Maritime Administration: Weaknesses Identified in Management of the Title XI Loan Guarantee Program Page: 3 of 31
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Mr. Chairman and Members of the Committee:
I am pleased to be here today to discuss the results of our review of the
Maritime Administration's (MARAD) Title XI loan guarantee program. Title
XI was created to help promote growth and modernization of the U.S.
merchant marine and U.S. shipyards by enabling owners of eligible vessels
and shipyards to obtain long-term financing on terms and conditions that
might not otherwise be available. Under the program, MARAD guarantees
the payment of principal and interest to purchasers of bonds issued by
vessel and shipyard owners. These owners may obtain guaranteed
financing for up to 87.5 percent of the total cost of buying or constructing
a vessel or buying or modernizing a shipyard.
Under Title XI, MARAD committed to guarantee more than $5.6 billion in
shipyard modernization and ship construction projects over the last 10
years. During this period, MARAD experienced nine defaults on these loan
guarantee commitments totaling over $1.3 billion. The defaulted amounts
associated with these nine loan guarantee commitments totaled $489
million.' Five of these defaults were by subsidiaries of American Classic
Voyages Company (AMCV), a shipowner. AMCV defaults represented 67
percent of all defaulted amounts experienced by MARAD during this
period, with this borrower having defaulted on guaranteed loan projects in
amounts totaling $330 million. The largest loan guarantee ever approved
by MARAD, for over $1.1 billion, was for Project America, Inc., a
subsidiary of AMCV. Project America, Inc., had entered into a contract in
March 1999 with Northrup Grumman Corporation (formerly Litton Ingalls
Shipbuilding) in Pascagoula, Mississippi, for the construction of two cruise
ships. In October 2001, AMCV filed for bankruptcy, defaulting on $187
million in loan guarantees associated with Project America.
As of December 31, 2002, MARAD's portfolio included approximately $3.4
billion in executed loan guarantees, representing 103 projects for 818
vessels and four shipyard modernizations. 2 At the end of fiscal year 2002,
MARAD had approximately $20 million in unexpended, unobligated budget
authority that had been appropriated in prior years. In its 2004 budget, the
administration requested no new funds for the Title XI program.
1Defaulted amounts may include disbursed loan guarantee funds, interest accrued, and
2Loan guarantees are legal obligations to pay off debt if an applicant defaults on a loan..
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United States. General Accounting Office. Maritime Administration: Weaknesses Identified in Management of the Title XI Loan Guarantee Program, text, May 15, 2003; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc290207/m1/3/: accessed March 23, 2019), University of North Texas Libraries, Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.