Following months of awaiting regulatory approval, Argo Infrastructure Partners yesterday announced completing the acquisition of the Cross-Sound Cable Company from Brookfield Infrastructure Partners (BIP), bringing to a close the firm's inaugural investment.
The Cross-Sound Cable Company is a Massachusetts-based firm set up exclusively to manage the Cross-Sound Cable (CSC) Project. Argo purchased the asset through its platform investment fund, AIA Energy North America.
The transaction was initiated via an auction launched in October last year by BIP, who managed the project through BAIF-Brookfield US Renewable Power Holdings, with the announcement that AIA Energy would take ownership of the transmission system made in February.
“We are happy to have completed the acquisition of this state-of-the-art transmission asset,” said Argo managing partner Jason Zibarras. “It is a notable milestone for Argo, as an early demonstration of the effectiveness of Argo's investment team coupled with our new investment platform approach, we look forward to adding assets and capabilities to the AIA investment platform.”
Zibarras later told Infrastructure Investor that he and his colleagues expect to see a stable return and an absolute level of return “consistent with the high-quality, lower risk profile of the asset”.
CSC is a high-voltage direct current (HVDC) transmission system that facilitates interconnection between the New England and Long Island power grids via a 10-centimetre wide, 24-mile long submarine cable spanning the depths of the Long Island Sound. The system consists of two power cables and one fibre optic cable bundled together and buried in the floor of the sound.
The 150-kilovolt (KV) undersea cable has bi-directional transfer capacity of approximately 330 megawatts and carries electricity between the 345kV Halvarrson Converter Station in New Haven, Connecticut, and the 138kV Tomson Converter Station at the site of the deactivated Shoreham Nuclear Power Station in Shoreham, New York, connecting the transmission systems of UIL Holdings Corporation and the Long Island Power Authority (LIPA). It provides one of several interconnections between the New York Independent System Operator (NYISO) and ISO New England.
The project was commissioned in 2002 with an original estimated price tag of about $125 million (according to the MIT Technology Review) and entered continuous operation in 2005, shortly after which it was sold by developers TransEnergie HQ and UIL Holdings to Babcock & Brown Infrastructure (BBI) for $213 million with a $25.7 million equity requirement.
In 2009, Brookfield Asset Management (BAM) completed the $1.1 billion recapitalisation of BBI, acquiring its portfolio of assets. At the time of the recapitalisation, BAM agreed to provide management services for a fee to the CSC. That same year, in a lender-requested auction initiated by the Commonwealth Bank of Australia, which had provided BBI $193 million for its own acquisition of the project, BAM stepped forward and agreed to pay $190 million to maintain ownership, according to Brookfield documents.
While Argo declined to disclose the acquisition price of the CSC asset, a source close to the deal said it should be noted that market valuations have increased since the 2006 sale.
The designed lifespan of the project is approximately 40 years, according to BBI documents circulated at the time of their acquisition of the project, and the entire transmission capacity of the cable is contracted to LIPA through 2032.
Ownership of the AIA Energy investment fund is divided three ways, with the $191 billion California State Teachers' Retirement System (CalSTRS) holding a 49.8008 percent stake, Sogra holding a 49.8008 percent stake, and arGo Energy North America, holding a 0.3984 percent stake and controlling day-to-day management and operations of the fund, according to transaction documents filed with the US Federal Energy Regulatory Commission (FERC).
CalSTRS chief investment officer Christopher Ailman said of the acquisition, “Cross-Sound Cable is the type of quality asset we were looking to include in the portfolio for this unique alliance. Argo's expertise was crucial to securing this asset that we are confident will provide the long-term, steady cashflow that pension fund investors – like CalSTRS – seek.”
Sogra is a direct, wholly-owned subsidiary of APG Asset Management via APG Infrastructure Pool 2014, an investment fund vehicle formed under the laws of the Netherlands for the express purpose of making investments into AIA Energy and owned by Stichting Pensioenfunds ABP and Stichting Personeelspensioenfonds APG, the FERC documents note.
Led by New York-based managing director and head of Steven Hason, the $467 million APG Asset Management has reportedly been working to expand to its US presence, and plans to invest $250 million in North American infrastructure, a match to CalSTRS commitment, in line with its plan to make investments using joint ventures, club deals and co-investments into infrastructure and real estate.
“We are pleased with the acquisition of Cross-Sound Cable as Argo's inaugural transaction for the AIA investment platform,” said Hason. “The successful completion of this transaction is a testament to the advantage of this partnership structure with Argo and CalSTRS.”
Argo Infrastructure Partners is an independent investment manager founded in 2013 and supported by an investment from Dallas-based global enterprise Crow Holdings. With the CSC acquisition under the firm's belt, Zibarras reported that the firm is actively working on additional investment opportunities that fit into its focused strategy of acquiring high-quality, lower risk infrastructure energy assets that are suited to large institutional investors.