PART 298—VESSEL AND SHIPYARD FINANCING Authority: 46 U.S.C. ch. 537; 49 CFR 1.93. Source: 91 FR 55491, Aug. 28, 2026, unless otherwise noted. § 298.1 Purpose. The Vessel and Shipyard Financing Program supports new vessel construction, vessel reconstruction, reconditioning, and repair, and shipyard modernization in the United States through financing guarantees. § 298.3 Definitions. Act Actual Cost of a Vessel Project or Shipyard Project Applicant Application Borrower Capital Construction Fund (CCF) Citizen of the United States or U.S. Citizen Construction, Reconstruction, Reconditioning, or Repair Depository Escrow Fund Federal Financing Bank (FFB) Financing Documents Financing Documents Closing Generally Accepted Accounting Principles (GAAP) Guarantee Guarantee Fee MARAD MARAD Guarantee Mortgage Note Note Closing Paying Agent Person Preferred Mortgage Program Project Refinancing Related Party Shipyard Project Useful Life Vessel Vessel Project Vessels of National Interest § 298.5 General credit standards and requirements. (a) Principal. (b) Term. (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. (d) Ability and experience requirements. (e) Lending restrictions. (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. (g) Working capital. (h) Audited financial statements. (i) Professional services. (j) Inspections. (k) Collateral. (l) No additional liens. (m) Program credit standards apply. (n) Adverse legal proceedings. (o) Required redemptions. § 298.7 Qualifications. (a) The Applicant must provide the information contained in Form MA-163 or 163A, available on MARAD's website, submit a complete application, pay the application fee, and meet the following criteria: (1) Be a U.S. Citizen and eligible to document a Vessel with the U.S. registry, if the Application is for a Vessel Project, or be an entity formed in the U.S., if the Application is for a Shipyard Project; (2) Be the legal title holder of Project property, or its parent company (or the lessee of an appropriate long-term lease); and (3) Show that the majority of its principals or officers generally have the ability, experience, resources, character, reputation, and other qualifications necessary for successfully operating, utilizing, or carrying out the Project and protecting MARAD's interest. (b) [Reserved] § 298.9 Prioritization of applications. MARAD will prioritize processing Applications for Vessels determined by the Secretary of War as suitable for service as a United States naval or military auxiliary in time of war or national emergency and that meet a shortfall in sealift capacity or capability, followed by Vessels designated as Vessels of National Interest pursuant to § 298.37 of this part. § 298.11 Initial due diligence and approval. (a) MARAD will undertake a due diligence investigation of every Application it receives to determine if, in MARAD's sole judgment, an Application is both: (1) Qualified for financing because the Vessel Project or Shipyard Project is deemed an acceptable credit risk (the Applicant's ability to repay a Note will be the primary basis for MARAD's approval); and (2) Eligible for financing because it meets applicable requirements, including statutory requirements for economic soundness, and in these regulations for Vessel Projects in § 298.15, and Shipyard Projects in § 298.17 of this part. (b) MARAD will approve eligible and qualified Applicants by evaluating the information obtained during the Application and due diligence process. (c) MARAD, at its sole discretion, may decline or delay approval of any financing or disbursement to any Applicant found to have pending legal actions or unresolved claims. (d) MARAD may require any terms and conditions on approvals that MARAD, in its sole discretion, believes to be necessary and appropriate. (e) Credit decision and approval. (2) Any Application MARAD determines is ineligible will be denied. (3) Upon acceptance of the term sheet by the Applicant, MARAD will issue a letter to the Applicant advising that the Project is approved subject to the availability of appropriations. § 298.13 Closings. (a) Financing Documents Closing. (b) Note Closing. (c) Delivery Closing. (d) Closing schedules. § 298.15 Vessel project requirements. For a Vessel Project to receive financing for Construction, Reconstruction, Reconditioning, or Repair the following criteria must be met: (a) Vessel construction requirements. (1) Be assembled or repaired in a shipyard geographically located within the United States; (2) Be U.S. flagged; and (3) Meet all applicable United States Coast Guard requirements. (b) Class, condition, and operation. (1) The American Bureau of Shipping (ABS) or another classification society that also meets the inspection standards of the United States Coast Guard with respect to the documentation of U.S.-flag Vessels; or (2) If unclassed, built to ABS or other acceptable classification standards and subject to regular inspection and condition surveys conducted by marine surveyors acceptable to MARAD; and (3) The Vessel must be in compliance with all applicable United States laws, rules, and regulations for operations in the intended trade. (c) Documentation. (d) Reconstruction or reconditioning. (e) Condition survey. (1) Pay the cost of the condition survey; (2) Ensure that the scope and extent of the condition survey will not be less effective than that required by the last classification society special survey completed (if the Vessel is classified), next due, or overdue, whichever date is nearest in accordance with the Vessel's age; (3) Ensure that the Vessel meets the standard of the survey necessary for retention of class (if the Vessel is classified); and (4) Ensure that the operating records of the Vessel reflect normal operation of the Vessel's main propulsion and other machinery and equipment, consistent with accepted commercial experience and practice. (f) Metric usage. (g) Operator's qualifications. (h) Vessel horsepower. § 298.17 Shipyard projects requirements. (a) For a Shipyard Project to receive financing, the Shipyard Project must result in a Shipyard modernization, or the financing must support increased productivity and meet the following requirements: (1) The term for the financing will not exceed the reasonable economic useful life of the collective assets that comprise the Shipyard Project; (2) There is sufficient collateral to secure the financing; and (3) The persons identified within the Application including the shipyard owner, the operator of the shipyard, or other person identified in the application possess the necessary experience, ability, and other qualifications to operate properly the assets that comprise the Shipyard Project and will serve as security for the financing. For newly formed entities, MARAD will evaluate the performance of affiliates and/or companies associated with the management or principals (where the management or principals have a significant degree of control) in determining the Applicant's operating ability. (b) [Reserved] § 298.19 Actual cost. (a) Approval of Actual Cost required. (1) Submission of certain cost information. (2) Costs incurred by written contracts. (3) Additional Project costs. (i) Legal and accounting fees; (ii) Vessel insurance; (iii) Fees to a Related Party; and (vi) Other capitalizable fees. (b) Actual Cost basis. (1) The amount of outstanding debt being refinanced (whether or not receiving assistance under Title XI); or (2) Whichever percentage is applicable under the Act with respect to the depreciated Actual Cost of the Vessel, Vessels, or Shipyard Project with respect to which the new Notes are being issued. (c) Actual Cost items. (1) Cost items include those items usually specified in Vessel or Shipyard Project construction contracts, e.g., (2) Applicant may include Guarantee Fees determined in accordance with the provisions of section 53714 of the Act as an item of Actual Cost. (3) In approving an item of Actual Cost, MARAD will consider all pertinent factors. (d) Items excludible from Actual Cost. (1) Legal and accounting fees or expenses; (2) Bank commitment fees or interest other than those specifically allowed; (3) Fees, commissions, or charges for granting or arranging for financing; (4) Fees or charges for preparing and filing an Application for MARAD guaranteed financing and supporting documents, for services rendered to obtain approval of the Application, and for preparing and processing documents relating to the Application for MARAD guaranteed financing; (5) Underwriting fees; (6) Taxes, user fees, or other governmental charges; (7) Predelivery Vessel operating expenses, Vessel insurance premiums, and other items that may not be properly capitalized by the owner as costs of the Vessel under GAAP; (8) The cost of the condition survey required by § 298.15(e) and all work necessary to meet the standards set forth in § 298.15(e); (9) The cost to the shipowner of a Vessel that is to be Reconstructed, or Reconditioned, e.g., (10) Generally, any amount payable to the shipyard for early delivery of the Vessel; generally, any amount payable to the manufacturer or contractor for early delivery of the equipment to or early completion of a Shipyard Project at a General Shipyard Facility; (11) Predelivery Shipyard Project expenses that may not be properly capitalized by the General Shipyard Facility as costs of the Shipyard Project under GAAP; and (12) The cost of major foreign components and other foreign components for which there is no waiver and their assembly when comprising any part of the hull and superstructure of a Vessel. (e) Substantiation of Actual Cost. (2) These documents may include copies of invoices, change orders, subcontracts, and where MARAD requires, statements from independent certified or independent licensed public accountants that the costs for which a Borrower seeks payment or reimbursement were actually paid or are payable for the construction of a Vessel or Shipyard Project. (3) The Borrower must summarize, index and arrange these documents according to cost categories by following the directions contained in the application forms. (f) Escalation as part of Actual Cost. (g) Monies received with respect to construction. (2) Unless a payment default has occurred, a Borrower or other recipient must promptly deposit these monies with MARAD to be held by the Depository in accordance with the Financing Documents. (3) MARAD will determine the extent to which Actual Cost will be reduced by these monies. (4) In no event may Actual Cost be reduced with respect to payments by the shipyard to a Vessel or Shipyard Project owner of liquidated damages for late delivery of the Vessel or Shipyard Project. (5) If MARAD has paid the MARAD Guarantee, the Borrower or other recipient must promptly pay these monies, including any liquidated damages, to MARAD for deposit into the appropriate account. (h) Depreciated Actual Cost. § 298.21 Foreign components. (a) A foreign component waiver will not delay review and may even be granted post Project approval consistent with the following: (1) Costs excluded. (i) MARAD will not grant a waiver for major foreign components in the hull and superstructure for a Vessel Project. (ii) If an Application does not include foreign components in the Actual Cost, no waiver is required, and the Application will be processed accordingly. (2) Waiver requests. (i) The item or service is not available in the United States on a timely basis; (ii) The item or service is not available in the United States on a price-competitive basis; or (iii) The domestic item or service is not of sufficient quality. (3) Contingent Approvals. (i) If the waiver is approved, the cost of the foreign-sourced components will be included in the Actual Cost of the Project. (ii) If the waiver is not approved, the cost of the foreign-sourced content will not be included in the Actual Cost of the Project, consistent with paragraph (a)(1) of this section. (4) Costs as owner-furnished equipment. § 298.23 Fees. (a) Application fee. (b) Commitment fee. (1) one-quarter ( 1/4 (2) the cost of any professional services fees required to be paid by the Applicant as part of the due diligence process in § 298.11 of this part. (c) Guarantee Fee. (1) Generally. (i) A long-term time charter (where the charter hire represents the primary source of payment of interest and principal with respect to the Note), (ii) A parent or affiliate guarantee of the Note, (iii) The Borrower, or (iv) The bareboat charterer. (2) Adjustments. (3) Rating determination. e.g., (4) Calculation of the Guarantee Fee. (5) Proration of Guarantee Fee. (i) Undelivered project. (ii) Multiple Vessels. (d) Modification, assumption, or substitution fee. 1/4 (e) Monitoring Fee. § 298.25 Dual-use CCF. MARAD may require the pledge of a CCF account or annual deposits of some portion of the Project property's net income into a dual-use CCF. A dual-use CCF provides the normal CCF tax-deferral benefits, but also gives MARAD control of CCF withdrawals, recourse against CCF deposits, ensures an emergency refurbishing reserve (tax-deferred) for Project property, and provides additional collateral. § 298.27 Refinancing. (a) MARAD may approve the issuance of a MARAD Guarantee of a Note to refinance existing program debt for a Vessel Project and existing non-program debt for a Vessel Project, so long as the existing debt has been previously issued for one of the purposes set forth in the Act and the issuance of the MARAD Guarantee would otherwise satisfy the requirements of the program and the regulations in this part. (b) Any security lien on the Vessel(s) must be discharged immediately before MARAD places a mortgage or other security interest on any of the above assets. An Applicant must satisfy all necessary eligibility requirements as set forth in these regulations, including economic soundness. (c) The amount of a new Note issued for the existing debt may not exceed the lesser of: (1) The amount of outstanding debt being refinanced (whether or not financed through the Program); or (2) Whichever percentage is applicable under the provisions of the Act with respect to the depreciated Actual Cost of the Vessel Project for which the new Note is being issued. § 298.29 Financing a vessel more than a year after delivery. (a) MARAD may approve a MARAD Guarantee of a Note for a Vessel that has been delivered (or redelivered in the case of Reconstruction or Reconditioning of a Vessel) more than one year prior to the issuance of a MARAD Guarantee of a Note for one of the purposes set forth in the Act only if the purpose of the Note issuance for financing such existing Vessel is to facilitate financing of: (1) The Construction, Reconstruction, or Reconditioning of a different Vessel within one year of that Vessel's delivery or redelivery; or (2) Facilities or equipment pertaining to marine operations. Such facilities or equipment must be of a specialized nature, used principally for servicing Vessels and in handling waterborne cargo in the proximity of the berthing area, excluding over-the-road equipment (other than chassis and containers), permanent or semi-permanent structures and real estate, as well as new or less than one year old. (b) At the Note Closing covered by this section, an Applicant must deposit any proceeds of the Note into an escrow fund established to pay for the cost unless such Applicant demonstrates to MARAD's satisfaction that all such costs have been paid. § 298.31 Advances. (a) In general. (1) MARAD will make advances or payments only to protect, preserve or improve the collateral held as our security for program debt. (2) When requesting an advance, a Borrower must demonstrate that: (i) The issues are short term (less than two years) by using market and cash flow analysis and other projections; (ii) An advance(s), would assist with temporary difficulties; and (iii) There is adequate collateral for the advance. (b) Request requirements. (1) Need for the advance; (2) Financial assistance sought from other sources; (3) Measures that have been taken to alleviate the situation; (4) Financial projections; (5) Proposed term of the repayment; (6) Current and projected market conditions; (7) Information on other available collateral; (8) Liens and other creditor information; and (9) Any other information MARAD may request. § 298.33 Recourse against parties. (a) Form. (b) Principal accountability. (1) All major shareholders of a closely held corporate Borrower; (2) The parent corporation of a subsidiary corporate Borrower; (3) The related business entities of the Borrower if MARAD determines that the Borrower lacks substantial pledged assets other than the Project property or is otherwise lacking in any credit factor required to approve the Application; (4) Any or all major limited partners; and (5) Against any others interest it believes is necessary to protect. (c) Recourse against parties. (d) Recourse unavailable. § 298.35 Mortgage. (a) Ensuring validity of security interest. (b) Alternative forms of security. (c) Mortgage in MARAD's favor. (d) Filing. (e) Mortgage secured by multiple Vessels. (2) If the Fleet Mortgage relates to undelivered Vessels, the Fleet Mortgage will be executed upon delivery of the first Vessel. At the time of each subsequent Vessel delivery, the Borrower must execute a supplement to the Fleet Mortgage that makes that Vessel subject to MARAD's mortgage lien. (3) The Fleet Mortgage must provide that payment by the Borrower of the entire amount of the Note(s) guaranteed by MARAD will be required to discharge the Fleet Mortgage, regardless of the amount of the Note(s) issued and outstanding at the time of execution and delivery of the Fleet Mortgage or the number of Vessels covered by the Fleet Mortgage. (4) The discharge date of the Fleet Mortgage will be the maturity date of the Note. MARAD may require, as authorized by the Act, such payments of principal prior to maturity (redemptions), regarding all related notes, as deemed necessary to maintain adequate security for the Note. (5) Each Fleet Mortgage must provide that in the event of constructive total loss, requisition of title or sale of any Vessel covered by the Fleet Mortgage, indebtedness represented by the Note will be paid, unless MARAD otherwise determines that there remains adequate security for the Note, and the Vessel will be discharged from the mortgage lien. (f) Adequacy of collateral. (2) If MARAD determines that the mortgage on the Vessel(s) or Shipyard Project is insufficient to provide adequate security or if MARAD finds that other security is adequate, as a condition to approving the Project, MARAD may require other or additional collateral, such as a mortgage(s) on other Vessels, security interests on other assets, special escrow funds, pledges of stock, charters, contracts, notes, letters of credit, accounts receivable assignments, and guarantees. § 298.37 Vessels of national interest. MARAD may, in consultation with another agency, designate certain classes or types of Vessels to be eligible for priority processing and financing through the Program (Vessels of National Interest) as follows: (a) When there is no specified funding for financing of Vessels designated as Vessels of National Interest, MARAD may give public notice of the designation, e.g. (b) When funding is specified for Vessels designated as Vessels of National Interest, MARAD will publish notice of the designation in the Federal Register. § 298.39 Default and liquidation. Upon default under the terms of any Note, Financing Documents, Mortgage, Guarantee, or other security document, MARAD will take remedial actions including, but not limited to, where appropriate, seizure or arrest of collateral, foreclosure, restructuring, debarment, referral for debt collection, or liquidation to protect the interest of the United States.