KKR makes splash with US water PPP exits

KKR exited water investments in Bayonne, New Jersey, and Middletown, Pennsylvania, last year, recently published pension documents show, selling the public-private partnerships to Argo Infrastructure Partners for $110 million and $60 million, respectively.

KKR’s sale of Bayonne Water netted the firm a gross internal rate of return of 36 percent and a 2.8 times gross money on invested capital, while its Middletown Water investment yielded a 61 percent gross IRR and a 3.3 times MOIC.

KKR declined to comment on the sale, while messages to Argo were not returned.

A joint venture of KKR and Suez North America – KKR held a 90 percent stake – paid $150 million for a 40-year concession for the Bayonne system in December 2012. The deal also committed the JV to invest $157 million over the life of the contract. In January 2015, the same JV took over a 50-year concession in Middletown, paying the Middletown Borough Authority $43 million while agreeing to finance $83 million in infrastructure improvements.

The deals were two of the biggest public-private partnerships in the water space. In late 2016, KKR had begun shopping both assets, according to a December 2016 Wall Street Journal report. The paper called KKR’s search for a buyer “a test of whether Wall Street has found a way to profitably invest in public works”.

KKR’s deal with Bayonne has been one of the most scrutinised in the space. It has received accolades for bailing out a system ridden with debt while upgrading pipes and equipment. It has also been blamed for rising water rates, though the firm says rates were destined to rise regardless.

KKR’s infrastructure team is expected to see a shakeup this spring, with global infrastructure co-head Jesús Olmos leaving. Raj Agrawal will become the team’s sole leader. The firm is fundraising for its third infrastructure vehicle, which is targeting around $5 billion.