The U.S. Coast Guard’s National Vessel Documentation Center (“NVDC”) issued on April 10, 2023 a new determination letter on the U.S. citizenship requirements applicable to owners of coastwise vessels under the Jones Act and the corresponding U.S. Coast Guard regulations. 

The letter confirms that, although non-U.S. citizens cannot own more than 25% of the stock of coastwise-vessel-owning companies, they can own warrants in addition to this minority interest as long as the following conditions are satisfied:

“(i) that warrant holders have no voting rights, no right to exercise any preemptive rights, and no right to receive notice as stockholders in respect of any meetings of stockholders,

(ii) that warrant holders are not eligible to receive any dividends or other distributions by [the vessel-owning company] and that, prior to their exercise and the issuance of underlying shares, warrant holders have no title to the underlying unissued shares, 

(iii) that warrants, including any additional warrants issued pursuant to anti­dilution provisions may only be exercised in a manner such that non-U.S. citizen ownership of [the vessel-owning company] may not exceed 24.9% in the aggregate,

and (iv) that warrants may be transferred but only subject to provisions that restrict the transferees of such warrants to be able to exercise them only if the result will not cause non-U.S. citizen ownership of [the vessel-owning company] to exceed 24.9%.”

These findings are not new: the NVDC had already approved the use of so-called “Jones Act warrants” within these parameters in several earlier determination letters.

What is new in the April 10, 2023 determination letter is that the NVDC made it clear that the use of Jones Act warrants is not limited to financially stressed coastwise operators, even though they were originally designed, and approved, as part of bankruptcy and insolvency restructurings.  The NVDC emphasized that it “did not, nor would it ever, purport to base its determinations on such policy-driven goals or considerations.”

Therefore, owners of coastwise vessels can issue Jones Act warrants even outside the context of a bankruptcy or insolvency restructuring, or other need for recapitalization.  The conditions listed above remain applicable and are now well established.

This letter is significant because there are few NVDC determination letters, and limited official guidance, on the application of the Jones Act’s U.S. citizenship requirements.  Jones Act owners often choose not to get their structure reviewed and approved by the NVDC. The clarification provided by this letter will be helpful for the structuring of future Jones Act transactions involving warrants.