Port of Virginia discloses Carlyle, Goldman proposals

Goldman’s proposal argues that it is not the ‘optimal time’ to privatise the East Coast US port, while Carlyle says it is interested in a 60-year or longer concession for the port and may be willing to pay $500m to $700m upfront for it. In March, CenterPoint proposed a 60-year concession for $500m upfront.

The Virginia Port Authority (VPA) has disclosed the two additional business proposals it received 16 days ago for the operation of its four existing port terminals and the development of a new terminal in Craney Island.

Port of Virginia:
plenty of willing

The proposals, from private equity firm The Carlyle Group and Goldman Sachs Infrastructure Partners-backed marine terminal operator Carrix, are now posted on the VPA website alongside the unsolicited proposal from CenterPoint, submitted in March, which set off a 120 day period for competing submissions.

Carlyle’s $1.15 billion infrastructure fund, Carlyle Infrastructure Partners, submitted a conceptual proposal that calls for a concession of the port’s assets for 60 years or longer. A concession is a type of privatisation scheme which allows a private operator to collect the profits from assets it leases from a public sector partner, who ultimately still owns the underlying assets.

Based on preliminary estimates, Carlyle said it would be possible to pay the Port of Virginia between $500 million and $700 million up front for such a concession, with profit sharing ranging from 15 percent to 40 percent based on specified return hurdles.

Carlyle also said it may add other financial and industry partners to its bidding group prior to submitting a final binding bid.

In March, CenterPoint, a subsidiary of a company ultimately owned by the California Public Employees' Retirement System, also laid out a concession proposal. CenterPoint proposed to lease the port's facilities for 60 years in exchange for an upfront cash payment of $500 million. The concession proposal also included a profit share component ranging from 5 percent to 30 percent based on specified return hurdles.

The Carrix-Goldman proposal avoids a concession. The firms argue that, due to depressed economic conditions, “this is not necessarily the optimal time” for a privatisation of the port’s facilities. Instead, the firms propose that the Port of Virginia enter into a 30-year operating agreement with Carrix, which would work with the state-owned port operator, Virginia International Terminals, to improve the port’s operating cashflows. Carrix would provide $250 million upfront for the agreement and then be compensated through a share of the port’s operating cashflow. Goldman would play the role of financial advisor, placement agent and/or debt underwriter to the Port on the transaction; it would not invest any equity.

Carrix and Goldman argue that their 30-year proposal is more in line with industry standards. “The objective is to reflect the industry norms and provide the VPA greater flexibility than a commitment tying up the asset for a 60-year timeframe”, they say in their proposal, adding that the port could always pursue privatisation at a different time when economic conditions improve

Carrix is the owner of SSA Marine, a Seattle-based marine terminal operator. Carrix is 51 percent owned by the Smith/Hemingway family and 49 percent by Goldman Sachs’ $6.5 billion Goldman Sachs Infrastructure Partners I fund, according to press releases included in the Carrix-Goldman proposal.

Pierce Homer

All three proposals are preliminary and conceptual in nature and will be finalised if the VPA decides to request detailed proposals from CenterPoint, Carlyle and Carrix-Goldman.

Virginia Secretary of Transportation Pierce Homer said in a letter accepting the proposals that the next step of the process will involve the consideration of all three proposals by an independent review panel.

Under Virginia law, Homer has 60 days to appoint, designate a chair and schedule meetings for such a panel to evaluate the proposals. The panel is to be composed of senior state transportation officials and others with appropriate expertise to evaluate proposals made under the state’s 1995 Public-Private Transportation Act, which governs the process.

A spokesperson for Secretary Homer said he has not yet designated the independent review panel.