Mr. FOSTER. I wonder if you would say a bit more about the point you made on page 8 of your statement, in which you said: We can take administrative action by way of giving advance blanket approval under sections 9 and 37 to the acquisition of bonds by foreigners which, in our opinion, would obviate the difficulties created by the Westhampton decision, and we have such action under consideration. What can you do to meet this problem without legislation? Mr. DAVIS. Well, in respect to the past financing transactions, I am not prepared to say whether or not we could issue retroactive blanket approvals. Insofar as future transactions are concerned, I do think we could issue blanket approvals, but all of this may not fully achieve what the Congress has tried to accomplish by ship-financing legislation. This is a sensitive area in which Congress has constantly urged us to do everything we can to get the interest rate down, to have a wide market for these bonds, to get them accepted on the market, and this legislation, if the objectives of Congress are to be carried out, is highly essential to that mission. Mr. FOSTER. If the Maritime Administration has the authority to solve a problem for the future and you are not sure of whether or not you have authority to solve the problem for the past, one thought might be that Congress might wait to see whether you couldn't decide whether or not you could solve it for the past. Mr. DAVIS. Well, Mr. Foster, in our title XI financing, we think that our actions have been such as to have given approval. With respect to other financing-and, of course, you know there is a lot of outside financing-we have refused to exercise our discretion predicated upon our decisions that it was not necessary to grant such approvals. Once having made the decision not to exercise our discretion, I doubt our ability now to turn around and exercise our discretion after the event. Mr. FOSTER. Mr. Davis, the Maritime Administration is an agile and effective instrument of Government, and it can change its position from time to time as circumstances arise. I don't quite understand why that agility could not be practiced in his situation. You have to reconsider your position when court ecisions are made and other occurrences develop? Mr. DAVIS. Oh, yes. Mr. FOSTER. I don't understand why you wouldn't consider it, nd as I understand it, from your statement, you say we have such ction under consideration. Is it my understanding you don't have ny active consideration of the possibility of issuing a retroactive lanket confirmation of this? Mr. DAVIS. No; the one we have under consideration, Mr. Foster, forfeiture. Mr. FOSTER. Only? Mr. DAVIS. Yes, sir. Senator BARTLETT. Mr. Kenney? Mr. KENNEY. If I may, on this point, if I understand your stateent, then, and your discussion of the court case, section 37 of the ipping Act of 1916 is one of the controlling sections? Mr. DAVIS. Yes, sir. Mr. KENNEY. That, of course, as I read it, requires the prior apoval of the Secretary of Commerce to do these things. Mr. DAVIS. It says we must weigh it against the national interest at the time, and not to go back and do it now, when we alreadyMr. KENNEY. You couldn't go back and do it now with language that calls for prior approval of the Secretary. Mr. FOSTER. That is right. This order, to get the record straight, are you saying that you believe, under the law, you considered doing this, but you are not considering doing it; or is your position that under the law you have determined that you don't have any authority to do it? Mr. DAVIS. Under the law, we have determined that we do not have the authority to do it retroactively. But, prospectively, we have that under consideration right now for future transactions. Mr. FOSTER. So you have no authority to solve the problem retroactively, in your opinion. Mr. DAVIS. Because it has to be done at the time of the incident. Mr. FOSTER. It is not that the administration is not being its usual agile self, but you do not have the authority. Mr. DAVIS. On page 4, I have inserted the word "prior." I did leave it out in the draft. Mr. FOSTER. How serious is this in terms of financing the construction of new vessels for the U.S. merchant marine? Mr. DAVIS. I think it has created quite a serious problem, and if I may say so, the man who has been dealing with the people involved. most closely, is Mr. Tankard. May I refer to him in response to that question? Mr. TANKARD. The Congress has devoted a lot of its legislation to making ship financing acceptable in the marketplace. The history of the administration of title XI shows that there is about a half percent interest rate factor here-difference between a mortgage given directly to a citizen mortgagee investor and a mortgage given to a trustee with the bond sold to the public, or to investors who are not willing to undertake the role of the mortgagee. Now, the one-half percent interest factor, alone, would amount to about a half million dollars, roughly, in additional interest charge in the financing of a ship over the 25-year life of the ship. I think that if the objectives intended by the Congress and the administration of the statute are to be achieved, then it is necessary that the bonds have complete marketability as we thought they had before the Westhampton decision. There are about 300 ships in the subsidized fleet. Now, these ships all have to be financed. It is now the policy of the Government and the Congress not to appropriate money directly to finance these ships. The reliance is completely on title XI. In relying on title XI and pledging the faith of the United States, and in making the contracts of insurance incontestable, it has been the objective to obtain the lowest possible interest rate, to have an interest rate reasonable in relation to the interest rate on direct obligations of the Government. and to have it commensurate with the pledge of the faith of the United States. That has been our objective, and I think we have successfully achieved it with the underwriting groups that have been involved. This decision could be a serious threat to the accomplishment of those objectives. The bondholders, naturally, would be concerned about investing in a mortgage which is invalid. It raises the question as to the basic validity of the Government's insurance. If that validity turns on the citizenship of the bondholders, then this could occur: the citizenship might be involved in the holding of one or more bonds or it might be involved in the holding of the entire group of bonds. The Congress intended, for example, that there be investments by States, State funds, pension funds, many of which are not characterized in the law as citizens or noncitizens. They are undefined or unclassified in the law. Now, these groups could not invest in these bonds if there are questions of validity of the Government's insurance and the mortgage involved. I might add that in many instances, the bonds that are issued are bearer bonds. In the case of the Santa Paula financing, there was a $9 million mortgage. Over $8 million of those bonds, over 8,000 in number of bonds, were bearer bonds. These bonds went into the marketplace. We do not know, and it would be very difficult to determine who all the owners have been. We do not know the citizenship of those owners. Under this decision, there could be real questions as to whether or not those bonds are valid bonds. However, in respect of the title XI bonds, we have given approval to the transactions. We have approved the mortgagee; we have approved every document that goes into the transaction under which the bonds are sold, under which the rights of the bondholders are created, under which the trustee exercises all of its functions. In every way, we have examined the transactions. For that reason, we do not think that approval under the Shipping Act is additionally required, or if it is required, we think that it has been given. Mr. FOSTER. One other question, if I may, Mr. Chairman. I wonder if you could supply for the committee a half dozen specific examples of the types you just mentioned in which this problem arose? Mr. TANKARD. Public bond issues? Mr. FOSTER. Yes, sir; you know, reference Mr. DAVIS. You mean in which this bond problem is involved? Mr. DAVIS. Yes, sir. Mr. TANKARD. We can give the committee examples. We have a compilation, if you would like it, of all of the trusteed and the nontrusteed financings, if the committee would like that. Mr. FOSTER. Yes, sir, please. Mr. TANKARD. We will furnish that. (The information requested above follows:) TITLE XI, MERCHANT MARINE ACT, 1936, AS AMENDED Public bond issues outstanding-With trustees as of June 30, 1965 [Bonds sold to public and traded through brokers] 1 1 Coupon bonds which may be registered as to principal in the denominations of $1,000 and/or registered bonds without coupons in the deominations of $1,000 and integral multiples thereof. 2 Commitment to insure mortgage on undelivered vessels. |