The U.S. Department of Transportation’s Maritime Administration (“MARAD”) recently amended certain regulations which implement the financial requirements under the Federal Ship Financing Program (“Title XI Program” or the “Program”). These amendments are intended to (i) update the financial requirements to which Title XI Program borrowers are subject to reflect current maritime financing and federal credit best practices, (ii) reduce the financial burden on borrowers in complying with Program requirements and (iii) support the construction of vessels by U.S. shipyards which would have been unable to fulfill the Program’s previous financial requirements.

Background

The Title XI Program is a loan guarantee program which provides for the full faith and credit of the United States, acting through the Maritime Administrator, for the payment of debt obligations of (i) U.S. shipowners in connection with the financing or refinancing of U.S. flag vessels which are constructed, reconstructed or reconditioned in U.S. shipyards and (ii) U.S. shipyards in connection with the financing of advanced or modern shipbuilding technology. Because the Program guarantees the full payment of a borrower’s unpaid principal and interest under a maritime financing, the law pertaining to the Program includes requirements which are intended to reduce the risk of a default by such borrower. These requirements, however, had not been amended to reflect the evolution of vessel financing practices until recently.

Amendments to Regulations

Among other things, the amendments to the regulations (i) update MARAD’s financial review of a borrower by replacing static financial covenants and thresholds with a review of such borrower’s creditworthiness based on revenue metrics which are in line with federal credit and maritime lending best practices, (ii) permit MARAD to use alternative methods of amortization (subject to the determination of an independent financial advisor that such alternative method is in the best interests of the United States) and (iii) more closely align the regulations with current accounting standards.

Vessels of National Interest

The Title XI Program has become increasingly important for the U.S. offshore wind industry. To support U.S. offshore wind development, in June 2022, MARAD designated vessels that are constructed or reconstructed to be used primarily in the construction, service and/or maintenance of offshore wind facilities as “Vessels of National Interest.” This designation provides Title XI financing applications for such vessels with priority in review and funding over all other vessels (other than those considered suitable for service as naval auxiliary vessels).