[Federal Register Volume 60, Number 80 (Wednesday, April 26, 1995)]
[Proposed Rules]
[Pages 20592-20599]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-10195]




[[Page 20591]]

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Part IV





Department of Transportation





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Maritime Administration



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46 CFR Part 298



Obligation Guarantees: Program Administration; Proposed Rule





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

DEPARTMENT OF TRANSPORTATION

Maritime Administration

46 CFR Part 298

[Docket No. R-154]
RIN 2133-AB14


Obligation Guarantees: Program Administration

AGENCY: Maritime Administration, Department of Transportation.

ACTION: Notice of proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: The Maritime Administration (``MARAD'') is issuing this notice 
of proposed rulemaking which proposes modifications to certain 
provisions of the existing regulations implementing Title XI of the 
Merchant Marine Act, 1936, as amended (``Act''), in order to improve 
administration of the Title XI program. MARAD administers financial 
assistance under Title XI of the Act in the form of obligation 
guarantees for all types of vessel construction and shipyard 
modernization and improvement, except for fishing vessels. On March 31, 
1994, MARAD published in the Federal Register an interim final rule 
which amended its regulations implementing Title XI in order to carry 
out the provisions of Subtitle D of Public Law 103-160, expanding the 
authorization for obligation guarantees to finance the construction, 
reconstruction, and reconditioning of eligible export vessels and 
shipyard modernization and improvement. A final rule was published on 
September 16, 1994. The final rule stated that MARAD would publish at a 
later date a separate notice of proposed rulemaking to improve 
administration of the entire Title XI program. That is the subject of 
this rulemaking.
    MARAD initiated a review of the administration of its Title XI 
obligation guarantees program regulations with the objective of 
implementing President Clinton's ongoing regulatory reform initiative 
and to reaffirm and implement the principles of Executive Order 12866--
Regulatory Planning and Review (September 30, 1993). This rulemaking 
would significantly shorten the time for processing applications for 
guarantees and reduce the economic burden on applicants in complying 
with MARAD requirements for the submission of information. Accordingly, 
it is expected to encourage the construction of vessels in United 
States shipyards.

DATES: Written comments are requested and must be received on or before 
May 26, 1995. A 30 day comment period has been chosen in order to 
improve the efficiency of the administration of the Title XI program.

ADDRESSES: Comments may be mailed or otherwise delivered to the 
Secretary, Maritime Administration, Room 7210, Department of 
Transportation, 400 Seventh Street SW., Washington, D.C. 20590. All 
comments will be made available for inspection during normal business 
hours at the above address. Commenters wishing MARAD to acknowledge 
receipt of comments should enclose a stamped self-addressed envelope or 
postcard.

FOR FURTHER INFORMATION CONTACT: David A. Lippold, Examiner, Division 
of Capital Assets Management, Office of Ship Financing, Maritime 
Administration, Room 8122, 400 Seventh Street SW., Washington, D.C. 
20590. Telephone 202-366-1907.

SUPPLEMENTARY INFORMATION: Title XI of the Act, 46 App. U.S.C. 1271 et 
seq., authorizes the Secretary of Transportation (Secretary) to provide 
guarantees of debt (``obligation guarantees'') issued for the purpose 
of financing or refinancing the construction, reconstruction or 
reconditioning of vessels built in United States shipyards. On November 
30, 1993, Public Law 103-160, cited as the ``National Defense 
Authorization Act for Fiscal Year 1994'' (``Authorization Act''), was 
enacted. Subtitle D of Title XIII of the Authorization Act, cited as 
the ``National Shipbuilding and Shipyard Conversion Act of 1993'' 
(``Shipbuilding Act''), expanded the Title XI program by authorizing 
the Secretary to guarantee obligations issued to finance the 
construction, reconstruction, or reconditioning of eligible export 
vessels and for shipyard modernization and improvement. The 
Shipbuilding Act establishes ``a National Shipbuilding Initiative (NSI) 
program to be carried out to support the industrial base for national 
security objectives by assisting in the reestablishment of the United 
States shipbuilding industry as a self-sufficient internationally 
competitive industry.''
    Applications for obligation guarantees are made to MARAD acting 
under authority delegated by the Secretary to the Maritime 
Administrator (``Administrator''). Prior to execution of a guarantee, 
MARAD must, among other things, make determinations of economic 
soundness of the project, and the financial and operating capability of 
the applicant. Prior to amendment by Public Law 103-160, guarantees 
could be issued only for debt issued by United States citizens.
    The Title XI program enables applicants to obtain long-term 
financing on terms and conditions and at interest rates comparable to 
those available to large corporations. Funds secured by the obligation 
guarantees are borrowed in the private sector.
    As noted, the provisions of the Shipbuilding Act that required 
changes in MARAD's regulations became effective on November 30, 1993. 
MARAD concluded that it was imperative to publish amendments to its 
Title XI regulations, as an interim final rule. The interim final rule 
became effective on publication in the Federal Register on March 31, 
1994 (59 FR 15123), in order to permit implementation of the NSI 
program without delay.
    That interim final rule stated that MARAD would publish, at a later 
date, a separate notice of proposed rulemaking which would propose 
modifications to the Title XI regulations to improve administration of 
the overall Title XI program. Such modifications were not addressed in 
the interim rule because they were not required to implement the 
Shipbuilding Act. This notice of proposed rulemaking solicits public 
comments on a number of proposals to improve the current Title XI 
program.
    In addition to soliciting comments on the amendments to the Title 
XI regulations set forth in this notice of proposed rulemaking, MARAD 
is hereby soliciting industry and other public comments on three 
additional areas. The first issue on which MARAD is soliciting public 
comments deals with the retention in section 298.13 of the waiver 
requirement specifically granted for foreign components and services to 
be included in Actual Cost. MARAD is concerned about the potential 
adverse effect on the U.S. supplier base, which we recognize as 
critical to the national defense and economy. We are attempting to 
create an environment where both the shipbuilding and ship supply 
industries have the opportunity to be competitive based on fair 
pricing, quality, and timeliness.
    The second issue on which MARAD is soliciting public comments deals 
with construction period financing. The Title XI regulations currently 
provide authority for MARAD to do construction period financing. As the 
Secretary may approve Guarantees with respect to obligations to be 
issued to finance the construction, reconstruction, or reconditioning 
of vessels or construction of advanced or modern shipbuilding 
technology during the applicable period of construction, 
reconstruction, or reconditioning, we [[Page 20593]] are inviting 
comments on available forms of security, in addition to surety bonds, 
that could protect MARAD's interests as a lender, how progress should 
be monitored, what new procedures/methodologies should be developed to 
improve the previously utilized progress payment system, and if payment 
of interest on the obligations should be made on a more frequent basis 
(i.e., weekly, monthly or quarterly) than that outlined in Sec. 298.22, 
Amortization of Obligations, of this Part 298. In addition, in 
Sec. 298.21 MARAD has proposed the use of an approved agent as an 
alternative for appropriate certification of the Actual Cost of a 
project. However, comments are solicited on how the Title XI applicant 
will verify/certify to MARAD that certain costs have been paid prior to 
disbursement of Title XI funds from the escrow account, for example, 
the use of an agent on MARAD's behalf to verify that certain costs have 
been paid.
    Comments are also requested concerning the standard application 
Form MA 163 referenced in Sec. 298.3, Applications, of this title and 
the required documentation outlined in Subpart D of this part 298. 
Please comment also on the current standard application Form MA 163 and 
any proposed amendments to the form and standard documentation, 
particularly with regard to export vessels and shipyard modernization. 
Specific changes to the existing standard application form could, for 
example, include a requirement to list any requests which have been 
made of other U.S. and/or foreign institutions regarding the project 
for which the Title XI financing is requested and if so, a statement of 
the nature of this assistance, including any rating of foreign 
financial institutions by other U.S. government agencies. Other changes 
could involve modifications to the standard form of the Title XI 
Reserve Fund and Financial Agreement. In addition, comments are invited 
for any proposed modifications to the existing regulatory requirements 
covering the Title XI program.
    Whenever reference is made in these regulations to forms prescribed 
by MARAD for applications or other filing requirements, the format of 
such forms in effect prior to the effective date of these regulations 
may be used pending revision and issuance of new forms, which must be 
approved by The Office of Management and Budget. To the extent 
necessary to reflect statutory requirements, any form submitted may be 
modified or supplemented to facilitate processing, but until new forms 
have been approved, these regulations do not require more extensive 
paperwork or reporting requirements than exist under the present Title 
XI regulations.

Discussion of Rulemaking Text

    MARAD is proposing to amend its Obligation Guarantees regulations 
at 46 CFR Part 298, the proposed amendments summarized as follows:

References to the Terms ``Affiliate'' and ``Affiliated''

    All references to the existing defined terms ``Affiliate'' and 
``Affiliated'' would be replaced by the defined term ``Related Party''. 
This change reflects a terminology change in generally accepted 
accounting principles (GAAP), as promulgated by the Financial 
Accounting Standards Board of the American Institute of Certified 
Public Accountants, and conforms to changes made in Part 232, Uniform 
Financial Reporting Requirements, on November 24, 1993, effective 
December 27, 1993. Accordingly, the definition of Affiliate or 
Affiliated in section 298.2 (c) is proposed to be removed, a new 
definition of Related Party added, and the paragraph designations for 
the definitions are redesignated herein accordingly. In addition, it is 
proposed that paragraphs 298.13(a)(2)(iv), 298.13 (b)(2)(i)(B) and 
(b)(3), 298.35(b)(1)(ii), 298.35(b)(2)(ii), 298.35(c)(1)(ii), 
298.35(c)(2)(ii), and 298.37 be amended to reflect the ``Related 
Party'' preferred terminology which conforms to changes made in Part 
232 on November 24, 1993.

Subpart A--Introduction

Section 298.2  Definitions

    Section 298.2 is intended to provide convenient reference to the 
meaning of significant terminology used in Part 298, based principally 
on statutory derivation, reflecting with the letter designation of the 
paragraphs respectively, contained in the final rule published on 
September 16, 1994 (based on the interim final rule designations and 
redesignations), or as proposed to be redesignated in this rulemaking. 
As proposed:
    Paragraph (a), ``Act'' remains unchanged.
    Paragraph (b), ``Actual Cost'' remains unchanged.
    Paragraph (c), ``Advanced Shipbuilding Technology'' remains 
unchanged.
    Paragraph (d), ``Affiliate or Affiliated'' is removed.
    Redesignated paragraph (d), ``Closing'' remains unchanged.
    Redesignated paragraph (e), ``Depository'' remains unchanged.
    Redesignated paragraph (f), ``Depreciated Actual Cost'' remains 
unchanged.
    Redesignated paragraph (g), ``Documentation'' remains unchanged.
    Redesignated paragraph (h), ``Eligible Export Vessel'' remains 
unchanged.
    Redesignated paragraph (i), ``Eligible Shipyard'' remains 
unchanged.
    Redesignated paragraph (j), ``General Shipyard Facility'' remains 
unchanged.
    Redesignated paragraph (k), ``Guarantee'' remains unchanged.
    Redesignated paragraph (l), ``Guarantee Fee'' remains unchanged.
    Redesignated paragraph (m), ``Indenture Trustee'' is changed to 
require that a qualified bank or trust company must, among other 
things, be located in and organized and doing business under the laws 
of the United States, a State or territory thereof, the District of 
Columbia or the Commonwealth of Puerto Rico.
    Redesignated paragraph (n), ``Letter Commitment'' remains 
unchanged.
    New paragraph (o), ``Letter of Interest'' is added as an attempt to 
enhance a company's or shipyard's marketing effort and, in the long 
run, expedite the decision-making process on Title XI applications. It 
may be issued by the Secretary upon receipt of a request for Guarantees 
and is not a financial offer but rather an indication of what terms may 
be considered by the Secretary if a Letter Commitment is issued at a 
later date. This definition parallels very closely the Export-Import 
Bank of the United States' definition for a letter of interest.
    Paragraph (p), ``Maritime Administration'' remains unchanged.
    Paragraph (q), ``Modern Shipbuilding Technology'' remains 
unchanged.
    Paragraph (r), ``Mortgage'' remains unchanged.
    Paragraph (s), ``Obligation'' remains unchanged.
    Paragraph (t), ``Obligee'' remains unchanged.
    Paragraph (u), ``Obligor'' remains unchanged.
    Paragraph (v), ``Paying Agent'' remains unchanged.
    Paragraph (w), ``Person'' remains unchanged.
    Paragraph (x), ``Preferred Mortgage'' remains unchanged.
    New paragraph (y), ``Related Party'' is added, defined as is 
``Affiliate'' or ``Affiliated'' in existing paragraph (d).
    Redesignated paragraph (z), ``Secretary'' remains unchanged.
    Redesignated paragraph (aa), ``Secretary's Note'' remains 
unchanged.
    Redesignated paragraph (bb), ``Security Agreement'' remains 
unchanged. [[Page 20594]] 
    Redesignated paragraph (cc), ``Vessel'' remains unchanged. Although 
the definition of Vessel has not been modified, one continued area of 
interest has been the expansion of Title XI financing to promote a 
U.S.-flag cruise industry and to expand opportunities for U.S. 
shipyards in the passenger vessel market, including ferries, ``cruises 
to nowhere'' and gaming vessels. Some organizations have requested that 
passenger vessels engaged in commercial common carriage on a scheduled 
service be determined to be eligible for Title XI even if they do not 
have overnight accommodations or specific point-to-point service. In 
the past, MARAD policy has excluded such vessels from Title XI 
coverage. Although no regulatory change is necessary, MARAD is taking 
the opportunity at this time to announce a change in policy expressly 
to include passenger vessels engaged in commercial common carriage as 
eligible for the Title XI program. Commercial common carriage vessels 
must operate on a scheduled service and offer passage to the public at 
large.

Section 298.3  Applications

    Section 298.3 is self-explanatory. Paragraphs (a), (c), and (d) 
remain unchanged. Paragraph (b)(1) is amended to shorten the period 
between the filing of the application and the anticipated date by which 
a Letter Commitment is required from six months to four months. In 
addition, it shortens the period of time for the Secretary to perform a 
preliminary review of the application for adequacy of completeness from 
30 days to 15 days and reduces the amount of time the applicant has to 
correct deficiencies from nine months to 15 days for each request for 
additional information. If the requested information is not received 
within this 15 day period, then the Secretary may terminate the 
processing of the application without prejudice. Once the Title XI 
application is considered complete by the Secretary, the Secretary will 
act on the application within a period of 60 calendar days. Finally, 
the revised paragraph states that, unless otherwise extended by the 
Secretary, if an application is not completed by the applicant and 
acted upon by the Secretary within four months from the submission 
date, the processing of the application is terminated without prejudice 
and the applicant may reapply. This shortened period of time is much 
less than the one year period currently provided for in the existing 
Title XI regulations.
    In order to insure that a Title XI applicant is serious in applying 
for federal assistance and in view of the increasing complexity of 
export and shipyard modernization projects and the increased interest 
in the Title XI program, the filing fee referenced in paragraph (c) and 
submitted with a formal Title XI application shall be adjusted from a 
fixed fee of $1,000 to a fee based on the requested amount of the Title 
XI financing. Each Title XI application must be accompanied by a filing 
fee in the amount of one quarter of the investigation fee amount 
calculated pursuant to the investigation fee formula outlined in 
Sec. 298.15. Although the total investigation fee formula for each 
project shall not change, requiring that one quarter of the 
investigation fee be submitted with the receipt of a formal Title XI 
application will result in the Government recovering the administrative 
cost of processing the application in a more expeditious manner. 
Notwithstanding the above, in no event will the filing fee be less than 
$1,000. The filing fee will continue to be non-refundable and will be 
used as a credit against the investigation fee.
    Finally, a new paragraph (f) is added in order to expedite the 
review of Title XI proposals and lessen the burden on the applicant, 
which provides for the preliminary review of a request by an applicant, 
rather than a complete application, and the issuance by the Secretary 
within ten days of a Letter of Interest. There shall be no filing fee 
payable in respect of a request for the issuance of such a letter. 
Letters of interest address the general eligibility of a project and 
are not binding commitments of the Government.

Section 298.10  Citizenship

    In section 298.10, paragraphs (b) through (e) remain unchanged. 
Paragraph (a) of this section is deleted in its entirety and replaced 
with a new paragraph which incorporates changes conforming it to the 
citizenship standards in Part 221.

Section 298.11  Vessel Requirements

    In Sec. 298.11, paragraphs (b) and (d) remain unchanged. Paragraph 
(a) of this section is revised to be divided into three categories. 
This change will provide greater flexibility to ship owners and 
shipyards and will be squarely in line with the standards enunciated by 
the U.S. Coast Guard.
    The first category defines a vessel financed by Obligation 
Guarantees to be considered to be of U.S. construction and qualified 
for coastwise trade provided that all components of the hull and 
superstructure are fabricated in the United States, and that the Vessel 
is assembled entirely in the United States; however, the Vessel may 
have foreign source machinery, equipment, or hull and superstructure 
material which has been manufactured in a foreign facility to the 
extent allowed by the U.S. Coast Guard. The second category defines a 
Vessel financed by Obligation Guarantees to be considered to be of U.S. 
construction if the Vessel is assembled entirely in the United States, 
but not qualified for the coastwise trade because it has material which 
has been manufactured in a foreign facility. The third category states 
that with respect to Eligible Export Vessels financed by Obligation 
Guarantees, the Vessel must be assembled in a U.S. shipyard.
    Paragraph (c) is amended to permit Quality Systems Certificate 
Scheme issued by qualified International Association of Classification 
Societies (IACS) members who have been recognized by the Secretary as 
meeting acceptable standards for such a society to participate in the 
Eligible Export Vessel program. That recognition shall include, at a 
minimum, recognition that the society meets the requirements of IMO 
Resolution A.139(18) and delegation by the United States Coast Guard of 
inspection/certification authority.
    Finally, paragraph (e) would be added to this section to indicate 
that the preferred system of measurement and weights for Vessels and 
advanced and modern shipbuilding technology is the metric system.

Section 298.12  Applicant and Operator's Qualifications

    Section 298.12 is modified to eliminate the submission of certain 
information in paragraph (b) about the identity and ownership of the 
applicant which is not required. In addition, the paragraph is modified 
by requesting that the applicant furnish its international 
identification number, if any. Paragraph (c)(3) of this section is 
modified to cover insolvency or reorganization proceedings of the 
applicant under either domestic or foreign statutes in the case of 
Eligible Export Vessels. Finally, paragraph (f) of this section is 
modified to limit the information required to be submitted regarding 
the management and shore management personnel concerned with the 
physical operation of the vessel(s) owned by the applicant or proposed 
for construction or individuals concerned with the physical operation 
of the shipyard.

Section 298.13  Financial Requirements

    Paragraph (a)(2) is revised to clarify that foreign components of 
the hull and [[Page 20595]] superstructure may not be included in 
Actual Cost. The fourth sentence is amended to clarify that, although 
excluded from Actual Cost, foreign components of the hull and 
superstructure can be regarded as owner-furnished equipment that may be 
used in satisfying the applicant's equity requirements imposed by 
paragraph (a)(3) of this section. An illustration is provided to 
demonstrate how the cost of foreign components of the hull and 
superstructure may satisfy an applicant's equity requirements. New 
paragraph (a)(3) provides that the ability of co-financiers to exercise 
their rights against collateral shared with MARAD, if an applicant 
utilizes co-financing (i.e., consisting of a blend of Title XI and 
private financing for the debt portion of the project), shall be 
subject to the approval of the Secretary. Finally, paragraphs (a)(4), 
(b)(2), (b)(3) and (b)(4) are amended to be consistent with 46 CFR Part 
232 with respect to the use of the defined term Related Party.

Section 298.14  Economic Soundness

    In section 298.14 the existing paragraph (a)(2)(i)(F) is amended to 
recognize the potential for purchasing existing equipment of a 
reasonable condition and age from sources other than existing Title XI 
holders.

Section 298.16  Substitution of Participants

    Section 298.16 is amended by removing existing paragraph (a) which 
requires a mortgagee applying for permission to assign an insured 
mortgage to another entity to pay a fee of $1,500. It is very unlikely 
that any of the few remaining insured Mortgages will be assigned prior 
to their maturity within the next several years and, if so, MARAD's 
approval of such a request is routine.

Section 298.17  Evaluation of Applications

    Section 298.17 is amended by removing in Subpart B, Appendix A-
Selected Cash Flow Impacts. Appendix A should have been removed when 
the responsibility for the computation of the internal rate of return 
was shifted from the Title XI applicant to MARAD in 1992.

Section 298.21  Limits

    Section 298.21 modifies paragraph (b) to include in the Actual Cost 
determination Guarantee Fees determined in accordance with the 
provisions of section 1104(e) of the Act. Finally, paragraph (d) is 
amended to include applicability to Advanced Shipbuilding Technology 
and Modern Shipbuilding Technology and to provide the alternative for 
appropriate certification of the Actual Cost of a project by an agent 
approved by the Secretary.

Section 298.23  Refinancing

    The penultimate sentence in Section 298.23 is modified to provide 
that an applicant shall satisfy all of the eligibility requirements set 
forth in Subpart B of Part 298, including economic soundness, as may be 
necessary.

Section 298.25  Financing Repayment of Construction-Differential 
Subsidy

    Section 298.25 is removed due to the fact that the construction-
differential subsidy program has not been funded since 1981.

Section 298.28  Advances

    Section 298.28 is amended by shortening and simplifying the 
description of the criteria that will be applied in exercising the 
Secretary's discretion to make an advance or payment of funds.

Section 298.32  Required Provisions in Documentation

    Section 298.32 is amended to conform to the three categories of 
Vessels identified in Sec. 298.11 (a) regarding Vessel requirements, 
addressed earlier. In addition, paragraph (b)(6) is amended by adding 
the applicability of the appropriate insurance on Eligible Export 
Vessels.

Section 298.36  Annual Guarantee Fee

    Section 298.36 is amended by deleting paragraphs (f), (g), and (i) 
in their entirety and amending paragraph (e) to reflect the requirement 
that the obligor make a lump sum payment of the Guarantee Fee at the 
closing of the loan Guarantee, without any right of reimbursement in 
the event of prepayment of the Obligation. The proposed amendment 
ensures that the government will retain the full benefit of the 
Guarantee Fee and will create an incentive for applicants to enhance 
the financial structure of their transactions in order to merit 
eligibility for the lowest possible Guarantee Fee rate. It is proposed 
that the project's entire Guarantee Fee payment shall be made by the 
Obligor to the Secretary in an amount equal to the sum of the present 
value of the separate products obtained by applying the Guarantee Fee 
rate to the projected amount of the guaranteed Obligations outstanding 
for each year of the stated maturity of the guaranteed Obligation. In 
calculating the present value used in determining the amount of the 
Guarantee Fee to be paid, MARAD will use a discount rate based on 
information contained in the Department of Commerce's Economic Bulletin 
Board quarterly rates. Under no circumstances could the Secretary 
refund the Guarantee Fee to the Obligor. As provided in Sec. 298.21(b), 
a Guarantee Fee paid pursuant to this section would be included in 
Actual Cost and would be eligible to be financed.

Section 298.42  Report Requirements--Financial Statements

    Section 298.42 is amended by making certain technical corrections 
relating to requirements for independent audits by clarifying that the 
financial statements of a company are audited.

Rulemaking Analyses and Notices

Executive Order 12866  (Regulatory Planning and Review)

    This rulemaking has been reviewed under Executive Order 12866, and 
it has been determined that this is not an economically significant 
regulatory action as the rule is not likely to result in an annual 
effect on the economy of $100 million or more or adversely affect in a 
material way the economy, a sector of the economy, productivity, 
competition, jobs, the environment, public health or safety, or State, 
local, or tribal governments or communities. However, since this rule 
would further the implementation of the National Shipbuilding 
Initiative program established under Subtitle D of Title XIII, Public 
Law 103-160, to support the industrial base and national security 
objectives by assisting in the reestablishment of a United States 
shipbuilding industry as a self-sufficient internationally competitive 
industry, and is of great interest to the U.S. maritime industry, it 
has been determined to be a significant rule under the Department's 
Regulatory Policies and Procedures. Accordingly, it is considered to be 
a significant regulatory action under E.O. 12866. Because the economic 
impact should be minimal, further regulatory evaluation is not 
necessary. These amendments are intended only to simplify and clarify 
the procedural requirements for obtaining Guarantees, principally to 
expedite the process for MARAD's review of applications. Its purpose is 
to encourage the construction of ships in U.S. shipyards both for the 
domestic and the Eligible Export Vessel programs.
    MARAD is publishing these amendments as a notice of proposed 
rulemaking, as necessary to carry out the Secretary's responsibilities 
under [[Page 20596]] Title XI and to improve program administration.
    This rulemaking document has been reviewed by the Office of 
Management and Budget under Executive Order 12866, ``Regulatory 
Planning and Review.''

Federalism

    MARAD has analyzed this rulemaking in accordance with the 
principles and criteria contained in Executive Order 12612 and has 
determined that these regulations do not have sufficient federalism 
implications to warrant the preparation of a Federalism Assessment.

Regulatory Flexibility Act

    MARAD certifies that this regulation will not have a significant 
economic impact on a substantial number of small entities.

Environmental Assessment

    MARAD has considered the environmental impact of this rulemaking 
and has concluded that an environmental impact statement is not 
required under the National Environmental Policy Act of 1969.

Paperwork Reduction Act

    This rulemaking contains reporting requirements that have 
previously been approved by the Office of Management and Budget 
(Approval No. 2133-0018). Use of the present Maritime Administration 
Title XI Obligation Guarantees form will be continued pending revision 
and issuance of new forms, which must be approved by The Office of 
Management and Budget.

List of Subjects in 46 CFR Part 298

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

    Accordingly, 46 CFR Part 298 is proposed to be amended as follows:
    1. The authority citation for part 298 continues to read as 
follows:

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


Sec. 298.13, 298.35, 298.37  [Amended]

    2. Remove all references in Secs. 298.13 (a)(2)(iv), (b)(2)(i)(B) 
and (b)(3); 298.35 (b)(1)(ii), (b)(2)(ii), (c)(1)(ii), and (c)(2)(ii); 
and 298.37 to the terms ``Affiliate(s)'' and ``affiliates'', and 
substitute the term ``Related Party''.
    3. Section 298.2 is amended as follows:
    a. By removing paragraph (d), Affiliate or Affiliated.
    b. By amending paragraph (n), Indenture Trustee, to add the 
following words, ``which is located in and organized and doing business 
under the laws of the United States, any State or territory thereof, 
the District of Columbia or the Commonwealth of Puerto Rico,'' after 
the amount ``$3,000,000.''
    c. By redesignating paragraphs (e) through (o) as paragraphs (d) 
through (n); redesignating paragraphs (y) through (bb) as paragraphs 
(z) through (cc); and by adding new paragraphs (o) and (y) to read as 
follows:


Sec. 298.2  Definitions.

* * * * *
    (o) Letter of Interest means a letter issued by the Secretary upon 
receipt of a request for Guarantees. A Letter of Interest is not a 
financial offer but rather an indication of what terms may be 
considered by the Secretary if a Letter Commitment is issued at a later 
date. Proposed terms set forth in Letters of Interest shall remain 
valid for six months.
* * * * *
    (y) Related Party means any Person directly or indirectly 
controlling, controlled by or under common control with another Person.
* * * * *
    4. Section 298.3 is amended as follows:
    By revising paragraphs (b)(1) and (c), and adding a new paragraph 
(f), to read as follows:


Sec. 298.3  Applications.

* * * * *
    (b)(1) Time requirements for application. Each application shall be 
submitted to the Secretary at least four months prior to the 
anticipated date by which the applicant requires a Letter Commitment. 
The Secretary may consider applications with less notice prior to the 
anticipated date by which the applicant requires a Letter Commitment, 
upon written documentation that extenuating circumstances exist. During 
the first 15 calendar day period after submission, the Secretary will 
perform a preliminary review of the application for adequacy and 
completeness. If the application is found to be incomplete, or if 
additional data is required, the Secretary will notify the applicant 
promptly in writing and the applicant will have 15 calendar days to 
correct deficiencies from the date of each request for additional 
information. If the applicant has not corrected the deficiencies, or 
made substantial progress toward correcting them, within this 15 
calendar day period, then the Secretary may terminate the processing of 
the application without prejudice. Once the Title XI application is 
considered complete by the Secretary, the Secretary will act on the 
application within a period of 60 calendar days. If an application is 
not completed by the applicant and acted upon by the Secretary within 
four months from the submission date, unless such time period is 
extended by the Secretary, the Secretary will notify the applicant in 
writing that processing of the application is terminated and that the 
applicant may reapply at a later date.
* * * * *
    (c) Filing Fee. Each application must be accompanied by a filing 
fee in the amount of one quarter of the investigation fee amount 
calculated pursuant to the investigation fee formula outlined in 
Sec. 298.15. in no event will the filing fee be less than $1,000.
    The filing fee will be non-refundable, irrespective of whether the 
Secretary subsequently issues a Letter Commitment or whether the 
applicant subsequently reduces the amount of the requested guarantee 
and will be used as a credit against the investigation fee.
* * * * *
    (f) Preliminary review. (1) Upon receipt of a request for a Letter 
of Interest, the Secretary may perform a preliminary review of the 
application. After preliminarily evaluating the technical, financial, 
and economic viability of the proposed Title XI project (e.g., the 
existence of a long term Vessel charter commitment or the technical 
ability of the yard to construct a Vessel), the Secretary may issue, 
within 10 days of receipt of that request, the Letter of Interest. A 
request for a Letter of Interest shall contain the following 
information:
    (i) Type of vessel or Advanced or Modern Shipbuilding Technology to 
be financed;
    (ii) Approximate total cost of the vessel or Advanced or Modern 
Shipbuilding Technology and amount to be guaranteed;
    (iii) Recent financial information on the prospective shipowner, 
bareboat charterer, and shipyard, if available;
    (iv) Information bearing on the economic soundness of the proposed 
project; and
    (v) Proposed term of financing.
    (2) There shall be no filing fee payable in respect of a request 
for the issuance of such a Letter of Interest. Letters of Interest 
address the general eligibility of a project and are not binding 
commitments of the Government.
    5. Section 298.10 is amended by revising paragraph (a) to read as 
follows:


Sec. 298.10  Citizenship.

    (a) Applicability. Prior to acquiring a legal or beneficial 
interest in a Vessel financed under Title XI of the Act, 
[[Page 20597]] except as provided in paragraph (e) of this section, the 
applicant and any other Person (including, but not limited to 
shipowners and, if applicable, owner trustees, equity participants and 
bareboat charterers) shall establish their United States citizenship 
within the meaning of Section 2 of the Shipping Act, 1916, as amended 
(``1916 Act'') (46 App. U.S.C. 802) and MARAD's regulation at 46 CFR 
221.3(c). All persons holding a Preferred Mortgage on the Vessel who do 
not qualify as citizens of the United States shall submit on the date 
of the closing evidence that they qualify for the MARAD approval 
granted pursuant to 46 CFR 221.23, or that they have received approval 
pursuant to 46 CFR 221.25. The Secretary will not approve an 
application providing for ownership of such Vessel by, or bareboat 
chartering of such Vessel to, a non-U.S. citizen. Citizenship may also 
be required of any Person who is deemed by the Secretary to be an 
operator of the Vessel or who has authority to direct the operation of 
the Vessel on behalf of the shipowner. Certain chartering arrangements, 
including time chartering and contracts of affreightment, have been 
given general approval by the Secretary pursuant to Sections 9, 37, and 
41 of the 1916 Act. See Part 221 of Title 46 for more details on these 
approvals and other approvals granted concerning chartering and 
mortgaging of U.S. documented vessels.
* * * * *
    6. Section 298.11 is amended as follows:
    a. By amending paragraph (c) by adding in the first sentence after 
the word ``registered'', before the parenthesis, the words ``or 
otherwise recognized by the Secretary as meeting acceptable 
classification standards for such a society, which shall include 
recognition that the society meets the requirements of IMO Resolution 
A.739(18) and delegation by the United States Coast Guard of 
inspection/certification authority''.
    b. By revising paragraph (a) and adding a new paragraph (e) to read 
as follows:


Sec. 298.11  Vessel requirements.

* * * * *
    (a) United States Construction.
    (1) Coastwise Trade, U.S.-Flag Vessels. A vessel financed by 
Obligation Guarantees is considered to be of United States construction 
and qualified for use in coastwise trade operation (46 App. U.S.C. 883) 
if:
    (i) All components of the hull and superstructure are fabricated in 
the United States; and
    (ii) The Vessel is assembled entirely in the United States and has 
U.S. or foreign source machinery, equipment or hull and superstructure 
material which has been manufactured in a foreign facility, to the 
extent permitted by the U.S. Coast Guard.
    (2) Non-Coastwise Trade, U.S.-Flag Vessels. A Vessel financed by 
Obligation Guarantees is considered to be of United States construction 
if the vessel is assembled entirely in the United States but not 
qualified for use in the coastwise trade because it has foreign 
material which has been manufactured in a foreign facility.
    (3) Eligible Export Vessels. With respect to Eligible Export 
Vessels, the Vessel is considered to be of U.S. construction if 
assembled in a United States shipyard.
* * * * *
    (e) Metric Usage. The preferred system of measurement and weights 
for Vessels and Advanced and Modern Shipbuilding Technology shall be 
the metric system.
    7. Section 298.12 is amended by revising paragraphs (b)(1)(i) and 
(b)(2)(i) to read as follows:


Sec. 298.12  Applicant and operator's qualifications.

* * * * *
    (b) Identity and ownership of applicant. * * *
    (1) Incorporated companies. * * *
    (i) Exact name of applicant and tax identification number of a U.S. 
corporation, or if appropriate, international identification number of 
the applicant.
* * * * *
    (2) Partnerships, joint-ventures, associations, unincorporated 
companies. * * *
    (i) Name of partnership, association, or unincorporated company, 
and tax identification number, or if appropriate, international 
identification number of applicant.
* * * * *


Sec. 298.12  [Amended]

    7a. Section 298.12 is further amended by:
    a. By removing paragraphs (b)(1)(iv) through (b)(1)(vii), (b)(2)(v) 
through (b)(2)(vii), (b)(2)(ix), and (b)(3), and redesignating 
paragraph (b)(2)(viii) as (b)(2)(v) and paragraph (b)(4) as paragraph 
(b)(3).
    b. By amending paragraph (c)(3) by adding after the word 
``proceedings'', the first time it occurs, before the comma, the words 
``under either domestic or foreign statutes''.
    c. By amending paragraph (f)(1) by removing the words ``by all'', 
each time they appear, and inserting in their place the words ``by all 
senior supervisory personnel''.
    8. Section 298.13 is amended as follows:
    a. By adding the following sentence to the end of paragraph (a)(3), 
Financing: ``If the applicant uses co-financing (involving a blend of 
Title XI and private financing for the debt portion of the project), 
the ability of the co-financiers to exercise their rights against 
collateral shared with the Secretary for any transaction shall be 
subject to the approval of the Secretary.''
    b. By removing paragraph (b)(7), Deferred Lease Hire.
    c. By revising paragraphs (a)(2)(i), (a)(4), (b)(2), (b)(3), (b)(4) 
and (e)(2)(i) to read as follows:


Sec. 298.13  Financial requirements.

    (a) * * *
    (2) Cost of the project. * * *
    (i) In the case of an applicant for Vessel Financing Guarantees, a 
detailed statement of the estimated Actual Cost of construction, 
reconstruction or reconditioning of the Vessel(s) including those items 
which would normally be capitalized as Vessel construction costs. Net 
interest during construction is the total estimated construction period 
interest on non-equity funds less estimated earnings from the escrow 
fund, if such fund is to be established prior to Vessel(s) delivery. 
Each item of foreign components and services shall be excluded from 
Actual Cost, unless a waiver is specifically granted for the item, 
which waiver shall not be granted for foreign components of the hull 
and superstructure. Although excluded from Actual Cost, foreign 
components of the hull and superstructure can be regarded as owner-
furnished equipment that may be used in satisfying the applicant's 
equity requirements imposed by paragraph (a)(3) of this section. An 
illustration of how the cost of foreign components of the hull and 
superstructure may be used to satisfy an applicant's equity 
requirements is outlined in this paragraph. If any of the costs have 
been incurred by written contracts such as the shipyard contract, 
management or operating agreement, signed copies should be forwarded 
with the application. The applicant may be required to have the 
contracting shipyard submit back-up cost details and technical data. 
This information shall be submitted in the format as prescribed by the 
Title XI application procedures. [[Page 20598]] 

Illustration--Cost of Foreign Components Satisfying Equity Requirements

    Assuming that the total project cost is $100 million, of which 
the cost of foreign components in the hull and superstructure total 
$20 million, and that the Title XI applicant has requested financing 
for 87\1/2\ percent of the cost of the project, the following is a 
demonstration of how the value of the foreign components in the hull 
and superstructure may be used in meeting the equity requirements of 
Sec. 298.13(a)(3):

Cost of Foreign Components Excluded from Actual Cost

Cost of Project
$100.0 million
Cost of Foreign Components in Hull and Superstructure
$20.0 million
Total Actual Cost of Project
$80.0 million
Required Equity
    (12\1/2\ percent)
$10.0 million
Total Project Cost Financed w/ Title XI (87\1/2\ percent)
$70.0 million

    The $10 million in required equity may be satisfied by the 
owner's contribution of the foreign components of hull and 
superstructure to the project.
* * * * *
    (4) Financial Information.  The applicant shall submit the 
following additional financial statements with respect to both the 
proposed Title XI project and the overall operations of the applicant, 
prepared in accordance with 46 CFR part 232 and including notes to 
explain the basis used for arriving at the figures:
    (i) The three most recent audited financial statements of the 
applicant, its parent, if any, and other significant participants. If 
the applicant is a new entity or is to be funded from or guaranteed by 
external source(s), it shall provide the audited financial statements 
of the funding source(s);
    (ii) A pro forma balance sheet of the applicant as of the estimated 
date of execution of the Guarantees reflecting the assumption of the 
Title XI Obligations;
    (iii) A schedule of amortization of all existing debt (Title XI or 
otherwise) of the applicant for the period in which the Guarantees are 
to be outstanding; and
    (iv) A Sources and Uses Statement for the first full year of 
operations and the following five years, including a clear source of 
funding for the payment of all debt when due.
    (b) Financial Definitions. * * *
    (2) Working Capital means the difference between current assets and 
current liabilities, adjusted as follows:
    (i) Current assets shall exclude:
    (A) Amounts in or required to be set aside in any Title XI Reserve 
Fund, pursuant to Sec. 298.35(e) or Capital Construction Fund Security 
Amount prescribed by Sec. 298.35(f), (excluding that portion of such 
fund which is available for the payment of current liabilities) that is 
being maintained pursuant to an agreement covering a Vessel owned or 
leased by the company, or in another similar fund required under any 
other mortgage, indenture or other agreement to which the company is a 
party; and
    (B) Any receivables from a Related Party or from any stockholder, 
director, officer or employee (or their family) of the company or of a 
Related Party other than current receivables arising out of the 
ordinary course of business and not outstanding for more than 60 days.
    (ii) Current liabilities shall include the current portion of 
charter hire and other lease obligations not already included as a 
current liability.
    (3) Equity (net worth) shall be exclusive of:
    (i) Any receivables from a Related Party or from any stockholder, 
director, officer or employee (or their family) of the company or of a 
Related Party other than current receivables arising out of the 
ordinary course of business and not outstanding for more than 60 days, 
and
    (ii) Any increment resulting from the reappraisal of assets.
    (4) Long Term Debt shall exclude the balance of Escrow Fund 
deposits attributable to the principal of Obligations sold, where 
deposits are required in accordance with Sec. 298.33. However, there 
shall be included any guarantee or other liability for the debt of any 
other Person.
* * * * *
    (e) Special financial requirements at closing. * * *
    (2) Lessee or charterer as operator. * * *
    (i) Working Capital. The Company shall have Working Capital in an 
amount determined in accordance with the provisions of paragraph 
(e)(1)(i) of this section, applicable as if the owner were the 
operator.
* * * * *
    9. Section 298.14, is amended by revising paragraph (a)(2)(i)(F) 
introductory text to read as follows:


Sec. 298.14  Economic soundness.

    (a) Economic Evaluation. * * *
    (2) Project Feasibility. * * *
    (i) Relevant market. * * *
    (F) The potential for purchasing existing equipment of a reasonable 
condition and age from another source, including information 
regarding--
* * * * *


Sec. 298.16  [Amended]

    10. Section 298.16, Substitution of participants, is amended by 
removing paragraph (a) and redesignating the introductory text as 
paragraph (a); by revising in the last sentence of newly designated 
paragraph (a) the phrase ``is applicable, as follows:'' to read ``is 
applicable.''; and by removing the paragraph (b) heading Mortage 
assumption and revising the phrase ``Payment of $3,000 fee'' to read 
``A $3,000 fee''.

Appendix A to Subpart B [Removed]

    11. Appendix A to Subpart B--Selected Cash Flow Impacts--is 
removed.
Sec. 298.21  [Amended]

    12. Section 298.21, Limits, is amended as follows:
    a. By inserting in paragraph (b), before the third sentence, an 
additional sentence, reading as follows: ``In addition, Guarantee Fees 
determined in accordance with the provisions of section 1104(e) of the 
Act shall be included in the items of Actual Cost.''
    b. By inserting in paragraph (d), Substantiation of Actual Cost, 
after the word ``Vessel'' each time it appears, the words ``or Advanced 
Shipbuilding Technology or Modern Shipbuilding Technology'', and by 
inserting at the end of the first sentence the words ``or, 
alternatively, appropriate certification of such costs by an agent 
approved by the Secretary''.
    c. By removing paragraph (c)(9) and redesignating paragraphs 
(c)(10) through (c)(16) as paragraphs (c)(9) through (c)(15).
Sec. 298.23  [Amended]

    13. Section 298.23, Refinancing, is amended in the penultimate 
sentence by adding after the word ``part'' and before the period, a 
comma followed by the words ``including economic soundness, as may be 
necessary.''.
Sec. 298.25  [Removed and reserved]

    14. Section 298.25, Financing repayment of construction-
differential subsidy, is removed and reserved.
Sec. 298.28  [Amended]

    15. Section 298.28, Advances, is amended by removing paragraphs 
(a)(1) through (a)(3) and (b), redesignating paragraph (c) as paragraph 
(b) and by removing the third sentence in paragraph (a), In general, 
and inserting, in its place, two new sentences reading as follows: 
``The applicant making the request for an advance shall demonstrate 
(with market and cash flow analysis and other projections) that its 
problems are of a short term duration (less than two years); with the 
help of an advance(s), the applicant would be assisted over its 
temporary difficulties; and there is adequate collateral for the 
advance. The advance will be repaid in [[Page 20599]] a manner 
satisfactory to the Secretary and the advance will be subject to such 
other terms and conditions as required by the Secretary.''
    16. Section 298.32 is amended as follows:
    a. By inserting in paragraph (b)(6), after the word ``Vessel'', 
each time it appears, the words ``or Eligible Export Vessel''.
    b. By revising paragraph (a)(6) to read as follows:


Sec. 298.32  Required provisions in documentation.

    (a) Performance under shipyard and related contracts. * * *
    (6) Requiring that for:
    (i) Coastwise Trade, U.S.-Flag 48 Vessels, that all components of 
the hull and superstructure are fabricated in the United States and the 
Vessel is assembled entirely in the United States with either U.S. or 
foreign source machinery, equipment or hull and superstructure material 
which has been fabricated in a foreign facility, to the extent allowed 
by U.S. Coast Guard regulations;
    (ii) Non-Coastwise Trade, U.S.-Flag Vessels, that the Vessel is 
assembled entirely in the United States and may have material which has 
been fabricated in a foreign facility, to the extent allowed by U.S. 
Coast Guard regulations; and
    (iii) Eligible Export Vessels, that the Vessel is assembled in a 
United States shipyard. If Obligations will not be issued during the 
period of construction of a Vessel, shipyard related contracts shall 
generally include the provisions specified in paragraphs (a)(2) and 
(a)(3) and applicable provision(s) of this paragraph (a)(6).
    17. Section 298.36, Annual Guarantee Fee, is amended as follows:
    a. By removing the third sentence in paragraph (b), Rate 
calculation.
    b. By removing paragraphs (f), Adjustment of Guarantee Fee, (g), 
Increase in Guarantee Fee due to Security Default, and (i), Interest on 
late payment of Guarantee Fees, and redesignating paragraph (h) as 
paragraph (f).
    c. By revising paragraph (e) to read as follows:


Sec. 298.36  Annual Guarantee Fee.

* * * * *
    (e) Payment of Guarantee Fee. The Guarantee Fee covering the full 
period of the stated maturity of the Obligations commencing with the 
date of the Security Agreement shall be paid to the Secretary 
concurrently with the execution and delivery of said Agreement. The 
project's entire Guarantee Fee payment shall be made by the Obligor to 
the Secretary in an amount equal to the sum of the present value of the 
separate products obtained by applying the Guarantee Fee rate to the 
projected amount of the Obligations Outstanding for each year of the 
stated maturity of the Obligations. In calculating the present value 
used in determining the amount of the Guarantee Fee to be paid, MARAD 
will use a discount rate based on information contained in the 
Department of Commerce's Economic Bulletin Board quarterly rates. Under 
no circumstances will the Secretary refund the Guarantee Fee to the 
Obligor. A Guarantee Fee paid pursuant to this section may be included 
in Actual Cost and is eligible to be financed.


Sec. 298.42  [Amended]

    18. Section 298.42, Reporting requirements--financial statements, 
is amended as follows:
    a. In the introductory paragraph, by removing the word ``accounts'' 
in the first sentence and inserting in its place the term ``financial 
statements''.
    b. By revising the seventh and eighth sentences of paragraph (a), 
Reports of Company and other Persons, to read as follows: ``The annual 
report shall be accompanied by the public accountant's report based on 
an audit of the company's financial statements. An audit by the public 
accountants of the financial statements contained in the company's 
semiannual report may be required by the Secretary.''

    Dated: April 19, 1995.

    By Order of the Maritime Administrator.
Joel C. Richard
Secretary, Maritime Administration.
[FR Doc. 95-10195 Filed 4-25-95; 8:45 am]
BILLING CODE 4910-81-P