20592 Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Proposed Rules

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.

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
Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Proposed Rules 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 § 298.22,

Amortization of Obligations, of this Part

298. In addition, in § 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 § 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.
20594 Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Proposed Rules

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-topoint 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 § 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 § 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
Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Proposed Rules 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 ASelected 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 § 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 § 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
20596 Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Proposed Rules

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.

§ 298.13, 298.35, 298.37 [Amended]

2. Remove all references in §§ 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:

§ 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:

§ 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 § 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:

§ 298.10 Citizenship.

(a) Applicability. Prior to acquiring a

legal or beneficial interest in a Vessel

financed under Title XI of the Act,
Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Proposed Rules 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:

§ 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:

§ 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.

* * * * *

§ 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 cofinanciers 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:

§ 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 nonequity 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.
20598 Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Proposed Rules

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 871⁄2

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 § 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

(121⁄2 percent) ......................$10.0 million

Total Project Cost Financed w/ Title XI

(871⁄2 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 § 298.35(e) or Capital

Construction Fund Security Amount

prescribed by § 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 § 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:

§ 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—

* * * * *

§ 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.

§ 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).

§ 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.’’.

§ 298.25 [Removed and reserved]

14. Section 298.25, Financing

repayment of construction-differential

subsidy, is removed and reserved.

§ 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
Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Proposed Rules 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:

§ 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:

§ 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.

§ 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