New Business Model for Port of Oakland

[BTinSF]

Wednesday, March 4, 2009, 1:20pm PST
Port of Oakland signs 50-year deal with private investor
San Francisco Business Times - by Eric Young

The Port of Oakland will turn over operation of some of its terminals to a private investor in exchange for $686 million over the life of a 50-year deal.

Ports America of Iselin, N.J. said it will install new cargo cranes in berths 20 through 24 and make other improvements in exchange for collecting shipping revenue over the next half century.

The port will receive a $60 million payment upfront plus annual rent payments starting at $19.5 million. That compares to $18.9 million in yearly rent the port gets from those berths now.

The deal, finalized Tuesday, comes as Oakland’s port joins ports across the country that are struggling with slumping cargo traffic due to the global economic downturn. The port’s cargo traffic declined 6.4 percent last year, the sharpest decline in eight years.

The Ports America deal signals a change in strategy for the port. Traditionally the port has paid for renovations and expansions of its infrastructure by selling bonds. But in an effort to transfer the costs to other parties and line up steady streams of revenue, port officials want public-private deals whereby outside parties cover some business expenses in exchange for a cut of port revenue.

Even as it finalized the deal with Ports America, the Port of Oakland is seeking a second, separate deal with a private investor. In that case the port wants to find an investor willing to build out almost 170 acres the port acquired from the former Army base along its border. The port is reviewing proposals that were due last month.

The deal with Ports America, which operates terminals at 50 ports in the United States, Mexico and Chile, begins in January 2010. Until then the terminals are being operated by APM Terminals Pacific Ltd. Ports America will have the option to expand its deal to include berths 25 and 26 in 2013 if certain conditions are met.

Ports America was one of five logistics companies that emerged as potential bidders last year. Other interested companies were APM Terminals, Hutchinson Ports Development, Maher Terminals and a joint venture including Hyundai Merchant Marine, Yang Ming and K-Line.

Ports America is owned by Highstar Capital, a private equity group focused on infrastructure deals.


Email Eric Young at eyoung@bizjournals.com / (415) 288-4969

Source: http://sanfrancisco.bizjournals.com/...l?ana=e_du_pub

I'm personally really happy about this. Last summer I bought some Port of Oakland bonds and when international trade began to dry up a few months ago they began to be savaged by the market in much more extreme fashion than other muni issues--at one point they were down to $0.75 on the dollar which is absurd for AA-rated munis. That gave them a yield of 6.67%, tax-free (federal and state). They'd already recovered some but this sort of deal, which guarantees the port a reliable stream of revenue, should help them a lot.