Report Title:

Interisland Air Carrier; Loan Guarantee

Description:

Allows the department of business, economic development, and tourism to guarantee loans made to a Hawaii air carrier who operates within the State or between points within the State.

HOUSE OF REPRESENTATIVES

H.B. NO.

904

TWENTY-THIRD LEGISLATURE, 2005

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

RELATING TO AIR TRANSPORTATION.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:

"CHAPTER

LOAN GUARANTEES FOR HAWAII AIR CARRIERS

§ -1 Loans guaranteed by the department. (a) The department of business, economic development, and tourism, through its director, may guarantee up to ninety per cent of the principal balance of a loan made by a private lending institution to a Hawaii air carrier providing the carriage of persons or property by air for compensation or hire between any two points, both of which are within the State of Hawaii; provided that at no time shall the aggregate amount of the State's liability, contingent or otherwise, on loans guaranteed by this chapter exceed $12,600,000.

(b) The loan guarantee shall be for a term of not more than seven years.

(c) All loans guaranteed under this chapter shall be collateralized on a basis at least equal to the outstanding balance of the loan guaranteed; provided that as part of the collateral, the Hawaii air carrier shall deposit, in cash, an amount equal to twenty per cent of the principal balance of the loan into the Hawaii interisland airline loan guarantee trust fund to be held by the State in an interest bearing account. The balance of the collateral shall be in the form of real property interests or such other marketable assets as may be approved by the director. The collateral shall not be subordinated. All parts and equipment pledged as collateral shall be subject to a buyback or re-stock agreement such that the value of the collateral or method of securing payment from the collateral shall be guaranteed.

(d) A loan guarantee shall be considered only when there is evidence that the loan is not available from other sources. The loan shall be deemed to be available unless the Hawaii air carrier provides proof satisfactorily to the director of refusal of all or a part of the required loan from at least three financial institutions, one of which has a current business relationship with the carrier. Proof of refusal shall contain the date of application, amount, purpose, and the financial institutions' reasons for not granting the desired loan. The financial institutions' refusal to advance credit shall not be considered the full test of the unavailability of credit. Where the director has reason to believe that credit is otherwise available from sources other than such financial institutions, the loan applied for shall not be granted notwithstanding the receipt of a written refusal from such financial institutions.

(e) The department shall conduct a due diligence examination of the Hawaii air carrier applying for a loan guarantee under this chapter. The department shall not approve a loan guarantee unless the applicant provides reasonable assurance that the loan can and will be repaid pursuant to its terms. Reasonable assurance of repayment shall be based upon consideration of the applicant's record of past earnings or projections of future earnings.

(f) The loan guarantee may not be granted unless the Hawaii air carrier secures agreements from its principal creditors that the principal creditors shall withhold any collection actions which may result in the Hawaii air carrier ceasing operations for a minimum of two years from the effective date of the guarantee.

(g) Funds provided by the guaranteed loan may be used for working capital except that loan guarantees shall not be granted if the direct or indirect purpose or result of granting the loan would be to:

(1) Satisfy debts arising prior to the effective date of the guarantee;

(2) Provide funds, directly or indirectly, for payment, distribution, or as a loan to owners, partners, or shareholders of the borrower;

(3) Provide funds for wage or salary increases; or

(4) Replenish funds heretofore used for any of the above purposes in anticipation of applying for a loan guarantee under this chapter.

(h) The department may set additional terms and conditions on the granting of the loan guarantee. When the application for a guaranteed loan has been approved by the department, the department shall issue to the lender a guarantee for the percentage of the loan guaranteed. The lender shall collect all payments from the borrower and otherwise service the loan.

(i) Loan guarantees shall not be granted unless the carrier raises new equity equal to the amount of the guarantee in a form acceptable to the department.

(j) In return for the department's guarantee, the lender shall remit, out of interest collected, a guarantee fee on the unpaid principal balance of the guaranteed portion of the loan to the State, provided that this fee shall not be added to any amount which the borrower is obligated to pay. The department shall determine the amount of the guarantee fee.

(k) The applicant shall:

(1) Expend the loan in accordance with the provisions of this chapter;

(2) Keep the department informed of any and all changes in the security and other major changes in the carrier's operation; and

(3) Promptly provide information and documents to the department upon request.

(l) Upon retirement of the loan or under other conditions satisfactory to the director of business, economic development, and tourism, the deposit made into the Hawaii interisland airline loan guarantee trust fund by the Hawaii air carrier shall be returned to the Hawaii air carrier in accordance with the terms of the agreement with the carrier.

In the event of a default by the Hawaii air carrier, the lender shall notify the department of the default, and shall be entitled to receive all moneys deposited into the Hawaii interisland airline loan guarantee trust fund by the Hawaii air carrier. The lender shall commence all actions necessary to protect or enforce its rights to the properties used as collateral to secure the loan guarantee and shall prosecute such actions to the fullest extent available under law.

(m) During the life of a loan guarantee, the carrier shall submit to the department audited annual financial statements consisting of a balance sheet, income statement, and a statement of cash flows. These reports shall be submitted no later than four months after the close of the carrier's fiscal year. The department may require the carrier to file interim financial statements and reports as deemed necessary by the director.

§ -2 Hawaii interisland loan guarantee trust fund. (a) There is created a trust fund in the state treasury to be known as the Hawaii interisland airline loan guarantee trust fund which shall serve as the reserve for all loans guaranteed under this chapter.

(b) The Hawaii air carrier shall deposit, in cash, an amount equal to twenty per cent of the principal balance of the loan guaranteed under this chapter into the Hawaii interisland airline loan guaranteed trust fund. This sum, when and if necessary, shall be expended by the department for the purposes of this chapter."

SECTION 2. Pursuant to article VII, section 13, clause 8, of the state constitution that states: "Bonds constituting instruments of indebtedness under which the State or any political subdivision incurs a contingent liability as a guarantor, but only to the extent the principal amount of such bonds does not exceed seven per cent of the principal amount of outstanding general obligation bonds not otherwise excluded under this section; provided that the State or political subdivision shall establish and maintain a reserve in an amount in reasonable proportion to the outstanding loans guaranteed by the State or political subdivision as provided by law." The legislature finds and declares that the moneys deposited into the Hawaii interisland airline loan guarantee trust fund pursuant to section    -1, Hawaii Revised Statutes in section 1 of this Act, satisfies the reasonable reserve requirement of the State Constitution.

SECTION 3. There is appropriated out of the general revenues of the State of Hawaii the sum of $        , or so much thereof as may be necessary for fiscal year 2005-2006, to conduct due diligence examinations of any Hawaii air carrier applying for a loan guarantee from the State of Hawaii, and monitoring and auditing, and the administration of the Hawaii interisland airline loan guarantee trust fund.

SECTION 4. The sum appropriated shall be expended by the department of business, economic development, and tourism for the purposes of this Act.

SECTION 5. The provisions of this Act shall be performed to the extent permissible under the United States Constitution and federal law without causing a violation of the United States Constitution, federal grant agreements, federal law, or federal regulations.

SECTION 6. This Act shall take effect upon its approval; provided that section 3 shall take effect on July 1, 2005; provided further that the collateral required by section -1, Hawaii Revised Statutes in section 1 of this Act, is deposited into the Hawaii interisland loan guarantee trust fund on such terms and conditions acceptable to the director of the department of business, economic development, and tourism by June 30, 2005.

INTRODUCED BY:

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