[Editor's Note: MARAD (Maritime Administration) financed the construction of the Hawaiian Superferries on the condition they participate in its VISA (Voluntary Intermodal Sealift Agreement) program. The Transportation Insitiute describes VISA as "a standby agreement intended to make commercial, intermodal, dry cargo capacity and supporting global infrastructure
available to meet the "contingency deployment" requirements of the Department of Defense. VISA calls for comprehensive and integrated peacetime planning and exercises -- something not done before the Gulf War. The Maritime Administration and U.S. Transportation Command ... are now motivated to devise arrangements that will meet Defense Department deployment requirements from existing commercial services to the maximum extent possible without causing serious
disruption of normal services and contracts."]
by Brad Parsons on 8 May 2008 on HIsuperferry.blogspot.com
This will be some analysis and comments on the U.S. Maritime Administration 15 page Letter of Commitment to HSF dated January 24, 2005, that appeared in the Hawaii State Auditor's report as Appendix A starting on page 49 of that online PDF (http://www.state.hi.us/auditor/Reports/2008/08-09.pdf) file.
This letter generally states the performance requirements that MARAD expects for the loan guarantee on the first two HSF vessels. In particular, the financial and marketing performance requirements are what we will make bold and italicize.
There likely would have been additional binding agreements at Closing referred to in the letter. There are handwritten notes on the letter that seem to indicate that Closing took place on 6/30/05, thereby committing MARAD, HSF, and the State.
The letter starts:
On January 21, 2005, the Maritime Administrator with respect to the application dated June 4, 2004, as amended, from Hawaii Superferry, Inc. (HSF) for a guarantee of obligations pursuant to Title XI of the Merchant Marine Act, 1936, as amended (the Act), for construction and mortgage period financing of two 105 meter high speed roll-on roll-off passenger and vehicle ferries (Vessels), took the following actions subject to the conditions contained herein...
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And the provisions of the letter:
VII.
Noted that HSF and the State of Hawaii (the State) have entered into a letter of intent dated December 9, 2004 (LOI) which outlines the general terms to be included in an agreement between HSF and the State regarding the port and infrastructure facilities to be utilized by the Vessels. MARAD noted that the LOI does not represent the final agreement between HSF and the State and that the terms and conditions to the final agreement are still to be negotiated. Therefore,
MARAD is requiring (as indicated in Recommendation VIII below and other recommendations herein) that the final arrangements between the State and HSF conform to these recommendations and otherwise be in form and substance satisfactory to MARAD prior to the Closing. It is further noted that the LOI is not and should not be construed as creating any obligation on the part of MARAD.
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VIII.
Required that HSF enter into a final, definitive agreement with the State that sets out (i) the responsibilities of the State and HSF for providing satisfactory shoreside improvements, equipment and terminal facilities at each port in time for HSF to commence operations to such port following the delivery of the relevant Vessel and (ii) the rents, fees, and charges to be imposed by the State on HSF in connection with the use of the shoreside infrastructure provided
under the agreement. Such agreement and all related agreements and leases shall be assigned to MARAD for security purposes and afford MARAD the right to enforce the State's promises to HSF. Such agreement(s) shall cover the full term of the financing and be executed prior to the Closing. Required that the form and substance of the agreement(s) be satisfactory to MARAD, and include a provision that MARAD has the right to reassign
such lease in the event of default. Additionally, required that HSF submit, prior to the Closing, documents confirming that the State has appropriated the funds required for financing the infrastructure improvements, in form and substance satisfactory to MARAD. Permitted the State to be granted a fully subordinated third mortgage on the Vessels provided these third mortgages are in form and substance satisfactory to MARAD. Required HSF to provide
an acceptable legal opinion at or prior to the Closing indicating that HSF and MARAD have the right to enforce the State's promises to HSF under the final, definitive agreement and any related agreements...
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X.
Determined that the Closing shall be preconditioned on MARAD's finding that...(iii) the State has given all the governmental and environmental clearances (including a confirmation that there is no need for an environmental assessment of the port facilities) necessary to commence and complete the shoreside improvements, the leasing of equipment, the construction of the temporary passenger terminal facilities, and the operation of the ferries
by HSF...
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XI.
Noted that a review under the National Environmental Policy Act of 1970(NEPA) may be required pursuant to 40 C.F.R. Part 1500 and that MARAD will promptly make a decision as to the necessity for such review. If MARAD determines that a NEPA review is necessary, MARAD will promptly initiate such review (including an Environmental Assessment and Environmental Impact Statement, as appropriate) of the environmental impacts of this project.
Any required NEPA review must be concluded prior to the occurrence of any Closing. Unless MARAD is satisfied that compliance with the requirements of NEPA is complete, MARAD is under no obligation to close on the Letter Commitment and may, in its sole discretion, cancel the Letter Commitment. Required that HSF pay for any NEPA review determined by MARAD to be necessary.
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XIII.
Found, pursuant to Section 1104A(d) of the Act, that the project, with respect to which the guaranteed obligations are to be issued, is economically sound...
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XVII.
XVII. Determined, in accordance with Recommendations XIV and XVI and pursuant to Sections 1101(f) and 1104A(e)(5) of the Act, that the total estimated Actual Cost of the Vessels subject to adjustments as determined by the Associate Administrator for Shipbuilding, is as indicated below:
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Vessel 1 |
Vessel 2 |
Total |
| Estimated Actual Cost (AC) |
$88,446,592 |
$89,556,473 |
178,003,065 |
| Maximum Guarantee at 87.5% |
$77,390,768 |
$78,361,914 |
$155,752,682 |
| Guarantee at 78.5% of AC |
$69,430,575 |
$70,301,831 |
$139,732,406 |
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XXI.
Determined that this Letter Commitment may be terminated at the option of the Secretary, if HSF has not had a guarantee Closing within twelve months of the date of this Letter Commitment...
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XXII.
Required that HSF meet the following qualifying and ongoing financial requirements for purposes of Section 8 and 10 of the RFFA:
1. Working Capital of at least $3.3 million at Closing and following delivery of the second Vessel and $1.00 from the Closing until delivery of the second Vessel.
2. Long-Term Debt to Net Worth ratio no greater than 2.0 to 1.0.
3. Minimum Net Worth of $68 million at Closing and following delivery of the second Vessel, and $58 million from Closing until delivery of the second Vessel (and provided that while the Minimum Net Worth is set at $58 million, HSF will be subject to RFFA provisions. On an ongoing basis, no default under the Security Agreement.
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XXIII.
Required that in determining Net Worth under Section 10 of the RFFA (qualifying requirements), that only the principal amount of $16.1 million of the subordinated debt, as projected to be due on the date the project is to be completed, may be included in Net Worth...
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XXIV.
Required that HSF establish a Debt Service Reserve Account (Reserve Account), funded with cash to cover one semi-annual debt service payment on both Vessels, currently estimated at $6.5 million. This amount will be finally determined following the delivery of the second Vessel, when the Final Actual Cost of the Vessels is determined and the terms of the mortgage period financing are set. One-half of this amount will be funded at or prior
to the first draw down under the Credit Facility for the first Vessel (anticipated in early summer, 2005), and the remaining balance will be funded at or prior to the earlier of (1) the delivery of the first Vessel or (2) the first drawdown under the Credit Facility for the second Vessel. The Reserve Account funds shall be released to HSF once it demonstrates that operations are generating a positive cashflow, (defined in a manner satisfactory
to MARAD), at the following levels, over four consecutive fiscal quarters as evidenced by financial statements submitted in accordance with the Title XI RFFA as follows: one-third of the funds shall be released when HSF demonstrates a positive operating cash flow to senior debt service ratio (Ratio) of 1.3 to 1.0;
an additional one-third shall be released when HSF has a 1.40 to 1.0 Ratio; and the final amount shall be released when HSF attains a 1.5 to 1.0 Ratio. The Office of Accounting will insure that the Reserve Account funds are distinguishable from the standard Title XI Reserve Fund account funds, but shall still be MARAD's collateral...
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XXVII.
Required that, in accordance with Section 1104A(m) of the Act, HSF provide the Secretary with additional collateral. The additional collateral, as described herein, will be promptly, at the request of MARAD, provided by HSF whenever
1) HSF does not meet any of its Section 8(b) of the RFFA financial requirements or does not file its financial statements within 30 days of the due date for their submission in accordance with RFFA requirements and
(2) the value of any funds on deposit in the Reserve Fund and the Reserve Account and the value of the delivered Vessels is less than 110% of the HSF outstanding Title XI debt as indicated by an Appraisal conducted by an appraiser specifically approved by MARAD to conduct the appraisal, who has followed an appraisal methodology approved by MARAD and which appraisal is not more than twelve months old... The additional collateral will be released upon
HSF's meeting the financial levels specified in Section 8(b) of the RFFA for four consecutive quarters as evidenced by HSF's financial statements, submitted in accordance with the RFFA...
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XXVIII.
Required that HSF submit annual audited financial statements prepared in accordance with GAAP and in accordance with Section 9 of the RFFA. Also required that HSF submit unaudited financial statements prepared in accordance with GAAP on a quarterly basis, within 45 days of the end of its fiscal first, second and third quarters...
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XL.
HSF will also be required to submit its marketing plan at least one year prior to the delivery of the first Vessel. After submission of the marketing plan, HSF will be required to submit quarterly marketing reports on the status of their marketing efforts. These quarterly status reports are to include:
(1) a comparison of actual activity to the marketing plan and
(2) an explanation for any significant deviations from the plan. Any letter of intent or arrangements for the employment of the Vessels shall be included as part of the marketing efforts section of the quarterly reports. Failure to submit these quarterly reports on a timely basis shall constitute a default under the Security Agreement.
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XLI.
Required HSF to submit to MARAD a copy of the monthly report sent to the State of Hawaii Harbors Division, containing the following activity statistics for each harbor within fifteen days following the end of each month in which the activities occur:
a. Number of passengers embarking and disembarking, specifically identified by the port of embarkation or disembarkation.
b. Number of automobiles and commercial vehicles, embarking and disembarking, specifically identified by the port of embarkation or disembarkation.
c. Daily vessel movements.
d. Gross receipts.
e. Any additional information deemed necessary by the State for the calculation of any fees and charges.
f. All other reasonable information as determined by the Harbors Division in maintaining statistical data on inter-island ferry operations. Along with the above mentioned monthly report, required HSF to provide MARAD with a copy of the payment calculations due to the Harbors Division for (1) port entry fees (if any), (2) dockage fees, (3) passenger and vehicle fees, and (4) the greater of the applicable percentage of gross receipts or the applicable monthly portion
of the minimum annual guarantees.
Failure to submit these monthly reports on a timely basis shall constitute a default under the Security Agreement.
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XLII.
XLII. Required that HSF: ... (4) permit MARAD to commission an independent inspection or survey of the Vessels at HSF's expense on an annual basis if HSF is not meeting their financial tests as stipulated in Recommendation XXXII.
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XLIII.
Required that HSF deliver a certification with respect to each Vessel at each delivery closing and at each disbursement under the Credit Facility with respect to the Vessels, that there have been no occurrences (or a full description of such occurrences, if any) which would adversely or materially affect the condition or progress of construction of the Vessels. If there has been such an occurrence, the Secretary
will take such action as deemed appropriate by the Secretary...
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L.
Determined that MARAD has complied with the Department of Transportation Credit Council guidelines for an external review of HSF's Title XI application and noted that the external review concluded that the project provides an adequate basis for a Title XI Commitment, subject to the implementation of all the conditions herein. Further noted that the financial evaluation of the project
by the internal DOT financial advisor reflected concurrence with the conclusions of the external reviewer and concluded that HSF has the financial capacity to undertake the project.
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LI.
Determined that a full and fair consideration of all the regulatory requirements, including economic soundness and financial requirements applicable to HSF and other applicable parties, and a thorough assessment of the technical, economic and financial aspects of HSF's application has been made. Further determined that MARAD has complied with the due diligence requirements
imposed by the DOT Credit Council.
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LII.
Required HSF to execute a declaration at the Closing as required by 31 U.S.C. 1352 and the Lobbying Disclosure Act of 1995 (Public Law 104-65) disclosing all lobbying activities with respect to this application...
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