September 11, 2001 : Attack on America
OMB Releases Regulations for the Air Carrier Guarantee Loan Program; October 5, 2001
Office of Management and Budget
FOR IMMEDIATE RELEASE
October 5, 2001 2001-43
OMB Releases Regulations for the Air Carrier Guarantee Loan Program
Washington, DC -- The Office of Management and Budget today released the regulations for the Air Carrier Guarantee Loan Program as required under Title I of the Air Transportation Safety and Stabilization Act P.L. 107-42. OMB Director Mitchell E. Daniels, Jr. made the following statement upon the release of the regulations:
"The goal of this statute, in its loan guarantee section was to promote a viable commercial air system, one that will deliver quality service to the American public in the years ahead. Secondarily, its aim was to protect the American taxpayer by maximizing the chance that any loans the taxpayer guarantees will be repaid.
"The rules we have written are inclusionary, and neutral. All of todays carriers are eligible and welcome to apply. The Board, led by the Chairman of the Federal Reserve, will not pick winners or losers, but will follow clear guidelines in giving preferences to the strongest applications.
"These regulations were prepared only after extensive consultation with the airline industry, the financial community, and many members of Congress. They were written with careful fidelity to the underlying statute and to the express intent of those who voted to pass it."
Regulations for the Air Carrier Guarantee Loan Program
The Air Transportation Safety and Stabilization Act (P.L. 107-42) establishes a loan guarantee program for air carriers and requires the Office of Management and Budget to issue regulations governing the program. The purpose of the loan guarantees is to assist those air carriers that suffered losses due to the terrorist attacks of September 11, 2001, and to whom credit is not otherwise reasonably available, in order to facilitate a safe, efficient, and viable commercial aviation system in the United States.
The OMB regulations give the Board broad discretion to approve loan guarantees. All air carriers are eligible for the program, but the regulations provide guidance to the Board through preferences to give priority to the strongest applications, which demonstrate a business plan for a commercially viable entity and minimize the risk of default to the government. A summary of the regulations and program follow:
- Applicants. Any air carrier that suffered losses due to the terrorist attacks on September 11, 2001, and which does not otherwise have access to reasonable credit. Even bankrupt air carriers may apply for loan guarantees provided that they are requesting the loan guarantees as part of a court-approved bankruptcy plan.
- Amount of assistance. The Board is authorized to provide loan guarantees that in the aggregate, do not exceed $10 billion. The Board will determine the amount of assistance provided to each carrier. The Federal guarantee must be for less than 100 percent of the amount of principal and accrued interest of the loan to be guaranteed.
- Terms of the loan guarantee. The loan must be repaid no later than 7 years from the date that the loan is made.
- Deadlines for submitting applications. The Board shall review and make determinations on applications expeditiously as they are received, and all applications must be received by the Board on or before June 28, 2002. The Board may limit the amount of guarantees issued to the initial applicants in order to ensure that sufficient funds remain available for subsequent applicants.
- Air Transportation Stabilization Board. P.L. 107-42 established the Air Transportation Stabilization Board to review and decide on applications for loan guarantees. The Board is composed of the Secretary of Transportation or the designee of the Secretary; the Chairman of the Board of Governors of the Federal Reserve System, or the designee of the Chairman, who shall be the Chair of the Board; the Secretary of Treasury or the designee of the Secretary; and the Comptroller General of the United States or the designee of the Comptroller General, as a nonvoting member of the Board.
- Fees. Borrowers under this program shall pay an annual fee determined by the Board. This fee will escalate for each year that the loan is outstanding. The Board shall ensure such escalation reflects the borrowers potential ability to obtain credit in the private credit markets, in addition to any other factors the Board may deem appropriate.
- Evaluation of applications. The Board must consider the following factors in evaluation applications:
- 1. The borrowers ability to repay the loan;
- 2. Protection of the Governments financial interests;
- 3. The lenders ability to administer the loan;
- Board Discretion & Regulatory Preferences. Beyond these basic criteria, the regulations give the Board broad latitude in evaluating applications. The Board must, however, give preference to applications that demonstrate:
- 1. a business plan that is financially sound;
- 2. greater participation in the loan by non-Federal entities;
- 3. greater participation in the loan by private entities as opposed to non-Federal public entities;
- 4. warrants or other equity instruments that will allow the federal government to participate in the gains of the company;
- 5. concessions by creditors, employees, or others that will strengthen the financial condition of the company;
- 6. the loan proceeds will not be used for payment or refinancing of existing debt;
- 7. a reduction in the risk of default to the government by reducing the length of the loan, by pledges of collateral, and by other financial structures that minimize the Federal governments risk and cost associated with making the loan guarantees.
While the Board must give preference to applications in direct relation to the extent that they contain one or more of these features, the regulations do not exclude from consideration applications that do not contain these features.
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