KKR, United Water in new partnership with Pennsylvania

KKR and United Water will manage, operate and invest in the water and wastewater system of Middletown, Pennsylvania under a 50-year concession agreement.

Private equity firm Kohlberg Kravis Roberts & Co. (KKR) and environmental services company United Water have signed an agreement with the Borough Authority of Middletown, Pennsylvania to manage and operate the borough’s water and wastewater system, the subsidiary of Suez Environnement said in a statement.

Under the terms of the agreement – a 50-year concession, which will take effect January 1 – KKR and United Water made an initial payment of $43 million, which the Authority will use to pay off its existing debt and pension liability while also improving its finances. KKR and United Water will also invest another $83 million over the life of the contract to improve the system’s infrastructure.

According to the statement, KKR will fund 90 percent of the joint venture, through its infrastructure fund. The statement however did not specify whether the capital would come from Global Infrastructure Fund II, a vehicle KKR is in the process of raising with a target of $2 billion, or whether it would come from the fund’s predecessor. KKR did not respond to a request for comment.

United Water will fund the remaining 10 percent.

“Our commitment to funding improvements in the water and wastewater system is critical to keeping rates stable and under the Middletown Borough Authority’s control,” United Water chief executive Bertrand Camus said.

Under the terms of the agreement, the Authority will retain ownership of the system as well as maintain control of rates charged through a formula that will be included in the contract. According to the statement, the concession will generate revenues of over $285 million over its 50-year life.

United Water will operate and maintain six groundwater sources, 36 miles of water main, one wastewater treatment plant and 25 miles of sewer main, as well as manage and deliver capital upgrades.

“KKR has a history of making infrastructure investments, as shown in our successful Bayonne, NJ [New Jersey] operation, and a proven commitment to improving the operational and environmental performance of the companies in its portfolio,” Camus added, referring to the partnership KKR and United Water entered into with Bayonne’s Municipal Utilities Authority (BMUA) in December 2012.

Under that 40-year agreement, KKR and United Water, which have formed a joint venture, enabled BMUA to pay off $125 million in debt and invested nearly $110 million in modernising Bayonne’s water system.

In addition to infrastructure, KKR also manages investments across multiple asset classes including private equity, energy, real estate, capital markets, credit strategies and hedge funds.

Based in Harrisburg, Pennsylvania, United Water provides water and wastewater services to more than 5.3 million people in the US. In addition to owning and operating 16 water and wastewater utilities, United Water operates 84 municipal and industrial wastewater systems through innovative public-private partnerships and contract agreements.

Founded in 1869, it is a subsidiary of France's Suez Environnement.