B-143268, JUL. 13, 1960

B-143268: Jul 13, 1960

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MARITIME ADMINISTRATION: REFERENCE IS MADE TO LETTER DATED JUNE 20. ADVISE THAT PURSUANT TO THE AUTHORITY RECOGNIZED IN THOSE DECISIONS YOUR ADMINISTRATION NOW IS CONTEMPLATING MAKING AN ADVANCE OF $101. YOU REQUEST ADVICE WHETHER OUR OFFICE IS REQUIRED TO OBJECT TO THE PROPOSAL. WAS INSURED AS TO PRINCIPAL AND INTEREST AT THE RATE OF 5 PERCENT PER ANNUM ON A TANKER. THE PRINCIPAL AMOUNT OF THE MORTGAGE WAS REDUCED BY A PREPAYMENT OF $28. INTEREST ON THE DEFERRED AMOUNTS WAS PAID ON THE DUE DATES. THERE WAS $18. YOU STATE THAT YOUR REVIEW OF THE CORPORATION'S FINANCIAL RECORDS DISCLOSES THAT IF IT IS COMPELLED TO MEET THE INTEREST AND PRINCIPAL PAYMENTS DUE ON JUNE 23 AND SEPTEMBER 23.

B-143268, JUL. 13, 1960

TO ADMINISTRATOR, MARITIME ADMINISTRATION:

REFERENCE IS MADE TO LETTER DATED JUNE 20, 1960, FROM THE ACTING MARITIME ADMINISTRATOR, RELATIVE TO THE MATTER OF ADVANCING FUNDS TO A MORTGAGOR FOR PAYMENT OF A QUARTERLY INSTALLMENT OF PRINCIPAL ON A SHIP MORTGAGE INSURED BY THE MARITIME ADMINISTRATION UNDER TITLE XI OF THE 1936 ACT IN ORDER TO PREVENT A DEFAULT UNDER THE MORTGAGE. YOU REFER TO OUR DECISIONS DATED DECEMBER 2, 1959, AND JANUARY 22, 1960, TO THE ADMINISTRATOR, MARITIME ADMINISTRATION, RELATING TO THE RED HILLS CORPORATION, AND ADVISE THAT PURSUANT TO THE AUTHORITY RECOGNIZED IN THOSE DECISIONS YOUR ADMINISTRATION NOW IS CONTEMPLATING MAKING AN ADVANCE OF $101,603 TO NAUTILUS PETROLEUM CARRIERS CORP., FOR PAYMENT OF A PORTION OF THE QUARTERLY INSTALLMENT OF PRINCIPAL, DUE JUNE 23, 1960, TO THE GREENWICH SAVINGS BANK. YOU REQUEST ADVICE WHETHER OUR OFFICE IS REQUIRED TO OBJECT TO THE PROPOSAL.

BRIEFLY STATED, IT APPEARS THAT ON DECEMBER 23, 1958, YOU ENTERED INTO A CONTRACT OF INSURANCE OF MORTGAGE WITH THE GREENWICH SAVINGS BANK UNDER WHICH A MORTGAGE IN THE AMOUNT OF $9,606,000, RUNNING FOR A PERIOD OF TWENTY YEARS, WAS INSURED AS TO PRINCIPAL AND INTEREST AT THE RATE OF 5 PERCENT PER ANNUM ON A TANKER, SS SISTER KATINGO, FOR NAUTILUS PETROLEUM CARRIERS CORP. IMMEDIATELY AFTER THE MORTGAGE CLOSING, THE PRINCIPAL AMOUNT OF THE MORTGAGE WAS REDUCED BY A PREPAYMENT OF $28,800 TO $9,577,200. NAUTILUS PAID THE QUARTERLY INSTALLMENT OF PRINCIPAL DUE MARCH 23, 1959, IN THE AMOUNT OF $120,075, PLUS THE INTEREST. HOWEVER, DUE TO THE DEPRESSED TANKER MARKET, THE CORPORATION, IN ORDER TO PRESERVE ITS WORKING CAPITAL, REQUESTED AND RECEIVED, WITH YOUR ADMINISTRATION'S APPROVAL, DEFERMENTS OF THE JUNE 23 AND SEPTEMBER 23, 1959, PRINCIPAL PAYMENTS, BUT INTEREST ON THE DEFERRED AMOUNTS WAS PAID ON THE DUE DATES.

IN CONSIDERATION FOR DEFERRING THE AFOREMENTIONED INSTALLMENTS, THE CORPORATION AND THE BANK ENTERED INTO A COLLATERAL AGREEMENT, CONSENTED TO BY YOUR ADMINISTRATION, WHEREIN THE CORPORATION DEPOSITED WITH THE BANK THE SUM OF $598,596.34 AS COLLATERAL FOR THE INSURED MORTGAGE LOAN TO BE USED AS (1) PAYMENT OF THE SEPTEMBER 23, 1959, INTEREST PAYMENT, (2) DECEMBER 23, 1959, INTEREST PAYMENT, (3) PAYMENT OF THE DECEMBER 23, 1959, PRINCIPAL PAYMENT, AND (4) THE BALANCE TO BE PAID AS DIRECTED BY YOUR ADMINISTRATION. AS OF THE DATE OF YOUR LETTER, THERE WAS $18,472 REMAINING WITH THE BANK, THE BALANCE HAVING BEEN USED TO PAY INTEREST AND PRINCIPAL INSTALLMENTS, EXCLUSIVE OF THE DEFERRED INSTALLMENTS, THROUGH MARCH 23, 1960, AND THE AMOUNT OF THE MORTGAGE HAS BEEN REDUCED TO $9,216,975. ON MAY 13, 1960, THE BANK DENIED THE CORPORATION'S REQUEST FOR ANY FUTURE DEFERMENTS, AND LATER ORALLY ADVISED YOUR ADMINISTRATION THAT IT WOULD NOT AGREE TO A SECOND MORTGAGE ON THE VESSEL. YOU ADVISE THE CORPORATION NOW HAS REQUESTED THAT YOUR ADMINISTRATION DIRECT THE AFOREMENTIONED $18,472 TO BE USED IN PART PAYMENT OF THE JUNE 23, 1960, INSTALLMENT OF PRINCIPAL AND ADVANCE THE BALANCE DUE OF $101,603.

YOU STATE THAT YOUR REVIEW OF THE CORPORATION'S FINANCIAL RECORDS DISCLOSES THAT IF IT IS COMPELLED TO MEET THE INTEREST AND PRINCIPAL PAYMENTS DUE ON JUNE 23 AND SEPTEMBER 23, 1960, WITHOUT ASSISTANCE IT WILL LEAVE THE CORPORATION WITH ONLY $13,653.99, A SUM INSUFFICIENT TO ALLOW IT TO OPERATE THE VESSEL TO AND THROUGH THE MORE PROFITABLE WINTER SEASON. HENCE, IT IS YOUR VIEW THAT IN ORDER TO ALLOW THE CORPORATION TO PRESERVE ITS WORKING CAPITAL AND PREVENT THE OCCURRENCE OF A DEFAULT AFTER SEPTEMBER 23, 1960, IT SHOULD BE ASSISTED IN MAKING ITS JUNE 23 INSTALLMENT OF PRINCIPAL.

YOU FURTHER ADVISE THAT THIS PROPOSAL WILL AFFORD NAUTILUS THE OPPORTUNITY TO RETAIN AND OPERATE THE VESSEL OVER THE WINTER SEASON WITH THE HOPE THAT MARKET CONDITIONS WILL IMPROVE TO THE EXTENT THAT ITS MORTGAGE INDEBTEDNESS WILL EVENTUALLY BE DISCHARGED. YOU ALSO POINT OUT THAT THE PROPOSAL WILL NOT RESULT IN AN INCREASE OF THE GOVERNMENT'S LIABILITY, BUT ON THE CONTRARY WILL REDUCE ITS LIABILITY SINCE, IN EFFECT, IT WILL BE ONLY A PAYMENT OF AN INSTALLMENT OF MORTGAGE INSURANCE. YOU STATE THAT IF THIS PROPOSAL IS NOT CARRIED OUT, IT IS ANTICIPATED THAT A DEFAULT WILL OCCUR IN THE NEAR FUTURE AND THE ADMINISTRATION AT THAT TIME WOULD HAVE NO ALTERNATIVE BUT TO ACCEPT THE ASSIGNMENT OF THE MORTGAGE AND PAY IN FULL THE AMOUNT OF THE TITLE XI INSURANCE, IN WHICH EVENT IT IS EXTREMELY DOUBTFUL, IN LIGHT OF THE CONTINUED DEPRESSED TANKER MARKET, THAT THE SALE OF THE VESSEL THROUGH FORECLOSURE PROCEEDINGS WOULD RECOVER THE GOVERNMENT'S INTEREST IN THE VESSEL.

AS WAS STATED IN OUR DECISION OF MARCH 27, 1941, WHICH WAS ELABORATED UPON IN OUR OPINION DATED DECEMBER 2, 1959, TO YOUR ADMINISTRATION, WE BELIEVE THAT, FOR THE REASONS STATED THEREIN, SECTION 207 OF THE MERCHANT MARINE ACT, 1936, AS AMENDED, VESTS IN THE ADMINISTRATION BROAD DISCRETIONARY AUTHORITY IN SITUATIONS OF THIS KIND, PROVIDED, OF COURSE, THERE IS A REASONABLE SHOWING IN SUPPORT OF THE ACTION TAKEN, AND SUCH DISCRETION IS NOT EXERCISED ARBITRARILY.

WE CONCUR IN YOUR OPINION THAT THE FACTS SET FORTH IN YOUR LETTER ARE SUFFICIENT TO CONSTITUTE A REASONABLE SHOWING THAT THE EXPENDITURES OF THE CHARACTER INVOLVED ARE JUSTIFIED. ACCORDINGLY, YOU ARE ADVISED THAT WE WILL NOT OBJECT TO THE ACTION PROPOSED.