[Federal Register Volume 67, Number 113 (Wednesday, June 12, 2002)]
[Proposed Rules]
[Pages 40260-40263]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-14823]


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DEPARTMENT OF TRANSPORTATION

Maritime Administration

46 CFR Part 298

[Docket No. MARAD-2002-12425]
RIN 2133-AB47


Amendment of MARAD's Regulations Establishing and Administering 
Deposit Funds Authorized by Section 1109 of the Merchant Marine Act, 
1936, as Amended

AGENCY: Maritime Administration, Transportation.

ACTION: Notice of Proposed Rulemaking (NPRM).

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SUMMARY: Recent legislation modified the Merchant Marine Act, 1936, as 
amended, by adding a new Section 1109, which authorizes the Secretary 
of Transportation to hold funds from Title XI obligors as collateral by 
depositing them with the United States Treasury and investing them in 
Treasury obligations. As a consequence, these funds need no longer be 
deposited in private banks. This notice of proposed rulemaking proposes 
changes to existing procedures to simplify, reduce costs of, and 
expedite Title XI closings.

DATES: You should submit your comments early enough to ensure that 
Docket Management receives them not later than August 12, 2002.

ADDRESSES: Your comments should refer to docket number MARAD-2002-
12425. You may submit your comments in writing to: Docket Clerk, U.S. 
DOT Dockets, Room PL-401, 400 7th St., SW., Washington, DC 20590. You 
may also submit them electronically via the Internet at http://dmses.dot.gov/submit/ submit/. You may call Docket Management at (202) 366-
9324 and visit the Docket Room from 10 a.m. to 5 p.m., E.T., Monday 
through Friday, except Federal Holidays. An electronic version of this 
document is available on the World Wide Web at http://dms.dot.gov.

FOR FURTHER INFORMATION CONTACT: Mr. Richard M. Lorr, Assistant Chief 
Counsel for Ship Financing, at (202) 366-5882. You may send mail to Mr. 
Lorr at Maritime Administration, Office of Chief Counsel, Room 7221, 
400 Seventh Street, SW., Washington, DC 20590. You may also e-mail Mr. 
Lorr at [email protected].

SUPPLEMENTARY INFORMATION:

Comments

How Do I Prepare and Submit Comments?

    Your comments must be written and in English. To ensure that your 
comments are correctly filed in the Docket, please include the docket 
number of this document in your comments. We encourage you to write 
your primary comments in a concise fashion. However, you may attach 
necessary additional documents to your comments. There is no limit on 
the length of the attachments. Please submit two copies of your 
comments, including the attachments, to Docket Management at the 
address given above under ADDRESSES.

How Can I Be Sure That My Comments Were Received?

    If you wish Docket Management to notify you upon its receipt of 
your comments, enclose a self-addressed, stamped postcard in the 
envelope containing your comments. Docket Management will return the 
postcard by mail.

How Do I Submit Confidential Business Information?

    If you wish to submit any information under a claim of 
confidentiality, you should submit three copies of your complete 
submission, including the information you claim to be confidential 
business information, to the Chief Counsel, Maritime Administration, at

[[Page 40261]]

the address given above under FOR FURTHER INFORMATION CONTACT. You 
should mark ``CONFIDENTIAL'' on each page of the original document that 
you would like to keep confidential. In addition, you should submit two 
copies, from which you have deleted the claimed confidential business 
information, to Docket Management at the address given above under 
ADDRESSES. When you send comments containing information claimed to be 
confidential business information, you should include a cover letter 
setting forth with specificity the basis for any such claim.

Will the Agency Consider Late Comments?

    We will consider all comments that Docket Management receives 
before the close of business on the comment closing date indicated 
above under DATES. To the extent possible, we will also consider 
comments that Docket Management receives after that date.

How Can I Read the Comments Submitted by Other People?

    You may read the comments received by Docket Management at the 
address given above under ADDRESSES. The hours of the Docket Room are 
indicated above in the same location. You may also see the comments on 
the Internet. To read the comments on the Internet, take the following 
steps: Go to the Docket Management System (DMS) Web page of the 
Department of Transportation (http://dms.dot.gov/). On that page, click 
on ``search.'' On the next page (http://dms.dot.gov/search/), type in 
the five-digit docket number shown at the beginning of this document. 
The docket number for this document is 12425. After typing the docket 
number, click on ``search.'' On the next page, which contains docket 
summary information for the docket you selected, click on the desired 
comments. You may download the comments. Please note that even after 
the comment closing date, we will continue to file relevant information 
in the Docket as it becomes available. Further, some people may submit 
late comments. Accordingly, we recommend that you periodically check 
the Docket for new material.

Background

    The Title XI Program is a loan guarantee program which was 
established under Title XI of the Merchant Marine Act, 1936, as amended 
(the ``Act''). The Secretary of Transportation (Secretary) acting by 
and through the Maritime Administrator administers the Title XI 
Program.
    Title XI provides for the full faith and credit of the United 
States for the payment of debt obligations for: (1) U.S. or foreign 
shipowners for the purpose of financing or refinancing either U.S. flag 
vessels or eligible export vessels constructed, reconstructed, or 
reconditioned in U.S. shipyards and (2) U.S. shipyards for the purpose 
of financing advanced shipbuilding technology and modern shipbuilding 
technology of a privately owned general shipyard facility located in 
the U.S.
    The guaranteed obligations (i.e., notes and bonds) are sold in the 
private sector. The main purchasers of the obligations include banks, 
pension funds, life insurance companies, and the general public.
    In those instances where the Secretary guarantees obligations under 
Title XI and where the proceeds of the sale of the obligations are to 
be used for the construction, reconstruction, or reconditioning of a 
vessel or for a shipyard improvement, all such proceeds constitute 
security for the Secretary's risks in extending the guarantees, and are 
to be under the control of the Secretary as governed by applicable 
agreements between the Secretary and the Title XI debtor. In addition, 
the documentation of a Title XI transaction requires the Title XI 
debtor, under certain circumstances, to make deposits into the Title XI 
Reserve Fund as additional security for the Secretary.
    Prior to the enactment of Section 1109, section 1108 authorized the 
Secretary to hold only a percentage of obligation proceeds in an escrow 
account (the ``Escrow Fund'') with the Treasury. The remaining 
percentage was deposited with a commercial bank in what has become to 
be known as the ``Construction Fund.'' In addition, the Secretary had 
no authority under the Act to accept or hold Title XI Reserve Fund 
deposits. Currently, such deposits, like the Construction Fund, are 
placed with and held by a commercial bank. The Depository Agreement 
among the Title XI debtor, the Secretary, and the commercial bank sets 
forth the terms and conditions under which the funds may be invested, 
withdrawn, or otherwise paid to the Secretary or the Title XI debtor. 
The Title XI debtor granted to the Secretary security interests in 
these accounts and their contents (the ``Collateral''), and provided 
the Secretary an opinion of counsel on the perfection and first 
priority of these security interests.
    The Uniform Commercial Code (the ``UCC'') of the various states, 
for the most part, governs the perfection and priority of the 
Secretary's security interests in the Collateral. At its financial 
closings, MARAD's experience has been that, given the provisions of the 
UCC and especially the recent changes to the UCC, even the most 
knowledgeable of legal counsel have had difficulty drafting clean legal 
opinions about the perfection and enforceability of MARAD's security 
interest in the Collateral held by commercial depositories. As a result 
of these factors, opinions of counsel have, over time, become 
increasingly time consuming and costly. On the other hand, there has 
never been any question about the perfection and enforceability of 
MARAD's security interest in funds held in the Escrow Fund by the 
Treasury under MARAD's normal security agreements.
    In an effort to ameliorate the situation and to streamline the 
Title XI closing process, the Secretary determined that an alternate 
means for holding and investing the proceeds of the obligations was 
necessary. Since the Escrow Fund was already in place, it seemed only 
logical to use it for not just a percentage of the proceeds, but for 
all the proceeds. Accordingly, the Secretary sought the enabling 
legislation, and section 1109 is the result. The Secretary believes 
this authority will reduce the cost of obtaining Title XI benefits by 
simplifying the opinions of counsel and eliminating the costs of 
engaging commercial banks to hold and invest the proceeds. In addition, 
it is anticipated that closing documentation will be reduced or 
simplified.
    Section 1109 of the Merchant Marine Act, 1936, as amended (codified 
at 46 App. U.S.C. 1279b) provides:

Section 1279b. Deposit Fund

    (a) Establishment of deposit fund. There is established in the 
Treasury a deposit fund for purposes of this section. The Secretary 
may, in accordance with an agreement under subsection (b), deposit into 
and hold in the deposit fund cash belonging to an obligor to serve as 
collateral for a guarantee under this title made with respect to the 
obligor.
    (b) Agreement.
    (1) In general. The Secretary and an obligor shall enter into a 
reserve fund or other collateral account agreement to govern the 
deposit, withdrawal, retention, use, and reinvestment of cash of the 
obligor held in the deposit fund established by subsection (a). (2) 
Terms. The agreement shall contain such terms and conditions as are 
required under this section and such additional terms as are considered 
by the Secretary to be necessary to protect fully the interests of the 
United States. (3) Security interest of

[[Page 40262]]

United States. The agreement shall include terms that grant to the 
United States a security interest in all amounts deposited into the 
deposit fund. (c) Investment. The Secretary may invest and reinvest any 
part of the amounts in the deposit fund established by subsection (a) 
in obligations of the United States with such maturities as ensure that 
amounts in the deposit fund will be available as required for purposes 
of agreements under subsection (b). Cash balances of the deposit fund 
in excess of current requirements shall be maintained in a form of 
uninvested funds and the Secretary of the Treasury shall pay interest 
on these funds.
    (d) Withdrawals.
    (1) In general. The cash deposited into the deposit fund 
established by subsection (a) may not be withdrawn without the consent 
of the Secretary.
    (2) Use of income. Subject to paragraph (3), the Secretary may pay 
any income earned on cash of an obligor deposited into the deposit fund 
in accordance with the terms of the agreement with the obligor under 
subsection (b).
    (3) Retention against default. The Secretary may retain and offset 
any or all of the cash of an obligor in the deposit fund, and any 
income realized thereon, as part of the Secretary's recovery against 
the obligor in case of a default by the obligor on an obligation.
    In accord with the new legislation, the Maritime Administration 
(MARAD, we, our, or us) proposes to amend our regulations at 46 CFR 
part 298 to authorize deposit of Reserve Funds, Construction Funds, and 
Escrow Funds in the U.S. Treasury.

Rulemaking Analyses and Notices

Executive Order 12866 and DOT Regulatory Policies and Procedures

    We have reviewed this notice of proposed rulemaking (NPRM) under 
Executive Order 12866 and have determined that it is not a significant 
regulatory action under section 3(f). It is also not significant under 
DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 
1979). Due to the limited economic impact of this NPRM, no further 
analysis is necessary. These proposals are intended only to authorize 
deposit of Reserve Funds and Construction Funds in the U.S. Treasury. 
The intended effect is to encourage the construction of ships in U.S. 
shipyards both for the domestic and the Eligible Export Vessel programs 
and the modernization and improvement of U.S. general shipyard 
facilities by improving Title XI program administration.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires 
MARAD to determine whether this NPRM will have a significant economic 
impact on a substantial number of small entities. Although a 
substantial number of Title XI applicants may meet the United States 
Small Business Administration's criteria for small entity, this NPRM 
will not have a significant economic impact because it merely proposes 
to authorize the deposit of Reserve Funds and Construction Funds into 
the U.S. Treasury. Section 1279b of 46 App. U.S.C. authorizes the 
deposit of these funds. Currently, obligors deposit these funds in 
private banks which charge depository fees. This proposal will 
eliminate depository fees. We do not believe that this NPRM will have a 
significant economic impact on a substantial number of small entities. 
We welcome specific comments regarding the economic impact of this 
proposal.

Executive Order 13132

    We have analyzed this rulemaking in accordance with the principles 
and criteria contained in Executive Order 13132 (``Federalism'') and 
have determined that it does not have sufficient federalism 
implications to warrant the preparation of a federalism summary impact 
statement. The proposed regulations will have no substantial effects on 
the States, or on the current Federal-State relationship, or on the 
current distribution of power and responsibilities among the various 
local officials. Therefore, consultation with State and local officials 
was not necessary.

Executive Order 13175

    We do not believe that the proposed regulations will significantly 
or uniquely affect the communities of Indian tribal governments when 
analyzed under the principles and criteria contained in Executive Order 
13175 (``Consultation and Coordination with Indian Tribal 
Governments''). Therefore, the funding and consultation requirements of 
this Executive Order would not apply.

Paperwork Reduction Act

    This rulemaking contains requirements that have been approved 
previously by the Office of Management and Budget (Approval No. 2133-
0018).

Unfunded Mandates Reform Act

    This NPRM does not impose unfunded mandates under the Unfunded 
Mandates Reform Act of 1995. It does not result in costs of $100 
million or more to either State, local, or tribal governments, in the 
aggregate, or to the private sector, and is the least burdensome 
alternative that achieves the objectives of the rule.

Regulation Identifier Number (RIN)

    The Department of Transportation assigns a regulation identifier 
number (RIN) to each regulatory action listed in the Unified Agenda of 
Federal Regulations. The Regulatory Information Service Center 
publishes the Unified Agenda in April and October of each year. You may 
use the RIN contained in the heading of this document to cross-
reference this action with the Unified Agenda.

List of Subjects in 46 CFR Part 298

    Loan programs--transportation, Maritime carriers, Reporting and 
recordkeeping requirements. Accordingly, we propose to amend 46 CFR 
part 298 as follows:

PART 298--OBLIGATION GUARANTEES

    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. 298.2  [Amended]

    2. In Sec. 298.2, the definition of Depository is amended by 
removing all words after ``Depository means'' and adding in their place 
``the U.S. Department of Treasury, acting in its capacity under Section 
1109 of the Act.''
    3. In Sec. 298.21 revise paragraph (f)(2) to read as follows:


Sec. 298.21  Limits.

* * * * *
    (f) * * *
    (2) As long as we have not paid the Guarantees, you or other 
recipient shall promptly deposit these moneys with us to be held by the 
Depository in accordance with the Depository Agreement.
* * * * *
    4. In Sec. 298.22 revise paragraph (b)(2) to read as follows:


Sec. 298.22  Amortization of Obligations.

* * * * *
    (b) * * *
    (2) You establish a fund with the Depository in which you deposit 
an equal annual amount necessary to redeem the outstanding Obligations 
at maturity; or
* * * * *

[[Page 40263]]

Sec. 298.33  [Amended]

    5. Section 298.33 is amended as follows:
    a. In paragraph (a), by removing the word ``us'' and adding the 
words ``the Depository'' in its place.
    b. By removing paragraph (b)(2)(i) and redesignating paragraphs 
(b)(2)(ii) through (iv) as paragraphs (b)(2)(i) through (iii).
    6. Section 298.35(d) introductory text is revised to read as 
follows:


Sec. 298.35  Title XI Reserve Fund and Financial Agreement.

* * * * *
    (d) Deposits. Unless the Company, as of the close of its accounting 
year, was subject to and in compliance with the financial requirements 
set forth in paragraph (b)(2) of this section, the Company shall make 
one or more deposits to us to be held by the Depository (the Title XI 
Reserve Fund), as further provided for in the Depository Agreement. The 
amount of deposit as to any year, or period less than a full year, 
where applicable, will be determined as follows:
* * * * *

    Dated: June 7, 2002.

    By Order of the Maritime Administrator.
Joel C. Richard,
Secretary, Maritime Administration.
[FR Doc. 02-14823 Filed 6-11-02; 8:45 am]
BILLING CODE 4910-81-P