Carlyle dunks into public-private partnerships

The private equity firm has backed a consortium of investors who will upgrade 23 highway rest stops in Connecticut and equip them with new Subway and Dunkin’ Donuts shops in exchange for a share of their revenues. The $178m deal marks the third investment and the first PPP for the firm’s $1.1bn infrastructure fund, which was launched in 2006.

The Carlyle Group has closed a deal with the Connecticut government, local restaurant owners and labour unions to upgrade the state’s 23 highway rest stops in return for a share of their revenues, marking the first public-private partnership (PPP) deal for Washington, DC-based private equity firm.

Carlyle and its partners will fund 100 percent of the upgrades, estimated to cost $178 million. In exchange, they will gain the right to redevelop, operate and maintain the rest stops for 35 years, starting 7 December, Carlyle said in a statement.

The upgrades will include renovating, expanding and, in some cases, rebuilding the service areas, many of which were built more than 50 years ago and have had no significant capital improvements since the 1980s, according to the statement.

Carlyle will also bring new restaurant and service offerings to the rest stops, such as Subway sandwich outlets and Dunkin’ Donuts pastry shops. A Massachusetts-based gas distributor, Alliance Energy, will furbish the stops with additional fueling stations and convenience stores. A local chapter of the Service Employees International Union will provide custodial services for the stations.

The improvements will be carried out with the help of Doctor’s Associates, the parent company of Connecticut-based Subway, and Subcon, the local development company for Subway restaurants in the state. Together with Carlyle, these firms have formed a joint-venture company, Project Service, which will deliver the improvements.

Project Service will not assume ownership of the rest stops, which will continue to sit on the state’s books. It will, however, collect revenues from the rest stops and keep a share of them. The state will also get a share of the revenues, as well as minimum annual payments from the company.

Connecticut agencies lack general authorisation to pursue PPPs, but the state’s Transportation Strategy Board has nevertheless been evaluating various PPP opportunities for specific transportation assets, according to a business presentation by Boston-based law firm Floey Hoag. The rest stops PPP grew out of this evaluation process.

Connecticut is not the only state to consider a PPP for its highway rest stops, which are often under-funded by the state agencies that maintain them. Last year, Will Kempton, the head of the California Department of Transportation, said he would like to involve the private sector in the management of the state's highway rest stops, possibly even privatising them.

For Carlyle, the PPP marks the third deal out of its $1.1 billion infrastructure fund, which launched in 2006, according to the Carlyle website. It will also be the first PPP out of that fund, which has previously invested in Synagro, a Texas-based waste management company, and ITS Technology & Logistics, an Illinois-based freight company.

With the closing of the deal, the fund will be about one-third invested and one-third through its investment period, according to a person knowledgeable about the fund.