§ 1279a. Escrow fund
(a)
Creation
If the proceeds of an obligation guaranteed under this subchapter are to be used to finance the construction, reconstruction, or reconditioning of a vessel or vessels which will serve as security for the guarantee of the Secretary or Administrator, the Secretary or Administrator is authorized to accept and hold, in escrow under an escrow agreement with the obligor, a portion of the proceeds of all obligations guaranteed under this subchapter whose proceeds are to be so used which is equal to:
(i)
the excess of the principal amount of all obligations whose proceeds are to be so used over 75 per centum, or 871/2 per centum, whichever is applicable under section
1274 [1] of this Appendix, of the amount paid by or for the account of the obligor for the construction, reconstruction, or reconditioning of the vessel or vessels;
(ii)
with such interest thereon, if any, as the Secretary or Administrator may require: Provided, That in the event the security for the guarantee of an obligation by the Secretary or Administrator relates both to a vessel or vessels to be constructed, reconstructed or reconditioned and to a delivered vessel or vessels, the principal amount of such obligation shall be prorated for purposes of this subsection (a) under regulations prescribed by the Secretary or Administrator.
(b)
Disbursement prior to termination of escrow agreement
The Secretary or Administrator shall, as specified in the escrow agreement, disburse the escrow fund to pay amounts the obligor is obligated to pay as interest on such obligations or for the construction, reconstruction, or reconditioning of the vessel or vessels used as security for the guarantee of the Secretary or Administrator under this subchapter, to redeem such obligations in connection with a refinancing under paragraph (4) [1] of section
1274
(a) of this Appendix or to pay to the obligor at such times as may be provided for in the escrow agreement any excess interest deposits, except that if payments become due under the guarantee prior to the termination of the escrow agreement, all amounts in the escrow fund at the time such payments become due (including realized income which has not yet been paid to the obligor) shall be paid into the Fund and (i), be credited against any amounts due or to become due to the Secretary or Administrator from the obligor with respect to the guaranteed obligations and (ii) to the extent not so required, be paid to the obligor.
(c)
Disbursement upon termination of escrow agreement
If payments under the guarantee have not become due prior to the termination of the escrow agreement, any balance of the escrow fund at the time of such termination shall be disbursed to prepay the excess of the principal of all obligations whose proceeds are to be used to finance the construction, reconstruction, or reconditioning of the vessel or vessels which serve or will serve as security for such guarantee over 75 per centum or 871/2 per centum, whichever is applicable under section
1274 [1] of this Appendix, of the actual cost of such vessel or vessels to the extent paid, and to pay interest on such prepaid amount of principal, and the remainder of such balance of the escrow fund shall be paid to the obligor.
(d)
Investment of fund
The Secretary or Administrator may invest and reinvest all or any part of the escrow fund in obligations of the United States with such maturities that the escrow fund will be available as required for purposes of the escrow agreement.
(e)
Payment of income
Any income realized on the escrow fund shall, upon receipt, be paid to the obligor.
(f)
Terms of escrow agreement
The escrow agreement shall contain such other terms as the Secretary or Administrator may consider necessary to protect fully the interests of the United States.
(g)
Payments required before disbursement
(1)
In general
No disbursement shall be made under subsection (b) of this section to any person until the total amount paid by or for the account of the obligor from sources other than the proceeds of the obligation equals at least 25 percent or 121/2 percent, whichever is applicable under section
1274 of this Appendix, of the aggregate actual cost of the vessel, as previously approved by the Secretary or Administrator. If the aggregate actual cost of the vessel has increased since the Secretary’s or Administrator’s initial approval or if it increases after the first disbursement is permitted under this subsection, then no further disbursements shall be made under subsection (b) of this section until the total amount paid by or for the account of the obligor from sources other than the proceeds of the obligation equals at least 25 percent or 121/2 percent, as applicable, of the increase, as determined by the Secretary or Administrator, in the aggregate actual cost of the vessel. Nothing in this paragraph shall require the Secretary or Administrator to consent to finance any increase in actual cost unless the Secretary or Administrator determines that such an increase in the obligation meets all the terms and conditions of this subchapter or other applicable law.
(2)
Documented proof of progress requirement
The Secretary or Administrator shall, by regulation, establish a transparent, independent, and risk-based process for verifying and documenting the progress of projects under construction before disbursing guaranteed loan funds. At a minimum, the process shall require documented proof of progress in connection with the construction, reconstruction, or reconditioning of a vessel or vessels before disbursements are made from the escrow fund. The Secretary or Administrator may require that the obligor provide a certificate from an independent party certifying that the requisite progress in construction, reconstruction, or reconditioning has taken place.
[1] See References in Text note below.