CRITICAL FILING DEADLINES FOR MORGTGAGEES OF US FLAG FISHING INDUSTRYVESSELS

By Bruce A. King & Stephen B. Johnson

Under regulations published in the Federal Register on February 4, 2003 (68 Fed. Reg. 5564, et seq.), all lenders holding preferred mortgages on U.S. flag fishing industry vessels 100 feet or more in registered length have a short deadline to file proof of their eligibility to hold their mortgages, failing which the preferred status of their mortgages will be jeopardized, and, depending on the circumstances, other adverse consequences could ensue. For many mortgagees the deadline to file is March 31, 2003, and for others the deadline is the first date on or after April 1, 2003 that a vessel in their loan portfolio must renew its certificate of documentation. The regulations implement the ship mortgage provisions of the American Fisheries Act of 1998, as amended (the “AFA”).

Under these new statutory and regulatory provisions, as of April 1, many lenders will no longer qualify to hold their own mortgages on the affected vessels. Such lenders will be required to assign their mortgages and related debt instruments to a qualified “Westhampton” mortgage trustee. In some instances, the trust agreement and loan documents will also have to be approved by the Maritime Administration (“MARAD”) to confirm that the transaction documents do not confer excessive control on non-citizen lenders.

How did this come about? The AFA is the culmination of a series of federal enactments over the past fifteen years to “Americanize” the U.S. fisheries. The result is that now, with a few exceptions (mainly in fisheries in the western Pacific Ocean), the owner of a fishing industry vessel must meet U.S. citizen ownership standards that are stricter than those that apply to the U.S. coastwise trade. In the case of a corporation, for example, in addition to being a U.S. entity with U.S. citizens acting in senior executive positions and controlling the board of directors, seventy-five percent of the shares of the vessel owning corporation must be owned by U.S. citizens, “at each tier of ownership of such entity and in the aggregate.” The “in the aggregate” test is more restrictive of foreign ownership than the seventy- five percent U.S. citizen ownership standard that applies in the coastwise trade. Further, Congress directed MARAD to give “rigorous” scrutiny to financing documents and other contractual arrangements affecting control of fishing industry vessels 100 feet or more in registered length. These requirements have been in effect since October 1, 2001.

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