessel, as
determined in MARAD's sole discretion;
(5) The earlier of five years from the date of delivery from the
shipyard of the last of multiple Repaired Vessels that are to be
security for the MARAD Guarantee, or at the expiration of the remaining
Useful Life of the collective assets that comprise the Vessel Project,
as determined in MARAD's sole discretion. The amount of the MARAD
Guarantee will relate to the amount of the depreciated Actual Cost of
the multiple Vessels as of the Financing Documents Closing;
(6) Twenty-five years from the date of completion of construction
of the Shipyard Project that is to be security for the MARAD Guarantee
or at the expiration of the estimated technological life of the
property that is the Shipyard Project, as determined in MARAD's sole
discretion.
(c) Interest rate. The interest rate for each financing will be at
a rate not less than a rate determined by the Secretary of the Treasury
taking into consideration the current average yield on outstanding
marketable obligations of the United States of comparable maturity at
the time of funds disbursement together with any risk premium that may
be assessed by MARAD for the project. MARAD will determine the
reasonableness of the interest rate of a Note, considering the range of
interest rates prevailing in the private market for similar loans and
their associated credit risks.
(d) Ability and experience requirements. An Applicant, through the
majority of its principals or management, must demonstrate the ability,
experience, resources, character, reputation, and other qualifications
MARAD deems necessary for successfully operating the Project property
and protecting MARAD's interest in the Project. For the purposes of
this requirement, MARAD will consider the requirements of Sec. 298.15
of this regulation for Vessel Projects and Sec. 298.17 of this part
for Shipyard Projects.
(e) Lending restrictions. Unless an Applicant can document that
unique or extraordinary circumstances exist, MARAD will not provide
financing:
(1) For antiquated, experimental, or scientifically unproven
technology; or
(2) To an Applicant who cannot document successful commercial
maritime industry ability and experience of a duration, degree, and
nature that MARAD deems necessary to repay the requested financing
successfully.
(f) Income and expense projections. The Applicant, using
appropriate income and expense projections for the Project property's
operation, must show that projected net earnings can service all debt,
properly maintain the Project property, and protect MARAD's interest
against risks of loss, including the industry's cyclical economics.
MARAD will consider a totality of factors, such as charters, draft or
pro forma charters, letters of intent, or other similar commercial
arrangements to demonstrate projected income.
(g) Working capital. The Applicant must show that a Project has
sufficient initial working capital to achieve net earnings projections,
fund all foreseeable near-term contingencies, and protect MARAD's
interest in the Project.
(h) Audited financial statements. MARAD will require audited
financial statements in accordance with GAAP for any Borrower.
(i) Professional services. MARAD may require an Applicant to pay
for expert third-party services to assist with assessment of a Project,
including its legal, economic, technical, or financial feasibility. The
costs of any expert fees paid by Applicant will be credited against the
cost of the Commitment Fee as described in Sec. 298.23 of this part.
(j) Inspections. MARAD requires adequate condition and valuation
inspections of all property used as collateral as the basis for
assessing the property's worth and suitability during the life of the
financing.
(k) Collateral. Unless other collateral is determined to be
satisfactory as part of its credit determination, MARAD will have a
first lien on all primary Project property pledged as collateral.
MARAD, at its discretion, may request additional collateral and will
consider any additional collateral in its credit determinations.
(1) No additional liens. All primary Project property pledged as
collateral, including any additional collateral, must be free of
additional liens, unless MARAD, at the request of the Applicant,
expressly waives this requirement in writing.
(m) Program credit standards apply. Unless explicitly stated
otherwise in this part, all Program lending is subject to the above
general credit standards and requirements found in this part. MARAD may
adjust collateral, guarantee, and other requirements to reflect
individual credit risks.
(n) Adverse legal proceedings. MARAD, at its sole discretion, may
decline or hold in abeyance any financing approval or disbursement(s)
to any Applicant found to have outstanding lawsuits, citations,
hearings, liabilities, appeals, sanctions, or other pending actions
whose negative outcome could materially impact, in the opinion of
MARAD, the financial circumstances of the Applicant.
(o) Required redemptions. Where multiple Project assets are used as
security for the MARAD Guarantee, MARAD may require payments of
principal prior to maturity (redemptions) regarding all related Notes,
as MARAD determines necessary to maintain adequate security for the
MARAD Guarantee.
Sec. 298.7 Qualifications.
(a) The Applicant must provide the information contained in Form
MA-163 or 163A, available on MARAD's website, submit a complete
application, pay the application fee, and meet the following criteria:
(1) Be a U.S. Citizen and eligible to document a Vessel with the
U.S. registry, if the Application is for a Vessel Project, or be an
entity formed in
[[Page 55493]]
the U.S., if the Application is for a Shipyard Project;
(2) Be the legal title holder of Project property, or its parent
company (or the lessee of an appropriate long-term lease); and
(3) Show that the majority of its principals or officers generally
have the ability, experience, resources, character, reputation, and
other qualifications necessary for successfully operating, utilizing,
or carrying out the Project and protecting MARAD's interest.
(b) [Reserved]
Sec. 298.9 Prioritization of applications.
MARAD will prioritize processing Applications for Vessels
determined by the Secretary of War as suitable for service as a United
States naval or military auxiliary in time of war or national emergency
and that meet a shortfall in sealift capacity or capability, followed
by Vessels designated as Vessels of National Interest pursuant to Sec.
298.37 of this part.
Sec. 298.11 Initial due diligence and approval.
(a) MARAD will undertake a due diligence investigation of every
Application it receives to determine if, in MARAD's sole judgment, an
Application is both:
(1) Qualified for financing because the Vessel Project or Shipyard
Project is deemed an acceptable credit risk (the Applicant's ability to
repay a Note will be the primary basis for MARAD's approval); and
(2) Eligible for financing because it meets applicable
requirements, including statutory requirements for economic soundness,
and in these regulations for Vessel Projects in Sec. 298.15, and
Shipyard Projects in Sec. 298.17 of this part.
(b) MARAD will approve eligible and qualified Applicants by
evaluating the information obtained during the Application and due
diligence process.
(c) MARAD, at its sole discretion, may decline or delay approval of
any financing or disbursement to any Applicant found to have pending
legal actions or unresolved claims.
(d) MARAD may require any terms and conditions on approvals that
MARAD, in its sole discretion, believes to be necessary and
appropriate.
(e) Credit decision and approval. (1) MARAD will inform Applicants
that it is willing to approve an application by issuing a summary of
business terms or term sheet that describes the terms and conditions of
the financing for a Project. Such terms and conditions are at MARAD's
sole discretion and will be incorporated in the Financing Documents.
Non-acceptance of any terms and conditions may result in denial of the
Application.
(2) Any Application MARAD determines is ineligible will be denied.
(3) Upon acceptance of the term sheet by the Applicant, MARAD will
issue a letter to the Applicant advising that the Project is approved
subject to the availability of appropriations.
Sec. 298.13 Closings.
(a) Financing Documents Closing. All financings guaranteed by MARAD
must utilize the Financing Documents and incorporate the terms and
conditions set forth in the term sheet agreed to by the Applicant.
Funding for a Project will not be obligated until the Financing
Documents are executed.
(b) Note Closing. All funding for financing through the Program is
provided through the issuance of a Note by the Applicant that is
purchased by FFB and guaranteed by MARAD. The Note, the Note Purchase
Agreement, and all associated documents are standard form templates
required by FFB.
(c) Delivery Closing. Unless otherwise agreed to and alternate
collateral that is satisfactory to MARAD is provided, MARAD will not
guarantee any Note until MARAD receives satisfactory evidence that it
holds a Mortgage on one or more Vessels in a Vessel Project or a
Mortgage or other security interest in a Shipyard Project as required
by Sec. 298.35 of this part. During construction of any new Vessel or
any Shipyard Project, a security interest may be perfected by a filing
under the Uniform Commercial Code.
(d) Closing schedules. A closing for the execution of the Financing
Documents, a Note Closing, and a Delivery Closing may occur
simultaneously or separately. FFB requires at least twenty business
days' notice for a Note Closing.
Sec. 298.15 Vessel project requirements.
For a Vessel Project to receive financing for Construction,
Reconstruction, Reconditioning, or Repair the following criteria must
be met:
(a) Vessel construction requirements. The Vessel must:
(1) Be assembled or repaired in a shipyard geographically located
within the United States;
(2) Be U.S. flagged; and
(3) Meet all applicable United States Coast Guard requirements.
(b) Class, condition, and operation. The Vessel must be
constructed, maintained, and operated to meet the highest
classification, certification, rating, and inspection standards for
Vessels of the same age and type imposed by:
(1) The American Bureau of Shipping (ABS) or another classification
society that also meets the inspection standards of the United States
Coast Guard with respect to the documentation of U.S.-flag Vessels; or
(2) If unclassed, built to ABS or other acceptable classification
standards and subject to regular inspection and condition surveys
conducted by marine surveyors acceptable to MARAD; and
(3) The Vessel must be in compliance with all applicable United
States laws, rules, and regulations for operations in the intended
trade.
(c) Documentation. The Vessel must be documented under the laws of
the United States or the laws of any individual state.
(d) Reconstruction or reconditioning. Repairs necessary for the
Vessel to meet the classification standards approved by MARAD or any
regulatory body, or for previous inadequate maintenance and repair,
will not constitute Reconstruction or Reconditioning within the meaning
of this paragraph (d).
(e) Condition survey. If an Application involves a Reconstructed,
Reconditioned, or Repaired Vessel, the Vessel must be available at a
time and place acceptable to MARAD to conduct a condition survey. An
Applicant must:
(1) Pay the cost of the condition survey;
(2) Ensure that the scope and extent of the condition survey will
not be less effective than that required by the last classification
society special survey completed (if the Vessel is classified), next
due, or overdue, whichever date is nearest in accordance with the
Vessel's age;
(3) Ensure that the Vessel meets the standard of the survey
necessary for retention of class (if the Vessel is classified); and
(4) Ensure that the operating records of the Vessel reflect normal
operation of the Vessel's main propulsion and other machinery and
equipment, consistent with accepted commercial experience and practice.
(f) Metric usage. The preferred system of measurement and weights
for Vessels is the metric system.
(g) Operator's qualifications. The bareboat charterer, or other
person identified in the Application as the operator of the Vessel
Project must possess the necessary experience, ability, and other
qualifications to operate and maintain properly the Vessel(s) that
serve as security for the financing. For newly formed entities, MARAD
will evaluate the performance of affiliates and/or companies associated
with the management or principals
[[Page 55494]]
(where the management or principals have a significant degree of
control) in determining the Applicant's operating ability.
(h) Vessel horsepower. If minimum horsepower of the main engine is
a requirement for determining the maximum eligible percentage of
financing of the Actual Cost, the standard for the horsepower will be
continuously rated horsepower.
Sec. 298.17 Shipyard projects requirements.
(a) For a Shipyard Project to receive financing, the Shipyard
Project must result in a Shipyard modernization, or the financing must
support increased productivity and meet the following requirements:
(1) The term for the financing will not exceed the reasonable
economic useful life of the collective assets that comprise the
Shipyard Project;
(2) There is sufficient collateral to secure the financing; and
(3) The persons identified within the Application including the
shipyard owner, the operator of the shipyard, or other person
identified in the application possess the necessary experience,
ability, and other qualifications to operate properly the assets that
comprise the Shipyard Project and will serve as security for the
financing. For newly formed entities, MARAD will evaluate the
performance of affiliates and/or companies associated with the
management or principals (where the management or principals have a
significant degree of control) in determining the Applicant's operating
ability.
(b) [Reserved]
Sec. 298.19 Actual Cost.
(a) Approval of Actual Cost required. MARAD must approve the
estimated Actual Cost for the Project as a condition for financing. The
Applicant must submit this information in the format required in the
Application. The estimated cost of the Project may include escalation
for the anticipated construction period of the project.
(1) Submission of certain cost information. For a Vessel Project,
MARAD may contact the shipyard directly and may require an Applicant to
have the shipyard that has contracted to build the Vessel submit
additional technical data, backup cost details, and any other evidence.
For a Shipyard Project, MARAD may contact the general contractor or
manufacturer of the equipment for technical data, backup cost details,
and any other evidence.
(2) Costs incurred by written contracts. If any of the Project
costs have been incurred by written contracts, such as a shipyard
contract, management or operating agreement, the Applicant is required
to forward signed copies as part of the Application.
(3) Additional Project costs. A detailed statement must be provided
showing any other costs associated with the Project that were not
included in paragraph (a)(2) of this section, such as:
(i) Legal and accounting fees;
(ii) Vessel insurance;
(iii) Fees to a Related Party; and
(vi) Other capitalizable fees.
(b) Actual Cost basis. The amount of the MARAD Guarantee may be
less than but not more than whichever percentage is applicable under
the Act with respect to the Actual Cost of the Vessel or Vessels or
Shipyard Project asset(s). Where refinancing existing debt, the number
of new Notes issued for the existing debt may not exceed the lesser of:
(1) The amount of outstanding debt being refinanced (whether or not
receiving assistance under Title XI); or
(2) Whichever percentage is applicable under the Act with respect
to the depreciated Actual Cost of the Vessel, Vessels, or Shipyard
Project with respect to which the new Notes are being issued.
(c) Actual Cost items. Actual Cost is comprised essentially of
those items that would customarily be capitalized as Project
construction costs such as designing, engineering, constructing
(including performance bond premiums that MARAD approves), inspecting,
outfitting and equipping.
(1) Cost items include those items usually specified in Vessel or
Shipyard Project construction contracts, e.g., changes and extras, cost
of owner furnished equipment, shoreside spare parts, and MARAD
commitment fees and interest on the notes or other borrowings incurred
during the construction period (excluding interest paid on subordinated
debt considered to be equity), and less income realized from investment
of escrow fund deposits during the construction period.
(2) Applicant may include Guarantee Fees determined in accordance
with the provisions of section 53714 of the Act as an item of Actual
Cost.
(3) In approving an item of Actual Cost, MARAD will consider all
pertinent factors.
(d) Items excludible from Actual Cost. Actual Cost may not include
the following:
(1) Legal and accounting fees or expenses;
(2) Bank commitment fees or interest other than those specifically
allowed;
(3) Fees, commissions, or charges for granting or arranging for
financing;
(4) Fees or charges for preparing and filing an Application for
MARAD guaranteed financing and supporting documents, for services
rendered to obtain approval of the Application, and for preparing and
processing documents relating to the Application for MARAD guaranteed
financing;
(5) Underwriting fees;
(6) Taxes, user fees, or other governmental charges;
(7) Predelivery Vessel operating expenses, Vessel insurance
premiums, and other items that may not be properly capitalized by the
owner as costs of the Vessel under GAAP;
(8) The cost of the condition survey required by Sec. 298.15(e)
and all work necessary to meet the standards set forth in Sec.
298.15(e);
(9) The cost to the shipowner of a Vessel that is to be
Reconstructed, or Reconditioned, e.g., cost of acquisition;
(10) Generally, any amount payable to the shipyard for early
delivery of the Vessel; generally, any amount payable to the
manufacturer or contractor for early delivery of the equipment to or
early completion of a Shipyard Project at a General Shipyard Facility;
(11) Predelivery Shipyard Project expenses that may not be properly
capitalized by the General Shipyard Facility as costs of the Shipyard
Project under GAAP; and
(12) The cost of major foreign components and other foreign
components for which there is no waiver and their assembly when
comprising any part of the hull and superstructure of a Vessel.
(e) Substantiation of Actual Cost. (1) Before MARAD will make a
distribution from the escrow fund or authorize a draw on a Note, and
prior to the final actual cost determination for each Project, a
Borrower must submit documents substantiating all claimed costs
eligible under paragraph (b) of this section or, alternatively,
appropriate certification of such costs by an agent who has received
MARAD's approval.
(2) These documents may include copies of invoices, change orders,
subcontracts, and where MARAD requires, statements from independent
certified or independent licensed public accountants that the costs for
which a Borrower seeks payment or reimbursement were actually paid or
are payable for the construction of a Vessel or Shipyard Project.
(3) The Borrower must summarize, index and arrange these documents
according to cost categories by following the directions contained in
the application forms.
(f) Escalation as part of Actual Cost. Escalation clauses in
construction
[[Page 55495]]
contracts are subject to MARAD approval. After a review of the base
contract price and the escalation clauses, MARAD may add to the
approved base contract price the amount of estimated escalation. MARAD
must subsequently approve the amount of escalation cost claimed as a
component of Actual Cost.
(g) Monies received with respect to construction. (1) Borrower must
give MARAD written notice each time an Applicant, or any person acting
on an Applicant's behalf, receives monies due for construction of a
Project (described in the Financing Documents) from the shipbuilder,
guarantors, sureties, or other Persons.
(2) Unless a payment default has occurred, a Borrower or other
recipient must promptly deposit these monies with MARAD to be held by
the Depository in accordance with the Financing Documents.
(3) MARAD will determine the extent to which Actual Cost will be
reduced by these monies.
(4) In no event may Actual Cost be reduced with respect to payments
by the shipyard to a Vessel or Shipyard Project owner of liquidated
damages for late delivery of the Vessel or Shipyard Project.
(5) If MARAD has paid the MARAD Guarantee, the Borrower or other
recipient must promptly pay these monies, including any liquidated
damages, to MARAD for deposit into the appropriate account.
(h) Depreciated Actual Cost. The applicable percentage of the
depreciated Actual Cost of the Vessel Project will be determined after
a Vessel has been delivered or redelivered.
Sec. 298.21 Foreign components.
(a) A foreign component waiver will not delay review and may even
be granted post Project approval consistent with the following:
(1) Costs excluded. If an Application proposes using foreign
components in the Actual Cost, the cost of the foreign components and
services will be excluded from the Actual Cost of the Project, unless
MARAD grants a waiver for each such component and service.
(i) MARAD will not grant a waiver for major foreign components in
the hull and superstructure for a Vessel Project.
(ii) If an Application does not include foreign components in the
Actual Cost, no waiver is required, and the Application will be
processed accordingly.
(2) Waiver requests. An Applicant may request a waiver for
inclusion of the cost of foreign components and services in the Actual
Cost of a Project. The Applicant must submit this request in the format
required for the Application. Any waiver request must include a
certification for each foreign component or service, stating one or
more of the following as a basis:
(i) The item or service is not available in the United States on a
timely basis;
(ii) The item or service is not available in the United States on a
price-competitive basis; or
(iii) The domestic item or service is not of sufficient quality.
(3) Contingent Approvals. MARAD will process and approve an
Application during the pendency of a waiver request pursuant to
paragraph (a)(2) of this section.
(i) If the waiver is approved, the cost of the foreign-sourced
components will be included in the Actual Cost of the Project.
(ii) If the waiver is not approved, the cost of the foreign-sourced
content will not be included in the Actual Cost of the Project,
consistent with paragraph (a)(1) of this section.
(4) Costs as owner-furnished equipment. Although excluded from
Actual Cost, foreign components of the hull and superstructure can be
regarded as owner-furnished equipment that may be used in satisfying an
Applicant's minimum equity requirements for a Vessel Project.
Sec. 298.23 Fees.
(a) Application fee. A non-refundable $1,000 filing fee is required
to be submitted with an Application.
(b) Commitment fee. A non-refundable commitment fee is a fee due in
advance of the execution of the Financing Documents. Before MARAD
executes any Financing Documents, an Applicant must pay a commitment
fee based on the amount of the Note to be guaranteed by MARAD
calculated as follows:
(1) one-quarter (\1/4\) of one percent of the amount of the Note
approved for a MARAD Guarantee, or $250,000, whichever is less, minus -
(2) the cost of any professional services fees required to be paid
by the Applicant as part of the due diligence process in Sec. 298.11
of this part.
(c) Guarantee Fee. A Guarantee Fee will be due and payable at the
Note Closing and will be based on the repayment provisions for the
Note. The Guarantee Fee is fully payable when due and will not be
refunded. The minimum and maximum range of rates for the Guarantee Fee
are set forth in section 53714(b)(S) of the Act with the specific rate
for the Applicant determined based on the credit risk at the time of
the Nate Closing and calculated as follows:
(1) Generally. The Guarantee Fee rate will be based on the entity
MARAD considers to be the primary source of creditworthiness (the
Ultimate Credit) for a Project, including:
(i) A long-term time charter (where the charter hire represents the
primary source of payment of interest and principal with respect to the
Note),
(ii) A parent or affiliate guarantee of the Note,
(iii) The Borrower, or
(iv) The bareboat charterer.
(2) Adjustments. MARAD may make such adjustments to its computation
of creditworthiness of the Ultimate Credit considered necessary to
reflect more accurately the financial condition of the ultimate credit.
(3) Rating determination. MARAD will determine creditworthiness of
the Ultimate Credit using information, forms, statements, and reports
on file with MARAD prior to the date on which the Guarantee Fee is to
be paid. Utilizing this data, MARAD will assign an internal designation
for the credit risk of the Ultimate Credit, e.g., higher risk, medium
risk, or lower risk.
(4) Calculation of the Guarantee Fee. The Guarantee Fee is
calculated using the average principal amount of the Note estimated to
be outstanding for each fiscal year during the expected amortization
period of the Note. In calculating the present value used in
determining the amount of the Guarantee Fee to be paid, MARAD uses a
discount rate contained in the President's most recently submitted
budget that MARAD converts to a bond equivalent rate.
(5) Proration of Guarantee Fee. The Guarantee Fee will be prorated
where a Project delivery is scheduled to occur during the annual period
with respect to which payment of said Guarantee Fee is being made, as
follows:
(i) Undelivered project. If the Guarantee Fee relates to an
undelivered Project, the predelivery rate is applicable to the average
outstanding principal amount of the Note for the period from the date
of the Note Closing to the delivery date, and the delivered rate is
applicable for the balance of the annual period in which the delivery
occurs.
(ii) Multiple Vessels. If the Guarantee Fee relates to more than
one Vessel, the amount of the outstanding Note will be allocated to
each Vessel proportionately based on the Actual Cost of each Vessel
with the amount for each Vessel determined by using the rate that is
applicable under paragraph (c)(2) or (3) of this section. The Guarantee
Fee will
[[Page 55496]]
be the aggregate of the amounts calculated for each Vessel.
(d) Modification, assumption, or substitution fee. A non-refundable
fee is due and payable by the Borrower at the time of the request to
MARAD to approve the modification or assumption of a financing or the
substitution of a Borrower. The fee is one quarter (\1/4\) of one
percent of the outstanding principal balance of the Note at the time of
the request. MARAD may waive all or some of the modification or
assumption fee when the primary purpose of the modification or
assumption will benefit the United States.
(e) Monitoring Fee. An annual monitoring fee may be charged by
MARAD for Borrowers that requires additional monitoring for program
compliance including regular review of more complex financing
covenants.
Sec. 298.25 Dual-use CCF.
MARAD may require the pledge of a CCF account or annual deposits of
some portion of the Project property's net income into a dual-use CCF.
A dual-use CCF provides the normal CCF tax-deferral benefits, but also
gives MARAD control of CCF withdrawals, recourse against CCF deposits,
ensures an emergency refurbishing reserve (tax-deferred) for Project
property, and provides additional collateral.
Sec. 298.27 Refinancing.
(a) MARAD may approve the issuance of a MARAD Guarantee of a Note
to refinance existing program debt for a Vessel Project and existing
non-program debt for a Vessel Project, so long as the existing debt has
been previously issued for one of the purposes set forth in the Act and
the issuance of the MARAD Guarantee would otherwise satisfy the
requirements of the program and the regulations in this part.
(b) Any security lien on the Vessel(s) must be discharged
immediately before MARAD places a mortgage or other security interest
on any of the above assets. An Applicant must satisfy all necessary
eligibility requirements as set forth in these regulations, including
economic soundness.
(c) The amount of a new Note issued for the existing debt may not
exceed the lesser of:
(1) The amount of outstanding debt being refinanced (whether or not
financed through the Program); or
(2) Whichever percentage is applicable under the provisions of the
Act with respect to the depreciated Actual Cost of the Vessel Project
for which the new Note is being issued.
Sec. 298.29 Financing a vessel more than a year after delivery.
(a) MARAD may approve a MARAD Guarantee of a Note for a Vessel that
has been delivered (or redelivered in the case of Reconstruction or
Reconditioning of a Vessel) more than one year prior to the issuance of
a MARAD Guarantee of a Note for one of the purposes set forth in the
Act only if the purpose of the Note issuance for financing such
existing Vessel is to facilitate financing of:
(1) The Construction, Reconstruction, or Reconditioning of a
different Vessel within one year of that Vessel's delivery or
redelivery; or
(2) Facilities or equipment pertaining to marine operations. Such
facilities or equipment must be of a specialized nature, used
principally for servicing Vessels and in handling waterborne cargo in
the proximity of the berthing area, excluding over-the-road equipment
(other than chassis and containers), permanent or semi-permanent
structures and real estate, as well as new or less than one year old.
(b) At the Note Closing covered by this section, an Applicant must
deposit any proceeds of the Note into an escrow fund established to pay
for the cost unless such Applicant demonstrates to MARAD's satisfaction
that all such costs have been paid.
Sec. 298.31 Advances.
(a) In general. MARAD has the discretion to make or commit to make
an advance or payment of funds to, or on behalf of the owner, or
operator or directly to any other person or entity for items, such as
principal, interest, and Vessel-related expenses or fees.
(1) MARAD will make advances or payments only to protect, preserve
or improve the collateral held as our security for program debt.
(2) When requesting an advance, a Borrower must demonstrate that:
(i) The issues are short term (less than two years) by using market
and cash flow analysis and other projections;
(ii) An advance(s), would assist with temporary difficulties; and
(iii) There is adequate collateral for the advance.
(b) Request requirements. A Borrower must apply for an advance or
other payment as early as is reasonably possible. Any requests for
advances must be accompanied by supporting data regarding:
(1) Need for the advance;
(2) Financial assistance sought from other sources;
(3) Measures that have been taken to alleviate the situation;
(4) Financial projections;
(5) Proposed term of the repayment;
(6) Current and projected market conditions;
(7) Information on other available collateral;
(8) Liens and other creditor information; and
(9) Any other information MARAD may request.
Sec. 298.33 Recourse against parties.
(a) Form. Recourse against Borrowers or guarantors may be by a
guarantee, irrevocable letter of credit, additional tangible or
intangible collateral, or another form acceptable to MARAD.
(b) Principal accountability. The principal parties in interest,
who ultimately stand most to benefit from a Project, will be held
financially accountable for a Project's performance. MARAD may require
recourse against:
(1) All major shareholders of a closely held corporate Borrower;
(2) The parent corporation of a subsidiary corporate Borrower;
(3) The related business entities of the Borrower if MARAD
determines that the Borrower lacks substantial pledged assets other
than the Project property or is otherwise lacking in any credit factor
required to approve the Application;
(4) Any or all major limited partners; and
(5) Against any others interest it believes is necessary to
protect.
(c) Recourse against parties. Should MARAD determine that a
secondary means of repayment from other sources is necessary (including
the net worth of parties other than the Borrower), MARAD may require
secured or unsecured recourse against any such secondary repayment
sources.
(d) Recourse unavailable. Where appropriate recourse is
unavailable, the conservatively projected net liquidating value of the
Borrower's assets (as such assets are pledged to MARAD) must, in
MARAD's sole judgment, substantially exceed all projected exposure or
other risks of loss to MARAD.
Sec. 298.35 Mortgage.
(a) Ensuring validity of security interest. The Borrower must
obtain and provide legal opinions from independent, outside legal
counsel, which must be satisfactory to MARAD and state, among other
things, that the Mortgage or other security interest(s) are valid and
enforceable.
(b) Alternative forms of security. In the case where a Mortgage or
security interest on the financed assets may not be available,
enforceable, or requested, MARAD will require alternative forms of
security with satisfactory legal opinions opining as to the validity of
such security interest.
[[Page 55497]]
(c) Mortgage in MARAD's favor. Upon delivery of a new Vessel or
upon final completion of the Shipyard Project, or at the time a Note is
guaranteed by MARAD with respect to an existing Vessel or Shipyard
Project, a Mortgage on the Vessel and a Mortgage or other security
interest on the Shipyard Project will be executed in MARAD's favor,
unless MARAD determines that a Mortgage or a security interest is not
available, enforceable, or required in accordance with paragraph (b) of
this section.
(d) Filing. A Borrower must file a Mortgage, a security interest,
or both with the proper authorities. After a Borrower has recorded the
Mortgage, the recorded Mortgage or evidence of the filing of the
security interest must be provided to MARAD.
(e) Mortgage secured by multiple Vessels. (1) When MARAD has a
security interest in two or more Vessels, the Financing Documents may
provide that one Mortgage relating to all the Vessels (Fleet Mortgage)
be executed, perfected, and delivered to MARAD by the Borrower.
(2) If the Fleet Mortgage relates to undelivered Vessels, the Fleet
Mortgage will be executed upon delivery of the first Vessel. At the
time of each subsequent Vessel delivery, the Borrower must execute a
supplement to the Fleet Mortgage that makes that Vessel subject to
MARAD's mortgage lien.
(3) The Fleet Mortgage must provide that payment by the Borrower of
the entire amount of the Note(s) guaranteed by MARAD will be required
to discharge the Fleet Mortgage, regardless of the amount of the
Note(s) issued and outstanding at the time of execution and delivery of
the Fleet Mortgage or the number of Vessels covered by the Fleet
Mortgage.
(4) The discharge date of the Fleet Mortgage will be the maturity
date of the Note. MARAD may require, as authorized by the Act, such
payments of principal prior to maturity (redemptions), regarding all
related notes, as deemed necessary to maintain adequate security for
the Note.
(5) Each Fleet Mortgage must provide that in the event of
constructive total loss, requisition of title or sale of any Vessel
covered by the Fleet Mortgage, indebtedness represented by the Note
will be paid, unless MARAD otherwise determines that there remains
adequate security for the Note, and the Vessel will be discharged from
the mortgage lien.
(f) Adequacy of collateral. (1) A Mortgage on the Vessel(s) or
Shipyard Project may be adequate security for the Note.
(2) If MARAD determines that the mortgage on the Vessel(s) or
Shipyard Project is insufficient to provide adequate security or if
MARAD finds that other security is adequate, as a condition to
approving the Project, MARAD may require other or additional
collateral, such as a mortgage(s) on other Vessels, security interests
on other assets, special escrow funds, pledges of stock, charters,
contracts, notes, letters of credit, accounts receivable assignments,
and guarantees.
Sec. 298.37 Vessels of national interest.
MARAD may, in consultation with another agency, designate certain
classes or types of Vessels to be eligible for priority processing and
financing through the Program (Vessels of National Interest) as
follows:
(a) When there is no specified funding for financing of Vessels
designated as Vessels of National Interest, MARAD may give public
notice of the designation, e.g. publication via the MARAD web page.
Unless extended, earlier revoked, or an expiration is specified in the
notice, such a designation will remain valid for four years from the
date of publication.
(b) When funding is specified for Vessels designated as Vessels of
National Interest, MARAD will publish notice of the designation in the
Federal Register. The designation notice will include the amount of
funding available for qualifying Vessels and other information
necessary for interested parties to apply such as the timeline for
applying and any expiration on funding.
Sec. 298.39 Default and liquidation.
Upon default under the terms of any Note, Financing Documents,
Mortgage, Guarantee, or other security document, MARAD will take
remedial actions including, but not limited to, where appropriate,
seizure or arrest of collateral, foreclosure, restructuring, debarment,
referral for debt collection, or liquidation to protect the interest of
the United States.
By order of the Maritime Administrator.
T. Mitchell Hudson, Jr.
Secretary, Maritime Administration.
[FR Doc. 2026-17636 Filed 8-27-26; 8:45 am]
BILLING CODE 4910-81-P
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</html>Indexed from Federal Register on August 28, 2026.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.