[Federal Register Volume 60, Number 80 (Wednesday, April 26, 1995)]
[Proposed Rules]
[Pages 20592-20599]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-10195]
[[Page 20591]]
_______________________________________________________________________
Part IV
Department of Transportation
_______________________________________________________________________
Maritime Administration
_______________________________________________________________________
46 CFR Part 298
Obligation Guarantees: Program Administration; Proposed Rule
Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 /
Proposed Rules
[[Page 20592]]
DEPARTMENT OF TRANSPORTATION
Maritime Administration
46 CFR Part 298
[Docket No. R-154]
RIN 2133-AB14
Obligation Guarantees: Program Administration
AGENCY: Maritime Administration, Department of Transportation.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Maritime Administration (``MARAD'') is issuing this notice
of proposed rulemaking which proposes modifications to certain
provisions of the existing regulations implementing Title XI of the
Merchant Marine Act, 1936, as amended (``Act''), in order to improve
administration of the Title XI program. MARAD administers financial
assistance under Title XI of the Act in the form of obligation
guarantees for all types of vessel construction and shipyard
modernization and improvement, except for fishing vessels. On March 31,
1994, MARAD published in the Federal Register an interim final rule
which amended its regulations implementing Title XI in order to carry
out the provisions of Subtitle D of Public Law 103-160, expanding the
authorization for obligation guarantees to finance the construction,
reconstruction, and reconditioning of eligible export vessels and
shipyard modernization and improvement. A final rule was published on
September 16, 1994. The final rule stated that MARAD would publish at a
later date a separate notice of proposed rulemaking to improve
administration of the entire Title XI program. That is the subject of
this rulemaking.
MARAD initiated a review of the administration of its Title XI
obligation guarantees program regulations with the objective of
implementing President Clinton's ongoing regulatory reform initiative
and to reaffirm and implement the principles of Executive Order 12866--
Regulatory Planning and Review (September 30, 1993). This rulemaking
would significantly shorten the time for processing applications for
guarantees and reduce the economic burden on applicants in complying
with MARAD requirements for the submission of information. Accordingly,
it is expected to encourage the construction of vessels in United
States shipyards.
DATES: Written comments are requested and must be received on or before
May 26, 1995. A 30 day comment period has been chosen in order to
improve the efficiency of the administration of the Title XI program.
ADDRESSES: Comments may be mailed or otherwise delivered to the
Secretary, Maritime Administration, Room 7210, Department of
Transportation, 400 Seventh Street SW., Washington, D.C. 20590. All
comments will be made available for inspection during normal business
hours at the above address. Commenters wishing MARAD to acknowledge
receipt of comments should enclose a stamped self-addressed envelope or
postcard.
FOR FURTHER INFORMATION CONTACT: David A. Lippold, Examiner, Division
of Capital Assets Management, Office of Ship Financing, Maritime
Administration, Room 8122, 400 Seventh Street SW., Washington, D.C.
20590. Telephone 202-366-1907.
SUPPLEMENTARY INFORMATION: Title XI of the Act, 46 App. U.S.C. 1271 et
seq., authorizes the Secretary of Transportation (Secretary) to provide
guarantees of debt (``obligation guarantees'') issued for the purpose
of financing or refinancing the construction, reconstruction or
reconditioning of vessels built in United States shipyards. On November
30, 1993, Public Law 103-160, cited as the ``National Defense
Authorization Act for Fiscal Year 1994'' (``Authorization Act''), was
enacted. Subtitle D of Title XIII of the Authorization Act, cited as
the ``National Shipbuilding and Shipyard Conversion Act of 1993''
(``Shipbuilding Act''), expanded the Title XI program by authorizing
the Secretary to guarantee obligations issued to finance the
construction, reconstruction, or reconditioning of eligible export
vessels and for shipyard modernization and improvement. The
Shipbuilding Act establishes ``a National Shipbuilding Initiative (NSI)
program to be carried out to support the industrial base for national
security objectives by assisting in the reestablishment of the United
States shipbuilding industry as a self-sufficient internationally
competitive industry.''
Applications for obligation guarantees are made to MARAD acting
under authority delegated by the Secretary to the Maritime
Administrator (``Administrator''). Prior to execution of a guarantee,
MARAD must, among other things, make determinations of economic
soundness of the project, and the financial and operating capability of
the applicant. Prior to amendment by Public Law 103-160, guarantees
could be issued only for debt issued by United States citizens.
The Title XI program enables applicants to obtain long-term
financing on terms and conditions and at interest rates comparable to
those available to large corporations. Funds secured by the obligation
guarantees are borrowed in the private sector.
As noted, the provisions of the Shipbuilding Act that required
changes in MARAD's regulations became effective on November 30, 1993.
MARAD concluded that it was imperative to publish amendments to its
Title XI regulations, as an interim final rule. The interim final rule
became effective on publication in the Federal Register on March 31,
1994 (59 FR 15123), in order to permit implementation of the NSI
program without delay.
That interim final rule stated that MARAD would publish, at a later
date, a separate notice of proposed rulemaking which would propose
modifications to the Title XI regulations to improve administration of
the overall Title XI program. Such modifications were not addressed in
the interim rule because they were not required to implement the
Shipbuilding Act. This notice of proposed rulemaking solicits public
comments on a number of proposals to improve the current Title XI
program.
In addition to soliciting comments on the amendments to the Title
XI regulations set forth in this notice of proposed rulemaking, MARAD
is hereby soliciting industry and other public comments on three
additional areas. The first issue on which MARAD is soliciting public
comments deals with the retention in section 298.13 of the waiver
requirement specifically granted for foreign components and services to
be included in Actual Cost. MARAD is concerned about the potential
adverse effect on the U.S. supplier base, which we recognize as
critical to the national defense and economy. We are attempting to
create an environment where both the shipbuilding and ship supply
industries have the opportunity to be competitive based on fair
pricing, quality, and timeliness.
The second issue on which MARAD is soliciting public comments deals
with construction period financing. The Title XI regulations currently
provide authority for MARAD to do construction period financing. As the
Secretary may approve Guarantees with respect to obligations to be
issued to finance the construction, reconstruction, or reconditioning
of vessels or construction of advanced or modern shipbuilding
technology during the applicable period of construction,
reconstruction, or reconditioning, we [[Page 20593]] are inviting
comments on available forms of security, in addition to surety bonds,
that could protect MARAD's interests as a lender, how progress should
be monitored, what new procedures/methodologies should be developed to
improve the previously utilized progress payment system, and if payment
of interest on the obligations should be made on a more frequent basis
(i.e., weekly, monthly or quarterly) than that outlined in Sec. 298.22,
Amortization of Obligations, of this Part 298. In addition, in
Sec. 298.21 MARAD has proposed the use of an approved agent as an
alternative for appropriate certification of the Actual Cost of a
project. However, comments are solicited on how the Title XI applicant
will verify/certify to MARAD that certain costs have been paid prior to
disbursement of Title XI funds from the escrow account, for example,
the use of an agent on MARAD's behalf to verify that certain costs have
been paid.
Comments are also requested concerning the standard application
Form MA 163 referenced in Sec. 298.3, Applications, of this title and
the required documentation outlined in Subpart D of this part 298.
Please comment also on the current standard application Form MA 163 and
any proposed amendments to the form and standard documentation,
particularly with regard to export vessels and shipyard modernization.
Specific changes to the existing standard application form could, for
example, include a requirement to list any requests which have been
made of other U.S. and/or foreign institutions regarding the project
for which the Title XI financing is requested and if so, a statement of
the nature of this assistance, including any rating of foreign
financial institutions by other U.S. government agencies. Other changes
could involve modifications to the standard form of the Title XI
Reserve Fund and Financial Agreement. In addition, comments are invited
for any proposed modifications to the existing regulatory requirements
covering the Title XI program.
Whenever reference is made in these regulations to forms prescribed
by MARAD for applications or other filing requirements, the format of
such forms in effect prior to the effective date of these regulations
may be used pending revision and issuance of new forms, which must be
approved by The Office of Management and Budget. To the extent
necessary to reflect statutory requirements, any form submitted may be
modified or supplemented to facilitate processing, but until new forms
have been approved, these regulations do not require more extensive
paperwork or reporting requirements than exist under the present Title
XI regulations.
Discussion of Rulemaking Text
MARAD is proposing to amend its Obligation Guarantees regulations
at 46 CFR Part 298, the proposed amendments summarized as follows:
References to the Terms ``Affiliate'' and ``Affiliated''
All references to the existing defined terms ``Affiliate'' and
``Affiliated'' would be replaced by the defined term ``Related Party''.
This change reflects a terminology change in generally accepted
accounting principles (GAAP), as promulgated by the Financial
Accounting Standards Board of the American Institute of Certified
Public Accountants, and conforms to changes made in Part 232, Uniform
Financial Reporting Requirements, on November 24, 1993, effective
December 27, 1993. Accordingly, the definition of Affiliate or
Affiliated in section 298.2 (c) is proposed to be removed, a new
definition of Related Party added, and the paragraph designations for
the definitions are redesignated herein accordingly. In addition, it is
proposed that paragraphs 298.13(a)(2)(iv), 298.13 (b)(2)(i)(B) and
(b)(3), 298.35(b)(1)(ii), 298.35(b)(2)(ii), 298.35(c)(1)(ii),
298.35(c)(2)(ii), and 298.37 be amended to reflect the ``Related
Party'' preferred terminology which conforms to changes made in Part
232 on November 24, 1993.
Subpart A--Introduction
Section 298.2 Definitions
Section 298.2 is intended to provide convenient reference to the
meaning of significant terminology used in Part 298, based principally
on statutory derivation, reflecting with the letter designation of the
paragraphs respectively, contained in the final rule published on
September 16, 1994 (based on the interim final rule designations and
redesignations), or as proposed to be redesignated in this rulemaking.
As proposed:
Paragraph (a), ``Act'' remains unchanged.
Paragraph (b), ``Actual Cost'' remains unchanged.
Paragraph (c), ``Advanced Shipbuilding Technology'' remains
unchanged.
Paragraph (d), ``Affiliate or Affiliated'' is removed.
Redesignated paragraph (d), ``Closing'' remains unchanged.
Redesignated paragraph (e), ``Depository'' remains unchanged.
Redesignated paragraph (f), ``Depreciated Actual Cost'' remains
unchanged.
Redesignated paragraph (g), ``Documentation'' remains unchanged.
Redesignated paragraph (h), ``Eligible Export Vessel'' remains
unchanged.
Redesignated paragraph (i), ``Eligible Shipyard'' remains
unchanged.
Redesignated paragraph (j), ``General Shipyard Facility'' remains
unchanged.
Redesignated paragraph (k), ``Guarantee'' remains unchanged.
Redesignated paragraph (l), ``Guarantee Fee'' remains unchanged.
Redesignated paragraph (m), ``Indenture Trustee'' is changed to
require that a qualified bank or trust company must, among other
things, be located in and organized and doing business under the laws
of the United States, a State or territory thereof, the District of
Columbia or the Commonwealth of Puerto Rico.
Redesignated paragraph (n), ``Letter Commitment'' remains
unchanged.
New paragraph (o), ``Letter of Interest'' is added as an attempt to
enhance a company's or shipyard's marketing effort and, in the long
run, expedite the decision-making process on Title XI applications. It
may be issued by the Secretary upon receipt of a request for Guarantees
and is not a financial offer but rather an indication of what terms may
be considered by the Secretary if a Letter Commitment is issued at a
later date. This definition parallels very closely the Export-Import
Bank of the United States' definition for a letter of interest.
Paragraph (p), ``Maritime Administration'' remains unchanged.
Paragraph (q), ``Modern Shipbuilding Technology'' remains
unchanged.
Paragraph (r), ``Mortgage'' remains unchanged.
Paragraph (s), ``Obligation'' remains unchanged.
Paragraph (t), ``Obligee'' remains unchanged.
Paragraph (u), ``Obligor'' remains unchanged.
Paragraph (v), ``Paying Agent'' remains unchanged.
Paragraph (w), ``Person'' remains unchanged.
Paragraph (x), ``Preferred Mortgage'' remains unchanged.
New paragraph (y), ``Related Party'' is added, defined as is
``Affiliate'' or ``Affiliated'' in existing paragraph (d).
Redesignated paragraph (z), ``Secretary'' remains unchanged.
Redesignated paragraph (aa), ``Secretary's Note'' remains
unchanged.
Redesignated paragraph (bb), ``Security Agreement'' remains
unchanged. [[Page 20594]]
Redesignated paragraph (cc), ``Vessel'' remains unchanged. Although
the definition of Vessel has not been modified, one continued area of
interest has been the expansion of Title XI financing to promote a
U.S.-flag cruise industry and to expand opportunities for U.S.
shipyards in the passenger vessel market, including ferries, ``cruises
to nowhere'' and gaming vessels. Some organizations have requested that
passenger vessels engaged in commercial common carriage on a scheduled
service be determined to be eligible for Title XI even if they do not
have overnight accommodations or specific point-to-point service. In
the past, MARAD policy has excluded such vessels from Title XI
coverage. Although no regulatory change is necessary, MARAD is taking
the opportunity at this time to announce a change in policy expressly
to include passenger vessels engaged in commercial common carriage as
eligible for the Title XI program. Commercial common carriage vessels
must operate on a scheduled service and offer passage to the public at
large.
Section 298.3 Applications
Section 298.3 is self-explanatory. Paragraphs (a), (c), and (d)
remain unchanged. Paragraph (b)(1) is amended to shorten the period
between the filing of the application and the anticipated date by which
a Letter Commitment is required from six months to four months. In
addition, it shortens the period of time for the Secretary to perform a
preliminary review of the application for adequacy of completeness from
30 days to 15 days and reduces the amount of time the applicant has to
correct deficiencies from nine months to 15 days for each request for
additional information. If the requested information is not received
within this 15 day period, then the Secretary may terminate the
processing of the application without prejudice. Once the Title XI
application is considered complete by the Secretary, the Secretary will
act on the application within a period of 60 calendar days. Finally,
the revised paragraph states that, unless otherwise extended by the
Secretary, if an application is not completed by the applicant and
acted upon by the Secretary within four months from the submission
date, the processing of the application is terminated without prejudice
and the applicant may reapply. This shortened period of time is much
less than the one year period currently provided for in the existing
Title XI regulations.
In order to insure that a Title XI applicant is serious in applying
for federal assistance and in view of the increasing complexity of
export and shipyard modernization projects and the increased interest
in the Title XI program, the filing fee referenced in paragraph (c) and
submitted with a formal Title XI application shall be adjusted from a
fixed fee of $1,000 to a fee based on the requested amount of the Title
XI financing. Each Title XI application must be accompanied by a filing
fee in the amount of one quarter of the investigation fee amount
calculated pursuant to the investigation fee formula outlined in
Sec. 298.15. Although the total investigation fee formula for each
project shall not change, requiring that one quarter of the
investigation fee be submitted with the receipt of a formal Title XI
application will result in the Government recovering the administrative
cost of processing the application in a more expeditious manner.
Notwithstanding the above, in no event will the filing fee be less than
$1,000. The filing fee will continue to be non-refundable and will be
used as a credit against the investigation fee.
Finally, a new paragraph (f) is added in order to expedite the
review of Title XI proposals and lessen the burden on the applicant,
which provides for the preliminary review of a request by an applicant,
rather than a complete application, and the issuance by the Secretary
within ten days of a Letter of Interest. There shall be no filing fee
payable in respect of a request for the issuance of such a letter.
Letters of interest address the general eligibility of a project and
are not binding commitments of the Government.
Section 298.10 Citizenship
In section 298.10, paragraphs (b) through (e) remain unchanged.
Paragraph (a) of this section is deleted in its entirety and replaced
with a new paragraph which incorporates changes conforming it to the
citizenship standards in Part 221.
Section 298.11 Vessel Requirements
In Sec. 298.11, paragraphs (b) and (d) remain unchanged. Paragraph
(a) of this section is revised to be divided into three categories.
This change will provide greater flexibility to ship owners and
shipyards and will be squarely in line with the standards enunciated by
the U.S. Coast Guard.
The first category defines a vessel financed by Obligation
Guarantees to be considered to be of U.S. construction and qualified
for coastwise trade provided that all components of the hull and
superstructure are fabricated in the United States, and that the Vessel
is assembled entirely in the United States; however, the Vessel may
have foreign source machinery, equipment, or hull and superstructure
material which has been manufactured in a foreign facility to the
extent allowed by the U.S. Coast Guard. The second category defines a
Vessel financed by Obligation Guarantees to be considered to be of U.S.
construction if the Vessel is assembled entirely in the United States,
but not qualified for the coastwise trade because it has material which
has been manufactured in a foreign facility. The third category states
that with respect to Eligible Export Vessels financed by Obligation
Guarantees, the Vessel must be assembled in a U.S. shipyard.
Paragraph (c) is amended to permit Quality Systems Certificate
Scheme issued by qualified International Association of Classification
Societies (IACS) members who have been recognized by the Secretary as
meeting acceptable standards for such a society to participate in the
Eligible Export Vessel program. That recognition shall include, at a
minimum, recognition that the society meets the requirements of IMO
Resolution A.139(18) and delegation by the United States Coast Guard of
inspection/certification authority.
Finally, paragraph (e) would be added to this section to indicate
that the preferred system of measurement and weights for Vessels and
advanced and modern shipbuilding technology is the metric system.
Section 298.12 Applicant and Operator's Qualifications
Section 298.12 is modified to eliminate the submission of certain
information in paragraph (b) about the identity and ownership of the
applicant which is not required. In addition, the paragraph is modified
by requesting that the applicant furnish its international
identification number, if any. Paragraph (c)(3) of this section is
modified to cover insolvency or reorganization proceedings of the
applicant under either domestic or foreign statutes in the case of
Eligible Export Vessels. Finally, paragraph (f) of this section is
modified to limit the information required to be submitted regarding
the management and shore management personnel concerned with the
physical operation of the vessel(s) owned by the applicant or proposed
for construction or individuals concerned with the physical operation
of the shipyard.
Section 298.13 Financial Requirements
Paragraph (a)(2) is revised to clarify that foreign components of
the hull and [[Page 20595]] superstructure may not be included in
Actual Cost. The fourth sentence is amended to clarify that, 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 the applicant's equity requirements imposed by
paragraph (a)(3) of this section. An illustration is provided to
demonstrate how the cost of foreign components of the hull and
superstructure may satisfy an applicant's equity requirements. New
paragraph (a)(3) provides that the ability of co-financiers to exercise
their rights against collateral shared with MARAD, if an applicant
utilizes co-financing (i.e., consisting of a blend of Title XI and
private financing for the debt portion of the project), shall be
subject to the approval of the Secretary. Finally, paragraphs (a)(4),
(b)(2), (b)(3) and (b)(4) are amended to be consistent with 46 CFR Part
232 with respect to the use of the defined term Related Party.
Section 298.14 Economic Soundness
In section 298.14 the existing paragraph (a)(2)(i)(F) is amended to
recognize the potential for purchasing existing equipment of a
reasonable condition and age from sources other than existing Title XI
holders.
Section 298.16 Substitution of Participants
Section 298.16 is amended by removing existing paragraph (a) which
requires a mortgagee applying for permission to assign an insured
mortgage to another entity to pay a fee of $1,500. It is very unlikely
that any of the few remaining insured Mortgages will be assigned prior
to their maturity within the next several years and, if so, MARAD's
approval of such a request is routine.
Section 298.17 Evaluation of Applications
Section 298.17 is amended by removing in Subpart B, Appendix A-
Selected Cash Flow Impacts. Appendix A should have been removed when
the responsibility for the computation of the internal rate of return
was shifted from the Title XI applicant to MARAD in 1992.
Section 298.21 Limits
Section 298.21 modifies paragraph (b) to include in the Actual Cost
determination Guarantee Fees determined in accordance with the
provisions of section 1104(e) of the Act. Finally, paragraph (d) is
amended to include applicability to Advanced Shipbuilding Technology
and Modern Shipbuilding Technology and to provide the alternative for
appropriate certification of the Actual Cost of a project by an agent
approved by the Secretary.
Section 298.23 Refinancing
The penultimate sentence in Section 298.23 is modified to provide
that an applicant shall satisfy all of the eligibility requirements set
forth in Subpart B of Part 298, including economic soundness, as may be
necessary.
Section 298.25 Financing Repayment of Construction-Differential
Subsidy
Section 298.25 is removed due to the fact that the construction-
differential subsidy program has not been funded since 1981.
Section 298.28 Advances
Section 298.28 is amended by shortening and simplifying the
description of the criteria that will be applied in exercising the
Secretary's discretion to make an advance or payment of funds.
Section 298.32 Required Provisions in Documentation
Section 298.32 is amended to conform to the three categories of
Vessels identified in Sec. 298.11 (a) regarding Vessel requirements,
addressed earlier. In addition, paragraph (b)(6) is amended by adding
the applicability of the appropriate insurance on Eligible Export
Vessels.
Section 298.36 Annual Guarantee Fee
Section 298.36 is amended by deleting paragraphs (f), (g), and (i)
in their entirety and amending paragraph (e) to reflect the requirement
that the obligor make a lump sum payment of the Guarantee Fee at the
closing of the loan Guarantee, without any right of reimbursement in
the event of prepayment of the Obligation. The proposed amendment
ensures that the government will retain the full benefit of the
Guarantee Fee and will create an incentive for applicants to enhance
the financial structure of their transactions in order to merit
eligibility for the lowest possible Guarantee Fee rate. It is proposed
that the project's entire Guarantee Fee payment shall be made by the
Obligor to the Secretary in an amount equal to the sum of the present
value of the separate products obtained by applying the Guarantee Fee
rate to the projected amount of the guaranteed Obligations outstanding
for each year of the stated maturity of the guaranteed Obligation. In
calculating the present value used in determining the amount of the
Guarantee Fee to be paid, MARAD will use a discount rate based on
information contained in the Department of Commerce's Economic Bulletin
Board quarterly rates. Under no circumstances could the Secretary
refund the Guarantee Fee to the Obligor. As provided in Sec. 298.21(b),
a Guarantee Fee paid pursuant to this section would be included in
Actual Cost and would be eligible to be financed.
Section 298.42 Report Requirements--Financial Statements
Section 298.42 is amended by making certain technical corrections
relating to requirements for independent audits by clarifying that the
financial statements of a company are audited.
Rulemaking Analyses and Notices
Executive Order 12866 (Regulatory Planning and Review)
This rulemaking has been reviewed under Executive Order 12866, and
it has been determined that this is not an economically significant
regulatory action as the rule is not likely to result in 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 governments or communities. However, since this rule
would further the implementation of the National Shipbuilding
Initiative program established under Subtitle D of Title XIII, Public
Law 103-160, to support the industrial base and national security
objectives by assisting in the reestablishment of a United States
shipbuilding industry as a self-sufficient internationally competitive
industry, and is of great interest to the U.S. maritime industry, it
has been determined to be a significant rule under the Department's
Regulatory Policies and Procedures. Accordingly, it is considered to be
a significant regulatory action under E.O. 12866. Because the economic
impact should be minimal, further regulatory evaluation is not
necessary. These amendments are intended only to simplify and clarify
the procedural requirements for obtaining Guarantees, principally to
expedite the process for MARAD's review of applications. Its purpose is
to encourage the construction of ships in U.S. shipyards both for the
domestic and the Eligible Export Vessel programs.
MARAD is publishing these amendments as a notice of proposed
rulemaking, as necessary to carry out the Secretary's responsibilities
under [[Page 20596]] Title XI and to improve program administration.
This rulemaking document has been reviewed by the Office of
Management and Budget under Executive Order 12866, ``Regulatory
Planning and Review.''
Federalism
MARAD has analyzed this rulemaking in accordance with the
principles and criteria contained in Executive Order 12612 and has
determined that these regulations do not have sufficient federalism
implications to warrant the preparation of a Federalism Assessment.
Regulatory Flexibility Act
MARAD certifies that this regulation will not have a significant
economic impact on a substantial number of small entities.
Environmental Assessment
MARAD has considered the environmental impact of this rulemaking
and has concluded that an environmental impact statement is not
required under the National Environmental Policy Act of 1969.
Paperwork Reduction Act
This rulemaking contains reporting requirements that have
previously been approved by the Office of Management and Budget
(Approval No. 2133-0018). Use of the present Maritime Administration
Title XI Obligation Guarantees form will be continued pending revision
and issuance of new forms, which must be approved by The Office of
Management and Budget.
List of Subjects in 46 CFR Part 298
Loan programs--transportation, Maritime carriers, and Mortgages.
Accordingly, 46 CFR Part 298 is proposed to be amended as follows:
1. The authority citation for part 298 continues to read as
follows:
Authority: 46 App. U.S.C. 1114 (b), 1271 et seq, 49 CFR 1.66.
Sec. 298.13, 298.35, 298.37 [Amended]
2. Remove all references in Secs. 298.13 (a)(2)(iv), (b)(2)(i)(B)
and (b)(3); 298.35 (b)(1)(ii), (b)(2)(ii), (c)(1)(ii), and (c)(2)(ii);
and 298.37 to the terms ``Affiliate(s)'' and ``affiliates'', and
substitute the term ``Related Party''.
3. Section 298.2 is amended as follows:
a. By removing paragraph (d), Affiliate or Affiliated.
b. By amending paragraph (n), Indenture Trustee, to add the
following words, ``which is located in and organized and doing business
under the laws of the United States, any State or territory thereof,
the District of Columbia or the Commonwealth of Puerto Rico,'' after
the amount ``$3,000,000.''
c. By redesignating paragraphs (e) through (o) as paragraphs (d)
through (n); redesignating paragraphs (y) through (bb) as paragraphs
(z) through (cc); and by adding new paragraphs (o) and (y) to read as
follows:
Sec. 298.2 Definitions.
* * * * *
(o) Letter of Interest means a letter issued by the Secretary upon
receipt of a request for Guarantees. A Letter of Interest is not a
financial offer but rather an indication of what terms may be
considered by the Secretary if a Letter Commitment is issued at a later
date. Proposed terms set forth in Letters of Interest shall remain
valid for six months.
* * * * *
(y) Related Party means any Person directly or indirectly
controlling, controlled by or under common control with another Person.
* * * * *
4. Section 298.3 is amended as follows:
By revising paragraphs (b)(1) and (c), and adding a new paragraph
(f), to read as follows:
Sec. 298.3 Applications.
* * * * *
(b)(1) Time requirements for application. Each application shall be
submitted to the Secretary at least four months prior to the
anticipated date by which the applicant requires a Letter Commitment.
The Secretary may consider applications with less notice prior to the
anticipated date by which the applicant requires a Letter Commitment,
upon written documentation that extenuating circumstances exist. During
the first 15 calendar day period after submission, the Secretary will
perform a preliminary review of the application for adequacy and
completeness. If the application is found to be incomplete, or if
additional data is required, the Secretary will notify the applicant
promptly in writing and the applicant will have 15 calendar days to
correct deficiencies from the date of each request for additional
information. If the applicant has not corrected the deficiencies, or
made substantial progress toward correcting them, within this 15
calendar day period, then the Secretary may terminate the processing of
the application without prejudice. Once the Title XI application is
considered complete by the Secretary, the Secretary will act on the
application within a period of 60 calendar days. If an application is
not completed by the applicant and acted upon by the Secretary within
four months from the submission date, unless such time period is
extended by the Secretary, the Secretary will notify the applicant in
writing that processing of the application is terminated and that the
applicant may reapply at a later date.
* * * * *
(c) Filing Fee. Each application must be accompanied by a filing
fee in the amount of one quarter of the investigation fee amount
calculated pursuant to the investigation fee formula outlined in
Sec. 298.15. in no event will the filing fee be less than $1,000.
The filing fee will be non-refundable, irrespective of whether the
Secretary subsequently issues a Letter Commitment or whether the
applicant subsequently reduces the amount of the requested guarantee
and will be used as a credit against the investigation fee.
* * * * *
(f) Preliminary review. (1) Upon receipt of a request for a Letter
of Interest, the Secretary may perform a preliminary review of the
application. After preliminarily evaluating the technical, financial,
and economic viability of the proposed Title XI project (e.g., the
existence of a long term Vessel charter commitment or the technical
ability of the yard to construct a Vessel), the Secretary may issue,
within 10 days of receipt of that request, the Letter of Interest. A
request for a Letter of Interest shall contain the following
information:
(i) Type of vessel or Advanced or Modern Shipbuilding Technology to
be financed;
(ii) Approximate total cost of the vessel or Advanced or Modern
Shipbuilding Technology and amount to be guaranteed;
(iii) Recent financial information on the prospective shipowner,
bareboat charterer, and shipyard, if available;
(iv) Information bearing on the economic soundness of the proposed
project; and
(v) Proposed term of financing.
(2) There shall be no filing fee payable in respect of a request
for the issuance of such a Letter of Interest. Letters of Interest
address the general eligibility of a project and are not binding
commitments of the Government.
5. Section 298.10 is amended by revising paragraph (a) to read as
follows:
Sec. 298.10 Citizenship.
(a) Applicability. Prior to acquiring a legal or beneficial
interest in a Vessel financed under Title XI of the Act,
[[Page 20597]] except as provided in paragraph (e) of this section, the
applicant and any other Person (including, but not limited to
shipowners and, if applicable, owner trustees, equity participants and
bareboat charterers) shall establish their United States citizenship
within the meaning of Section 2 of the Shipping Act, 1916, as amended
(``1916 Act'') (46 App. U.S.C. 802) and MARAD's regulation at 46 CFR
221.3(c). All persons holding a Preferred Mortgage on the Vessel who do
not qualify as citizens of the United States shall submit on the date
of the closing evidence that they qualify for the MARAD approval
granted pursuant to 46 CFR 221.23, or that they have received approval
pursuant to 46 CFR 221.25. The Secretary will not approve an
application providing for ownership of such Vessel by, or bareboat
chartering of such Vessel to, a non-U.S. citizen. Citizenship may also
be required of any Person who is deemed by the Secretary to be an
operator of the Vessel or who has authority to direct the operation of
the Vessel on behalf of the shipowner. Certain chartering arrangements,
including time chartering and contracts of affreightment, have been
given general approval by the Secretary pursuant to Sections 9, 37, and
41 of the 1916 Act. See Part 221 of Title 46 for more details on these
approvals and other approvals granted concerning chartering and
mortgaging of U.S. documented vessels.
* * * * *
6. Section 298.11 is amended as follows:
a. By amending paragraph (c) by adding in the first sentence after
the word ``registered'', before the parenthesis, the words ``or
otherwise recognized by the Secretary as meeting acceptable
classification standards for such a society, which shall include
recognition that the society meets the requirements of IMO Resolution
A.739(18) and delegation by the United States Coast Guard of
inspection/certification authority''.
b. By revising paragraph (a) and adding a new paragraph (e) to read
as follows:
Sec. 298.11 Vessel requirements.
* * * * *
(a) United States Construction.
(1) Coastwise Trade, U.S.-Flag Vessels. A vessel financed by
Obligation Guarantees is considered to be of United States construction
and qualified for use in coastwise trade operation (46 App. U.S.C. 883)
if:
(i) All components of the hull and superstructure are fabricated in
the United States; and
(ii) The Vessel is assembled entirely in the United States and has
U.S. or foreign source machinery, equipment or hull and superstructure
material which has been manufactured in a foreign facility, to the
extent permitted by the U.S. Coast Guard.
(2) Non-Coastwise Trade, U.S.-Flag Vessels. A Vessel financed by
Obligation Guarantees is considered to be of United States construction
if the vessel is assembled entirely in the United States but not
qualified for use in the coastwise trade because it has foreign
material which has been manufactured in a foreign facility.
(3) Eligible Export Vessels. With respect to Eligible Export
Vessels, the Vessel is considered to be of U.S. construction if
assembled in a United States shipyard.
* * * * *
(e) Metric Usage. The preferred system of measurement and weights
for Vessels and Advanced and Modern Shipbuilding Technology shall be
the metric system.
7. Section 298.12 is amended by revising paragraphs (b)(1)(i) and
(b)(2)(i) to read as follows:
Sec. 298.12 Applicant and operator's qualifications.
* * * * *
(b) Identity and ownership of applicant. * * *
(1) Incorporated companies. * * *
(i) Exact name of applicant and tax identification number of a U.S.
corporation, or if appropriate, international identification number of
the applicant.
* * * * *
(2) Partnerships, joint-ventures, associations, unincorporated
companies. * * *
(i) Name of partnership, association, or unincorporated company,
and tax identification number, or if appropriate, international
identification number of applicant.
* * * * *
Sec. 298.12 [Amended]
7a. Section 298.12 is further amended by:
a. By removing paragraphs (b)(1)(iv) through (b)(1)(vii), (b)(2)(v)
through (b)(2)(vii), (b)(2)(ix), and (b)(3), and redesignating
paragraph (b)(2)(viii) as (b)(2)(v) and paragraph (b)(4) as paragraph
(b)(3).
b. By amending paragraph (c)(3) by adding after the word
``proceedings'', the first time it occurs, before the comma, the words
``under either domestic or foreign statutes''.
c. By amending paragraph (f)(1) by removing the words ``by all'',
each time they appear, and inserting in their place the words ``by all
senior supervisory personnel''.
8. Section 298.13 is amended as follows:
a. By adding the following sentence to the end of paragraph (a)(3),
Financing: ``If the applicant uses co-financing (involving a blend of
Title XI and private financing for the debt portion of the project),
the ability of the co-financiers to exercise their rights against
collateral shared with the Secretary for any transaction shall be
subject to the approval of the Secretary.''
b. By removing paragraph (b)(7), Deferred Lease Hire.
c. By revising paragraphs (a)(2)(i), (a)(4), (b)(2), (b)(3), (b)(4)
and (e)(2)(i) to read as follows:
Sec. 298.13 Financial requirements.
(a) * * *
(2) Cost of the project. * * *
(i) In the case of an applicant for Vessel Financing Guarantees, a
detailed statement of the estimated Actual Cost of construction,
reconstruction or reconditioning of the Vessel(s) including those items
which would normally be capitalized as Vessel construction costs. Net
interest during construction is the total estimated construction period
interest on non-equity funds less estimated earnings from the escrow
fund, if such fund is to be established prior to Vessel(s) delivery.
Each item of foreign components and services shall be excluded from
Actual Cost, unless a waiver is specifically granted for the item,
which waiver shall not be granted for foreign components of the hull
and superstructure. 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 the applicant's
equity requirements imposed by paragraph (a)(3) of this section. An
illustration of how the cost of foreign components of the hull and
superstructure may be used to satisfy an applicant's equity
requirements is outlined in this paragraph. If any of the costs have
been incurred by written contracts such as the shipyard contract,
management or operating agreement, signed copies should be forwarded
with the application. The applicant may be required to have the
contracting shipyard submit back-up cost details and technical data.
This information shall be submitted in the format as prescribed by the
Title XI application procedures. [[Page 20598]]
Illustration--Cost of Foreign Components Satisfying Equity Requirements
Assuming that the total project cost is $100 million, of which
the cost of foreign components in the hull and superstructure total
$20 million, and that the Title XI applicant has requested financing
for 87\1/2\ percent of the cost of the project, the following is a
demonstration of how the value of the foreign components in the hull
and superstructure may be used in meeting the equity requirements of
Sec. 298.13(a)(3):
Cost of Foreign Components Excluded from Actual Cost
Cost of Project
$100.0 million
Cost of Foreign Components in Hull and Superstructure
$20.0 million
Total Actual Cost of Project
$80.0 million
Required Equity
(12\1/2\ percent)
$10.0 million
Total Project Cost Financed w/ Title XI (87\1/2\ percent)
$70.0 million
The $10 million in required equity may be satisfied by the
owner's contribution of the foreign components of hull and
superstructure to the project.
* * * * *
(4) Financial Information. The applicant shall submit the
following additional financial statements with respect to both the
proposed Title XI project and the overall operations of the applicant,
prepared in accordance with 46 CFR part 232 and including notes to
explain the basis used for arriving at the figures:
(i) The three most recent audited financial statements of the
applicant, its parent, if any, and other significant participants. If
the applicant is a new entity or is to be funded from or guaranteed by
external source(s), it shall provide the audited financial statements
of the funding source(s);
(ii) A pro forma balance sheet of the applicant as of the estimated
date of execution of the Guarantees reflecting the assumption of the
Title XI Obligations;
(iii) A schedule of amortization of all existing debt (Title XI or
otherwise) of the applicant for the period in which the Guarantees are
to be outstanding; and
(iv) A Sources and Uses Statement for the first full year of
operations and the following five years, including a clear source of
funding for the payment of all debt when due.
(b) Financial Definitions. * * *
(2) Working Capital means the difference between current assets and
current liabilities, adjusted as follows:
(i) Current assets shall exclude:
(A) Amounts in or required to be set aside in any Title XI Reserve
Fund, pursuant to Sec. 298.35(e) or Capital Construction Fund Security
Amount prescribed by Sec. 298.35(f), (excluding that portion of such
fund which is available for the payment of current liabilities) that is
being maintained pursuant to an agreement covering a Vessel owned or
leased by the company, or in another similar fund required under any
other mortgage, indenture or other agreement to which the company is a
party; and
(B) Any receivables from a Related Party or from any stockholder,
director, officer or employee (or their family) of the company or of a
Related Party other than current receivables arising out of the
ordinary course of business and not outstanding for more than 60 days.
(ii) Current liabilities shall include the current portion of
charter hire and other lease obligations not already included as a
current liability.
(3) Equity (net worth) shall be exclusive of:
(i) Any receivables from a Related Party or from any stockholder,
director, officer or employee (or their family) of the company or of a
Related Party other than current receivables arising out of the
ordinary course of business and not outstanding for more than 60 days,
and
(ii) Any increment resulting from the reappraisal of assets.
(4) Long Term Debt shall exclude the balance of Escrow Fund
deposits attributable to the principal of Obligations sold, where
deposits are required in accordance with Sec. 298.33. However, there
shall be included any guarantee or other liability for the debt of any
other Person.
* * * * *
(e) Special financial requirements at closing. * * *
(2) Lessee or charterer as operator. * * *
(i) Working Capital. The Company shall have Working Capital in an
amount determined in accordance with the provisions of paragraph
(e)(1)(i) of this section, applicable as if the owner were the
operator.
* * * * *
9. Section 298.14, is amended by revising paragraph (a)(2)(i)(F)
introductory text to read as follows:
Sec. 298.14 Economic soundness.
(a) Economic Evaluation. * * *
(2) Project Feasibility. * * *
(i) Relevant market. * * *
(F) The potential for purchasing existing equipment of a reasonable
condition and age from another source, including information
regarding--
* * * * *
Sec. 298.16 [Amended]
10. Section 298.16, Substitution of participants, is amended by
removing paragraph (a) and redesignating the introductory text as
paragraph (a); by revising in the last sentence of newly designated
paragraph (a) the phrase ``is applicable, as follows:'' to read ``is
applicable.''; and by removing the paragraph (b) heading Mortage
assumption and revising the phrase ``Payment of $3,000 fee'' to read
``A $3,000 fee''.
Appendix A to Subpart B [Removed]
11. Appendix A to Subpart B--Selected Cash Flow Impacts--is
removed.
Sec. 298.21 [Amended]
12. Section 298.21, Limits, is amended as follows:
a. By inserting in paragraph (b), before the third sentence, an
additional sentence, reading as follows: ``In addition, Guarantee Fees
determined in accordance with the provisions of section 1104(e) of the
Act shall be included in the items of Actual Cost.''
b. By inserting in paragraph (d), Substantiation of Actual Cost,
after the word ``Vessel'' each time it appears, the words ``or Advanced
Shipbuilding Technology or Modern Shipbuilding Technology'', and by
inserting at the end of the first sentence the words ``or,
alternatively, appropriate certification of such costs by an agent
approved by the Secretary''.
c. By removing paragraph (c)(9) and redesignating paragraphs
(c)(10) through (c)(16) as paragraphs (c)(9) through (c)(15).
Sec. 298.23 [Amended]
13. Section 298.23, Refinancing, is amended in the penultimate
sentence by adding after the word ``part'' and before the period, a
comma followed by the words ``including economic soundness, as may be
necessary.''.
Sec. 298.25 [Removed and reserved]
14. Section 298.25, Financing repayment of construction-
differential subsidy, is removed and reserved.
Sec. 298.28 [Amended]
15. Section 298.28, Advances, is amended by removing paragraphs
(a)(1) through (a)(3) and (b), redesignating paragraph (c) as paragraph
(b) and by removing the third sentence in paragraph (a), In general,
and inserting, in its place, two new sentences reading as follows:
``The applicant making the request for an advance shall demonstrate
(with market and cash flow analysis and other projections) that its
problems are of a short term duration (less than two years); with the
help of an advance(s), the applicant would be assisted over its
temporary difficulties; and there is adequate collateral for the
advance. The advance will be repaid in [[Page 20599]] a manner
satisfactory to the Secretary and the advance will be subject to such
other terms and conditions as required by the Secretary.''
16. Section 298.32 is amended as follows:
a. By inserting in paragraph (b)(6), after the word ``Vessel'',
each time it appears, the words ``or Eligible Export Vessel''.
b. By revising paragraph (a)(6) to read as follows:
Sec. 298.32 Required provisions in documentation.
(a) Performance under shipyard and related contracts. * * *
(6) Requiring that for:
(i) Coastwise Trade, U.S.-Flag 48 Vessels, that all components of
the hull and superstructure are fabricated in the United States and the
Vessel is assembled entirely in the United States with either U.S. or
foreign source machinery, equipment or hull and superstructure material
which has been fabricated in a foreign facility, to the extent allowed
by U.S. Coast Guard regulations;
(ii) Non-Coastwise Trade, U.S.-Flag Vessels, that the Vessel is
assembled entirely in the United States and may have material which has
been fabricated in a foreign facility, to the extent allowed by U.S.
Coast Guard regulations; and
(iii) Eligible Export Vessels, that the Vessel is assembled in a
United States shipyard. If Obligations will not be issued during the
period of construction of a Vessel, shipyard related contracts shall
generally include the provisions specified in paragraphs (a)(2) and
(a)(3) and applicable provision(s) of this paragraph (a)(6).
17. Section 298.36, Annual Guarantee Fee, is amended as follows:
a. By removing the third sentence in paragraph (b), Rate
calculation.
b. By removing paragraphs (f), Adjustment of Guarantee Fee, (g),
Increase in Guarantee Fee due to Security Default, and (i), Interest on
late payment of Guarantee Fees, and redesignating paragraph (h) as
paragraph (f).
c. By revising paragraph (e) to read as follows:
Sec. 298.36 Annual Guarantee Fee.
* * * * *
(e) Payment of Guarantee Fee. The Guarantee Fee covering the full
period of the stated maturity of the Obligations commencing with the
date of the Security Agreement shall be paid to the Secretary
concurrently with the execution and delivery of said Agreement. The
project's entire Guarantee Fee payment shall be made by the Obligor to
the Secretary in an amount equal to the sum of the present value of the
separate products obtained by applying the Guarantee Fee rate to the
projected amount of the Obligations Outstanding for each year of the
stated maturity of the Obligations. In calculating the present value
used in determining the amount of the Guarantee Fee to be paid, MARAD
will use a discount rate based on information contained in the
Department of Commerce's Economic Bulletin Board quarterly rates. Under
no circumstances will the Secretary refund the Guarantee Fee to the
Obligor. A Guarantee Fee paid pursuant to this section may be included
in Actual Cost and is eligible to be financed.
Sec. 298.42 [Amended]
18. Section 298.42, Reporting requirements--financial statements,
is amended as follows:
a. In the introductory paragraph, by removing the word ``accounts''
in the first sentence and inserting in its place the term ``financial
statements''.
b. By revising the seventh and eighth sentences of paragraph (a),
Reports of Company and other Persons, to read as follows: ``The annual
report shall be accompanied by the public accountant's report based on
an audit of the company's financial statements. An audit by the public
accountants of the financial statements contained in the company's
semiannual report may be required by the Secretary.''
Dated: April 19, 1995.
By Order of the Maritime Administrator.
Joel C. Richard
Secretary, Maritime Administration.
[FR Doc. 95-10195 Filed 4-25-95; 8:45 am]
BILLING CODE 4910-81-P
