[Federal Register Volume 59, Number 62 (Thursday, March 31, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-7833]


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[Federal Register: March 31, 1994]


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DEPARTMENT OF TRANSPORTATION

Maritime Administration

46 CFR Part 298

[Docket No. R-151]
RIN 2133-AB09

 

Obligation Guarantees

AGENCY: Maritime Administration, Department of Transportation.

ACTION: Interim final rule.

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SUMMARY: The Maritime Administration (``MARAD'') is issuing this 
interim final rule which amends its regulations implementing Title XI 
of the Merchant Marine Act, 1936, as amended (``Act''), in order to 
carry out the provisions of Subtitle D of Title XIII, Public Law 103-
160, enacted on November 30, 1993. Subtitle D of Title XIII authorizes 
the Secretary of Transportation (``Secretary'') to guarantee 
obligations issued to finance the construction, reconstruction, or 
reconditioning of eligible export vessels and for shipyard 
modernization and improvement. While Title XI of the Act is applicable 
to financing assistance for all types of vessel construction, that part 
of the Title XI program related to fishing vessels is administered by 
the National Oceanic and Atmospheric Administration of the Department 
of Commerce, (NOAA), pursuant to NOAA regulations, which appear at 50 
CFR part 253. Subtitle D of Title XIII directs the Secretary to 
prescribe interim 2 regulations within 90 days after the date of 
enactment and a final rule within 270 days after enactment.

DATES: This interim final rule is effective March 31, 1994. Comments 
are requested and must be received on or before May 31, 1994.

ADDRESSES: Send an original to the Secretary, Maritime Administration, 
room 7300, Department of Transportation, 400 Seventh Street, SW., 
Washington, DC 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: Mitchell D. Lax, Director, Office of 
Ship Financing. Telephone 202-366-5744.

SUPPLEMENTARY INFORMATION: Title XI of the Act, 46 App. U.S.C. 1271 et 
seq., authorizes the 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. 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, 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 owners of eligible vessels to obtain 
long-term financing on terms and conditions and at interest rates 
comparable to those available to large and financially strong 
corporations. Funds secured by the obligation guarantees that are used 
for financing a vessel are borrowed in the private sector.
    Public Law 103-160, cited as the ``National Defense Authorization 
Act for Fiscal Year 1994'' (``Authorization Act''), was enacted on 
November 30, 1993. Subtitle D of Title XIII of the Authorization Act, 
cited as the ``National Shipbuilding and Shipyard Conversion Act of 
1993'' (``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.'' It adds new sections 
1111 and 1112 to the Act.
    New section 1111 provides that the Secretary may guarantee 
obligations for eligible export vessels in accordance with the terms 
and conditions of Title XI applicable to vessels documented under 
United States law. Alternatively, the Secretary may guarantee 
obligations in accordance with such other terms as the Secretary 
determines to be more favorable than the terms otherwise provided in 
Title XI and to be compatible with export credit terms offered by 
foreign governments for the sale of vessels built in foreign shipyards.
    Section 1111 also establishes an Interagency Council to ``obtain 
information on shipbuilding loan guarantees, on direct and indirect 
subsidies, and on other favorable treatment of shipyards provided by 
foreign governments to shipyards in competition with United States 
shipyards.'' It specifies the purpose for the Interagency Council, how 
the Interagency Council shall operate and its composition.
    New section 1112 provides that the Secretary may guarantee the 
payment of the principal of, and the interest on, an obligation for 
advanced shipbuilding technology and modern shipbuilding technology of 
a general shipyard facility located in the United States. The new 
section defines the following terms: (1) ``advanced shipbuilding 
technology,'' (2) ``modern shipbuilding technology,'' and (3) ``general 
shipyard facility.''
    The Act presently provides a limitation of 75 percent or 87\1/2\ 
percent of the amount of actual cost which can be guaranteed, depending 
on the category of vessel financed. However, in 1985 MARAD formalized 
the policy begun in 1982 of issuing guarantees of no more than 75 
percent of the actual cost of a project in reaction to the growing 
number of defaults in several industry segments. The formalization was 
in the form of amended regulations which now require a 25 percent 
equity contribution in every case. MARAD gave as its reasons for the 
amendment the need to strengthen new guarantees, the reduction of the 
cash flow required to service the Title XI debt, and the reduction of 
project breakeven revenue requirements. The Shipbuilding Act prohibits 
the Secretary from establishing by rule, regulation or procedure any 
percentage within any statutory limitation that is intended to be 
applied uniformly to all guarantees that are subject to the limitation.
    Subtitle D of Title XIII also makes conforming amendments to Title 
XI of the Act to reflect the new authority of the Secretary to issue 
guarantees of debt obligations used to finance eligible export vessels 
and shipyard modernization and improvement, and restricts guarantees 
for shipyard modernization and improvement to not more than 12\1/2\ 
percent of the funds available per year for loan guarantees, from funds 
transferred from the Secretary of Defense pursuant to section 108 of 
the National Defense Authorization Act for Fiscal Year 1994.
    As noted, the provisions of the Shipbuilding Act that require 
changes in MARAD's regulations became effective on November 30, 1993. 
MARAD has concluded that it is imperative in the interest of all 
concerned to publish amendments to its Title XI regulations, as an 
interim final rule, effective on publication, to permit implementation 
of the new law without delay which could adversely impact the NSI 
program. This interim final rule is intended to minimize transitional 
uncertainty, while allowing subsequent fine-tuning of these regulations 
based on the opportunity for considered evaluation of comments from 
interested parties before adopting a final rule.
    In addition to soliciting comments on the interim amendments to the 
Title XI regulations outlined in this interim final rule, we are hereby 
entertaining industry and other public comments on two additional 
areas. The first deals with the issuance by the Secretary of a letter 
of interest, in lieu of a letter commitment, upon receipt of a request 
for guarantees. A letter of interest will not be a financial offer but, 
rather, an indication of what terms will be considered by the Secretary 
if a complete application is filed and a letter commitment is to be 
issued at a later date. It has been suggested that the Secretary might 
want to consider this approach, in order to afford interested parties 
the opportunity to explore the possibility of obtaining a loan 
guarantee without incurring the substantial time and expense involved 
in filing a complete application. Upon receipt of a request for a 
commitment to execute guarantees for advanced or modern shipbuilding 
technology or eligible export vessels, the Secretary may perform a 
preliminary review of the request and after evaluating a portion of the 
proposed Title XI project on a technical, financial, and/or economic 
viability basis (i.e. economic-long term vessel charter commitment or 
technical-shipyard ability to construct a vessel), the Secretary may 
issue, within 10 days of receipt of the Title XI request, a letter of 
interest. The requestor thereby could be given a preliminary indication 
as to whether the number and type of vessels contemplated, or the type 
of technology, would be acceptable if certain terms and conditions 
specified by the Secretary are satisfied. We invite comments on the 
concept of a Letter of Interest, particularly in regard to its scope, 
limitations, and timing. If the requestor can satisfy this set of 
conditions, processing of the application for guarantees would move 
very quickly.
    The second issue on which we are soliciting public comments is the 
establishment of a deadline for processing a complete Title XI 
application. The Title XI regulations presently give no fixed deadline 
for the Secretary to act on a Title XI application once all information 
is considered complete. Hence, we are soliciting comments on the 
establishment of a 9 requirement that the Secretary will act on a Title 
XI application within a specified amount of time, such as 60 days, of 
when the application is considered complete by the Secretary.
    A separate Notice of Proposed Rulemaking will be published at a 
later date which will propose modifications to the Title XI regulations 
to improve administration of the entire Title XI program. Such 
modifications are not addressed in this interim rule because they are 
not required to implement the amendments to Title XI resulting from 
enactment of the Shipbuilding Act.
    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 to 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 10 under the present Title XI 
regulations. Indeed, with the exemptions provided herein, those 
requirements should be less burdensome in the aggregate. Any additional 
burden imposed at this time in particular circumstances is derived from 
statutory requirements and not from exercise of regulatory discretion.

Discussion of Rulemaking Text

    To implement provisions in Subtitle D of Title XIII of the 
Shipbuilding Act, MARAD is amending its Obligation Guarantees 
regulations at 46 CFR part 298, summarized as follows:

Subpart A--Introduction

Section 298.1  Purpose.

    Section 298.1, Purpose, is self-explanatory.

Section 298.2  Definitions.

    Section 298.2, Definitions, is intended to provide convenient 11 
reference to the meaning of significant terminology used in Part 298, 
based principally on statutory derivation, reflecting the letter 
redesignations of the paragraphs, whenever applicable.
    Paragraph (a), ``Act,'' remains unchanged.
    Paragraph (b), ``Actual Cost,'' is derived from 46 U.S.C. 1271 (f), 
modified expressly to reflect the addition of advanced or modern 
shipbuilding technology as being assets to which the term also applies.
    Paragraph (c), ``Advanced Shipbuilding Technology,'' is a new 
paragraph added to Sec. 298.2 and recites the statutory definition in 
the new paragraph (d)(1) to section 1112 of the Act.
    Paragraph (d), ``Affiliate or Affiliated,'' remains unchanged.
    Paragraph (e), ``Closing,'' is modified to recognize the fact the 
definition of a Preferred Mortgage shall not apply to advanced or 
modern shipbuilding technology where the Secretary shall obtain an 
enforceable first mortgage with such equipment.
    Paragraph (f), ``Depository,'' is amended to reflect the 
recognition that, with regard to eligible export vessels, flexibility 
should be permitted to allow as depositories banks or other financial 
institutions organized and doing business under the laws of a foreign 
country, which institutions are found to be acceptable to the Secretary 
and accept deposits for the Title XI program.
    Paragraph (g), ``Depreciated Actual Cost,'' is derived from 46 
U.S.C. 1271 (g), modified expressly to reflect: (1) The addition of 
advanced or modern shipbuilding technology, (2) the addition of the 
words ``or manufacturer'' after ``shipbuilder'' wherever it occurs to 
reflect the manufacturing of advanced or modern shipbuilding 
technology, and (3) the recognition of an appropriate residual value 
for advanced or modern shipbuilding technology.
    Paragraph (h), ``Documentation,'' remains unchanged.
    Paragraph (i), ``Eligible Export Vessel,'' is a new provision added 
to Sec. 298.2 and recites the statutory definition in the new paragraph 
(o) of section 1101 of the Act.
    Paragraph (j), ``Eligible Shipyard,'' adds a new definition and 
reflects the criteria outlined in section 1358 of the Authorization Act 
in order for a shipyard to be eligible to receive Title XI guarantees.
    Paragraph (k), ``General Shipyard Facility,'' adds a new definition 
reciting the statutory definition in new paragraph (d)(3) to section 
1112 of the Act.
    Paragraph (l), ``Guarantee,'' remains unchanged.
    Paragraph (m), ``Guarantee Fee,'' remains unchanged.
    Paragraph (n), ``Indenture Trustee,'' remains unchanged.
    Paragraph (o), ``Letter Commitment,'' remains unchanged.
    Paragraph (p), ``Maritime Administration,'' remains unchanged.
    Paragraph (q), ``Modern Shipbuilding Technology,'' is a new 
paragraph added to Sec. 298.2 and recites the statutory definition in 
the new paragraph (d)(2) to section 1112 of the Act.
    Paragraph (r), ``Mortgage,'' is derived from 46 U.S.C. 1271 (a) and 
is modified to: (1) Include the definition of a Preferred Mortgage as 
defined in 46 U.S.C. 31322 with respect to an eligible export vessel to 
be documented under the laws of a country other than the United States, 
and (2) recognize the fact that the definition of a Preferred Mortgage 
under chapter 313 of Title 46, United States Code, shall not apply to 
advanced or modern shipbuilding technology where the Secretary shall 
obtain an enforceable first mortgage with such equipment.
    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,'' is modified expressly to 
reflect: (1) The addition of eligible export vessels, (2) with regard 
to eligible export vessels, that the mortgagee may be a person approved 
by the Secretary after disclosure of that person's identity during the 
application process, and (3) removing paragraph (4)(vi) the text of 
which, as amended, is now in paragraph (4)(iv).
    Paragraph (y), ``Secretary,'' remains unchanged.
    Paragraph (z), ``Secretary's Note,'' remains unchanged.
    Paragraph (aa), ``Security Agreement,'' remains unchanged.
    Paragraph (bb), ``Vessel,'' is modified expressly to reflect that, 
with the expansion of the Title XI program to include eligible export 
vessels, eligible export vessels cannot be documented under the laws of 
the United States nor owned by a United States citizen.

Section 298.3  Applications

    Section 298.3, Applications, is self-explanatory. Paragraphs (a) 
through (d) remain unchanged. Paragraph (e) is amended to reflect the 
priority to be assigned to applications from shipyards that have 
engaged in the naval vessel construction as prescribed in section 1359 
(a)(3) of the Shipbuilding Act and that have pilot projects for 
shipyard modernization and ship construction. In addition, language is 
added that cites the new subsection (g)(1) to section 1103 of the Act 
added by the Shipbuilding Act. The new statutory requirement prohibits 
the Secretary from issuing a commitment to guarantee obligations for an 
eligible export vessel unless, after considering three findings, the 
Secretary determines that the issuance of a commitment to guarantee 
obligations for an eligible export vessel will not result in the denial 
of an economically sound application to issue Title XI for vessels 
documented under the laws of the United States to be operated in the 
domestic or foreign commerce of the United States.

Section 298.10  Citizenship

    Section 298.10, Citizenship, paragraphs (a) through (d) remain 
unchanged. A new paragraph (e) is added to exempt eligible export 
vessels and eligible shipyards from complying with the United States 
citizenship requirements. Such modification conforms to the amendment 
of subsection (a)(1) of section 1104A of the Act resulting from 
enactment of the Shipbuilding Act, which deletes the United States 
citizenship requirement.

Section 298.11  Vessel Requirements

    Section 298.11, Vessel requirements, paragraphs (a), (b), and (d) 
remain unchanged. Paragraph (c) is modified to permit a deviation from 
previous MARAD policy of limiting vessel certifications to the American 
Bureau of Shipping, with regard to eligible export vessels, allowing 
vessel classification by members of the International Association of 
Classification Societies (IACS) (classification societies to be ISO-
9000 certified) with appropriate certificates required at delivery. In 
addition, conforming language is included which parallels the language 
amending section 1104A (b)(6) of the Act, requiring eligible export 
vessels to comply with all applicable laws, rules and regulations as to 
condition and operation, including, but not limited to, those 
administered by the appropriate national flag authorities under a 
treaty, convention, or other international agreement to which the 
United States is a party.

Section 298.12  Applicant and Operator's Qualifications

    Section 298.12, Applicant and operator's qualifications, paragraphs 
(a), (d), and (e) remain unchanged. Paragraphs (b)(1)(ii) and (c)(4) 
are amended to provide for the submission of identifying information on 
the country in which the applicant is incorporated and whether or not 
the applicant has been in default within the past five years with 
regard to an eligible export vessel application. Paragraph (f) is 
amended in two subdivisions. The first contains the current text and 
applies in the case of an applicant for a vessel financing guarantee. 
The second contains a new provision and deals with the case of an 
eligible shipyard which is an applicant for a financing guarantee for 
advanced or modern shipbuilding technology. In this instance, the 
applicant shall submit a detailed statement showing its ability to 
successfully construct/reconstruct vessel(s), including certain 
information on all management personnel concerned with the physical 
operation of the shipyard, including union affiliations and existing 
contracts necessary to the management and operation of the shipyard.

Section 298.13  Financial Requirements

    Section 298.13, Financial requirements, is modified to reflect the 
financial requirements to be placed upon applicants in the new area of 
advanced or modern shipbuilding technology. A new paragraph (a)(2)(ii) 
is added to this section which parallels the applicable portions of 
paragraph (a)(2)(i), referring to advanced or modern shipbuilding 
technology, and the references in paragraph (a)(2)(iv) are renumbered 
accordingly. Paragraph (a)(3) of this section is amended by deleting 
references to the existing regulatory limitation for guarantees of up 
to 75 percent of the cost of a Title XI project, since the new 
statutory language in section 1104A(i) of the Act, prohibits the 
Secretary from uniformly imposing by rule, regulation, or procedure a 
lower financing percentage than that permitted by statute (75 percent 
or 87\1/2\ percent financing for the type of vessel in question or up 
to 87\1/2\ percent for advanced or modern shipbuilding technology).
    In addition, modifications are made in paragraph (a)(3) to reflect 
the addition of advanced or modern shipbuilding technology to be 
financed or refinanced under Title XI as provided by the new section 
1112 of the Act. Paragraphs (b)(5), (b)(6), (c)(1), and (c)(2) are also 
amended to reflect the addition of advanced or modern shipbuilding 
technology to be financed or refinanced under Title XI as provided by 
the new section 1112 of the Act. New paragraphs (d)(3) and (e)(3) are 
added to this section to reflect the same financial requirements that 
shall be placed on an owner of a general shipyard facility as on a 
vessel owner as operator.

Section 298.14  Economic Soundness

    In section 298.14, Economic soundness, modifications are made 
throughout the section to reflect the addition of advanced or modern 
shipbuilding technology to be financed or refinanced under Title XI as 
provided by the new section 1112 of the Act. In addition, Appendix B--
Forms to be Used in Computing IRR is deleted as a general housekeeping 
matter. On August 6, 1992, a final rule became effective whereby 
paragraph (b)(4) of Sec. 298.14 was removed in its entirety in order to 
shift the computation of the IRR to MARAD from Title XI applicants. 
Appendix B outlines the schedules that were previously required to be 
completed for the Title XI applicant to compute the IRR of its project. 
The fact that Appendix B was not deleted at that time was an oversight 
by MARAD.

Section 298.15  Investigation Fee

    Section 298.15, Investigation Fee, remains unchanged.

Section 298.16   Substitution of Participants

    Section 298.16, Substitution of participants, modifies paragraph 
(b) to reflect the addition of advanced or modern shipbuilding 
technology to be financed or refinanced under Title XI, as provided by 
the new section 1112 of the Act.

Section 298.17  Evaluation of Applications

    Section 298.17, Evaluation of applications, adds a new sentence and 
two new paragraphs. A new sentence outlines what terms shall be 
considered by the Secretary in determining the amount of equity which 
must be provided by the applicant. Paragraph (e) reflects the priority 
that the Secretary shall give to applications from shipyards that have 
engaged in naval vessel construction as provided in section 1359(a)(1) 
of the Shipbuilding Act. New paragraph (f) permits the Secretary, in 
evaluating project applications for advanced or modern shipbuilding 
technology, to consider whether the application provides for guarantees 
which extend for a period less than or equal to the technological life 
of the asset.

Section 298.18  Financing Advanced or Modern Shipbuilding Technology

    New section 1112(a) of the Act allows the Secretary to guarantee 
obligations for advanced or modern shipbuilding technology of a general 
shipyard facility located in the United States. New Sec. 298.18 
reflects this authority. Paragraph (a) sets forth the initial criteria 
the applicant must meet and paragraph (b) specifies the conditions that 
must be satisfied and paragraph (c) identifies factors the Secretary 
may consider when deciding among applications.

Section 298.19  Financing Export Vessels

    New section 1111(a) of the Act allows the Secretary to guarantee 
obligations for eligible export vessels, and new Sec. 298.19 reflects 
this authority. Paragraphs (a) and (c) set forth specific language in 
the statute regarding termination of the eligible export vessel Title 
XI program and the required Department of Defense approval. Paragraph 
(b) sets forth the determination to be made by the Secretary as to the 
creditworthiness of the country to which the vessel is to be exported.

Section 298.20  Term, Redemptions and Interest Rate

    Paragraphs (a) and (b) of Sec. 298.20, Term, redemptions and 
interest rate, are amended to reflect the addition of advanced or 
modern shipbuilding technology to be financed or refinanced under Title 
XI, as provided by the new section 1112 of the Act, and limits the 
maturity date for Title XI Obligations for advanced or modern 
shipbuilding technology to the technological life of the advanced or 
modern shipbuilding technology. Paragraph (c) is amended to reflect 
that with respect to guarantees for all transactions other than for 
U.S.-flag vessels owned by U.S. citizens, the Secretary will use his 
discretion to determine the interest rate with respect to each 
application.

Section 298.21  Limits

    Section 298.21, Limits, presently establishes a limitation of 75 
percent or 87\1/2\ percent of the actual cost of the vessels for 
guarantees, whichever is applicable under the provisions of section 
1104(b)(2) of the Act, for the obligation guarantees to be issued. 
Amendments are as follows:
    Paragraph (a) includes advanced shipbuilding technology or modern 
shipbuilding technology within the statutory financing limitation.
    Paragraph (a)(2) includes advanced shipbuilding technology or 
modern shipbuilding technology within the statutory financing 
limitation.
    Paragraph (b) includes advanced shipbuilding technology or modern 
shipbuilding technology as the basis for actual cost determinations.
    Paragraph (c) adds two new provisions, paragraphs (c)(14) and (15) 
with respect to the actual cost determination for advanced or modern 
shipbuilding technology. Paragraph (c)(14) generally excludes from 
actual cost any amount payable to the manufacturer of advanced or 
modern shipbuilding technology for early delivery of equipment to the 
shipyard. Paragraph (c)(15) excludes from actual cost predelivery 
expenses which may not be properly capitalized as costs of the 
technology under Generally Accepted Accounting Principles.
    Paragraph (d) includes advanced or modern shipbuilding technology 
as requiring substantiation of actual cost prior to payment from an 
escrow or construction fund and prior to final actual cost 
determination by the Secretary.
    Paragraph (f) includes modern or advanced shipbuilding technology 
as an example of where the obligor may receive moneys in respect of 
construction and sets forth the ensuing requirements in such case.
    Paragraph (g) includes, with respect to the 75 percent or 87\1/2\ 
percent limitation on the amount of guarantees, a reference to advanced 
or modern shipbuilding technology.

Section 298.22  Amortization of Obligations

    Section 298.22, Amortization of Obligations, is amended to include 
amortization requirements for advanced or modern shipbuilding 
technology which are the same as those for vessels. A new paragraph (c) 
is added after redesignated paragraphs (a) and (b) to comport with new 
section 1111 (a)(2) of the Act and provides that amortization for an 
eligible export vessel may be in accordance with more favorable terms 
as the Secretary determines to be compatible with export credit terms 
offered by foreign governments for the sale of vessels built in foreign 
shipyards.

Section 298.23  Refinancing

    Section 298.23, Refinancing, is amended to provide that the 
Secretary may approve the issuance of guarantees secured by advanced or 
modern shipbuilding technology for the refinancing of existing Title XI 
debt. The requirements for such refinancing are the same as presently 
provided for vessels.

Section 298.27  Lease Payments

    Section 298.27, Lease Payments, is amended to provide that if 
obligation payments depend on the lease of advanced or modern 
shipbuilding technology, the lease is subject to the Secretary's 
approval.

Section 298.28  Advances

    Section 298.28, Advances, amends paragraph (a)(2)(i), in connection 
with determining adequate security for an advance, to provide for the 
evaluation by the Secretary of existing and future market conditions 
for advanced or modern shipbuilding technology held as collateral.
    A new paragraph (a)(2)(iv) provides for the evaluation by the 
Secretary of any other available collateral on the General Shipyard 
Facility equipment, land, and/or assets.

Section 298.31  Mortgage

    In Sec. 298.31, Mortgage, paragraph (a) is amended to include a 
provision for the production of evidence of the Secretary's security 
interest in advanced or modern shipbuilding technology. Because a 
mortgage may not be available, desirable, timely or enforceable, the 
Secretary may seek alternative forms of security. If a mortgage is 
required, it shall be executed in favor of the Secretary, filed with 
the proper state authorities, and delivered to the Secretary after 
being recorded.
    Paragraph (a) also requires, with respect to foreign mortgages for 
eligible export vessels, that to ensure the validity and worldwide 
enforceability of such mortgages, the Secretary will require the 
obligor to obtain satisfactory legal opinions and foreign counsel. Such 
mortgages are required to be filed with the proper foreign authorities 
and delivered to the Secretary after being recorded.
    Paragraph (c) includes provision for the placement of a mortgage on 
advanced or modern shipbuilding technology as security for the 
guarantee and for a requirement by the Secretary for additional 
collateral in the event such mortgage is not sufficient.

Section 298.32  Required Provisions in Documentation

    Section 298.32, Required Provisions in Documentation, is amended to 
include in paragraph (a)(1) the furnishing of satisfactory insurance or 
performance bond by the manufacturer of advanced or modern shipbuilding 
technology.
    Paragraph (a)(2) is amended to require that a representative of the 
Secretary be allowed access to advanced or modern shipbuilding 
technology or related work projects for the purpose of inspection and 
observation that such technology is being constructed, reconstructed or 
reconditioned in accordance with plans and specifications approved by 
the Secretary.
    Paragraph (a)(3) is amended to require the submission to the 
Secretary, upon request, of plans for advanced or modern shipbuilding 
technology.
    Paragraph (b)(2) is amended to provide for the assignment, as 
required by the Secretary, of rights to receive all moneys which may 
become due with respect to the construction of advanced or modern 
shipbuilding technology.
    Paragraph (b)(3) is amended to provide for the assignment, as 
required by the Secretary, of any agreements relating to the use of 
advanced or modern shipbuilding technology and all hire payable 
thereunder.
    Paragraph (b)(4) excepts the obligor for debt underlying the 
guarantees for eligible export vessels from covenanting to file annual 
affidavits of continuing United States citizenship. The paragraph also 
includes a covenant requirement for the warranty of lien free title to 
advanced or modern shipbuilding technology and for maintenance of 
registry under the laws of a foreign country for an eligible export 
vessel.
    A new paragraph (b)(8) requires covenants to maintain shipyard 
insurance on advanced or modern shipbuilding technology in an amount 
equal to the greater of 110 percent of the outstanding obligations or 
up to the full commercial value of the technology.
    A new paragraph (b)(9) requires covenants to maintain additional 
types of insurance as may be required, such as political risk, for 
eligible export vessels to reflect any political, financial or economic 
risk in a foreign country.

Section 298.33  Escrow Fund

    Paragraph (b) is amended to include advanced or modern shipbuilding 
technology as security for the guarantees when calculating the deposit 
of principal and in the formula for such calculation.
    Paragraph (c) is amended to include multiple advanced or modern 
shipbuilding technology as security for the guarantees when calculating 
the deposit of principal and in the formula for such calculation.
    Paragraph (e) is amended to include escrow fund disbursement prior 
to the guarantee termination date under certain conditions for advanced 
or modern shipbuilding technology.
    Paragraph (g) is amended to provide for escrow fund disbursement 
under certain conditions for advanced or modern shipbuilding technology 
in the event of requisition of title, termination of construction 
contract or total loss.
    Paragraph (h) is amended to include a provision for escrow fund 
disbursement upon a specified termination date under certain conditions 
for advanced or modern shipbuilding technology.

Section 298.34  Construction Fund

    Section 298.34, Construction Fund, is amended in paragraph (b) to 
include disbursements from the construction fund prior to delivery of 
the advanced or modern shipbuilding technology.

Section 298.35  Reserve Fund and Financial Agreement

    Section 298.35, Reserve Fund and Financial Agreement, is amended in 
paragraph (b)(1)(i), with respect to continuous covenants, to require 
the consent of the Secretary before the company can enter into a 
service, management or operating agreement with respect to advanced or 
modern shipbuilding technology.
    Paragraph (c)(1)(i), with respect to financial covenants for 
companies meeting the special financial requirements, is amended to 
require the consent of the Secretary before the company can enter into 
a service, management, or operating agreement for advanced or modern 
shipbuilding technology.
    New paragraph (b)(1)(v) is added to require the consent of the 
Secretary before the company can sell, transfer or lease advanced or 
modern shipbuilding technology or transfer such technology to an 
affiliate.
    A new paragraph (c)(1)(vii) is added to require the consent of the 
Secretary before the company can sell, transfer, or lease advanced or 
modern shipbuilding technology or transfer such technology to an 
affiliate.
    Paragraph (d) is amended to include a provision that, in the case 
of advanced or modern shipbuilding technology, the company shall 
compute its reserve fund net income in the manner prescribed by the 
Secretary.

Section 298.36  Annual Guarantee Fee

    Section 298.36, Annual Guarantee Fee, is amended in paragraph (a) 
to specify the guarantee fee rates in general for advanced or modern 
shipbuilding technology.
    Paragraph (c) is amended to specify variable guarantee fee rates 
prior to delivery of advanced or modern shipbuilding technology.
    Paragraph (d) is amended to specify variable guarantee fee rates 
after delivery of advanced or modern shipbuilding technology.

Section 298.37  Examination and Audit

    Section 298.37, Examination and audit, is amended to include the 
right of the Secretary to examine and audit under specified conditions 
the books and records pertaining to any person having a financial 
interest in advanced or modern shipbuilding technology.

Section 298.39  Exemptions

    New section 1111(a)(2) of the Act provides that the Secretary may 
guarantee obligations for eligible export vessels in accordance with 
such other terms as the Secretary determines to be more favorable than 
the terms otherwise provided in Title XI and to be compatible with 
export credit terms offered by foreign governments for the sale of 
vessels built in foreign shipyards. Accordingly, Sec. 298.39, 
Exemptions, is amended to include a provision for the exemption of an 
applicant from any requirement of Part 298 if the Secretary makes a 
written determination that such exemption would assist in creating 
financing terms that would be compatible with export credit terms for 
the sale of vessels built in foreign shipyards.

Section 298.41  Remedies After Default

    Section 298.41, Remedies after default, is amended in paragraph (b) 
to provide that the Secretary, after default and before making payment, 
may take advanced or modern shipbuilding technology and hold, lease, 
charter, operate or use such technology.

Section 298.42  Reporting Requirements--Financial Statements

    A requirement to meet generally accepted auditing or accounting 
standards may be unduly burdensome in the case of eligible export 
vessels. Accordingly, the introductory paragraph of Sec. 298.42, 
Reporting requirements--financial statements, is amended to provide 
that in the case of such vessels, the company accounts shall be audited 
at least annually and the Secretary may require that the financial 
statements be in accordance with generally accepted accounting 
principles by accountants, as otherwise described in Sec. 298.42, or by 
independent public accountants licensed to practice by the regulatory 
authority or other political subdivision of a foreign country, provided 
such accountants are satisfactory to the Secretary.

Rulemaking Analyses and Notices

Executive Order 12886 (Regulatory Planning and Review) and Other 
Requirements of Law

    This rulemaking has been reviewed under Executive Order 12866, and 
it has been determined that it is a significant regulatory action since 
it is likely to result in a rule that may have an annual effect on the 
economy of $100 million or more. Initial Regulatory Assessments have 
been prepared and are available in the docket for inspection or copying 
where indicated under ``ADDRESS.'' In summary, the Initial Regulatory 
Assessments finds that the cost of the Title XI program over the first 
two years is $144 million, resulting in an average annual cost of $72.0 
million. Assuming that there is demand for maximum guarantees and 
guarantees will range from 70 percent to 87\1/2\ percent of actual cost 
of the vessel and shipyard modernization and improvement projects, the 
value of the vessels, capital goods and other assets produced over the 
first two years of the program will be about $1.85 billion. Further, it 
is estimated that new Title XI guarantees could generate 19,440 man-
years of employment for U.S. shipyard workers, which translates into 
employment for 9,720 workers over a period of two years.
    MARAD is publishing these amendments as an interim final rule as 
authorized by section 1362 of Public Law 103-160, which requires the 
Secretary to prescribe regulations within 90 days as necessary to carry 
out the Secretary's responsibilities under Title XI.
    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).

List of Subjects in 46 CFR Part 298

    Loan programs--transportation, Maritime carriers, and Mortgages.

    Accordingly, 46 CFR part 298 is amended as follows:

PART 298--[AMENDED]

    1. The authority citation is revised to read as follows:

    Authority: 46 App. U.S.C. 1114(b), 1271 et seq.; 49 CFR 1.66.

    2. Section 298.1 is revised to read as follows:


Sec. 298.1  Purpose.

    This part prescribes regulations implementing the provisions of 
Title XI of the Merchant Marine Act, 1936, as amended, governing 
Federal ship financing assistance (46 App. U.S.C. 1271 et seq.).


Sec. 298.2  [Amended]

    3. Section 298.2, Definitions, is amended as follows:
    a. By amending existing paragraph (b), Actual Cost, by inserting 
after the word ``Vessel'', everywhere it appears, the words ``or 
Advanced or Modern Shipbuilding Technology''.
    b. By amending existing paragraph (d), Closing, by removing the 
word, ``Preferred''.
    c. By amending existing paragraph (e), Depository, by removing the 
period at the end, inserting a comma in its place and adding thereafter 
the phrase, ``but in the case of an Eligible Export Vessel, can also 
mean a bank or other financial institution organized and doing business 
under the laws of a foreign country, which is authorized under such 
laws to exercise corporate trust powers, is found to be acceptable by 
the Secretary, and accepts deposits for purposes of implementing the 
program authorized by Title XI of the Act''.
    d. By amending existing paragraph (f), Depreciated Actual Cost, by 
inserting after the word ``Vessel'', each time it appears, the phrase, 
``or Advanced or Modern Shipbuilding Technology''; after the word, 
``shipbuilder'', the words, ``or manufacturer''; and after the last 
word in the parenthesis the words, ``or, in the case of Advanced or 
Modern Shipbuilding Technology, a residual value as appropriate''.
    e. By amending existing paragraph (m), Mortgage, by substituting a 
comma for the period and adding the words, ``or an enforceable 
Preferred Mortgage, as defined in 46 U.S.C. 31322, with respect to an 
Eligible Export Vessel, or an enforceable first mortgage with respect 
to Advanced Shipbuilding Technology (as defined in paragraph (c) of 
this section) or with respect to Modern Shipbuilding Technology (as 
defined in paragraph (q) of this section).''.
    f. By amending existing paragraph (s), Preferred Mortgage, as 
follows: (1) In paragraph (s)(3) by inserting before the semi-colon the 
words, ``or covers an Eligible Export Vessel'';
    (2) By removing ``; or'' at the end of paragraph (s)(4)(v) and 
adding in its place a period; and
    (3) By removing paragraph (s)(4)(vi).
    g. By amending existing paragraph (w), Vessel, by removing the 
period at the end of the definition, adding a semi-colon, and inserting 
thereafter the words, ``except that an Eligible Export Vessel may not 
be owned by citizens of the United States nor documented under the laws 
of the United States''.
    h. By redesignating paragraphs (c) through (g), (h) through (l), 
and (m) through (w) as paragraphs (d) through (h), (l) through (p), and 
(r) through (bb), respectively, and adding new paragraphs (c), (i), 
(j), (k), and (q), and by revising newly designated paragraph 
(x)(4)(iv) to read as follows:


Sec. 298.2  Definitions.

* * * * *
    (c) Advanced Shipbuilding Technology means: (1) Numerically 
controlled machine tools, robots, automated process control equipment, 
computerized flexible manufacturing systems, associated computer 
software, and other technology for improving shipbuilding and related 
industrial production which advance the state-of-the-art; and
    (2) Novel techniques and processes designed to improve shipbuilding 
quality, productivity, and practice, and to promote sustainable 
development, including engineering design, quality assurance, 
concurrent engineering, continuous process production technology, 
energy efficiency, waste minimization, design for recyclability or 
parts reuse, inventory management, upgraded worker skills, and 
communications with customers and suppliers.
* * * * *
    (i) Eligible Export Vessel means a vessel constructed, 
reconstructed, or reconditioned in the United States for use in world-
wide trade which will, upon delivery or redelivery, be placed under or 
continued to be documented under the laws of a country other than the 
United States.
    (j) Eligible Shipyard means a private shipyard located in the 
United States.
    (k) General Shipyard Facility means: (1) For operations on land--
any structure or appurtenance thereto designed for the construction, 
repair, rehabilitation, refurbishment or rebuilding of any Vessel (as 
defined in title 1, United States Code) and including graving docks, 
building ways, ship lifts, wharves, and pier cranes; the land necessary 
for any structure or appurtenances; and, equipment that is for use in 
connection with any structure or appurtenance and that is necessary for 
the performance of any function referred to in this paragraph; and
    (2) For operations other than on land, any vessel, floating drydock 
or barge built in the United States and used for, equipped to be used 
for, or of a type that is normally used for activities referred to in 
paragraph (k)(1) of this section.
* * * * *
    (q) Modern Shipbuilding Technology means the best available proven 
technology, techniques, and processes appropriate to enhancing the 
productivity of shipyards.
* * * * *
    (x) * * *
    (4) * *  *
    (iv) A person approved by the Secretary; or
* * * * *


Sec. 298.3  [Amended]

    4. Section 298.3, Applications, is amended by designating the text 
following the heading of paragraph (e) as introductory text, adding two 
sentences to the end of paragraph (e) introductory text, and adding 
paragraphs (e)(1) through (e)(3) to read as follows:


Sec. 298.3  Applications.

* * * * *
    (e) * * * In regard to shipyards, priority will be given to 
applications from General Shipyard Facilities that have engaged in 
naval vessel construction and that have pilot projects for shipyard 
modernization and vessel construction. With regard to Eligible Export 
Vessels, the Secretary may not issue a commitment to guarantee 
Obligations for an Eligible Export Vessel unless the Secretary 
determines, in the sole discretion of the Secretary, that the issuance 
of a commitment to guarantee obligations for an Eligible Export Vessel 
will not result in the denial of an economically sound application to 
issue a commitment to guarantee Obligations for vessels documented 
under the laws of the United States operating in the domestic or 
foreign commerce of the United States, after considering: (1) The 
status of pending applications for commitments to guarantee obligations 
for vessels documented under the laws of the United States and 
operating or to be operated in the domestic or foreign commerce of the 
United States;
    (2) The economic soundness of the applications referred to in 
paragraph (e)(1) of this section; and
    (3) The amount of guarantee authority available.
* * * * *
    5. Section 298.10 is amended by adding a new paragraph (e) to read 
as follows:


Sec. 298.10  Citizenship.

* * * * *
    (e) Exemption. With regard to Eligible Export Vessels and Eligible 
Shipyards, the applicant and any other Person, (including, but not 
limited to settlors, owner trustees, owner participants and bareboat 
charterers) shall be exempted from complying with the provisions of 
paragraphs (a) through (d) of this section.


Sec. 298.11  [Amended]

    6. Section 298.11, Vessel requirements, is amended as follows:
    a. By amending paragraph (c), Class, condition and operation., as 
follows: (1) By adding after the words ``by the Secretary,'' in the 
first sentence the words, ``or, in the case of an Eligible Export 
Vessel, such standards as may be imposed by a member of the 
International Association of Classification Societies (IACS) 
(classification societies to be ISO-9000 certified), with appropriate 
certificates required at delivery.''.
    (2) By removing the words, ``and comply'' in the first sentence, 
and inserting the words, ``The Vessel shall comply''.
    (3) By removing the period after the words, ``International 
Convention for Safety and Life at Sea'' and inserting     ``, or, in 
the case of an Eligible Export Vessel, of the appropriate national flag 
authorities under a treaty, convention, or other international 
agreement to which the United States is a party.''.
    7. Section 298.12 is amended by revising paragraphs (b)(1)(i), 
(b)(1)(ii) and (c)(4); by designating the existing text of paragraph 
(f) following the heading as paragraph (f)(1); by removing the word 
``The'' at the beginning of paragraph (f)(1) and adding the words ``In 
the case of an applicant for a vessel financing guarantee, the''; and 
by adding paragraph (f)(2) to read as follows:


Sec. 298.12  Applicant and operator's qualifications.

* * * * *
    (b) Identity and ownership of applicant.  * * *
    (1) * * *
    (i) Exact name of applicant and tax identification number of a U.S. 
corporation;
    (ii) State or country in which incorporated and date of 
incorporation;
* * * * *
    (c) Applicants: business and affiliations.  * * *
* * * * *
    (4) A statement of whether or not the applicant or any predecessor 
or related company is now, or during the past 5 years has been, in 
default under any agreement or undertaking: (i) With others, the United 
States or a country other than the United States; or
    (ii) Guaranteed or insured by the United States or a country other 
than the United States.
* * * * *
    (f) * * *
    (2) In the case of an Eligible Shipyard which is an applicant for a 
Guarantee for Advanced or Modern Shipbuilding Technology, a detailed 
statement shall be submitted evidencing its ability to successfully 
construct/reconstruct vessel(s), including name, education, background 
of, and licenses, if any, held by all management personnel concerned 
with the physical operation of the shipyard, union affiliations and 
existing contracts necessary to the management and operation of the 
shipyard.
    8. Section 298.13, is amended as follows:
    a. By redesignating paragraphs (a)(2)(ii) through (iv) as 
paragraphs (a)(2)(iii) through (v), adding new paragraphs (a)(2)(ii), 
(d)(3) and (e)(3), and revising the fourth through sixth sentences of 
paragraph (a)(3) to read as follows:


Sec. 298.13  Financial requirements.

    (a) * * *
    (2) * * *
    (ii) In the case of Advanced or Modern Shipbuilding Technology, a 
detailed statement of the actual cost of such technology, including 
those items which would normally be capitalizable. If any of the costs 
have been incurred by written contracts, signed copies shall be 
forwarded with the application. The applicant may be required to have 
manufacturers submit back-up cost details and technical data. This 
information shall be submitted in the format prescribed by the Title XI 
application procedures.
* * * * *
    (3) * * * If the applicant intends to utilize co-financing 
(involving a blend of Title XI and private financing for the debt 
portion), the terms and conditions of such financing shall be subject 
to approval by the Secretary. The applicant shall demonstrate with 
financial statements that at least 12\1/2\ percent of the construction 
or reconstruction costs of the Vessel(s) or the cost of the Advanced 
Shipbuilding Technology or Modern Shipbuilding Technology will be in 
the form of equity and not additional debt. The applicant shall 
disclose all of the Vessel(s), Advanced Shipbuilding Technology or 
Modern Shipbuilding Technology financing in the format prescribed by 
the Title XI application procedures.
* * * * *
    (d) Primary financial requirements at Closing. * * *
* * * * *
    (3) Owner as General Shipyard Facility. Where the owner of Advanced 
or Modern Shipbuilding Technology is a General Shipyard Facility, 
minimum requirements at Closing will be the same as those set forth in 
paragraph (d)(1) of this section for an owner as operator.''
    (e) Special financial requirements at closing. * * *
* * * * *
    (3) Owner as General Shipyard Facility. Where the owner of Advanced 
or Modern Shipbuilding Technology is a General Shipyard Facility, 
special financial requirements at Closing will be the same as those 
outlined in paragraph (e)(1) of this section for an owner as operator 
insofar as they apply to such technology.
* * * * *
    b. By amending redesignated paragraph (a)(2)(iv) by removing the 
references ``(a)(2)(i) and (ii)'' and adding in lieu thereof 
``(a)(2)(i) through (iii)''.
    c. By amending paragraph (b)(5), Capitalizable Cost, to insert 
immediately after the word, ``Vessel,'' where it first appears, the 
words, ``or Advanced or Modern Shipbuilding Technology and those other 
items which customarily would be capitalized as Vessel costs or 
Advanced or Modern Shipbuilding Technology costs under generally 
accepted accounting principles''.
    d. By amending paragraph (b)(6), Depreciated Capitalized Cost, by 
adding after the word, ``Vessel'', where it first appears, the words, 
``or Advanced or Modern Shipbuilding Technology'', and removing the 
words, ``of the Vessel''.
    e. By amending paragraph (c)(1) by adding after the word, 
``Vessels'', the words, ``or Advanced or Modern Shipbuilding 
Technology''.
    f. By removing the period at the end of paragraph (c)(2) and adding 
the words, ``or in connection with other Advanced or Modern 
Shipbuilding Technology financed under the Title XI program.''.
    8. Section 298.14, is amended as follows:
    a. By revising paragraph (a) introductory text to read as follows:


Sec. 298.14  Economic soundness.

    (a) Economic Evaluation. No Letter Commitment for guarantees shall 
be given by the Secretary without a finding that the proposed project, 
with respect to which the Vessel(s) or Advanced or Modern Shipbuilding 
Technology to be financed or refinanced under Title XI, will be 
economically sound.
* * * * *
    b. By amending paragraphs (a)(1)(ii) through (iv) by capitalizing 
the first letter of the word, ``vessel'', each place it appears, and 
inserting thereafter the words, ``or utilization of the Advanced 
Shipbuilding Technology or Modern Shipbuilding Technology of a General 
Shipyard Facility''.
    c. Paragraph (a)(2)(i)(B) is amended by adding at the end, before 
the semi-colon, the words, ``or, with respect to Advanced or Modern 
Shipbuilding Technology, how the equipment will be employed, including 
the number, type, and buyer of vessels for which it will be used''.
    d. Paragraphs (a)(2)(i)(C) and (D) are amended by inserting after 
the word, ``Vessel(s)'', the words, ``or Advanced or Modern 
Shipbuilding Technology''.
    e. Paragraph (a)(2)(i)(F)(1) is amended by inserting, before the 
semi-colon, the words, ``or the new technology''.
    f. Paragraph (a)(2)(ii), Revenues, is amended by inserting after 
the word ``Vessel(s)'', the words, ``or the new technology''.
    g. Paragraph (a)(2)(iii), Expenses, is amended in the introductory 
text by adding after the word, ``expense'', the words, ``or expenses 
associated with Advanced or Modern Shipbuilding Technology''.
    h. Paragraph (b)(1) introductory text is amended by inserting after 
the words, ``Vessel(s)'' and ``vessel'' (capitalizing the first 
letter), each place it appears, the words, ``or new technology''.


Sec. 298.16  [Amended]

    9. Section 298.16, Substitution of participants, is amended in 
paragraph (b) by inserting after the word, ``Vessel'', the words, ``or 
Advanced or Modern Shipbuilding Technology''.
    10. Section 298.17, is amended by redesignating the introductory 
text and paragraphs (a) through (d) as paragraph (a) introductory text 
and paragraphs (a)(1) through (a)(4), respectively, and by adding new 
paragraphs (a)(5), (a)(6) and (b), to read as follows:


Sec. 298.17  Evaluation of applications.

    (a) * * *
    (5) In the case of an Eligible Shipyard, the capability of the 
shipyard to engage in naval vessel construction in time of war or 
national emergency.
    (6) In the case of Advanced or Modern Shipbuilding Technology, the 
Guarantees extend for less than the technological life of the asset.
    (b) In determining the amount of equity which must be provided by 
the applicant, the Secretary shall consider the following:
    (1) The financial strength of the company;
    (2) Adequacy of collateral; and
    (3) The term of the Guarantees.

Subpart B, Appendix B--[Removed]

    10a. Subpart B is amended by removing Appendix B.


Sec. 298.20  [Amended]

    11. Section 298.20, Term, redemptions and interest rate, is amended 
as follows: a. Paragraph (a), In general, is amended as follows: (1) In 
the first sentence of the introductory paragraph, by adding the words, 
``or Advanced or Modern Shipbuilding Technology'', immediately 
preceding the period.
    (2) By removing the word ``and'' at the end of paragraph (a)(2), by 
substituting ``; and'' for the period after paragraph (a)(3), by adding 
paragraph (a)(4), and revising paragraph (c) to read as follows:


Sec. 298.20  Term, redemption and interest rate.

    (a) * * *
    (4) The technological life of the Advanced or Modern Shipbuilding 
Technology.
* * * * *
    (c) Interest rate. With respect to Guarantees for U.S.-flag Vessels 
owned by U.S. citizens, the interest rate of each Obligation must be 
determined by the Secretary to be reasonable, taking into account the 
range of interest prevailing in the private market for similar loans 
and the risks assumed by the Secretary. With respect to Guarantees for 
all other transactions, the Secretary will use discretion to determine 
the interest rate with respect to each application.
    b. Paragraph (b), Required redemptions, is amended by adding after 
the word, ``Vessels'', the words, ``or multiple Advanced Shipbuilding 
Technology or Modern Shipbuilding Technology assets''.


Sec. 298.21  [Amended]

    12. Section 298.21, Limits, is amended as follows:
    a. Paragraph (a), Actual Cost basis, is amended by adding in the 
second sentence of the introductory paragraph after the word, 
``Vessels'', the words, ``or Advanced Shipbuilding Technology or Modern 
Shipbuilding Technology asset(s)'', and in paragraph (a)(2), by adding 
after the word, ``Vessel'', the words, ``or Advanced Shipbuilding 
Technology or Modern Shipbuilding Technology''.
    b. Paragraph (b), Actual Cost items, is amended by inserting after 
the word, ``Vessel'', each place it appears, the words, ``or Advanced 
Shipbuilding Technology or Modern Shipbuilding Technology''.
    c. Paragraph (c), Items excludable from Actual Cost, is amended by 
removing the word, ``and'', after paragraph (c)(12) and the period 
after paragraph (c)(13), by inserting ``; and'' after paragraph 
(c)(13); and by adding paragraphs (c)(14) and (c)(15) to read as 
follows:


Sec. 298.21  Limits.

* * * * *
    (c) * * *
    (14) Generally not include any amount payable to the manufacturer 
of the Advanced Shipbuilding Technology or Modern Shipbuilding 
Technology for early delivery of the equipment to the General Shipyard 
Facility; and
    (15) Predelivery Advanced Shipbuilding Technology or Modern 
Shipbuilding Technology expenses which may not be properly capitalized 
by the General Shipyard Facility as costs of the technology under 
Generally Accepted Accounting Principles.
* * * * *
    d. Paragraph (d), Substantiation of Actual Cost, is amended by 
inserting after the word, ``Vessel'', each place it appears, the words, 
``or Advanced Shipbuilding Technology or Modern Shipbuilding 
Technology''.
    e. Paragraph (f), is amended by removing in the heading the words, 
``of the Vessels'', and adding in the text after the word, ``Vessel'', 
each place it appears, the words, ``or Advanced Shipbuilding Technology 
or Modern Shipbuilding Technology''.
    f. Paragraph (g) is amended by inserting after the word, 
``Vessel'', each place it appears, the words, ``or Advanced 
Shipbuilding Technology or Modern Shipbuilding Technology''.


Sec. 298.22  [Amended]

    13. Section 298.22, Amortization of Obligations, is amended as 
follows: a. By adding in the introductory paragraph, after the word, 
``Vessel'', the words, ``or Advanced Shipbuilding Technology or Modern 
Shipbuilding Technology'';
    b. By redesignating paragraphs (1) and (2) as paragraphs (a) and 
(b); and,
    c. By removing the word, ``or'', after newly designated paragraph 
(a), inserting ``; or'' in the place of the period after newly 
designated paragraph (b), and adding a new paragraph (c) to read as 
follows:


Sec. 298.22  Amortization of obligations.

* * * * *
    (c) With regard to Eligible Export Vessels, in accordance with such 
other terms as the Secretary determines to be more favorable and to be 
compatible with export credit terms offered by foreign governments for 
the sale of vessels built in foreign shipyards.


Sec. 298.23  [Amended]

    14. Section 298.23, Refinancing, is amended by adding the following 
sentence at the end of the section: ``Refinancing of Title XI debt only 
shall be permitted for Advanced or Modern Shipbuilding Technology.''.


Sec. 298.27  [Amended]

    15. Section 298.27, Lease payments, is amended by adding after the 
word, ``Vessel'', the words, ``or Advanced Shipbuilding Technology or 
Modern Shipbuilding Technology''.


Sec. 298.28  [Amended]

    16. Section 298.28, Advances, is amended as follows: a. In 
paragraph (a)(2)(i) by inserting after the word, ``Vessel(s)'' the 
words, ``or Advanced Shipbuilding Technology or Modern Shipbuilding 
Technology''.
    b. By removing the word, ``and'', after paragraph (a)(2)(ii), 
removing the period after paragraph (a)(2)(iii) and inserting in its 
place ``; and'', and by adding a new paragraph (a)(2)(iv) to read as 
follows:


Sec. 298.28  Advances.

    (a) * * *
    (2) * * *
    (iv) Any other available collateral on other General Shipyard 
Facility equipment, land, and/or assets.
* * * * *
    17. Section 298.31, is amended as follows:
    a. Paragraph (a) is revised to read as follows:


Sec. 298.31  Mortgage.

    (a) In general. Under normal circumstances, a Guarantee shall not 
be endorsed on any Obligation until the Secretary receives satisfactory 
evidence of a Mortgage in one or more Vessels or a Mortgage or other 
security interest in the Advanced Shipbuilding Technology or Modern 
Shipbuilding Technology (the ``Technologies''), in favor of the 
Secretary. During construction of a new Vessel or any of the 
Technologies, a security interest may be perfected by a filing under 
the Uniform Commercial Code. In order to ensure that the Secretary's 
Mortgages or security interests are valid and have worldwide 
enforceability, the Secretary shall require the Obligor to obtain legal 
opinions in form and substance satisfactory to the Secretary from 
independent, outside legal counsel satisfactory to the Secretary, 
including, in the case of an Eligible Export Vessel, foreign legal 
counsel. In the case where a Mortgage or security interest on the 
financed assets may not be available or enforceable, the Secretary 
shall require alternative forms of security. The Security Agreement 
shall provide that upon delivery of a new Vessel or upon final 
installation of the Technologies, or at the time Guarantees are issued 
with respect to an existing Vessel or the Technologies, a Mortgage on 
the Vessel and a Mortgage or other security interest on the 
Technologies shall be executed in favor of the Secretary, unless the 
Secretary determines that a Mortgage or a security interest is not 
required in accordance with the preceding sentence. The Mortgage shall 
be filed with the United States Coast Guard at the Vessel's port of 
record, or with the proper foreign authorities with respect to an 
Eligible Export Vessel, and with respect to assets of a General 
Shipyard Facility a Mortgage and security interest shall be filed with 
the proper authorities within the appropriate state and shall be 
delivered to the Secretary after being recorded.
* * * * *
    b. Paragraph (c), Adequacy of collateral, is amended by inserting 
after the word, ``Vessel(s)'' or ``vessel(s)'', each time it appears, 
the words, ``or Advanced or Modern Shipbuilding Technology''.
    18. Section 298.32 is amended as follows: a. Paragraph (a)(1) is 
amended by inserting after the word, ``shipyard'', each time it 
appears, the words, ``or manufacturer of the Advanced Shipbuilding 
Technology or Modern Shipbuilding Technology''.
    b. Paragraphs (a)(2) and (a)(3) are amended by inserting after the 
word, ``Vessel'', each time it appears, the words, ``or Advanced or 
Modern Shipbuilding Technology''.
    c. Paragraphs (b)(2) and (b)(3) are amended by inserting after the 
word, ``Vessel'', in each paragraph, the words, ``or Advanced or Modern 
Shipbuilding Technology''.
    d. Paragraph (b)(4) is revised, paragraph (b)(6) is amended by 
removing the word ``and'' at the end of the paragraph, paragraph (b)(7) 
is amended by removing the period and adding in its place a semicolon, 
and paragraphs (b)(8) and (b)(9) are added to read as follows:


Sec. 298.32  Required provisions in documentation.

* * * * *
    (b) Assignments and general covenants from Obligor to Secretary. * 
* *
* * * * *
    (4) Covenants relating to the annual filing of satisfactory 
evidence of continuing United States citizenship, in accordance with 46 
CFR part 355, with the exception of Eligible Export Vessels; warranty 
of Vessel or Advanced Shipbuilding Technology or Modern Shipbuilding 
Technology title free from all liens other than those specifically 
excepted; maintaining United States registry of the Vessel or registry 
under the laws of a country other than the United States with regard to 
an Eligible Export Vessel; compliance with the provisions of 46 U.S.C. 
31301-31343; Notice of Mortgage, payment of all taxes (except if being 
contested in good faith); annual financial statements audited by 
independent certified or independent licensed public accountant.
* * * * *
    (8) Covenants to maintain shipyard insurance on the Advanced 
Shipbuilding Technology or Modern Shipbuilding Technology in an amount 
equal to 110% of the outstanding Obligations or up to the full 
commercial value of the technology, whichever is greater, and such 
additional insurance as may be required by the Secretary; and
    (9) Covenants to maintain additional types of insurance as may be 
required by the Secretary with respect to Eligible Export Vessels, i.e. 
political risk insurance, to cover such items as the political, 
financial, and/or economic risk in a foreign country.


Sec. 298.33  [Amended]

    19. Section 298.33, Escrow Fund, is amended in paragraphs (b), (c), 
(e), (g) and (h) by inserting after the words, ``Vessel'', or 
``Vessels'', wherever they appear, the words, ``or Advanced or Modern 
Shipbuilding Technology''.


Sec. 298.34  [Amended]

    20. Section 298.34, Construction Fund, is amended in paragraph (b) 
by inserting after the word, ``Vessel'', the words, ``or Advanced or 
Modern Shipbuilding Technology''.


Sec. 298.35  [Amended]

    21. Section 298.35, Reserve Fund and Financial Agreement, is 
amended as follows:
    a. Paragraphs (b)(1)(i), (c)(1)(i) and (e) are amended by inserting 
after the word, ``Vessel'', each place it appears, the words, ``or 
Advanced or Modern Shipbuilding Technology''.
    b. By adding paragraph (b)(1)(v), by removing the word, ``or,'' at 
the end of paragraph (c)(1)(v), by removing the period and adding in 
its place ``; or'' at the end of paragraph (c)(1)(vi), by adding 
paragraph (c)(1)(vii), and by adding a new sentence after the 
penultimate sentence in paragraph (d) introductory text to read as 
follows:


Sec. 298.35  Reserve Fund and Financial Agreement.

* * * * *
    (b) * * *
    (1) * * *
    (v) Sell, transfer, or lease any Modern or Advanced Shipbuilding 
Technology financed with the assistance of Title XI guarantees or 
transfer such technology to an Affiliate under any form of contract.
* * * * *
    (c) * * *
    (1) * * *
    (vii) Sell, transfer, or lease any Advanced or Modern Shipbuilding 
Technology financed with the assistance of Title XI guarantees or 
transfer such technology to an Affiliate under any form of contract.
* * * * *
    (d) * * * In the case of Advanced or Modern Shipbuilding 
Technology, the Agreement shall provide that within 105 days after the 
end of its accounting year, the Company shall compute its Reserve Fund 
Net Income in the manner as may be required by the Secretary. * * *
* * * * *


Sec. 298.36  [Amended]

    22. Section 298.36, Annual Guarantee Fee, is amended in paragraphs 
(a), (c) and (d) by inserting after the word, ``Vessel'', whenever it 
appears in the caption or in the text, the words, ``or Advanced or 
Modern Shipbuilding Technology''.


Sec. 298.37  [Amended]

    23. Section 298.37, Examination and audit, is amended in the first 
and second sentences by inserting after the word, ``Vessel'', the 
following: ``or Advanced or Modern Shipbuilding Technology''.


Sec. 298.39  [Amended]

    24. Section 298.39, Exemptions, is amended by adding at the end a 
sentence, reading, ``In the case of Eligible Export Vessels, the 
Secretary may also exempt an applicant from any requirement of this 
Part not required by law if the Secretary makes a written determination 
that such exemption would assist in creating financing terms that would 
be compatible with export credit terms for the sale of vessels built in 
shipyards other than those in the United States.''.


Sec. 298.41  [Amended]

    25. Section 298.41, Remedies after default, is amended in paragraph 
(b) by adding after the word, ``Vessel'', each place it appears, the 
words, ``or Advanced or Modern Shipbuilding Technology''.


Sec. 298.42  [Amended]

    26. Section 298.42. Reporting requirements-financial statements, is 
amended by adding the following sentence between the first and second 
sentences of the introductory text, ``In the case of Eligible Export 
Vessels, the accounts of the Company shall be audited at least 
annually, and the Secretary may require that the financial statements 
be in accordance with generally accepted accounting principles, by 
accountants as described in the first sentence of this section or by 
independent public accountants licensed to practice by the regulatory 
authority or other political subdivision of a foreign country, provided 
such accountants are satisfactory to the Secretary''.
    27. Add new Secs. 298.18 and 298.19 to subpart B to read as 
follows:


Sec. 298.18  Financing Advanced or Modern Shipbuilding Technology.

    (a) Initial criteria. The Secretary may approve Guarantees issued 
to finance Advanced or Modern Shipbuilding Technology at a General 
Shipyard Facility. The Secretary will approve such Guarantees only upon 
a finding by the Secretary that the Guarantees will aid in the 
transition from naval shipbuilding to commercial ship construction for 
domestic and export sales, encourage shipyard modernization, and 
support increased productivity. The applicant shall provide a detailed 
statement with the Guarantee application which will provide the basis 
for such finding by the Secretary.
    (b) Other conditions. Applications for loan guarantees under this 
section shall not be approved unless the Secretary determines that the 
following requirements have been met: (1) The term for such Guarantees 
will not exceed the technological life of the assets being financed, as 
determined by the Secretary;
    (2) There is sufficient collateral to secure the Guarantee;

and

    (3) Approval of the application will not preclude approval of any 
other pending application for Advanced or Modern Shipbuilding 
Technology Guarantees which, in the sole opinion of the Secretary, 
would result in a more desirable use of appropriated funds. The 
Secretary's opinion will take into consideration such factors as the 
types of vessels which will be built by the shipyard, the productivity 
increases which will be achieved, the geographic location of the 
shipyard, the long-term viability of the shipyard, the soundness of the 
financial transaction, any financial impact on other Title XI 
transactions, and the furtherance of the goals of the Shipbuilding Act.


Sec. 298.19  Financing Export Vessels.

    (a) Transmittal to Secretary of Defense. Upon receiving an 
application for a loan Guarantee for an Eligible Export Vessel, the 
Secretary shall promptly provide to the Secretary of Defense notice of 
the receipt of the application. During the 30-day period beginning on 
the date on which the Secretary of Defense receives such notice, the 
Secretary of Defense may disapprove the loan guarantee based on the 
assessment of the Secretary of the potential use of the Vessel in a 
manner that may cause harm to United States national security 
interests. The Secretary of Defense may not disapprove a loan Guarantee 
under this section solely on the basis of the type of vessel to be 
constructed with the loan Guarantee. The authority of the Secretary to 
disapprove a loan Guarantee under this section may not be delegated to 
any official other than a civilian officer of the Department of Defense 
appointed by the President, by and with the advice and consent of the 
Senate. The Secretary of Transportation may not make a loan guarantee 
disapproved by the Secretary of Defense.
    (b) Determinations by the Secretary. (1) If the loan Guarantee 
commitment cost of any such Vessel is made available from funds 
transferred from the Secretary of Defense pursuant to section 108 of 
the National Defense Authorization Act for Fiscal Year 1994 (Pub. L. 
103-160, 107 Stat. 1547), the Vessel must be of at least 5,000 gross 
tons and found by the Secretary to be commercially marketable on the 
international market.
    (2) Such Guarantees shall not be approved unless: (i) The Secretary 
finds that the construction, reconstruction or reconditioning of the 
Vessel will aid in the transition of United States shipyards to 
commercial activities or will preserve shipbuilding assets that would 
be essential in time of war or national emergency; and
    (ii) The owner of the Vessel agrees with the Secretary that the 
Vessel shall not be transferred to any country designated by the 
Secretary of Defense as a country whose interests are hostile to the 
interests of the United States.
    (3) The Secretary may approve Guarantees issued to finance Eligible 
Export Vessels. Such Guarantee shall not be approved unless the 
Secretary determines that the country, to which the Vessel is to be 
exported, together with related institutions, is sufficiently 
creditworthy. The Secretary's determination shall be based on 
confidential risk assessments provided by the Export-Import Bank of the 
United States and country risk analyses provided by the Inter-Agency 
Country Risk Assessment System and shall take into account any other 
factors related to the loan guarantee transaction deemed pertinent by 
the Secretary.

    Dated: March 29, 1994.

    By Order of the Maritime Administrator.
James E. Saari,
Secretary, Maritime Administration.
[FR Doc. 94-7833 Filed 3-30-94; 8:45 am]
BILLING CODE 4910-81-P