§1273. Authorization of Secretary to guarantee obligations

(a) Principal and interest

The Secretary is authorized to guarantee, and to enter into commitments to guarantee, the payment of the interest on, and the unpaid balance of the principal of, any obligation which is eligible to be guaranteed under this subchapter. A guarantee, or commitment to guarantee, made by the Secretary under this subchapter shall cover 100 percent of the amount of the principal and interest of the obligation.

(b) Security interest

No obligation shall be guaranteed under this subchapter unless the obligor conveys or agrees to convey to the Secretary such security interest, which may include a mortgage or mortgages on a vessel or vessels, as the Secretary may reasonably require to protect the interest of the United States.

(c) Amount of guarantee; percentage limitation; determination of actual cost of vessel

The Secretary shall not guarantee the principal of obligations in an amount in excess of 75 per centum, or 87½ per centum, whichever is applicable under section 1274 ¹ of this Appendix, of the amount, as determined by the Secretary which determination shall be conclusive, paid by or for the account of the obligor for the construction, reconstruction, or reconditioning of a vessel or vessels with respect to which a security interest has been conveyed to the Secretary, unless the obligor creates an escrow fund as authorized by section 1279a of this Appendix, in which case the Secretary may guarantee 75 per centum or 87½ per centum, whichever is applicable under section 1274 of this Appendix, of the actual cost of such vessel or vessels.

(d) Pledge of United States

The full faith and credit of the United States is pledged to the payment of all guarantees made under this subchapter with respect to both principal and interest, including interest, as may be provided for in the guarantee, accruing between the date of default under a guaranteed obligation and the payment in full of the guarantee.

(e) Proof of obligations

Any guarantee, or commitment to guarantee, made by the Secretary under this subchapter shall be conclusive evidence of the eligibility of the obligations for such guarantee, and the validity of any guarantee, or commitment to guarantee, so made shall be incontestable. Notwithstanding an assumption of an obligation by the Secretary under section 1275(a) or (b) of this Appendix, the validity of the guarantee of an obligation made by the Secretary under this subchapter is unaffected and the guarantee remains in full force and effect.

(f) Limitation on outstanding amount

The aggregate unpaid principal amount of the obligations guaranteed under this section and outstanding at any one time shall not exceed $12,000,000,000, of which (1) $850,000,000 shall be limited to obligations pertaining to guarantees of obligations for fishing vessels and fishery facilities made under this subchapter, and (2) $3,000,000,000 shall be limited to obligations pertaining to guarantees of obligations for eligible export vessels. No additional limitations may be imposed on new commitments to guarantee loans for any fiscal year, except in such amounts as established in advance in annual authorization Acts. No vessel eligible for guarantees under this subchapter shall be denied eligibility because of its type.

(g) Restrictions on commitments to guarantee obligations on eligible export vessels

(1) The Secretary may not issue a commitment to guarantee obligations for an eligible export vessel unless, after considering-

(A) the status of pending applications for commitments to guarantee obligations for vessels documented under the laws of the United States and operating or to be operated in the domestic or foreign commerce of the United States,

(B) the economic soundness of the applications referred to in subparagraph (A), and

(C) the amount of guarantee authority available,

the Secretary determines, in the sole discretion of the Secretary, that the issuance of a commitment to guarantee obligations for an eligible export vessel will not result in the denial of an economically sound application to issue a commitment to guarantee obligations for vessels documented under the laws of the United States operating in the domestic or foreign commerce of the United States.

(2) The Secretary may not issue commitments to guarantee obligations for eligible export vessels under this section after the later of-

(A) the 5th anniversary of the date on which the Secretary publishes final regulations setting forth the application procedures for the issuance of commitments to guarantee obligations for eligible export vessels,

(B) the last day of any 5-year period in which funding and guarantee authority for obligations for eligible export vessels have been continuously available, or

(C) the last date on which those commitments may be issued under any treaty or convention entered into after November 30, 1993, that prohibits guarantee of those obligations.

(h) Risk categories

(1) The Secretary shall-

(A) establish in accordance with this subsection a system of risk categories for obligations guaranteed under this subchapter, that categorizes the relative risk of guarantees made under this subchapter with respect to the risk factors set forth in paragraph (3); and

(B) determine for each of the risk categories a subsidy rate equivalent to the cost of obligations in the category, expressed as a percentage of the amount guaranteed under this subchapter for obligations in the category.

(2)(A) Before making a guarantee under this section for an obligation, the Secretary shall apply the risk factors set forth in paragraph (3) to place the obligation in a risk category established under paragraph (1)(A).

(B) The Secretary shall consider the aggregate amount available to the Secretary for making guarantees under this subchapter to be reduced by the amount determined by multiplying-

(i) the amount guaranteed under this subchapter for an obligation, by

(ii) the subsidy rate for the category in which the obligation is placed under subparagraph (A) of this paragraph.

(C) The estimated cost to the Government of a guarantee made by the Secretary under this subchapter for an obligation is deemed to be the amount determined under subparagraph (B) for the obligation.

(D) The Secretary may not guarantee obligations under this subchapter after the aggregate amount available to the Secretary under appropriations Acts for the cost of loan guarantees is required by subparagraph (B) to be considered reduced to zero.

(3) The risk factors referred to in paragraphs (1) and (2) are the following:

(A) If applicable, the country risk for each eligible export vessel financed or to be financed by an obligation.

(B) The period for which an obligation is guaranteed or to be guaranteed.

(C) The amount of an obligation, which is guaranteed or to be guaranteed, in relation to the total cost of the project financed or to be financed by the obligation.

(D) The financial condition of an obligor or applicant for a guarantee.

(E) If applicable, any guarantee related to the project, other than the guarantee under this subchapter for which the risk factor is applied.

(F) If applicable, the projected employment of each vessel or equipment to be financed with an obligation.

(G) If applicable, the projected market that will be served by each vessel or equipment to be financed with an obligation.

(H) The collateral provided for a guarantee for an obligation.

(I) The management and operating experience of an obligor or applicant for a guarantee.

(J) Whether a guarantee under this subchapter is or will be in effect during the construction period of the project.

(4) In this subsection, the term "cost" has the meaning given that term in section 661a of title 2.

(June 29, 1936, ch. 858, title XI, §1103, as added June 23, 1938, ch. 600, §46, 52 Stat. 969 ; amended Aug. 15, 1953, ch. 513, §1, 67 Stat. 626 ; Sept. 3, 1954, ch. 1265, §3, 68 Stat. 1268 ; June 25, 1956, ch. 438, 70 Stat. 332 ; Aug. 7, 1956, ch. 1026, §1(a), (c), (d), 70 Stat. 1087 ; Pub. L. 91–469, §30, Oct. 21, 1970, 84 Stat. 1035 ; Pub. L. 92–507, §3, Oct. 19, 1972, 86 Stat. 910 ; Pub. L. 93–70, §3, July 10, 1973, 87 Stat. 168 ; Pub. L. 94–127, §5, Nov. 13, 1975, 89 Stat. 681 ; Pub. L. 95–298, §5, June 26, 1978, 92 Stat. 340 ; Pub. L. 96–320, title II, §203(b)(1), Aug. 3, 1980, 94 Stat. 994 ; Pub. L. 96–561, title II, §220(2), Dec. 22, 1980, 94 Stat. 3292 ; Pub. L. 97–31, §12(136), Aug. 6, 1981, 95 Stat. 166 ; Pub. L. 97–35, title XVI, §1606(a), (b), Aug. 13, 1981, 95 Stat. 752 ; Pub. L. 97–424, title IV, §425, Jan. 6, 1983, 96 Stat. 2167 ; Pub. L. 98–595, §1(1), Oct. 30, 1984, 98 Stat. 3130 ; Pub. L. 99–509, title V, §5002, Oct. 21, 1986, 100 Stat. 1912 ; Pub. L. 103–160, div. A, title XIII, §1356(2), (5), Nov. 30, 1993, 107 Stat. 1812 , 1814; Pub. L. 104–239, §13(a), Oct. 8, 1996, 110 Stat. 3134 .)

References in Text

Section 1274 of this Appendix, referred to in subsec. (c), was in the original a reference to title XI of section 1104 of this title, meaning section 1104 of title XI of the Merchant Marine Act, 1936, act June 29, 1936, ch. 858. Section 1104 of that Act was renumbered as section 1104A of that Act by Pub. L. 101–380, title IV, §4115(f)(1), Aug. 18, 1990, 104 Stat. 521 .

Amendments

1996-Subsec. (h). Pub. L. 104–239 added subsec. (h).

1993-Subsec. (a). Pub. L. 103–160, §1356(5), substituted "The Secretary is authorized" for "The Secretary, upon application by a citizen of the United States, is authorized".

Subsec. (f). Pub. L. 103–160, §1356(2)(A), amended first sentence generally. Prior to amendment, first sentence read as follows: "The aggregate unpaid principal amount of the obligations guaranteed under this section and outstanding at any one time shall not exceed $12,000,000,000, of which $1,650,000,000 shall be limited to obligations pertaining to commerical [sic] demonstration ocean thermal energy conversion facilities or plantships guaranteed under section 1279c of this Appendix, and of which $850,000,000 shall be limited to obligations pertaining to guarantees of obligations for fishing vessels and fishery facilities made under this subchapter."

Subsec. (g). Pub. L. 103–160, §1356(2)(B), added subsec. (g).

1986-Subsec. (a). Pub. L. 99–509 inserted at end "A guarantee, or commitment to guarantee, made by the Secretary under this subchapter shall cover 100 percent of the amount of the principal and interest of the obligation."

1984-Subsec. (e). Pub. L. 98–595 inserted "Notwithstanding an assumption of an obligation by the Secretary under section 1275(a) or (b) of this Appendix, the validity of the guarantee of an obligation made by the Secretary under this subchapter is unaffected and the guarantee remains in full force and effect."

1983-Subsec. (f). Pub. L. 97–424 inserted provision that no additional limitations may be imposed on new commitments to guarantee loans for any fiscal year, except in such amounts as established in advance in annual authorization Acts, and that no vessel eligible for guarantees under this subchapter shall be denied eligibility because of its type.

1981-Subsecs. (a) to (c), (e). Pub. L. 97–31 struck out "of Commerce" after "Secretary" wherever appearing.

Subsec. (f). Pub. L. 97–35, §1606(b), increased maximum amount from $10,000,000,000 to $12,000,000,000, and substituted provisions relating to monetary limitations and criteria for obligations, for former pars. (1) and (2) relating to percentage limitations and criteria for obligations, and required aggregate amount.

1980-Subsec. (f). Pub. L. 96–561 added pars. (1) and (2) and provision that the aggregate amount reserved for the purposes set forth in pars. (1) and (2) equal 10 percent of such sum.

Pub. L. 96–320, §203(b), which, effective Oct. 1, 1981, substituted "$12,000,000,000, of which $2,000,000,000 shall be limited to obligations pertaining to commercial demonstration ocean thermal energy conversion facilities or plantships guaranteed pursuant to section 1279c of this Appendix" for "$10,000,000,000" was later repealed by Pub. L. 97–35. See Repeals note set out below.

1978-Subsec. (f). Pub. L. 95–298 increased limitation on amount of outstanding obligations from $7,000,000,000 to $10,000,000,000.

1975-Subsec. (f). Pub. L. 94–127 increased limitation on amount of outstanding obligations from $5,000,000,000 to $7,000,000,000.

1973-Subsec. (f). Pub. L. 93–70 increased limitation on amount of outstanding obligations from $3,000,000,000 to $5,000,000,000.

1972-Subsec. (a). Pub. L. 92–507 incorporated provisions of former subsecs. (a) and (b) into subsec. (a) and substituted provisions authorizing the Secretary to guarantee the payment of principal and interest on the obligation for provisions authorizing the Secretary to insure a mortgage or a loan.

Subsec. (b). Pub. L. 92–507 added subsec. (b). Provisions of former subsec. (b) were incorporated into subsec. (a).

Subsec. (c). Pub. L. 92–507 substituted provisions making the Secretary's determination of actual cost of the vessel conclusive for the purposes of determining the maximum amount which may be guaranteed, for provisions making the mortgagee or lender the beneficiary of insurance contracts.

Subsec. (d). Pub. L. 92–507 substituted provisions pledging the full faith and credit of the United States for payment of all guarantees with interest, for provisions pledging the faith of the United States to the payment of principal and interest of each mortgage and loan.

Subsec. (e). Pub. L. 92–507 added subsec. (e). Former subsec. (e) redesignated (f).

Subsec. (f). Pub. L. 92–507 redesignated former subsec. (e) as subsec. (f), and in subsec. (f) as so redesignated, substituted "obligations guaranteed" for "mortgages and loans insured".

1970-Subsec. (e). Pub. L. 91–469 increased limitation on outstanding amount of mortgages and loans insured under this section from one to three billion dollars.

1956-Subsec. (a). Act Aug. 7, 1956, §1(a), (c), struck out "90 per centum of" before "the unpaid balance" and proviso that as to special purpose vessels certified essential to national defense, Secretary of Commerce may insure 100 per centum of principal and interest on eligible mortgages.

Subsec. (b). Act Aug. 7, 1956, §1(a), (c), struck out "90 per centum of" before "the unpaid balance" and proviso that as to special purpose vessels certified essential to national defense, Secretary of Commerce may insure 100 per centum of principal and interest on eligible loans.

Subsec. (d). Act Aug. 7, 1956, §1(d), struck out "the" before "interest on and" and "90 per centum of" after such words.

Act June 25, 1956, pledged the faith of the United States, in the case of special-purpose vessels, to the payment of the interest on and 100 per centum of the unpaid balance of the principal amount of each mortgage and loan insured under this subchapter.

1954-Act Sept. 3, 1954, provided for the insurance of mortgages by Secretary up to 90 per centum of unpaid balance except that vessels essential to national defense may be insured up to 100 per centum, to provide for insurance contracts, pledged the United States as security, and limited aggregate unpaid principal to $1,000,000,000.

1953-Act Aug. 15, 1953, designated existing provisions as subsec. (a), inserted "90 per centum of the unpaid balance" after "provided" and struck out last sentence relating to aggregate amount of mortgage obligations, and added subsecs. (b) and (c).

Effective Date of 1996 Amendment

Section 13(b) of Pub. L. 104–239 provided that: "Subsection (h)(2) of section 1103 of the Merchant Marine Act, 1936 (46 U.S.C. App. 1273), as amended by subsection (a) of this section, shall apply to guarantees that the Secretary of Transportation makes or commits to make with any amounts that are unobligated on or after the date of enactment of this Act [Oct. 8, 1996]."

Effective Date of 1956 Amendment

Act June 25, 1956, provided that the amendment made by that act is effective Sept. 3, 1954.

Repeals

Pub. L. 96–320, title II, §203(b), Aug. 3, 1980, 94 Stat. 994 , cited as a credit to this section, which amended subsec. (f) of this section, effective Oct. 1, 1981, by increasing the aggregate unpaid principal amount of obligations guaranteed under this section to $12,000,000,000 of which $2,000,000,000 was to be limited to obligations pertaining to commercial demonstration ocean thermal energy conversion facilities or plantships guaranteed pursuant to section 1279c of this Appendix, was repealed by Pub. L. 97–35, title XVI, §1606(a), Aug. 13, 1981, 95 Stat. 752 .

Reactivation of Closed Shipyards

Pub. L. 104–324, title XI, §1139, Oct. 19, 1996, 110 Stat. 3989 , provided that:

"(a) In General.-The Secretary may issue a guarantee or a commitment to guarantee obligations under title XI of the Merchant Marine Act, 1936 (46 App. U.S.C. 1271 et seq.), upon such terms as the Secretary may prescribe, to assist in the reactivation and modernization of any shipyard in the United States that is closed on the date of the enactment of this Act [Oct. 19, 1996], if the Secretary finds that-

"(1) the closed shipyard historically built military vessels and responsible entities now seek to reopen it as an internationally competitive commercial shipyard;

"(2)(A) the closed shipyard has been designated by the President as a public-private partnership project; or

"(B) has a reuse plan approved by the Navy in which commercial shipbuilding and repair are primary activities and has a revolving economic conversion fund approved by the Department of Defense; and

"(3) the State in which the shipyard is located, and each other involved State, or a State-chartered agency, is making a significant financial investment in the overall cost of reactivation and modernization as its contribution to the reactivation and modernization project, in addition to the funds required by subsection (d)(2) of this section.

"(b) Waivers.-Notwithstanding any other provision of title XI of the Merchant Marine Act, 1936 (46 App. U.S.C. 1271 et seq.), the Secretary shall not apply the requirements of section 1104A(d) of that Act [46 App. U.S.C. 1274(d)] when issuing a guarantee or a commitment to guarantee an obligation under this section.

"(c) Conditions.-The Secretary shall impose such conditions on the issuance of a guarantee or a commitment to guarantee under this section as are necessary to protect the interests of the United States from the risk of a default. The Secretary shall consider the interdependency of such shipyard modernization and reactivation projects and related vessel loan guarantee requests pending under title XI of the Merchant Marine Act, 1936 (46 App. U.S.C. 1271 et seq.) before issuing a guarantee or a commitment to guarantee under this section.

"(d) Funding Provisions.-

"(1) The Secretary may not guarantee or commit to guarantee obligations under this section that exceed $100,000,000 in the aggregate.

"(2) The amount of appropriated funds required by the Federal Credit Reform Act of 1990 (2 U.S.C. 661a et seq.) [2 U.S.C. 661 et seq.] in advance of the Secretary's issuance of a guarantee or a commitment to guarantee under this section shall be provided by the State in which the shipyard is located, and other involved States, or by a State-chartered agency, and deposited by the Secretary in the financing account established under the Federal Credit Reform Act of 1990 (2 U.S.C. 661a et seq.) for loan guarantees issued by the Secretary under title XI of the Merchant Marine Act of 1936 (46 App. U.S.C. 1271 et seq.). No federally appropriated funds shall be available for this purpose. The funds deposited into that financing account shall be held and applied by the Secretary in accordance with the provisions of the Federal Credit Reform Act of 1990 (2 U.S.C. 661a et seq.), except that, unless the Secretary shall have earlier paid an obligee or been required to pay an obligee pursuant to the terms of a loan guarantee, the funds deposited in that financing account shall be returned, upon the expiration of the Secretary's loan guarantee, to the State, States, or State-chartered agency which originally provided the funds to the Secretary.

"(3) Notwithstanding the provisions of any other law or regulation, the cost (as that term is defined by the Federal Credit Reform Act of 1990 (2 U.S.C. 661a et seq.)) of a guarantee or commitment to guarantee issued under this section-

"(A) may only be determined with reference to the merits of the specific closed shipyard reactivation project which is the subject of that guarantee or commitment to guarantee, without reference to any other project, type of project, or averaged risk; and

"(B) may not be used in determining the cost of any other project, type of project, or averaged risk applicable to guarantees or commitments to guarantee issued under title XI of the Merchant Marine Act, 1936 (46 App. U.S.C. 1271 et seq.).

"(e) Sunset.-No commitment to guarantee obligations under this section shall be issued by the Secretary after one year after the date of enactment of this section [Oct. 19, 1996].

"(f) Definition.-As used in this section, the term 'Secretary' means the Secretary of Transportation."

Similar provisions were contained in the following prior appropriation Act:

Pub. L. 104–208, div. A, title I, §101(a) [title VI, §618], Sept. 30, 1996, 110 Stat. 3009 , 3009-68.

Election of Coverage

Section 7 of Pub. L. 92–507 provided that: "Any citizen of the United States to whom the Secretary of Commerce issued an approval in principle of an application for loan or mortgage insurance or a commitment with respect to such insurance under the provisions of title XI of the Merchant Marine Act, 1936 [this subchapter], prior to the effective date of this Act [Oct. 19, 1972] may elect, with respect to the vessels covered by such approval or commitment, to be bound either by the provisions of title XI of the Merchant Marine Act, 1936 [this subchapter], as in effect prior to the effective date of this Act [Oct. 19, 1972] or by the provisions of this Act [see Short Title of 1972 Amendment note under section 1245 of this Appendix]."

Section Referred to in Other Sections

This section is referred to in sections 1274, 1274a, 1279c, 1279e of this Appendix.

¹ See References in Text note below.