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Legal Beat Financing Sources for U.S. Government Programs Recent growth in ferry construction, particularly in the U.S., has been signif- icant. The U.S. Department of Trans- portation recently reported that the U.S. marine transportation system annually transports 134 million passengers by ferry. Although the U.S. fleet represents a small percentage of the worldwide fleet, the U.S. fleet has recently experi- enced one of the largest and most rapid growth rates. This growth represents an increase both in sheer numbers as well as in the size of new vessels. The DOT recently reported that the U.S. currently has more fast-ferry shipbuilding under way than any other country, with an esti- mated 14 fast ferries under construction. With this increased demand and growth in newbuildings and transaction size, U.S. ferry owners and operators need to continually assess the financing opportunities available. Because most ferry owners and operators are not large companies, public debt and equity mar- kets are generally unavailable. Although many borrowers routinely look to banks, finance companies and leasing compa- nies for their financing needs, there are, however, other financing sources avail- able through the U.S. government that should be examined: Title XI loan guar- antees and grants under the Transporta- tion Equity Act for the 21st Century. Title XI Financing Guarantees Title XI financing guarantees have obvious benefits: relatively low interest rates, maturity up to 25 years, and high loan-to-value ratios. The Title XI Feder- al Ship Financing Program, codified under Title XI of the Merchant Marine Act, 1936. as amended, is administered by the Maritime Administration of the U.S. Department of Transportation ("MarAd"). The Title XI program is a loan guarantee program providing a U.S. government guarantee of private- sector financing, typically in the form of guaranteed bonds issued by the borrow- er/shipowner. With the guarantee, the bonds are priced by the bond market based on a relatively small spread over the yield of a U.S. Treasury security with comparable maturity. For example, recent transactions have priced between 60 and 75 basis points over a U.S. Trea- sury Bond with a comparable maturity. Maturity on guaranteed debt can be up to 25 years, a term typically not found in bank financing, and is otherwise limited only by the useful life of the vessel. Amortization can be either level debt (i.e., fully amortized) or level principal. Additionally, the financing can be up to 87.5 percent of the "actual cost" of the vessel, including construction costs, design costs, supervision and inspection costs, outfitting and equipping costs, and most other items. Investment bank- ing, legal and accounting costs are excluded, but construction period inter- est and the guarantee fee charged by MarAd are financeable. MarAd will not, however, finance foreign compo- nents of the vessel unless a waiver is obtained based on the superiority of the Save up to 40% on Inmarsat-A services from Stratos Stratos is proud to introduce its NEW Inmarsat-A earth stations with unbelievable voice clarity and data speeds of 19.2 kbps +. Sign up with Stratos today, and take advantage of these significant savings (additional volume discounts may apply). This introductory offer is available for a limited time only Ship-to-Shore Airtime Services Call Now; +1-709-748-423 You can also register by dialing LES ID 013-1 (octal) or LES ID 011-1 (decimal), and then dial 31 # from your Inmarsat-A terminal, or call Stratos: Toll Free (North America): Worldwide: Fax: E-mail: 1 888 766 1313 + 1 709 748 4233 + 1 709 748 4305 info@stratos.ca www.stratos.ca 48D Circle 64 on Reader Service Card
