Totem targets Title XI

January 21, 2015

Media Coverage

Another Jones Act operator has entered the race to line up loan guarantees backed by the US Maritime Administration (MarAd).

TOTE is led by chief executive Anthony Chiarello, one of the architects of the group's LNG initiative.

According to an updated list of pending Title XI applications Totem Ocean Trailer Express (Totem Ocean) is seeking a $107m loan with a term of 12 years.

If MarAd approves the request, which was submitted last month, the guarantees would help finance the conversion of two ro-ro containerships from diesel to dual-fuel power.

The agency claims the project, which involves the 7,200-lane Midnight Sun and North Star (both built 2003), will cost Totem Ocean approximately $122m in total.

While the agency identified General Dynamics NASSCO as the lone recipient of the contract sources with close ties to TOTE, one of Totem Ocean’s affiliates, say this isn’t the case.

When contacted by TradeWinds they confirmed that the yard is carrying out engineering work but said it doesn’t intend to bid on the project, which will see the Orca-class vessels outfitted with systems that rely on LNG as their primary source of power.

While this suggests Vigor Industrial and Victoria Shipyards are still in the running some believe the submission of Totem Ocean’s Title XI application represents an obstacle that will be difficult for the Canadian shipbuilder to overcome.

The primary purpose of Title XI, which is a reference to the Federal Ship Financing Program, is to promote the expansion and modernisation of US shipyards and the nation’s merchant marine.

By guaranteeing the repayment of loans obtained in the private sector, recipients are able to secure long-term financing on attractive terms.

According to MarAd funds must be applied towards the construction, reconstruction or reconditioning of tonnage at US shipyards but foreign and domestic operators are eligible to participate in the programme.

TOTE made waves last year when it secured a $325m loan guarantee to help finance two dual-fuel containerships under construction at NASSCO. Prior to this the last time MarAd issued a Title XI award was in 2011.

When asked whether TOTE’s victory would improve the odds that the agency will approve Totem Ocean’s application sources who are active in the Jones Act market were unable to reach a consensus.

Some argued that the operator’s chances are high since its affiliates hold a recipe for success. Others believe MarAd may want to, in the words of one contact, “spread the wealth” amongst the other contenders, a list that currently includes Crowley Maritime and JR Gray Barge.

This same individual pointed out that Totem Ocean received Title XI guarantees that helped finance both the Midnight Sun and North Star. He also noted the vast majority of approvals issued over the past 20 years were related to new building projects.

This claim is supported by a list of more than 100 applications that MarAd rubber stamped between 1994 and 2014. At a glance, it appears that Totem Ocean is the first to file an application related to the conversion of a vessel’s power system.

At last check the agency had enough ammunition to support approximately $450m in Title XI loan guarantees.

Yesterday a prominent US law firm, Blank Rome, noted the US government did not provide any new funding for Title XI and several other MarAd programmes when it passed the nation’s budget for fiscal 2015 despite endorsements from a number of prominent politicians.

As we have reported, the agency has embarked on a campaign to streamline the Title XI review process and is hopeful that TOTE’s $325m award will encourage more owners with tonnage on order at US shipyards to apply for guarantees.

Opponents of the programme argue that the transaction was a small step in the right direction but believe the cost continues to be prohibitive.

If an owner were to file an application for a $125m guarantee a spokeswoman for MarAd tells TradeWinds that fees, in certain cases, would likely exceed $1m.

“Totem targets Title XI,” by Aaron Kelley, originally appeared in the January 21, 2015 edition of TradeWinds. For more information, please visit www.tradewindsnews.com.

Reprinted with permission from TradeWinds.

Blank Rome citation in reference to the article “A Sea Change Sweeps over Congress: A Look Back and a Look Ahead,” by Blank Rome Of Counsel Joan M. Bondareff and Blank Rome Government Relations LLC Senior Advisor Stephen C. Peranich, from the January 2015 edition of Mainbrace.

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