§ 298.5 General credit standards and requirements.
(a) Principal. Unless explicitly stated otherwise in these regulations or applicable statutes, the amount of any financing may not exceed the maximum percent of Actual Cost, as such term is described in § 298.19 of this part; provided that MARAD may approve an amount that is less than the maximum percent of Actual Cost, in accordance with its credit determination.
(b) Term. The maturity date of the Note must be satisfactory to MARAD and must not exceed the anticipated physical and economic life of the Project. In addition, the maturity date of the note may be less than but no more than:
(1) Twenty-five years from the date of delivery from the shipbuilder of a single new Vessel that is to be security for the MARAD Guarantee;
(2) Twenty-five years from the date of delivery from the shipyard of the last of multiple Vessels that are to be security for the MARAD Guarantee. The amount of the MARAD Guarantee will relate to the amount of the depreciated Actual Cost of the multiple Vessels as of the Financing Documents Closing;
(3) The earlier of twenty-five years from the date of original delivery of a Reconstructed, or Reconditioned Vessel that is to be security for the MARAD Guarantee, or the expiration of the remaining Useful Life of the Vessel, as determined in MARAD's sole discretion; or
(4) The earlier of five years from the date of original delivery of a Repaired Vessel that is to be security for the MARAD Guarantee, or at the expiration of the remaining Useful Life of the Vessel, as determined in MARAD's sole discretion;
(5) The earlier of five years from the date of delivery from the shipyard of the last of multiple Repaired Vessels that are to be security for the MARAD Guarantee, or at the expiration of the remaining Useful Life of the collective assets that comprise the Vessel Project, as determined in MARAD's sole discretion. The amount of the MARAD Guarantee will relate to the amount of the depreciated Actual Cost of the multiple Vessels as of the Financing Documents Closing;
(6) Twenty-five years from the date of completion of construction of the Shipyard Project that is to be security for the MARAD Guarantee or at the expiration of the estimated technological life of the property that is the Shipyard Project, as determined in MARAD's sole discretion.
(c) Interest rate. The interest rate for each financing will be at a rate not less than a rate determined by the Secretary of the Treasury taking into consideration the current average yield on outstanding marketable obligations of the United States of comparable maturity at the time of funds disbursement together with any risk premium that may be assessed by MARAD for the project. MARAD will determine the reasonableness of the interest rate of a Note, considering the range of interest rates prevailing in the private market for similar loans and their associated credit risks.
(d) Ability and experience requirements. An Applicant, through the majority of its principals or management, must demonstrate the ability, experience, resources, character, reputation, and other qualifications MARAD deems necessary for successfully operating the Project property and protecting MARAD's interest in the Project. For the purposes of this requirement, MARAD will consider the requirements of § 298.15 of this regulation for Vessel Projects and § 298.17 of this part for Shipyard Projects.
(e) Lending restrictions. Unless an Applicant can document that unique or extraordinary circumstances exist, MARAD will not provide financing:
(1) For antiquated, experimental, or scientifically unproven technology; or
(2) To an Applicant who cannot document successful commercial maritime industry ability and experience of a duration, degree, and nature that MARAD deems necessary to repay the requested financing successfully.
(f) Income and expense projections. The Applicant, using appropriate income and expense projections for the Project property's operation, must show that projected net earnings can service all debt, properly maintain the Project property, and protect MARAD's interest against risks of loss, including the industry's cyclical economics. MARAD will consider a totality of factors, such as charters, draft or pro forma charters, letters of intent, or other similar commercial arrangements to demonstrate projected income.
(g) Working capital. The Applicant must show that a Project has sufficient initial working capital to achieve net earnings projections, fund all foreseeable near-term contingencies, and protect MARAD's interest in the Project.
(h) Audited financial statements. MARAD will require audited financial statements in accordance with GAAP for any Borrower.
(i) Professional services. MARAD may require an Applicant to pay for expert third-party services to assist with assessment of a Project, including its legal, economic, technical, or financial feasibility. The costs of any expert fees paid by Applicant will be credited against the cost of the Commitment Fee as described in § 298.23 of this part.
(j) Inspections. MARAD requires adequate condition and valuation inspections of all property used as collateral as the basis for assessing the property's worth and suitability during the life of the financing.
(k) Collateral. Unless other collateral is determined to be satisfactory as part of its credit determination, MARAD will have a first lien on all primary Project property pledged as collateral. MARAD, at its discretion, may request additional collateral and will consider any additional collateral in its credit determinations.
(l) No additional liens. All primary Project property pledged as collateral, including any additional collateral, must be free of additional liens, unless MARAD, at the request of the Applicant, expressly waives this requirement in writing.
(m) Program credit standards apply. Unless explicitly stated otherwise in this part, all Program lending is subject to the above general credit standards and requirements found in this part. MARAD may adjust collateral, guarantee, and other requirements to reflect individual credit risks.
(n) Adverse legal proceedings. MARAD, at its sole discretion, may decline or hold in abeyance any financing approval or disbursement(s) to any Applicant found to have outstanding lawsuits, citations, hearings, liabilities, appeals, sanctions, or other pending actions whose negative outcome could materially impact, in the opinion of MARAD, the financial circumstances of the Applicant.
(o) Required redemptions. Where multiple Project assets are used as security for the MARAD Guarantee, MARAD may require payments of principal prior to maturity (redemptions) regarding all related Notes, as MARAD determines necessary to maintain adequate security for the MARAD Guarantee.