[Code of Federal Regulations]
[Title 50, Volume 7]
[Revised as of January 1, 2007]
From the U.S. Government Printing Office via GPO Access
[CITE: 50CFR253.12]

[Page 635-636]
 
                    TITLE 50--WILDLIFE AND FISHERIES
 
  CHAPTER II--NATIONAL MARINE FISHERIES SERVICE, NATIONAL OCEANIC AND 
           ATMOSPHERIC ADMINISTRATION, DEPARTMENT OF COMMERCE
 
PART 253_FISHERIES ASSISTANCE PROGRAMS--Table of Contents
 
            Subpart B_Fisheries Obligation Guarantee Program
 
Sec. 253.12  Guaranteed note, U.S. note, and security documents.

    (a) Guaranteed note--(1) Principal. This may not exceed 80 percent 
of actual cost, but may, in the Division's credit judgment, be less.
    (2) Maturity. This may not exceed 25 years, but shall not exceed the 
project property's useful life and may, in the Division's credit 
judgment, be less.
    (3) Interest rate. This may not exceed the amount the Division deems 
reasonable.
    (4) Prepayment penalty. The Division will allow a reasonable 
prepayment penalty, but the guarantor will not guarantee a notemaker's 
payment of it.
    (5) Form. This will be the simple promissory note (with the 
guarantee attached) the Division prescribes, promising only to pay 
principal, interest, and prepayment penalty.
    (6) Sole security. The guaranteed note and the guarantee will be the 
noteholder's sole security.
    (b) U.S. note and security documents--(1) Form. The U.S. note and 
security documents will be in the form the Division prescribes.
    (2) U.S. note. This exists to evidence the notemaker's actual and 
contingent liability to the guarantor (contingent if the guarantor does 
not pay the guaranteed note (including any portion of it), on the 
notemaker's behalf or if the guarantor does not advance any other 
amounts or incur any other expenses on the notemaker's behalf to protect 
the U.S. or accommodate the notemaker; actual if, and to the same 
monetary extent that, the guarantor does). Payment of the guaranteed 
note

[[Page 636]]

by anyone but the guarantor will amortize the original principal balance 
(and interest accruing on it) of the U.S. note to the same extent that 
it amortizes the guaranteed note. The U.S note will, among other things, 
contain provisions for adding to its principal balance all amounts the 
Program advances, or expenses it incurs, to protect the U.S. or 
accommodate the notemaker.
    (3) Security documents. The Division will, at a minimum, require a 
pledge of all project property (or adequate substitute collateral). The 
Division will require such other security as it deems the circumstances 
of each notemaker and project require to protect the U.S. All security 
documents will secure the U.S. note. The security documents will, among 
other things, contain provisions for adding to the U.S. note all Program 
advances, expenditures, and expenses required to protect the U.S. or 
accommodate the notemaker.
    (4) Recourse. Significant Program reliance, as a secondary means of 
repayment, on the net worths of parties other than the notemaker will 
ordinarily require secured recourse against those net worths. Recourse 
may be by a repayment guarantee or irrevocable letter of credit. 
Ordinarily, the Division will require recourse against: All major 
shareholders of a closely-held corporate notemaker, the parent 
corporation of a subsidiary corporate notemaker without substantial 
pledged assets other than the project property, and all major limited 
partners. The Division may also require recourse against others it deems 
necessary to protect the U.S. The principal parties in interest, who 
ultimately stand most to benefit from the project, should ordinarily be 
held financially accountable for the project's performance. Where 
otherwise appropriate recourse is unavailable, the conservatively 
projected net liquidating value of the notemaker's assets pledged to the 
Program must, in the Division's credit judgment, substantially exceed 
all projected Program exposure.
    (c) Dual-use CCF. For a vessel, the Division may require annually 
depositing 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 both gives the Program control of CCF withdrawals and 
recourse against CCF deposits and ensures an emergency refurbishing 
reserve (tax-deferred) for project property.