[Federal Register Volume 88, Number 79 (Tuesday, April 25, 2023)]
[Proposed Rules]
[Pages 24962-24967]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-08243]


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DEPARTMENT OF TRANSPORTATION

Maritime Administration

46 CFR Part 298

[Docket Number MARAD-2023-0086]
RIN 2133-AB98


Amendment to the Federal Ship Financing Program Regulations; 
Financial Requirements

AGENCY: Maritime Administration, Department of Transportation.

ACTION: Notice of proposed rulemaking; request for comments.

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SUMMARY: This document serves to inform interested parties and the 
public that the Maritime Administration (MARAD) proposes to amend its 
regulations implementing the Federal Ship Financing Program's (Title XI 
Program) financial requirements. This action is necessary to implement 
statutory changes and update the existing financial requirements 
imposed on Title XI Program obligors to align with more up-to-date 
vessel financing and federal credit best practices. MARAD solicits 
written comments on this rulemaking.

DATES: Written comments are requested on or before June 26, 2023.

ADDRESSES: Your comments should refer to DOT Docket Number MARAD-2023-
0086 and may be submitted by any of the following methods:
     Federal eRulemaking Portal: www.regulations.gov. Search 
``MARAD-2023-0086'' and follow the instructions for submitting 
comments.
     Email: [email protected]. Include ``MARAD-2023-
0086'' in the subject line of the message.
     Mail/Hand-Delivery/Courier: Docket Management Facility; 
U.S. Department of Transportation, 1200 New Jersey Avenue SE, Room W12-
140, Washington, DC 20590. If you would like to know that your comments 
reached the facility, please enclose a stamped, self-addressed postcard 
or envelope. The Docket Management Facility is open 9:00 a.m. to 5:00 
p.m. E.T., Monday through Friday, except on Federal holidays.
    You may view the public comments submitted on this rulemaking at 
www.regulations.gov. When searching for comments, please use the Docket 
ID: MARAD-2023-0086. An electronic copy of this document may also be 
downloaded from the Office of the Federal Register's website at 
www.FederalRegister.gov and the Government Publishing Office's website 
at www.GovInfo.gov.

[[Page 24963]]

    Note: If you mail or hand-deliver your input, we recommend that you 
include your name and a mailing address, an email address, or a 
telephone number in the body of your document so that we can contact 
you if we have questions regarding your submission. If you submit your 
inputs by mail or hand-delivery, they must be submitted in an unbound 
format, no larger than 8\1/2\ by 11 inches, single-sided, suitable for 
copying and electronic filing.
    Instructions: All submissions received must include the agency name 
and docket number or Regulation Identifier Number (``RIN'') for this 
rulemaking. All comments received will be posted without change to the 
docket at www.regulations.gov, including any personal information 
provided. For detailed instructions on submitting comments and 
additional information on the rulemaking process, see the section 
entitled Public Participation.
    To avoid duplication, please use only one of the above methods. See 
the ``Public Participation'' section below for instructions on 
submitting comments, including collection of information comments, if 
any, for the Office of Information and Regulatory Affairs, Office of 
Management and Budget. Unless there is a request for confidential 
treatment, all comments received will be posted without change to 
http://www.regulations.gov, including any personal information 
provided.

FOR FURTHER INFORMATION CONTACT: David M. Gilmore, Director, Office of 
Marine Financing, at (202) 366-5737, or via email at 
[email protected]. You may send mail to Mr. Gilmore at Department 
of Transportation, Maritime Administration, Office of Marine Financing, 
1200 New Jersey Avenue SE, Washington, DC 20590. If you have questions 
on viewing the Docket, call Docket Operations, telephone: (800) 647-
5527.

SUPPLEMENTARY INFORMATION: 

Background

    The Secretary of Transportation, through MARAD, is authorized to 
provide guarantees of debt (obligation guarantees) to finance all types 
of vessel construction and shipyard modernization and improvement, 
except for fishing vessels. The Title XI Program is a loan guarantee 
program, administered by MARAD, which was established under Title XI of 
the Merchant Marine Act, 1936, Public Law 74-835, codified at 46 U.S.C. 
Chapter 537, as amended (the ``Act''). Title XI provides for the full 
faith and credit of the United States, acting by and through the 
Maritime Administrator, for the payment of debt obligations for: (1) 
U.S. shipowners for the purpose of financing or refinancing U.S. flag 
vessels constructed, reconstructed, or reconditioned in U.S. shipyards; 
and (2) U.S. shipyards for the purpose of financing advanced 
shipbuilding technology and modern shipbuilding technology of a 
privately-owned shipyard facility located in the U.S. As the Title XI 
Program guarantees full payment of the obligation's unpaid principal 
and interest in the event of a default by the borrower, both the 
statute and regulations contain several criteria and requirements 
intended to reduce the risk of a loan default. Though the Title XI 
Program regulations have been amended over the years, the current 
financial requirements and limitations remain substantially the same as 
when MARAD introduced them in 1978. As lending practices have evolved, 
MARAD's regulatory standards have not changed to reflect modern lending 
practices for vessel financing. For example, when the regulations where 
implemented, certain leases were not included as an expense under 
generally accepted accounting principles (GAAP), but today GAAP 
requires that all leases be included as an expense. Today, retained 
earnings are also expected to be included in any calculation of equity 
or net worth pursuant to GAAP. Accordingly, the proposed modifications 
to the regulations will eliminate confusion and align the Title XI 
Program regulations with modern accounting standards.
    Prior to execution of a guarantee, MARAD is bound by statute to, 
among other things, make determinations of economic soundness of the 
project and the financial and operating capability of the applicant. To 
that end, the Title XI regulations currently require each borrower, and 
operator if applicable, to have and maintain: (1) working capital of at 
least $1; (2) at least 90 percent of its equity as shown on the last 
audited balance sheet; and (3) long-term debt not to exceed twice its 
equity. By this notice of proposed rulemaking, MARAD proposes to 
modernize its financial review process by removing static financial 
covenants and loan thresholds and replacing them with a review and 
evaluation of the creditworthiness of each borrower based on revenue 
metrics based on federal credit and maritime lending best practices. 
The use of these revenue metrics is intended to improve the quality of 
MARAD financial requirements applied to new borrowers. As part of its 
regular programmatic evaluation process, MARAD frequently seeks 
feedback from potential applicants and borrowers on its processes. 
Potential applicants have advised MARAD that the challenges caused by 
the regulatory requirements are a reason why they will not use the 
program. Borrowers also have cited the incompatibility of Title XI debt 
financial covenants with the other lender covenants as an obstacle in 
the prompt processing and approval of loan guarantee applications.
    The ``National Defense Authorization Act for Fiscal Year 2020,'' 
(Pub. L. 116-92; December 20, 2019) (``NDAA 2020'') established the 
Federal Financing Bank as the ``preferred lender'' for the Title XI 
Program. Additionally, the NDAA 2020 directed MARAD to periodically 
review Title XI application procedures and documents to assure they 
``meet current commercial best practices to the extent permitted by 
law.'' The 2020 NDAA also provided that MARAD establish a process for 
expedited consideration of low-risk applications which would ``utilize, 
to the extent practicable, relevant Federal and industry best practices 
found in the maritime and shipbuilding industries.'' As a result, MARAD 
identified best practices from federal credit programs that make loans 
and obligation guarantees similar to the Title XI Program. MARAD 
considered a review of federal credit practices that identified the 
Title XI Program was the only program with regulatorily-imposed 
financial covenants and thresholds.\1\ This deviation from federal 
credit best practices was highlighted as a significant hinderance to 
the Title XI Program's ability to tailor the terms of credit assistance 
to address the characteristics of a specific project.
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    \1\ U.S. Department of Transportation, Maritime Administration, 
Federal Credit and Maritime Lending Industry Best Practices, June 
2020. Available at https://www.maritime.dot.gov/grants/title-xi/statute-regulations-and-guidance.
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    Restrictions on the flexibility of the program limit the program's 
ability to succeed. Reliance on the current static metrics and limited 
amortization requirements prevent the Title XI Program from adjusting 
its financial terms and conditions and debt amortization when best 
credit practices would recommend otherwise. The proposals are intended 
to attract a higher volume of high-quality applicants and mitigate risk 
to the U.S. government.
    Moreover, with the implementation of the Federal Financing Bank as 
the preferred lender for Title XI obligation guarantees, there is no 
longer a need for the strict uniformity in the regulatory structure of 
the guaranteed obligations. Previously, Title XI guaranteed debt was 
marketed to the public through

[[Page 24964]]

investment banks. This created a need for uniformity to encourage the 
purchase of the debt by entities not familiar with maritime financings 
and to allow for easier resale by a debt purchaser to a third-party at 
a future date. The expectation of uniformity by the market limited the 
payment schedule options available for Title XI Program participants in 
circumstances where it may have been in the U.S. government's best 
interest to structure the debt differently to mitigate risk.
    Due to the length of time since the regulations were last updated, 
the availability of modern financial requirements of similar federal 
programs, the evolving maritime environment, changes to federal credit 
and maritime lending best practices, and updates to the Title XI 
statute, MARAD proposes to amend its regulations. These proposed 
amendments would include permitting MARAD to use financial 
requirements, consistent with federal credit and maritime lending best 
practices for entities having a similar credit rating that MARAD 
determines are necessary and appropriate to protect the interest of the 
United States. The proposed amendments would also allow MARAD to use 
alternative methods of amortization, other than level principal or 
level debt payment, when an independent financial advisor approved by 
MARAD conducts independent analysis and review and demonstrates that 
such other method is in the best interests of the United States.
    The proposed rule is intended to update the lending parameters in 
the current regulations, which no longer best achieve the intended 
purpose of minimizing the risk of Title XI Program defaults and to 
better align the lending practices to reflect federal credit and 
maritime lending best practices. Additionally, MARAD expects that the 
proposed regulations would reduce the economic burden on applicants in 
complying with Title XI Program requirements that are inconsistent with 
other lending instruments. MARAD also expects that the updated lending 
parameters should encourage the construction of vessels in United 
States shipyards which otherwise would not meet the current constrained 
Title XI Program financial requirements.

Public Participation

How do I submit comments on the proposed rule?

    Include the docket number in your comments to ensure that your 
comments are correctly filed in the Docket. We encourage you to provide 
concise comments; however, you may attach additional documents as 
necessary. There is no limit on the length of the attachments. Please 
submit your comments, including the attachments, following the 
instructions provided under the above-entitled heading ADDRESSES.
    MARAD will consider all comments received before the close of 
business on the comment closing date indicated above under DATES. To 
the extent possible, MARAD will also consider comments received after 
that date.
    For access to the docket to submit or read comments received, go to 
the Docket Management Facility, U.S. Department of Transportation, 1200 
New Jersey Avenue SE, West Building, Room W12-140, Washington, DC 
20590. The Docket Management Facility is open 9:00 a.m. to 5:00 p.m., 
Monday through Friday, except on Federal holidays. To review documents, 
read comments or to submit comments, the docket is also available 
online at www.regulations.gov., keyword search ``MARAD-2023-0086.''
    Please note that even after the comment period has closed, MARAD 
will continue to file relevant information in the Docket as it becomes 
available. Further, some people may submit late comments. Accordingly, 
MARAD recommends that you periodically check the Docket for new 
material.

Will my comments be made available to the public?

    Before including your address, phone number, email address or other 
personal information in your comment, be aware that your entire 
comment, including your personal identifying information, will be made 
publicly available.

May I submit comments confidentially?

    If you wish to submit comments under a claim of confidentiality, 
you should submit your complete submission, including the information 
you claim to be confidential business information, to the Department of 
Transportation, Maritime Administration, Office of Legislation and 
Regulations, MAR-225, W24-220, 1200 New Jersey Avenue SE, Washington, 
DC 20590. When you submit comments containing information claimed to be 
confidential information, you should include a cover letter setting 
forth with specificity the basis for any such claim and, if possible, a 
summary of your submission that can be made available to the public.

I. Regulatory Analyses and Notices

Privacy Act

    Anyone can search the electronic form of all comments received into 
any of our dockets by the name of the individual submitting the comment 
(or signing the comment, if submitted on behalf of an association, 
business, labor union, etc.). For information on DOT's compliance with 
the Privacy Act, please visit https://www.transportation.gov/privacy.

Executive Order 12866 (Regulatory Planning and Review), 13563 
(Improving Regulation and Regulatory Review) and DOT Regulatory 
Policies and Procedures

    Under Executive Order (E.O.) 12866 (58 FR 51735, October 4, 1993), 
supplemented by EO13563 (76 FR 3821, January 18, 2011) and USDOT 
policies and procedures, a determination must be made whether a 
regulatory action is ``significant,'' and therefore subject to the 
Office of Management and Budget (OMB) review and the requirements of 
the Order. The Order defines ``significant regulatory action'' as one 
likely to result in a rule that may: (1) Have an annual effect on the 
economy of $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 
government or communities. (2) Create a serious inconsistency or 
otherwise interfere with an action taken or planned by another Agency. 
(3) Materially alter the budgetary impact of entitlements, grants, user 
fees, or loan programs or the rights and obligations of recipients 
thereof. (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
the E.O.
    This notice of proposed rulemaking has been determined to be a 
significant regulatory action under section 3(f) of E.O. 12866. The 
rule was therefore reviewed by the Office of Information and Regulatory 
Affairs (OIRA) within OMB prior to publication.

Analysis of Benefits and Costs

    The Title XI Program guarantees full payment of the obligation's 
unpaid principal and interest in the event of a default by the 
borrower. Both the statute and MARAD's implementing regulations also 
contain several criteria and requirements intended to reduce the risk 
of a loan default. Though the Title XI Program regulations have been 
amended over the years, the current financial requirements and 
limitations remain substantially the same as when

[[Page 24965]]

they were introduced in 1978. As lending practices have evolved, the 
regulatory standards have not changed to reflect current lending 
practices for vessel financing.

Benefits

    The major benefits of amending Part 298 will be to: (1) modernize 
MARAD's financial review process by removing static financial covenants 
and loan thresholds and replacing them with best practices intended to 
improve the quality of MARAD financial reviews; and (2) allow MARAD to 
examine more indicators of financial health, thus improving MARAD's 
ability to accurately assess applicants and to better mitigate 
financial risk to the Government.

Costs

    MARAD does not believe that the rulemaking is likely to impose 
quantifiable or nonquantifiable costs. The primary function of this 
regulatory change is to modernize MARAD financial review methods and 
processes, thereby improving MARAD's ability to evaluate applicants.

Analysis of Alternatives

    On December 20, 2019, the NDAA 2020 directed MARAD ``to utilize, to 
the extent practicable, relevant Federal and industry best practices 
found in the maritime and shipbuilding industries.'' In considering 
potential alternatives, MARAD reviewed a number of federal credit 
programs that make loans and obligation guarantees similar to the Title 
XI Program. MARAD considered a review of federal credit practices that 
identified the Title XI Program as the only Federal program with 
regulatorily-imposed financial covenants and thresholds.\2\ The report 
found that the static regulatory requirements significantly hindered 
the Title XI Program's ability to tailor the terms of credit assistance 
to address the characteristics of a specific project. MARAD considered 
the report's findings in light of its current practices and proposed in 
this NPRM amendment to conform to the report's findings.
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    \2\ U.S. Department of Transportation, Maritime Administration, 
Federal Credit and Maritime Lending Industry Best Practices, June 
2020. Available at https://www.maritime.dot.gov/grants/title-xi/statute-regulations-and-guidance.
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Executive Order 13132 (Federalism)

    MARAD has examined the rule pursuant to E.O. 13132 (64 FR 43255, 
August 10, 1999) and concluded that no additional consultation with 
States, local governments, or their representatives is mandated beyond 
the rulemaking process. The Agency has concluded that the rulemaking 
would not have sufficient federalism implications to warrant 
consultation with State and local officials or the preparation of a 
federalism summary impact statement. The rule will not have 
``substantial direct effects on the States, on the relationship between 
the national government and the States, or on the distribution of power 
and responsibilities among the various levels of government.''

Executive Order 13175 (Consultation and Coordination With Indian Tribal 
Governments)

    MARAD has determined that this rulemaking, in which MARAD proposes 
to amend its regulations implementing the Title XI Program financial 
requirements to implement statutory changes and update the existing 
financial requirements imposed on Title XI Program obligors, will not 
significantly or uniquely affect the communities of Indian tribal 
governments when analyzed under the principles and criteria contained 
in E.O. 13175 (Consultation and Coordination with Indian Tribal 
Governments). Therefore, the funding and consultation requirements of 
this Executive Order do not apply.

Executive Order 12372 (Intergovernmental Review)

    The requirements of E.O. 12372 regarding intergovernmental 
consultation on Federal programs and activities do not apply to this 
rulemaking, because it would not directly affect the interests of State 
and local governments.

Regulatory Flexibility Act

    The Regulatory Flexibility Act of 1980 requires MARAD to assess 
whether this rulemaking would have a significant economic impact on a 
substantial number of small entities and to minimize any adverse 
impact. Potential applicants to the Title XI program are vessel owners 
and operators, as well as shipyard owners. These industries fit under 
NAICS codes 336611, Ship Building and Repairing and NAICS codes 483111-
483212, which cover different types of transportation by vessel and 
would include vessel owners and operators.\3\ The SBA defines a small 
business under NAICS code 36611 as a business with 1,250 employees or 
less and under NAICS code. The SBA defines small businesses under NAICS 
codes 483111-483212 as businesses with 500-1,500 employees or less, 
depending on the specific NAICS code.
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    \3\ These NAICS codes are 483111/483112 Deep Sea Freight/
Passenger Transportation, 483113/483114 Coastal and Great Lakes 
Freight/Passenger Transportation, and 4832111/483212 Inland Water 
Freight/Passenger Transportation. Navigational Services to Shipping, 
under NAICS code 488330 may also be applicable. SBA defines a small 
business under this NAICS code as having an average annual revenue 
of $41.5 million or less.
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    The Title XI Program guarantees full payment of the obligation's 
unpaid principal and interest in the event of a default by the 
borrower. The program maintains a $5000 application fee, a fee that has 
not increased in 30 years and would remain unchanged by this proposal. 
MARAD also estimates that the application process currently takes 
approximately 150 hours, a figure that would also remain unchanged by 
this proposal. The program provides substantial financial assistance to 
maritime industry participants, and the proposed changes are intended 
to eliminate challenges caused by the regulatory requirements, a reason 
cited by stakeholders as to why they will not use the program. The 
proposed rule is also intended to make Title XI debt financial 
covenants compatible with other lender covenants, which stakeholders 
cited as an obstacle in the prompt processing and approval of loan 
guarantee applications. MARAD intends for the proposed changes, if 
finalized, to attract a higher volume of high-quality applicants to the 
program. Based on the foregoing, MARAD certifies that this rulemaking 
will not have a significant economic impact on a substantial number of 
small entities.

Executive Order 12988 (Civil Justice Reform)

    E.O. 12988 requires that agencies promulgating new regulations or 
reviewing existing regulations take steps to minimize litigation, 
eliminate ambiguity and to reduce burdens on the regulated public. 
MARAD has reviewed this rulemaking and has determined that this 
rulemaking action conforms to the applicable standards in sections 3(a) 
and 3(b)(2) of E.O. 12988, Civil Justice Reform,

Unfunded Mandates Reform Act of 1995

    The Unfunded Mandates Reform Act of 1995 requires Agencies to 
evaluate whether an Agency action would result in the expenditure by 
State, local, and tribal governments, in the aggregate, or by the 
private sector, of $100 million or more (adjusted annually for 
inflation) in any 1 year, and if so, to take steps to minimize these 
unfunded mandates. This action will not result in additional 
expenditures by State, local, or tribal governments or by any members 
of the private sector. Therefore, MARAD has

[[Page 24966]]

not prepared an assessment pursuant to the Unfunded Mandates Reform 
Act.

Regulation Identifier Number (RIN)

    A regulation identifier number (RIN) is assigned to each regulatory 
action listed in the Unified Agenda of Federal Regulations. The 
Regulatory Information Service Center publishes the Unified Agenda in 
April and October of each year. The RIN number contained in the heading 
of this document can be used to cross-reference this action with the 
Unified Agenda.

Paperwork Reduction Act

    Under the Paperwork Reduction Act of 1995 (PRA), a person is not 
required to respond to a collection of information by a federal agency 
unless the collection displays a valid OMB control number. This 
rulemaking amends an existing regulation without any change to the 
contemplated submission of information which might otherwise result in 
a change to the applicant's burden hours. Therefore, the rulemaking can 
rely on the existing information collected under OMB control number 
2133-0018. Information submitted by applicants to the program will 
continue to be used to evaluate an applicant's project and 
capabilities, make the required determinations, and administer any 
agreements executed upon approval of loan guarantees.

Clarity of Regulations

    E.O. 12866 requires each Agency to write regulations that are easy 
to understand. We invite your comments on how to make this proposed 
rule easier to understand, including answers to questions such as the 
following:
    (1) Are the requirements in the proposed rule clearly stated?
    (2) Does the proposed rule contain technical language or 
terminology that interferes with its clarity?
    (3) Does the format of the proposed rule (grouping and order of 
sections, use of headings, paragraphs, etc.) aid or reduce its clarity?
    (4) Would the rule be easier to understand if it were divided into 
more but shorter sections (a ``section'' appears in bold type and is 
preceded by the symbol ``Sec. '' and a numbered heading; for example, 
``Sec.  393.21 Who can apply?'')
    (5) Is the description of the proposed rule in the SUPPLEMENTARY 
INFORMATION part of this preamble helpful in understanding the proposed 
rule?
    (6) What else could we do to make the proposed rule easier to 
understand?
    Send a copy of any comments that concern how we could make this 
proposed rule easier to understand to: Division of Legislation and 
Regulations, Department of Transportation, Maritime Administration, 
Office of the Chief Counsel, Room W24-220, 1200 New Jersey Ave. SE, 
Washington, DC 20590. You may also email the comments to this address: 
[email protected]. Please include the RIN number or docket 
number for this rule in your submission.

List of Subjects in 46 CFR Part 298

    Obligation guarantees.

    For the reasons described in the preamble, the Maritime 
Administration proposes to amend 46 CFR part 298 to read as follows:

PART 298--OBLIGATION GUARANTEES

Subpart B--Eligibility

0
1. Amend Sec.  298.13 by revising paragraphs (d) introductory text, 
(d)(2)(ii), (d)(3) introductory text, (e) introductory text, (e)(3)(i), 
and (f) through (i) to read as follows:


Sec.  298.13  Financial requirements.

* * * * *
    (d) Financial definitions. For the purpose of this section and 
Sec. Sec.  298.35, 298.36, and 298.42 of this part:
    (2) * * *
    (ii) In determining current liabilities, you must deduct any excess 
of unterminated voyage expenses over unterminated voyage revenue.
    (3) ``Equity'' or ``Net Worth'' means, as of any date, (the total 
of paid-in-capital stock, paid-in surplus, earned surplus, retained 
earnings, and appropriated surplus,) and all other amounts that would 
be included in net worth in accordance with GAAP, but does not include:
* * * * *
    (e) Applicability. The financial resources must be adequate to meet 
the financial terms MARAD requires pursuant to paragraph (f) of this 
section.
    (3) * * *
    (i) A pro forma balance sheet at the time of the application; and
* * * * *
    (f) Financial requirements at Closing. As a condition of 
disbursement of a guaranteed loan, the Company must demonstrate 
financial performance that supports a reasonable prospect of repayment 
taking into account foreseeable negative economic conditions.
    (1) The financial requirements of this section are applicable to 
Companies qualifying under one of the following three categories:
    (i) Owner as vessel operator, where the owner is to be the vessel 
operator;
    (ii) Lessee or charterer as operator, where the lessee or charterer 
is to be the vessel operator; or
    (iii) Owner as general shipyard facility, where the owner of a 
shipyard project is a general shipyard facility.
    (2) Qualifying financial performance will be substantiated by 
financial results over at least the trailing 12 quarters and/or 
demonstrated by pro-forma financial performance that is underpinned by 
reasonable assumptions.
    (3) Qualifying creditworthiness will be substantiated by reviewing 
and evaluating applicants based on revenue metrics which include the 
following non-exhaustive list:
    (i) Market factors;
    (ii) Strategic positioning;
    (iii) Management and governance;
    (iv) Pro-forma financial strength;
    (v) Project specific factors; and
    (vi) Loan terms.
    (g) Adjustments to financial requirements at Closing. If the owner, 
although not operating a vessel, assumes any of the operating 
responsibilities, MARAD may adjust the financial requirements of the 
owner and operator by increasing the requirements of the owner and 
decreasing those of the operator.
    (h) Subordinated debt considered to be equity. With MARAD approval, 
part of the equity requirements applicable under paragraph (c) of this 
section may be satisfied by debt, fully subordinated by a subordination 
agreement with MARAD, as to the payment of principal and interest on 
the Secretary's Note and any claims secured as provided for in the 
Security Agreement or the Mortgage. Repayment of subordinated debt may 
be made only from funds available for payment of dividends or for other 
distributions, in accordance with requirements of the Title XI Reserve 
Fund and Financial Agreement (described in section 298.35). Such 
subordinated debt must not be secured by any interest in property that 
is security for Guarantees under Title XI, unless the obligor and the 
lender enter into a written agreement approved by MARAD. The written 
agreement must provide, among other things, that if any Title XI 
financing or advance by us to the obligor occurs in the future, such 
security interest of the lender must become subordinated to any 
indebtedness to MARAD incurred by the obligor and to any security 
interest obtained by MARAD in that property or other property, with 
respect to the subsequent indebtedness.
    (i) Modified requirements. MARAD may waive or modify the financial 
terms or requirements otherwise applicable under sections 298.35 and 
298.42, upon

[[Page 24967]]

determining that there is adequate security for the guarantees or that 
such waiver or modification is in the best interests of the United 
States. MARAD may impose similar financial requirements on any person 
providing other security for the guarantees.

Subpart C--Guarantees


Sec.  298.21  [Amended]

0
2. Amend Sec.  298.21, in paragraph (b)(1), by removing the word 
``Equity'' and adding in its place the word ``equity''.
0
3. Amend Sec.  298.22 by revising paragraph (b) to read as follows:


Sec.  298.22  Amortization of Obligations.

* * * * *
    (b) Usually, the payment of principal (amortization) must be made 
semi-annually, but in no event less frequently than on an annual basis, 
and in either case the amortization must be in equal payments of 
principal (level principal), unless MARAD approves the periodic payment 
of a constant aggregate amount, comprised of both interest and 
principal components that are variable in amount (level payment). No 
other proposed method of amortization will be allowed that would reduce 
the amount of periodic amortization below that determined under the 
level principal or level payment basis at any time prior to maturity of 
the obligations, except where a third-party expert approved or engaged 
by MARAD conducts an independent analysis and review of a project and 
structure of an obligation and demonstrates that such other method is 
in the best interests of the United States.

Subpart D--Documentation

0
4. Amend Sec.  298.35 by revising the introductory text of paragraphs 
(b)(2) and (d) to read as follows:


Sec.  298.35  Title XI Reserve Fund and Financial Agreement.

* * * * *
    (b)* * *
    (2) Supplemental covenants which may become applicable. Unless, 
after giving effect to such transaction or transactions, during any 
fiscal year of the Company, the Company must remain in compliance with 
financial terms and requirements specified by MARAD based on the 
agency's evaluation for financial performance and creditworthiness and 
appropriate to protect the interest of the United States. The Company 
must not, without prior MARAD written consent:
* * * * *
    (d) Deposits. Unless the Company, as of the close of its accounting 
year, was subject to and in compliance with the financial terms 
required by paragraph (b)(2) of this section, the Company must make one 
or more deposits to MARAD to be held by the Depository (the Title XI 
Reserve Fund), as further provided for in the depository agreement. The 
amount of deposit for any year, or period less than a full year, where 
applicable, will be determined as follows:
* * * * *

(Authority: National Defense Authorization Act for Fiscal Year 2020, 
Pub. L. 116-92, 46 U.S.C. chapter 537, 49 CFR 1.93(a))


    By order of the Maritime Administrator.
T. Mitchell Hudson, Jr.,
Secretary, Maritime Administration.
[FR Doc. 2023-08243 Filed 4-24-23; 8:45 am]
BILLING CODE 4910-81-P