Maritime Guaranteed Loan (TITLE XI) Program
The purpose of the Title XI Program is to promote the growth and modernization of the U.S. merchant marine and U.S. shipyards. Title XI authorizes the U.S. Government to guarantee the repayment of debt obligations, including unpaid interest, obtained in the private sector by (1) U.S. or foreign shipowners for the purpose of constructing or reconstructing U.S.-flag vessels or eligible export vessels in U.S. shipyards, and (2) U.S. shipyards for the purpose of financing advanced or modern shipbuilding technology.
The Title XI Program permits loan guarantees in an amount not to exceed 87.5 percent of the actual cost of projects eligible for financing. Some eligible projects are limited to 75 percent of actual cost. The maximum guarantee period is 25 years.
During FY 2005, MARAD issued one commitment for a Title XI loan guarantee. The commitment was issued to Hawaii Superferry, Inc., in the amount of $139,731,000 for two 105-meter high-speed Roll-On/Roll-Off (RO/RO) ferry vessels to be built at Austal USA, LLC, in Mobile, Alabama. The two vessels will provide passenger, cargo, and vehicle ferry service among the four major Hawaiian Islands. The first vessel will be delivered in late 2006, with the second delivered in early 2009. Upon delivery of the second vessel, Hawaii Superferry will provide at least daily service to each of the four Hawaiian Islands, which are currently served only by airlines and barge.
Port Imperial Ferry Corp. (PIF) owned and operated 35 ferries in the New York City waterways transporting commuters daily between New Jersey and Manhattan. PIF financed 19 of these ferries through Title XI guarantees approved during fiscal years 1996 through 2002. Because its financial position had weakened, PIF arranged in March 2005 to sell 16 of the ferries to Billybey Ferry Company, LLC (Billybey). Billybey assumed the Title XI obligations related to the 16 vessels and is operating the ferries on their previous routes.
MARAD's approval of the sale prevented a potential near-term default on the Title XI debt, maintained MARAD's collateral position, and provided for the continuation of a vital transportation mode in the New York City area.
MARAD closed on two commitments to guarantee debt obligations for three vessels: two double-hull heavy-oil tank barges and one ultra-deepwater semi-submersible multi-service vessel. In addition, MARAD closed on two conversions of financings from floating rate to fixed-rate obligations.
MARAD had ongoing Title XI litigation during the fiscal year. MARAD litigated issues in three bankruptcies related to five Title XI companies. MARAD also litigated seven cases to defend MARAD's sales of property, resolve conflicting lien priorities, and recover debts owed MARAD by defaulting Title XI obligors and related parties. MARAD foreclosed upon one vessel mortgage.
At the end of FY 2005, the Title XI loan guarantee portfolio was $3.26 billion. Of this amount, $3.12 billion was for loan guarantees outstanding and $140 million was for the Hawaii Superferry commitment, which was not funded as of that date. The portfolio consists of 84 projects, which include drill rigs, tankers, barges, containerships, RO/RO vessels, fast ferries, passenger vessels, supply vessels, tugs, and shipyard modernization projects. At the end of FY 2005, there were 10 pending applications for over $600 million in Title XI loan guarantees. Additional information on MARAD's Title XI Program can be found at http://www.marad.dot.gov/TitleXI.
All companies in MARAD's Title XI portfolio undergo periodic financial reviews, and financial reports are prepared for companies with a potential for default. These reports are presented to the DOT Credit Council, which is comprised of senior MARAD management staff and other DOT officials. A total of $132 million in guaranteed projects, or four percent of the Title XI portfolio, has been identified as experiencing financial difficulties and, as such, these projects are receiving the highest level of monitoring. For the third straight year, the Title XI loan guarantee program did not experience any defaults during FY 2005.
During FY 2005, MARAD continued to implement the recommendations contained in program audits conducted by DOT's Inspector General and the Government Accountability Office. Included among these activities was funding for the development of a computer-based credit program portfolio management system, which will also be used by other DOT credit programs.
MARAD monitors the contractual requirements for marine insurance coverage placed in the commercial market on all existing Title XI vessels on which MARAD holds the mortgage, together with Government-owned vessels on charter to private operators.
In addition to ensuring that all insurance meets the requirements of the Title XI contracts with respect to amounts and conditions, MARAD monitors market compliance. One aspect of this compliance is to assure that the American marine insurance market has the opportunity to compete for placement of marine insurance on these vessels. MARAD approved marine hull and machinery insurance during FY 2005, with 39 percent being placed in the American market and 61 percent being placed in the foreign insurance markets. This compares with 36 percent American market placement in FY 2004.
This program was the subject of the Government Accountability Office report, Management Attention Needed to Strengthen Oversight of the Title XI Loan Guarantees. The Inspector General's (IG) follow-up audit report dated September 28, 2004, states "MARAD has developed policies and procedures that address each of the five recommendations from our March 2003 audit report in a satisfactory manner." The IG subsequently indicated that the three additional recommendations contained in its September 28, 2004, follow-up audit have also been resolved.