DALLAS — As the nation’s port business drifts at low tide, Corpus Christi, Tex., is preparing for better days with a $250 million mixed-use container terminal financed through a public-private partnership.
The plan is one of several P3 deals in progress at major U.S. ports, including Oakland and Baltimore.
Under current plans, construction of the La Quinta Trade Gateway on Corpus Christi Bay would begin next year, with completion expected by the middle of 2012, said John LaRue, executive director of the Port of Corpus Christi.
The San Antonio-based engineering and construction giant Zachry would provide the private financing and build the terminal in exchange for a share of future revenue, LaRue said.
Port commissioners have already approved three engineering contracts for design of the dock and related construction such as paving, utilities, and rail links. The commission has also approved a contract with the U.S. Army Corps of Engineers for dredging work needed to extend the existing ship channel.
The dredging to a depth of 45 to 50 feet is expected to cost about $85 million, with 70% paid for by the Corps, LaRue said in a presentation to The Bond Buyer’s Transportation and Public-Private Partnership Conference in Dallas last week.
Plans for the new terminal were cemented by the Chinese company TPCO’s plan to build a billion-dollar pipe manufacturing plant near the port. The Corpus Christi suburb of Gregory won out over Baytown, Tex., New Orleans, and Osceola, Ark., in January.
“The pipe company kind of put it over the top,” LaRue said of the new terminal.
TPCO’s $1 billion investment is considered the single-largest investment in the United States by a Chinese company, economic development officials said. The plant will include a mini-mill where seamless casing pipe, used in the oil and gas industry, is made from scrap steel melted on an electric arc furnace.
TPCO supplies half of the seamless pipe market and exports 20% of its product to 90 countries. The mini-mill is projected to produce 500,000 tons a year for customers, including many in the Southwest, officials said.
The facility will include a water treatment plant that will allow the mill to reuse 96% of its water, according to TPCO.
The La Quinta Trade Gateway project is a major component of the port’s long-term plan to diversify from its concentration in petrochemicals, LaRue said. While the port’s volume ranks sixth in the U.S., existing terminals do not handle container cargo that is linked to the consumer markets.
Through September, container cargo volume at U.S. ports was down 16.6% from 2008 and the lowest level since 2004, according to IHS Global Insight and the National Retail Federation.
“If we were going to build this terminal and it were only for containers, we wouldn’t build it,” LaRue said.
The port is seeking $70 million in federal Transportation Investment Generating Economic Recovery, or TIGER, grants to help pay for construction. But LaRue acknowledges the long odds, with $57 billion worth of applications from around the country chasing $1.5 billion in available grants. Decisions are expected on the grants early next year.
“We may also end up with some tax-exempt financing,” LaRue said.
Unlike in Houston to the north, the Port of Corpus Christi does not have its own tax base, earning its keep through fees and other revenues. With Harris County’s tax base as backup, the Port of Houston enjoys triple-A ratings.
“It’s a blessing and a curse,” LaRue said of his port’s lack of taxing power. “On the one hand, we don’t have to deal with all the public and political issues. But we also don’t have the tax revenue.”
With only $10.9 million of revenue bonds reaching final maturity in 2016, the port carries ratings of A from Standard & Poor’s and A3 from Moody’s Investors Service.
“Debt service coverage is very strong, at 10.25 times in 2008,” Standard & Poor’s noted earlier this year. “The port’s debt profile is conservative, with level debt service of about $1.67 million through 2016.”
While the outlook for the U.S. economy is murky, many economists expect significant improvement by 2011. The Port of Corpus Christi is expected to benefit from a $5.25 billion expansion of the Panama Canal designed to handle larger container ships by 2015.
To handle increased shipments expected from China and other Pacific Rim countries, the Port of Houston is continuing a $1.4 billion development of its Bayport project, a cargo and cruise ship facility that is expected to take 15 to 20 years to complete.
In positioning themselves for future growth, the nation’s ports are seeking to shift some of their risk to private partners in P3 deals, financial experts say.
Emblematic of the trend is the Port of Oakland’s awarding a 50-year concession for five of its container-ship berths, with an option for two more. The winning bidder, Ports America Outer Harbor Terminal LLC, valued the transaction at $700 million over 50 years, though only $60 million will be paid up front.
The deal signed in March “allows the investment risk to be spread over a long period of time and sets the foundation for generating business revenue, jobs, and environmental benefits consistent with port policies,” the port’s executive director, Omar Benjamin, said in March.
With all the market upheaval over the past year, “there couldn’t have been a worse time to do a deal,” said Tim Bath, director of infrastructure finance for RBC Capital, which represented the Port of Oakland in the transaction. “The port sector was hit as hard as any in the recent financial turmoil.”
In Baltimore, Ports America is also competing with Ceres Terminals Inc. for the rights to operate and upgrade the Seagirt Marine Terminal in preparation for the opening of the new Panama Canal locks. The winner is expected to invest $100 million in redevelopment of the facility.
“The ultimate goal is to identify a private partner that will contribute significant capital investment and enable the port to build a 50-foot berth by 2014, when the completed expansion of the Panama Canal is expected to bring more cargo and larger vessels from Asia to U.S. East Coast ports,” Maryland’s acting transportation secretary Beverley K. Swaim-Staley said in announcing the finalists.
Ports America is owned by Highstar Capital Fund LP, a $3.5 billion private-equity fund.
Ceres, which already provides stevedoring services at Seagirt and has worked in Baltimore for more than 30 years, is backed by Alinda Capital Partners, the largest infrastructure fund in the U.S.
Public Financial Management is financial adviser to the Maryland Port Authority, operator of terminal at the Port of Baltimore, and selection of a top bid is expected by the end of the year or in early 2010.
Under the proposed P3 agreement, the MPA would lease the 200-acre Seagirt Terminal, which opened in 1990, exclusively to a private entity for at least 30 years. The lessee would invest in a new berth, cranes, and other infrastructure at Seagirt, and pay an annual rent, providing an ongoing revenue stream to the MPA. However, the state would continue to own Seagirt.
While investment in the cyclical cargo business may seem dicey at present, RBC’s Bath says that billionaire investor Warren Buffett’s decision to buy Burlington Northern Santa Fe Railroad represents a huge vote of confidence.
“Clearly, a man of his stature investing in the long-term future of the U.S. economy is a big deal,” Bath said.
