Virginia port bids detailed
The Virginia Port Authority has released additional information about competing proposals presented by companies to operate its terminals under the state’s Public-Private Transportation Act.
In March, CenterPoint Properties, a company that operates warehouses and inland terminals, made an unsolicited bid to take over the marine terminals that the VPA has in Norfolk, Portsmouth and Newport News, as well as an inland intermodal terminal in Front Royal, Va., for 60 years. It also wanted to acquire the right to develop a new container terminal at Craney Island, the port’s dredge spoil disposal site.
Under the Public-Private Transportation Act (PPTA), the state invited competing bids form other companies and on July 27 two additional proposals were received: from the Washington, D.C.-based private equity firm Carlyle Group, and a partnership of Seattle-based Carrix Group and the bank Goldman Sachs.
In a letter to VPA Chairman John Milliken and Executive Director Jerry Bridges, Virginia’s Secretary of Transportation Pierce Homer said both offers “generally meet the quality control criteria established by the commonwealth” and asked the port authority to post them on its Web site.
The next steps will be for Pierce to appoint an independent review panel to consider the proposals.
Carlyle contends that its proposal “places significant emphasis on a genuine ‘partnership’ with the public sector” compared to the CenterPoint plan, and “much greater participation by VPA in future profit sharing, allowing the commonwealth to benefit directly from the success of the port facilities. In addition, a greater VPA participation in the upside potential ensures a better alignment of our mutual interests.”
Carlyle said it is “interested in entering a long-term (more than 60 years) concession of VPA's port facilities including Craney Island. Longer terms are needed for tax (depreciation) purposes and to be able to justify investment in a greenfield terminal such as Craney Island in the future.”
Carlyle said it would provide Virginia with an upfront cash payment of $500 million to $700 million, and that the VPA would be entitled to a share of the profit depending on Carlyle’s cumulative equity internal rate of return (IRR). If Carlyle’s IRR was 13 percent to 16 percent, the port would get a 15 percent of profits; if Carlyle’s IRR was more than 30 percent, the VPA share would climb to 40 percent. But it said, “many assumptions remain undecided.”
CenterPoint had said its proposal would provide $1.2 billion in net up-front capital to the state including $500 million in cash and $962 million in net present value from the return of the transportation trust fund. It said the total value of its proposal is $8.9 billion, with a present value of $3.5 billion and a present value for the existing facilities of $2.2 billion. It also promised a share of future profits to the state and payments to municipalities where the facilities were located.
Carlyle wants to form a new entity which would become the concessionaire responsible for the operation, maintenance, financing and capital improvement of the port facilities. The concessionaire would provide capital for improvements during the concession term and Virginia International Terminals Inc. would become a subsidiary that would operate the terminal.
“Given VIT's long operating history of the port facilities and its familiarity with the shippers and the contracts, we believe VIT is best positioned to continue to operate ' with no disruption to the operations,” Carlyle said.
Carrix, parent company of Stevedoring Services of America, and Goldman Sachs & Co. also say their proposal offers the VPA and state “significantly more value than the original proposal submitted. Unlike the original proposal we are not proposing a privatization of the VPA. We believe we have a proposal that offers the VPA flexibility through either an operational partnership with Carrix, a financial re-engineering of the balance sheet utilizing Goldman's extensive knowledge and experience in the capital markets, or both.”
It said it proposes a “partnership commitment of only 30 years at the terminal operating level which is in line with the industry norm and provides greater flexibility than a 60-year commitment.”
It said it would provide $250 million upfront proceeds to the VPA which can be used to offset upcoming 2010 bond payments or be used as VPA otherwise chooses, an ongoing material operating cash flow sharing mechanism with strong upside potential as the parties collectively work to grow the business, and “materially greater overall value to the VPA as measured by net present value than CenterPoint when compared together on similar timeframes.”
Operating cash flow would be shared between Carrix and the VPA with the VPA receiving all of the first $25 million. After the $25 million breakpoint the VPA would share 50 percent of operating cash flow with Carrix up to $40 million. The VPA would receive then 25 percent. The estimated 30-year NPV to the VPA, excluding Craney Island, of this cash flow stream exceeds $2.1 billion to $2.4 billion,” the Carrix/Goldman proposal states.
Meanwhile, an announcement by CenterPoint, owned by the California Public Employees’ Retirement System (Calpers), that another retirement fund was joining it in making the proposal will apparently be discounted by Virginia in its initial review of the proposals.
CenterPoint announced last week that it added GCT Global Container Terminals as a “new member to our team.” GCT, which is owned by the Ontario Teachers Pension Plan, has already invested in four U.S. container terminals, two in Vancouver and two in the port of New York.
But because that announcement was made days after the July 27 deadline, press reports said that Virginia’s Attorney General had ruled that participation by GCT could not be included in the initial evaluation of the proposals.
But involvement by GCT might be weighed later in the process if the CenterPoint proposal (and others) pass muster with the independent review panel and the state asks the bidders for detailed proposals. ' Chris Dupin