Financing the US Market via the CCF

While the U.S. commercial shipbuilding industry outperformed the U.S. economy between 1992 and 2001, this period witnessed the construction of barely a dozen large ocean going vessels for our U.S. domestic trades with an aggregate cost of not much more than $500 million. In contrast, U. S. national transportation needs for the current decade will require the construction of four to five dozen such commercial vessels which, taken together with the building of smaller vessels to meet our other domestic needs, will involve shipbuilding contracts in excess of $6 to $7 billion. The majority of this work is federally mandated by the Oil Pollution Act of 1990, or involves the replacement of vessels in our U.S. noncontiguous trades that have reached the end of their useful lives. The balance is driven by U.S. population growth and environmental concerns that are not likely to abate. These U.S. national transportation needs are clear and immediate. However, the means for financing the vessels to meet these needs remains uncertain.

Some of these transactions will be accomplished by the purchaser and shipyard acting alone. However, the majority will involve third party financing and the retention of financial advisors. In these situations qualified advisors will wish to earn their place at the table by demonstrating that their services will add substantial value to the transaction. During the last such period of major U.S. shipbuilding activity two programs supervised by the U.S. Maritime Administration (“MARAD”) under Title VI and Title XI of the Merchant Marine Act, 1936, and its more recent amendments, were employed to meet vessel financing needs. To date, in this current decade, there has been only limited recourse to these programs. The MARAD Title XI Financing Guarantee program is reasonably well known, but it has fallen onto disfavor in part as the result of FY 2002 and FY 2003 controversies between the Bush Administration and the U.S. Congress. The MARAD Title VI Capital Construction Fund (“CCF”) program is less well known. Thus far, the CCF program has escaped such controversy, and MARAD has recently proposed a significant program expansion. Perhaps it is time to examine the potential financing opportunities which the MARAD CCF program may offer?

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