86608 Federal Register / Vol. 88, No. 239 / Thursday, December 14, 2023 / Rules and Regulations 

November 8, 2021, by the Governor’s 

designee. 

(10) ‘‘Staff Report, Proposed SIP 

Revision for the 15 mg/m3 Annual PM2.5

Standard for the San Joaquin Valley,’’ 

August 13, 2021, submitted as a revision 

to the 2018 PM2.5 Plan on November 8, 

2021, by the Governor’s designee. 

(B) * * * 

(7) 2018 Plan for the 1997, 2006, and 

2012 PM2.5 Standards (‘‘2018 PM2.5

Plan’’), adopted November 15, 2018 

(portions pertaining to the 1997 annual 

PM2.5 NAAQS only, and excluding 

Chapter 4 (‘‘Attainment Strategy for 

PM2.5üü), Chapter 5 (‘‘Demonstration of 

Federal Requirements for 1997 PM2.5

Standards’’), Chapter 6 (‘‘Demonstration 

of Federal Requirements for 2006 PM2.5

Standards’’), Chapter 7 (‘‘Demonstration 

of Federal Requirements for 2012 PM2.5

Standards’’), Appendix D (‘‘Mobile 

Source Control Measure Analyses’’), 

Appendix H (‘‘RFP, Quantitative 

Milestones, and Contingency’’), and 

Appendix K (‘‘Modeling Attainment 

Demonstration’’)). 

(8) ‘‘Attainment Plan Revision for the 

1997 Annual PM2.5 Standard,’’ August 

19, 2021, excluding Appendix H, 

section H.3 (‘‘Contingency Measures’’), 

submitted as a revision to the 2018 

PM2.5 Plan on November 8, 2021, by the 

Governor’s designee. 

(9) SJVUAPCD Governing Board 

Resolution No. 21–08–13, August 19, 

2021, submitted as a revision to the 

2018 PM2.5 Plan on November 8, 2021, 

by the Governor’s designee. 

* * * * * 

■ 3. Section 52.237 is amended by 

revising paragraph (a)(11) to read as 

follows: 

§ 52.237 Part D disapproval. 

(a) * * * 

(11) The contingency measures 

portion of the 2018 Plan for the 1997, 

2006, and 2012 PM2.5 Standards (‘‘2018 

PM2.5 Plan’’), adopted November 15, 

2018, are disapproved for San Joaquin 

Valley with respect to the 1997 annual 

PM2.5 NAAQS because they do not meet 

the requirements of Part D of the Clean 

Air Act. 

* * * * * 

■ 4. Section 52.244 is amended by 

adding paragraph (f)(4) to read as 

follows: 

§ 52.244 Motor vehicle emissions budgets. 

* * * * * 

(f) * * * 

(4) San Joaquin Valley, for the 1997 

annual PM2.5 NAAQS only (years 2020 

and 2023 budgets only), approved 

January 16, 2024. 

[FR Doc. 2023–27088 Filed 12–13–23; 8:45 am] 

BILLING CODE 6560–50–P 

DEPARTMENT OF TRANSPORTATION 

Maritime Administration 

46 CFR Part 298 

[Docket Number MARAD–2023–0086] 

RIN 2133–AB98 

Amendment to the Federal Ship 

Financing Program Regulations; 

Financial Requirements 

AGENCY: Maritime Administration, 

Department of Transportation. 

ACTION: Final rule. 

SUMMARY: This document serves to 

inform interested parties and the public 

that the Maritime Administration 

(MARAD) is amending its regulations 

implementing the Federal Ship 

Financing Program’s (Title XI Program) 

financial requirements. This action is 

necessary to implement statutory 

changes and update the existing 

financial requirements imposed on Title 

XI Program obligors to align with more 

up-to-date vessel financing and federal 

credit best practices. 

DATES: This rule will be effective 

January 16, 2024. 

FOR FURTHER INFORMATION CONTACT: 

David M. Gilmore, Director, Office of 

Marine Financing, at (202) 366–5737, or 

via email at marinefinancing@dot.gov. 

You may send mail to Mr. Gilmore at 

Department of Transportation, Maritime 

Administration, Office of Marine 

Financing, 1200 New Jersey Avenue SE, 

Washington, DC 20590. If you have 

questions on viewing the Docket, call 

Docket Operations, telephone: (800) 

647–5527. 

SUPPLEMENTARY INFORMATION: 

Background 

The Secretary of Transportation, 

through MARAD, is authorized to 

provide guarantees of debt (obligation 

guarantees) to finance all types of vessel 

construction and shipyard 

modernization and improvement, 

except for fishing vessels. The Title XI 

Program is a loan guarantee program, 

administered by MARAD, which was 

established under Title XI of the 

Merchant Marine Act, 1936, Public Law 

74–835, codified at 46 U.S.C. Chapter 

537, as amended (the ‘‘Act’’). Title XI 

provides for the full faith and credit of 

the United States, acting by and through 

the Maritime Administrator, for the 

payment of debt obligations for: (1) U.S. 

shipowners for the purpose of financing 

or refinancing U.S. flag vessels 

constructed, reconstructed, or 

reconditioned in U.S. shipyards; and (2) 

U.S. shipyards for the purpose of 

financing advanced shipbuilding 

technology and modern shipbuilding 

technology of a privately-owned 

shipyard facility located in the U.S. As 

the Title XI Program guarantees full 

payment of the obligation’s unpaid 

principal and interest in the event of a 

default by the borrower, both the statute 

and regulations contain several criteria 

and requirements intended to reduce 

the risk of a loan default. Though the 

Title XI Program regulations have been 

amended over the years, the current 

financial requirements and limitations 

remain substantially the same as when 

MARAD introduced them in 1978. As 

lending practices have evolved, 

MARAD’s regulatory standards have not 

changed to reflect modern lending 

practices for vessel financing. For 

example, when the regulations where 

implemented, certain leases were not 

included as an expense under generally 

accepted accounting principles (GAAP), 

but today GAAP requires that all leases 

be included as an expense. Today, 

retained earnings are also expected to be 

included in any calculation of equity or 

net worth pursuant to GAAP. 

Accordingly, the modifications to the 

regulations will eliminate confusion and 

align the Title XI Program regulations 

with modern accounting standards. 

Prior to execution of a guarantee, 

MARAD is bound by statute to, among 

other things, make determinations of 

economic soundness of the project and 

the financial and operating capability of 

the applicant. To that end, the Title XI 

regulations currently require each 

borrower, and operator if applicable, to 

have and maintain: (1) working capital 

of at least $1; (2) at least 90 percent of 

its equity as shown on the last audited 

balance sheet; and (3) long-term debt 

not to exceed twice its equity. By this 

amendment, MARAD is modernizing its 

financial review process by removing 

static financial covenants and loan 

thresholds and replacing them with a 

review and evaluation of the 

creditworthiness of each borrower based 

on revenue metrics based on federal 

credit and maritime lending best 

practices. The use of these revenue 

metrics is intended to improve the 

quality of MARAD financial 

requirements applied to new borrowers. 

As part of its regular programmatic 

evaluation process, MARAD frequently 

seeks feedback from potential applicants 


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1U.S. Department of Transportation, Maritime 

Administration, Federal Credit and Maritime 

Lending Industry Best Practices, June 2020. 

Available at https://www.maritime.dot.gov/grants/ 

title-xi/statute-regulations-and-guidance. 

and borrowers on its processes. 

Potential applicants have advised 

MARAD that the challenges caused by 

the regulatory requirements are a reason 

why they will not use the program. 

Borrowers also have cited the 

incompatibility of Title XI debt financial 

covenants with the other lender 

covenants as an obstacle in the prompt 

processing and approval of loan 

guarantee applications. 

The ‘‘National Defense Authorization 

Act for Fiscal Year 2020,’’ (Pub. L. 116– 

92; December 20, 2019) (‘‘NDAA 2020’’) 

established the Federal Financing Bank 

as the ‘‘preferred lender’’ for the Title XI 

Program. Additionally, the NDAA 2020 

directed MARAD to periodically review 

Title XI application procedures and 

documents to assure they ‘‘meet current 

commercial best practices to the extent 

permitted by law.’’ The 2020 NDAA also 

provided that MARAD establish a 

process for expedited consideration of 

low-risk applications which would 

‘‘utilize, to the extent practicable, 

relevant Federal and industry best 

practices found in the maritime and 

shipbuilding industries.’’ As a result, 

MARAD identified best practices from 

federal credit programs that make loans 

and obligation guarantees similar to the 

Title XI Program. MARAD considered a 

review of federal credit practices that 

identified the Title XI Program was the 

only program with regulatorily-imposed 

financial covenants and thresholds.1

This deviation from federal credit best 

practices was highlighted as a 

significant hinderance to the Title XI 

Program’s ability to tailor the terms of 

credit assistance to address the 

characteristics of a specific project. 

Restrictions on the flexibility of the 

program limit the program’s ability to 

succeed. Reliance on the current static 

metrics and limited amortization 

requirements prevent the Title XI 

Program from adjusting its financial 

terms and conditions and debt 

amortization when best credit practices 

would recommend otherwise. The 

amendments made to the regulation 

under this final rule are intended to 

attract a higher volume of high-quality 

applicants and mitigate risk to the U.S. 

Government. 

Moreover, with the implementation of 

the Federal Financing Bank as the 

preferred lender for Title XI obligation 

guarantees, there is no longer a need for 

the strict uniformity in the regulatory 

structure of the guaranteed obligations. 

Previously, Title XI guaranteed debt was 

marketed to the public through 

investment banks. This created a need 

for uniformity to encourage the 

purchase of the debt by entities not 

familiar with maritime financings and to 

allow for easier resale by a debt 

purchaser to a third-party at a future 

date. The expectation of uniformity by 

the market limited the payment 

schedule options available for Title XI 

Program participants in circumstances 

where it may have been in the U.S. 

Government’s best interest to structure 

the debt differently to mitigate risk. 

Due to the length of time since the 

regulations were last updated, the 

availability of modern financial 

requirements of similar federal 

programs, the evolving maritime 

environment, changes to federal credit 

and maritime lending best practices, 

and updates to the Title XI statute, 

MARAD is amending its regulations. 

These amendments include permitting 

MARAD to use financial requirements, 

consistent with federal credit and 

maritime lending best practices for 

entities having a similar credit rating 

that MARAD determines are necessary 

and appropriate to protect the interest of 

the United States. The amendments will 

also allow MARAD to use alternative 

methods of amortization, other than 

level principal or level debt payment, 

when an independent financial advisor 

approved by MARAD conducts 

independent analysis and review and 

demonstrates that such other method is 

in the best interests of the United States. 

The final rule will update the lending 

parameters in the current regulations, 

which no longer best achieve the 

intended purpose of minimizing the risk 

of Title XI Program defaults and will 

better align the lending practices to 

reflect federal credit and maritime 

lending best practices. Additionally, 

MARAD expects that the amended 

regulations will reduce the economic 

burden on applicants in complying with 

Title XI Program requirements that are 

inconsistent with other lending 

instruments. MARAD also expects that 

the updated lending parameters will 

encourage the construction of vessels in 

United States shipyards which 

otherwise would not meet the current 

constrained Title XI Program financial 

requirements. 

Response to Comments 

In developing this rule, MARAD 

published a notice of proposed 

rulemaking in the Federal Register on 

April 25, 2023 (88 FR 24962) with a 

sixty-day comment period which closed 

on June 26, 2023. MARAD received one 

comment from Argent Group, Ltd. a 

financial services firm specializing in 

the Jones Act maritime industry. 

The commenter expressed concern 

that the proposed modifications to the 

regulations for both the qualifying 

requirements of a company to close on 

the Title XI Program financing 

documents as well as the continuing 

financial compliance requirements for a 

company to maintain throughout the 

time the Title XI Program financing 

documents are in effect. 

The commenter proposed a 

modification to the regulation that was 

the same for both sections. The 

commenter noted that the changes to the 

regulation made it unclear what the 

financial requirements would be for a 

company and proposed MARAD 

maintain substantially similar financial 

tests as exist in the current regulations 

except when a company has existing 

credit agreements then MARAD should 

apply those financial covenants or 

ratios. 

MARAD does not agree that 

maintaining the current financial 

compliance requirements provides 

clarity as the commenter suggests. The 

statute has been updated several times 

since the regulations were last updated. 

The final rule conforms MARAD 

creditworthiness review standards with 

the statute. Additionally, the commenter 

proposes that MARAD adopt 

requirements to provide for an 

alternative to the existing financial 

compliance covenants in instances 

where the company has existing private 

sector credit agreements. MARAD does 

not agree. The option to incorporate the 

financial compliance covenants or ratios 

of applicable private sector credit 

agreements already exists in MARAD 

regulations. 

The commenter expressed concern 

about the proposed modification to the 

regulation for changes to the 

amortization schedule of guaranteed 

obligations requiring independent 

analysis by a third-party expert. The 

commenter noted that MARAD regularly 

retains third party experts and, while 

MARAD would likely consult thirdparty experts as part of any adjustment 

to the amortization schedule of 

guaranteed obligations, nowhere else in 

the regulation is there a requirement 

that MARAD use third-party experts to 

determine what is in the best interests 

of the United States Government. 

MARAD agrees and is removing that 

requirement from the final rule. 

I. Regulatory Analyses and Notices 

Privacy Act 

Anyone can search the electronic 

form of all comments received into any 


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86610 Federal Register / Vol. 88, No. 239 / Thursday, December 14, 2023 / Rules and Regulations 

2U.S. Department of Transportation, Maritime 

Administration, Federal Credit and Maritime 

Lending Industry Best Practices, June 2020. 

Available at https://www.maritime.dot.gov/grants/ 

title-xi/statute-regulations-and-guidance. 

3These NAICS codes are 483111/483112 Deep 

Sea Freight/Passenger Transportation, 483113/ 

483114 Coastal and Great Lakes Freight/Passenger 

Transportation, and 4832111/483212 Inland Water 

Freight/Passenger Transportation. Navigational 

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 https://www.transportation.gov/ 

privacy. 

Executive Order 12866 (Regulatory 

Planning and Review), 13563 

(Improving Regulation and Regulatory 

Review) and DOT Regulatory Policies 

and Procedures. 

Under Executive Order (E.O.) 12866, 

as amended (58 FR 51735, October 4, 

1993, 88 FR 21879, April 11, 2023), 

supplemented by E.O. 13563, as 

amended (76 FR 3821, January 18, 2011, 

88 FR 21879, April 11, 2023) and 

USDOT policies and procedures, a 

determination must be made whether a 

regulatory action is ‘‘significant,’’ and 

therefore subject to the Office of 

Management and Budget (OMB) review 

and the requirements of the order. The 

order defines ‘‘significant regulatory 

action’’ as one likely to result in a rule 

that may: (1) have an annual effect on 

the economy of $200 million or more 

(adjusted every 3 years by the 

Administrator of OIRA for changes in 

gross domestic product); 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, 

territorial, or tribal governments or 

communities; (2) create a serious 

inconsistency or otherwise interfere 

with an action taken or planned by 

another agency; (3) materially alter the 

budgetary impact of entitlements, 

grants, user fees, or loan programs or the 

rights and obligations of recipients 

thereof; or (4) raise legal or policy issues 

for which centralized review would 

meaningfully further the President’s 

priorities or the principles set forth in 

this Executive order, as specifically 

authorized in a timely manner by the 

Administrator of OIRA in each case. 

This rulemaking has been determined 

to be a non-significant regulatory action 

under section 3(f) of E.O. 12866 by the 

Office of Information and Regulatory 

Affairs (OIRA) within OMB. 

Analysis of Benefits and Costs 

The Title XI Program guarantees full 

payment of the obligation’s unpaid 

principal and interest in the event of a 

default by the borrower. Both the statute 

and MARAD’s implementing 

regulations also contain several criteria 

and requirements intended to reduce 

the risk of a loan default. Though the 

Title XI Program regulations have been 

amended over the years, the current 

financial requirements and limitations 

remain substantially the same as when 

they were introduced in 1978. As 

lending practices have evolved, the 

regulatory standards have not changed 

to reflect current lending practices for 

vessel financing. 

Benefits 

The major benefits of amending Part 

298 will be to: (1) modernize MARAD’s 

financial review process by removing 

static financial covenants and loan 

thresholds and replacing them with best 

practices intended to improve the 

quality of MARAD financial reviews; 

and (2) allow MARAD to examine more 

indicators of financial health, thus 

improving MARAD’s ability to 

accurately assess applicants and to 

better mitigate financial risk to the 

Government. 

Costs 

MARAD does not believe that the 

rulemaking is likely to impose 

quantifiable or nonquantifiable costs. 

The primary function of this regulatory 

change is to modernize MARAD 

financial review methods and processes, 

thereby improving MARAD’s ability to 

evaluate applicants. 

Analysis of Alternatives 

On December 20, 2019, the NDAA 

2020 directed MARAD ‘‘to utilize, to the 

extent practicable, relevant Federal and 

industry best practices found in the 

maritime and shipbuilding industries.’’ 

In considering potential alternatives, 

MARAD reviewed several Federal credit 

programs that make loans and obligation 

guarantees similar to the Title XI 

Program. MARAD considered a review 

of Federal credit practices that 

identified the Title XI Program as the 

only Federal program with regulatorilyimposed financial covenants and 

thresholds.2 The report found that the 

static regulatory requirements 

significantly hindered the Title XI 

Program’s ability to tailor the terms of 

credit assistance to address the 

characteristics of a specific project. 

MARAD considered the report’s 

findings in light of its current practices 

and is in this final rule amending the 

regulations to conform to the report’s 

findings. 

Executive Order 13132 (Federalism) 

MARAD has examined the rule 

pursuant to E.O. 13132 (64 FR 43255, 

August 10, 1999) and concluded that no 

additional consultation with States, 

local governments, or their 

representatives is mandated beyond the 

rulemaking process. The Agency has 

concluded that the rulemaking would 

not have sufficient federalism 

implications to warrant consultation 

with State and local officials or the 

preparation of a federalism summary 

impact statement. The rule will not have 

‘‘substantial direct effects on the States, 

on the relationship between the 

National Government and the States, or 

on the distribution of power and 

responsibilities among the various 

levels of government.’’ 

Executive Order 13175 (Consultation 

and Coordination With Indian Tribal 

Governments) 

MARAD has determined that this 

rulemaking, in which MARAD proposes 

to amend its regulations implementing 

the Title XI Program financial 

requirements to implement statutory 

changes and update the existing 

financial requirements imposed on Title 

XI Program obligors, will not 

significantly or uniquely affect the 

communities of Indian Tribal 

Governments when analyzed under the 

principles and criteria contained in E.O. 

13175 (Consultation and Coordination 

with Indian Tribal Governments). 

Therefore, the funding and consultation 

requirements of this Executive order do 

not apply. 

Executive Order 12372 

(Intergovernmental Review) 

The requirements of E.O. 12372 

regarding intergovernmental 

consultation on Federal programs and 

activities do not apply to this 

rulemaking, because it would not 

directly affect the interests of State and 

local governments. 

Regulatory Flexibility Act 

The Regulatory Flexibility Act of 1980 

requires MARAD to assess whether this 

rulemaking would have a significant 

economic impact on a substantial 

number of small entities and to 

minimize any adverse impact. Potential 

applicants to the Title XI program are 

vessel owners and operators, as well as 

shipyard owners. These industries fit 

under NAICS codes 336611, Ship 

Building and Repairing and NAICS 

codes 483111–483212, which cover 

different types of transportation by 

vessel and would include vessel owners 

and operators.3 The SBA defines a small 


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Services to Shipping, under NAICS code 488330 

may also be applicable. SBA defines a small 

business under this NAICS code as having an 

average annual revenue of $41.5 million or less. 

business under NAICS code 36611 as a 

business with 1,250 employees or less 

and under NAICS code. The SBA 

defines small businesses under NAICS 

codes 483111–483212 as businesses 

with 500–1,500 employees or less, 

depending on the specific NAICS code. 

The Title XI Program guarantees full 

payment of the obligation’s unpaid 

principal and interest in the event of a 

default by the borrower. The program 

maintains a $5,000 application fee, a fee 

that has not increased in 30 years and 

would remain unchanged by this 

proposal. MARAD also estimates that 

the application process currently takes 

approximately 150 hours, a figure that 

would also remain unchanged by this 

proposal. The program provides 

substantial financial assistance to 

maritime industry participants, and the 

changes are intended to eliminate 

challenges caused by the regulatory 

requirements, a reason cited by 

stakeholders as to why they will not use 

the program. The rule is also intended 

to make Title XI debt financial 

covenants compatible with other lender 

covenants, which stakeholders cited as 

an obstacle in the prompt processing 

and approval of loan guarantee 

applications. MARAD intends for the 

changes to attract a higher volume of 

high-quality applicants to the program. 

Based on the foregoing, MARAD 

certifies that this rulemaking will not 

have a significant economic impact on 

a substantial number of small entities. 

Executive Order 12988 (Civil Justice 

Reform) 

E.O. 12988 requires that agencies 

promulgating new regulations or 

reviewing existing regulations take steps 

to minimize litigation, eliminate 

ambiguity and to reduce burdens on the 

regulated public. MARAD has reviewed 

this rulemaking and has determined that 

this rulemaking action conforms to the 

applicable standards in sections 3(a) 

and 3(b)(2) of E.O. 12988, Civil Justice 

Reform, 

Unfunded Mandates Reform Act of 1995 

The Unfunded Mandates Reform Act 

of 1995 requires Agencies to evaluate 

whether an Agency action would result 

in the expenditure by State, local, and 

Tribal Governments, in the aggregate, or 

by the private sector, of $100 million or 

more (adjusted annually for inflation) in 

any 1 year, and if so, to take steps to 

minimize these unfunded mandates. 

This action will not result in additional 

expenditures by State, local, or tribal 

governments or by any members of the 

private sector. Therefore, MARAD has 

not prepared an assessment pursuant to 

the Unfunded Mandates Reform Act. 

Regulation Identifier Number (RIN) 

A regulation identifier number (RIN) 

is assigned to each regulatory action 

listed in the Unified Agenda of Federal 

Regulations. The Regulatory Information 

Service Center publishes the Unified 

Agenda in April and October of each 

year. The RIN number contained in the 

heading of this document can be used 

to cross-reference this action with the 

Unified Agenda. 

Paperwork Reduction Act 

Under the Paperwork Reduction Act 

of 1995 (PRA), a person is not required 

to respond to a collection of information 

by a federal agency unless the collection 

displays a valid OMB control number. 

This rulemaking amends an existing 

regulation without any change to the 

contemplated submission of information 

which might otherwise result in a 

change to the applicant’s burden hours. 

Therefore, the rulemaking can rely on 

the existing information collected under 

OMB control number 2133–0018. 

Information submitted by applicants to 

the program will continue to be used to 

evaluate an applicant’s project and 

capabilities, make the required 

determinations, and administer any 

agreements executed upon approval of 

loan guarantees. 

List of Subjects in 46 CFR Part 298 

Obligation guarantees. 

For the reasons described in the 

preamble, the Maritime Administration 

amends 46 CFR part 298 to read as 

follows: 

PART 298—OBLIGATION 

GUARANTEES 

Subpart B—Eligibility 

■ 1. The authority citation for 46 CFR 

part 298 is revised to read as follows: 

Authority: 46 U.S.C. chapter 537; 49 CFR 

1.93. 

■ 2. Amend § 298.13 by revising the 

introductory text of paragraph (d), 

paragraph (d)(2)(ii), the introductory 

text of paragraphs (d)(3) and (e), and 

paragraphs (e)(3)(i) and (f) through (i) to 

read as follows: 

§ 298.13 Financial requirements. 

* * * * * 

(d) Financial definitions. For the 

purpose of this section and §§ 298.35, 

298.36, and 298.42 of this part: 

(2) * * * 

(ii) In determining current liabilities, 

you must deduct any excess of 

unterminated voyage expenses over 

unterminated voyage revenue. 

(3) ‘‘Equity’’ or ‘‘Net Worth’’ means, 

as of any date, (the total of paid-incapital stock, paid-in surplus, earned 

surplus, retained earnings, and 

appropriated surplus,) and all other 

amounts that would be included in net 

worth in accordance with GAAP, but 

does not include: 

* * * * * 

(e) Applicability. The financial 

resources must be adequate to meet the 

financial terms MARAD requires 

pursuant to paragraph (f) of this section. 

(3) * * * 

(i) A pro forma balance sheet at the 

time of the application; and 

* * * * * 

(f) Financial requirements at Closing. 

As a condition of disbursement of a 

guaranteed loan, the Company must 

demonstrate financial performance that 

supports a reasonable prospect of 

repayment taking into account 

foreseeable negative economic 

conditions. 

(1) The financial requirements of this 

section are applicable to Companies 

qualifying under one of the following 

three categories: 

(i) Owner as vessel operator, where 

the owner is to be the vessel operator; 

(ii) Lessee or charterer as operator, 

where the lessee or charterer is to be the 

vessel operator; or 

(iii) Owner as general shipyard 

facility, where the owner of a shipyard 

project is a general shipyard facility. 

(2) Qualifying financial performance 

will be substantiated by financial results 

over at least the trailing 12 quarters and/ 

or demonstrated by pro-forma financial 

performance that is underpinned by 

reasonable assumptions. 

(3) Qualifying creditworthiness will 

be substantiated by reviewing and 

evaluating applicants based on revenue 

metrics which include the following 

non-exhaustive list: 

(i) Market factors; 

(ii) Strategic positioning; 

(iii) Management and governance; 

(iv) Pro-forma financial strength; 

(v) Project specific factors; and 

(vi) Loan terms. 

(g) Adjustments to financial 

requirements at Closing. If the owner, 

although not operating a vessel, assumes 

any of the operating responsibilities, 

MARAD may adjust the financial 

requirements of the owner and operator 

by increasing the requirements of the 

owner and decreasing those of the 

operator. 

(h) Subordinated debt considered to 

be equity. With MARAD approval, part 


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of the equity requirements applicable 

under paragraph (c) of this section may 

be satisfied by debt, fully subordinated 

by a subordination agreement with 

MARAD, as to the payment of principal 

and interest on the Secretary’s Note and 

any claims secured as provided for in 

the Security Agreement or the Mortgage. 

Repayment of subordinated debt may be 

made only from funds available for 

payment of dividends or for other 

distributions, in accordance with 

requirements of the Title XI Reserve 

Fund and Financial Agreement 

(described in section 298.35). Such 

subordinated debt must not be secured 

by any interest in property that is 

security for Guarantees under Title XI, 

unless the obligor and the lender enter 

into a written agreement approved by 

MARAD. The written agreement must 

provide, among other things, that if any 

Title XI financing or advance by us to 

the obligor occurs in the future, such 

security interest of the lender must 

become subordinated to any 

indebtedness to MARAD incurred by 

the obligor and to any security interest 

obtained by MARAD in that property or 

other property, with respect to the 

subsequent indebtedness. 

(i) Modified requirements. MARAD 

may waive or modify the financial terms 

or requirements otherwise applicable 

under sections 298.35 and 298.42, upon 

determining that there is adequate 

security for the guarantees or that such 

waiver or modification is in the best 

interests of the United States. MARAD 

may impose similar financial 

requirements on any person providing 

other security for the guarantees. 

Subpart C—Guarantees 

§ 298.21 [Amended] 

■ 3. Amend § 298.21, in paragraph 

(b)(1), by removing the word ‘‘Equity’’ 

and adding in its place the word 

‘‘equity’’. 

■ 4. Amend § 298.22 by revising 

paragraph (b) to read as follows: 

§ 298.22 Amortization of Obligations. 

* * * * * 

(b) Usually, the payment of principal 

(amortization) must be made semiannually, but in no event less frequently 

than on an annual basis, and in either 

case the amortization must be in equal 

payments of principal (level principal), 

unless MARAD approves the periodic 

payment of a constant aggregate amount, 

comprised of both interest and principal 

components that are variable in amount 

(level payment). No other method of 

amortization will be allowed that would 

reduce the amount of periodic 

amortization below that determined 

under the level principal or level 

payment basis at any time prior to 

maturity of the obligations, except 

where a third-party expert approved or 

engaged by MARAD conducts an 

independent analysis and review of a 

project and structure of an obligation 

and demonstrates that such other 

method is in the best interests of the 

United States. 

Subpart D—Documentation 

■ 5. Amend § 298.35 by revising the 

introductory text of paragraphs (b)(2) 

and (d) to read as follows: 

§ 298.35 Title XI Reserve Fund and 

Financial Agreement. 

* * * * * 

(b) * * * 

(2) Supplemental covenants which 

may become applicable. Unless, after 

giving effect to such transaction or 

transactions, during any fiscal year of 

the Company, the Company must 

remain in compliance with financial 

terms and requirements specified by 

MARAD based on the agency’s 

evaluation for financial performance 

and creditworthiness and appropriate to 

protect the interest of the United States. 

The Company must not, without prior 

MARAD written consent: 

* * * * * 

(d) Deposits. Unless the Company, as 

of the close of its accounting year, was 

subject to and in compliance with the 

financial terms required by paragraph 

(b)(2) of this section, the Company must 

make one or more deposits to MARAD 

to be held by the Depository (the Title 

XI Reserve Fund), as further provided 

for in the depository agreement. The 

amount of deposit for any year, or 

period less than a full year, where 

applicable, will be determined as 

follows: 

* * * * * 

(Authority: National Defense Authorization 

Act for Fiscal Year 2020, Pub. L. 116–92, 46 

U.S.C. chapter 537, 49 CFR 1.93(a)) 

By order of the Maritime Administrator. 

T. Mitchell Hudson, Jr., 

Secretary, Maritime Administration. 

[FR Doc. 2023–27441 Filed 12–13–23; 8:45 am] 

BILLING CODE 4910–81–P 


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