Page 51: of Maritime Reporter Magazine (December 1996)

MARINE FINANCIAL ANNUAL (Continued, from page 51) the Shipping Act (although subject to limitations as to participation in the newly-enacted Maritime Security

Program) ('cross border financing'); • Authorizing foreign sale and transfer approval for a non-U.S. documented vessel prior to it becoming documented under

U.S. law; • Eliminating restrictions on who may be a mortgagee for a U.S.-docu- mented vessel, which, in turn, elimi- nates both the need to establish a

Westhampton Trust to be able to obtain foreign source financing and the need for Secretarial approval for use of a foreign mortgagee; and, • Expressly recognizing the availability of extra-judicial remedies to enforce preferred ship mortgages. (NOTE: The following are intended only to pro- vide a general introduction to each of the above to permit the reader to gain an appreciation for the magnitude of the change and its potential application or impact for vessel financing insti- tutions, shipowners and operators.)

Vessel Lease Financing/Section 883-1

Owned Vessels

Section 12106 of title 46, U.S. Code (Coastwise Endorsements), now permits coast- wise endorsement of a vessel eligible for docu- mentation under section 12102(a) of title 46 (i.e., one that is owned by a 'documentation act citizen' whose stock may be 100 percent foreign- owned if a corporation), provided: (i) the owner, a parent, or another subsidiary of that same parent is engaged primarily in leasing or other financial transactions; and (ii) the vessel is demise chartered to and operated by a U.S. cit- izen eligible to engage in the coastwise trades under section 2 of the Shipping Act (i.e., 75 per- cent U.S. citizen owned and controlled).

This change eliminates the U.S. citizen stock ownership requirements previous- ly applied to the owner of a vessel seek- ing coastwise endorsement while main- taining the same degree of U.S. citizen control over the vessel itself as under prior law through the demise charter requirement. Thus, a U.S. bank or other financing institution is no longer required to establish its own corporate

U.S.-citizen ownership to finance a ves- sel in the coastwise trades (thereby elim- inating the premium often associated with such ownership). Provided vessel title rests with a U.S. owner as defined by section 12102(a)(in the case of a cor- poration, one having a U.S.-citizen chief executive, chairman and board majority), that financing institution may itself now be located outside the U.S. A potential further application of this new leasing provision arises for a vessel operating in the coastwise trades under the narrow 'Bowaters' authority of section 883-1 of title 46 or a foreign-owned corporation that otherwise would be required to qualify under that provision to operate in coastwise trades. By meeting the requirements of this provision (e.g., related to a financing entity even if that entity played no role in the financing of the vessel in question) such a corporation may now alterna- tively qualify for a coastwise endorsement under this provision. As a result, such corpora- tions can avoid the requirements of section (Continued on page 54)

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