2024-16180. Information Request on Financing Support for Covered Technology Categories-Specific to Lenders

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Department of Defense

Office of the Secretary

1. [Docket ID: DoD-2024-OS-0074]

AGENCY:

Office of Strategic Capital (OSC), Office of the Under Secretary of Defense for Research and Engineering, Department of Defense (DoD).

ACTION:

Notice; request for information (RFI).

SUMMARY:

The OSC is seeking information from lenders and other private credit investors regarding capital needs for industries related to the Covered Technology Categories to inform the design and implementation of the DoD Loan Program Office.

DATES:

Comments must be received by October 22, 2024. Written comments in response to this RFI should be submitted in accordance with the instructions in the ADDRESSES and SUPPLEMENTARY INFORMATION sections in this notice.

ADDRESSES:

Interested parties may submit comments on this transaction electronically on www.regulations.gov. To submit a comment, enter “Information Request on Financing Support for Covered Technology Categories—Specific to Lenders” under the heading “Enter Keyword or ID” and select Search. You can also search by the Docket ID, DoD-2024-OS-0074. Follow the instructions provided at the `Submit a Comment' screen.

Comments can also be sent by mail to Department of Defense, Office of the Assistant to the Secretary of Defense for Privacy, Civil Liberties, and Transparency, 4800 Mark Center Drive, Mailbox #24, Suite 08D09, Alexandria, VA 22350-1700.

Please include your name, company name (if any) and “Information Request on Financing Support for Covered Technology Categories” on any attached document.

Comments sent by any other method, to any other address or individual, or received after the end of the comment period, may not be considered.

FOR FURTHER INFORMATION CONTACT:

For questions about this notice, please contact David Vidal, Office of Strategic Capital Director of Credit Programs, at [e-mail]. Tel. No. 703-545-1903. Please direct media inquiries to the OSC Press Team at [e-mail].

SUPPLEMENTARY INFORMATION:

Background

In December 2022, the Secretary of Defense established OSC to attract and scale private capital to technologies critical to the national security of the United States. Furthermore, in 2024, Congress authorized OSC as part of the National Defense Authorization Act (NDAA) for Fiscal Year 2024. The NDAA states that OSC shall:

(a) develop, integrate, and implement capital investment strategies proven in the commercial sector to shape and scale investment in critical technologies and assets;

(b) identify and prioritize promising critical technologies and assets that require capital assistance and have the potential to benefit the DoD; and

(c) make eligible investments in such technologies and assets, such as supply chain technologies not always supported through direct investment.

Covered Technology Categories

The NDAA designates the following 31 categories as a “Covered Technology Category.”

• Advanced bulk materials (including dielectrics, alloys, polymers, and composites)
• Advanced manufacturing (including upgrades for increasing the efficiency or quality of existing production processes or for enabling commercialization of new technologies)
• Autonomous mobile robots
• Battery storage (including lithium ion, advanced lead acid, and alternate batteries, as well as fuel cells)
• Biochemicals
• Bioenergetics
• Biomass (including conversion-ready feedstock)
• Cybersecurity
• Data fabric (including integration across disparate domains)
• Decision science (including ensemble learning methods for portfolio optimization)
• Edge computing
• External communication
• Hydrogen generation and storage
• Mesh networks (including off-grid communications)
• Microelectronics assembly, testing, or packaging
• Microelectronics design and development
• Microelectronics fabrication
• Microelectronics manufacturing equipment
• Microelectronics materials
• Nanomaterials and metamaterials
• Open RAN
• Optical communications (including free space and optical fiber)
• Sensor hardware
• Solar (including power system and management components)
• Space launch
• Spacecraft
• Space-enabled services and equipment (including in-space operations and associated ground equipment)
• Synthetic biology
• Quantum computing
• Quantum security
• Quantum sensing

The NDAA authorizes OSC to provide capital assistance, defined as a “loan, loan guarantee, or technical assistance” for eligible investments. Eligible investments are those made in a technology that is (a) in a Covered Technology Category and (b) not solely utilized in defense applications. OSC is seeking public comment on the capital needs of industries and assets related to the Covered Technology Categories to inform the design of DoD Loan Program.

Specific Requests for Information

The following statements and questions cover the major topic areas for which OSC seeks comment. They are not intended to limit the topics that may be addressed. Responses may include any topic believed to inform the U.S. Government's efforts in developing recommendations for supporting the design of the DoD Loan Program, regardless of whether the topic is included in this document.

Respondents are encouraged to respond to any or all of the following questions and topic areas. Responses may include estimates, which should be designated as such. Your responses may include supporting data and examples. We welcome submission of publications or studies that support your responses as attachments.

Questions

The questions section of this Federal Register notice is split into four parts: (a) General, (b) Financing, (c) Experience with U.S. Government Financing, and (d) Economic Outlook.

General

1. What are your (i) geographical and (ii) business sectoral coverage areas for lending or private credit investment efforts?

2. Do you finance companies that largely produce, integrate, or otherwise use equipment or services with a purpose that aligns with any of the Covered Technology Categories? Please list each Covered Technology Category and define the relationship.

3. What types of financing products do you make available to companies in Question #2?

4. Are there any debt financing gaps in industries or assets related to the Covered Technology Categories ( e.g., capital expenditure, working capital, acquisition financing, lease financing, etc.)?

Financing

5. What terms are you offering the market? Please break down (i) the product type, (ii) the transaction size, (iii) the interest rate and credit spread, and (iv) the tenor range by Covered Technology Category.

6. What fees do you typically charge for various debt product types associated with companies in Question #2 ( e.g., underwriting fees, draw fees, prepayment fees, etc.)?

7. What are the key credit risk categories that lead to a denial of financing to companies within the Critical Technology Categories relevant to your firm ( e.g., technology commercialization risk, credit/financial risk, customer concentration risk, market/merchant risk, sector's cyclicality, etc.)?

8. How can the DoD Loan Program partner with financing firms to crowd capital into Covered Technology Categories and their supply chains?

9. Do you believe the Covered Technologies Categories identified in Question #2 would benefit from credit support from the DoD Loan Program? If so, what are the most beneficial forms of credit support ( e.g., Direct Loans, Loan Guarantees, etc.) and why?

10. How should the DoD Loan Program be designed to be complementary to, rather than a substitute for private sector debt financing?

11. Do you believe Federal loans and loan guarantees would help enhance the terms you provide to the market? If so, how and why?

12. What is the ideal loan guarantee coverage percentage that would entice you to lend to companies in a Covered Technology Category? Please include the (i) sector, (ii) the company size, and (iii) the debt amount. Additionally, please describe how this loan guarantee coverage percentage enables your firm to finance the companies discussed in Question 2.

Experience With U.S. Government Financing

13. Have you previously worked with financing tools from the U.S. Government? If so, please specify which (i) government programs your firm engaged in and (ii) what financing tools you utilized ( e.g., loans or loan guarantees). If not, please specify why ( e.g., not relevant, fees too high, etc.).

14. What was the size of the financing tools mentioned above? For example, if the tool used was a loan, please indicate its size ( e.g., $0-5MM, $5-25MM, $25-75MM, >$75MM).

15. What types of fees were associated with these financing tools ( e.g., underwriting fees, draw fees, prepayment fees, etc.)?

16. What challenges (i) have you seen, and/or (ii) do you foresee, with Federal credit direct loans and loan guarantees as it relates to Covered Technology Categories?

Economic Outlook

17. What is your outlook on the five-year macroeconomic projection for the Covered Technology Categories you selected previously? Which, if any, macroeconomic headwinds and tailwinds are most impacting (i) your ability to finance the Covered Technology Categories and (ii) the Covered Technology Categories themselves?

Requirements for Written Comments

OSC encourages respondents, when addressing the points above, unless raising other challenges related to financing Covered Technology Categories not explicitly asked, to identify which point they are responding to by using the same numbers and heading as set forth above. For example, someone submitting comments responsive to (8), “How can the DoD Loan Program partner with financing firms to crowd capital into Covered Technology Categories and their supply chains?”, would use that same text as a heading followed by the respondent's specific comments responding to it. This formatting will assist OSC in more easily reviewing and summarizing the comments received in response to these specific points of inquiry.

Anyone submitting business confidential information should clearly identify the business confidential portion at the time of submission, file a statement justifying nondisclosure and referring to the specific legal authority claimed, and provide a non-confidential version of the submission. Users submitting a form that contains business confidential information will need to submit a non-confidential version of the same form that does not contain the confidential business information. The non-confidential version of the submission will be placed in the public file on https://www.regulations.gov. For comments submitted electronically containing business confidential information, the file name of the business confidential version should begin with the characters “BC.” Any page containing business confidential information must be clearly marked “BUSINESS CONFIDENTIAL” on the top of that page. The non-confidential version must be clearly marked “PUBLIC.” The file name of the non-confidential version should begin with the character “P.” The “BC” and “P” should be followed by the name of the person or entity submitting the comments.

Dated: July 18, 2024.

Aaron T. Siegel,

Alternate OSD Federal Register Liaison Officer, Department of Defense.