Article by Gordon L. Poole, Barbara B. Powell, and Donald T. Gray
Vessel financing in the United States has enjoyed enormous growth and diversification in the past few decades. Changes have been thrust upon the commercial vessel financing industry by the proliferation of new kinds of commercial vessels, especially in the energy production field, requiring new forms of financings, and through the introduction of new investing sources, including institutionalized investors such as pension and welfare funds, beyond the traditional bank and insurance company sources. As a result, the simple financing form of a single lender loan secured only by a first preferred ship mortgage has largely given way to more complex financing techniques. These new financing forms are frequently structured to take advantage of government aid programs and to maximize tax advantages. The modern shipowner and legal practitioner in the area, in addition to understanding and capitalizing on these new financing techniques, must also be aware of recent critical changes in the law which affect both the fundamentals of all vessel financing, such as the new Vessel Documentation Act, and specific financing forms, including changes in the tax law and in government aid programs.
The purpose of the article is twofold. The first purpose is to present a comprehensive guide to compliance with the fundamental requirements of all forms of financing United States-flag commercial vessels. Such requirements include compliance with applicable navigation laws, proper vessel documentation, proper perfection of the essential security device—the ship mortgage, and the maintenance of citizenship which is a prerequisite to all such compliance.
Second, the article focuses on three of the most common, and complex, of the newer forms of financing United States-flag commercial vessels—Title XI financing, leveraged and tax-oriented lease financing and limited (tax shelter) partnerships. Since the law governing the areas of Title XI and tax-oriented financings is in a period of change, this article includes a number of policy recommendations in those areas.
The scope of the article necessarily limits the extent of detail of the discussion in each area. Further, there has been no attempt made to present a comprehensive discussion of all forms of vessel financing and all existing government aid programs related to such financing. However, with regard to both the fundamentals of vessel financing and the specific financing techniques and government aid programs discussed, emphasis has been placed both on the essential formal requirements and on the common problems encountered in practice.
About the Author
Gordon L. Poole. LL.B., Harvard University. Partner, Lillick McHose & Charles, San Francisco, California.
Barbara B. Powell. J.D., University of Iowa. Partner, Lillick McHose & Charles, Washington, D.C.
Donald T. Gray. J.D., University of California at Berkeley. Partner, Lillick McHose & Charles, Washington, D.C.
Citation
56 Tul. L. Rev. 1171 (1982)