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GAO-01-714R 1 (2001-05-25)

handle is hein.gao/gaocrptankm0001 and id is 1 raw text is: SGAO Accountability * Integrity * Reliability United States General Accounting Office Washington, DC 20548 May 25, 2001 The Honorable John McCain Chairman Committee on Commerce, Science, and Transportation United States Senate Subject: Financial Management: Emergency Steel Loan Guarantee Program Dear Mr. Chairman: In a February 1, 2001 letter, you expressed concerns about repayments of federally guaranteed loans by borrowers under the Emergency Steel Loan Guarantee Program and the effect of the program on the U.S. steel industry. As agreed with your office, we conducted a financial analysis of the program and an economic analysis of factors relevant to the U.S. steel industry. Our financial analysis covered program background; the status of program funding; loan guarantees applied for, approved, and disbursed; the federal government's maximum potential loss for the program; the financial condition of approved borrowers; and factors that affect the borrowers' ability to repay loans on time. Our economic analysis considered general factors that influence steel industry production, capacity, consumption, pricing, and international trade, as well as specific factors relating to the program. Our work was conducted in March and April 2001 in accordance with U.S. generally accepted government auditing standards. On May 1, 2001, we briefed your office on the results of our analysis, including the status of the Emergency Steel Loan Guarantee Program from its inception on August 17, 1999, through March 31, 2001. This letter transmits the material from that briefing showing that there has been only one guaranteed loan disbursed by a private lender for $110 million. With an 85 percent guarantee, the federal government's maximum potential loss is $93.5 million, assuming no repayments and no recovery from property pledged as collateral. We noted that the financial condition of program applicants is not strong and repayments of loans depend upon many future factors. Our economic analysis noted a flat demand for steel, moderate prices, and static imports of foreign steel forecasted for 2002 and 2003. Due to the low loan amount, the program through March 31, 2001, has had a minimal overall effect on the U.S. steel industry. However, the program is currently accepting loan guarantee applications through August 31, 2001, and may, by law, extend the application date through December 31, 2001. As agreed with your office, this concludes our work on the program at this time. GAO-01-714R Emergency Steel Loan Guarantee Program

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