Per the Merchant Marine Act, better known as the Jones Act, the United States government sought to increase the use of U.S. waterways and U.S. ports. Title XI of the Jones Act, or simply “Title XI,” was designed to provide government-backed financing incentives. The goal of the financing is to assure an active U.S. fleet and to maintain U.S. shipbuilding. Such financing for shipbuilding and the like is still available today.
The Federal Ship Financing Program, which was created by Title XI, provides U.S. Government guaranteed debt issued by:
The Maritime Administration, or MARAD, is the governmental authority charged with approving or denying an application for a Title XI loan guarantee. The timeframe to approve or deny is within 270 days after the date an application has been received. The applicant can seek to extend the 270-day period to a date not later than two years after the date from when the application was initially received.
Title XI Financing Eligible Vessels
Commercial vessels of all kinds are eligible for Title XI guarantee financing, although the maximum amount that can be guaranteed is 87.5% of the “actual cost.” Title XI financing is not limited to shipbuilding; it includes the financing of maritime technology. Technology eligible for Title XI guarantee financing includes proven technology, techniques, and processes that enhance shipyard productivity and quality, as well as new techniques and processes designed to improve shipbuilding and related production.
The “actual cost” mentioned above generally includes costs that would normally be capitalized under standard rules of accounting, such as the cost of construction, reconstruction or reconditioning, construction period interest, and the guarantee fee payable to MARAD. Similarly, the “actual cost” of technology generally includes items normally capitalized under standard rules of accounting.
Per the law and MARAD’s regulations, the federal government will consider guaranteeing indebtedness up to 85% of the cost of the shipyard work plus other permitted expenses with a maximum amortization of 25 years. Both of these terms tend to be more favorable than what is usually obtainable in the free market commercial financing sector. MARAD charges several fees for financing, including an application fee, a commitment fee, and a guarantee fee. MARAD rules also contain some financing restrictions, such as a predetermined debt-to-equity ratio that is capped off. Besides for MARAD decisions with respect to which projects are approved, a Department of Transportation credit committee must also review the project and its implements and sign off on the financing.
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(image courtesy of Jens Rademacher)