Global Container Terminals: Ports authority

The first half of 2007 saw a number of large financings for the acquisition of ports assets in North America. The first of the deals to close was the Ontario Teachers' Pension Plan's acquisition of four container terminals in New York, New Jersey and British Columbia from Orient Overseas International (OOIL).

The deal served as something of a trailblazer for its successors, pioneering a hybrid of project and leveraged financing that was replicated on later deals. The pricing structure on the debt combined with increasing debt service requirements, as a result of the staggered draw on a capital expenditure facility, mirrors certain UK ports deals.

The boom in the US ports acquisitions market is due in part to the growth in traffic volumes, at a rate of 10% to 12% per year over the last 10 years, and a projected growth of 8% to 10% per year over the next decade. The ports in this particular acquisition are appealing due to their size and the rapid growth in traffic volume, as well as being in prime locations on both east and west coasts.

Stephen Dowd, vice-president of infrastructure at Teachers', highlights the assets' geographical diversification, with terminals on east and west coasts, which allows access to the northern and southern Asian markets. Secondly, there is very little room in the region for ports expansion, thus limiting competition.

Traffic at the ports represents a significant portion of the US market. The four assets collectively handled 1.331 million twenty-foot equivalent container units (TEUs) in the first half of 2006, which was an increase of 17% from the same period in 2005. Year-end volumes for 2006 at all facilities totalled 2.9 million. The total for 2007 is approximately 3.1 million TEUs. The combined revenue from cargo was $234.9 million, with a rise in operating profit of 46.5% to $35 million. The Vancouver ports accounted for 876,000 of the TEUs and $151.7 million of the total revenue. The Global terminal in New Jersey is the third-largest container handler in the US, and is the dominant port in the North Atlantic region, with close to a 50% share of the market.

The acquisition price for the assets was $2.35 billon, towards which the buyer raised $1.88 billion in debt through RBS and RBC. The debt featured three tranches; a senior term loan of $1.58 billion, a $250 million capital expenditure loan, and a $50 million revolver. The term loan and capex debt were syndicated, while the lead arrangers were sole providers of the revolver.

All three tranches have a 7-year tenor. The debt features minimal amortisation, with initial pricing on the debt at 140bp over Libor, and a maximum leverage ratio of 13.5x. As the leverage reduces, the pricing also reduces on a grid. The margin, which started at 140bp over Libor, stayed at that level until 30 June 2007, and now depends on a test of covenants every 6 months. The pricing is based on a debt to Ebitda ratio. If the leverage reduces to 11x, the pricing drops to Libor plus 130bp, and continues to reduce at a similar ratio. The commitment fee was 35% of the applicable margin on any undrawn debt.

This sliding scale pricing was the first of its kind for US infrastructure assets, and RBS believes that it was significant in changing the market, along with the fact that the debt service coverage ratio increases over the life of the debt, starting at 1.25x.

"It was the purest of the ports deals", says Alec Montgomery, managing director and head of infrastructure finance at RBS, noting that the deals that followed all exhibited similar elements in their respective financings, but all included other services, such as stevedoring and freight, or were joint ventures. Montgomery suggests these deals would not have been achievable as infrastructure financings had the GCT deal not executed the hybrid model so cleanly.

The only other pure ports deal to close was RREEF's acquisition of Maher terminals for $2.1 billion, featuring $1.1 billion in debt, lead arranged by RBC. The financing structure for the Maher deal almost exactly replicated that of GCT.

The GCT financing did well in syndication: Of the 14 banks that were approached at sub-underwriter level, seven committed pro rata: BNP Paribas, Bayern LB, CDP Quebec, Caja Madrid, Commonwealth Bank, Depfa, Dexia and Nord/LB, with Calyon and Scotia taking smaller commitments, and 23 further participants at retail level.

One challenge that the deal faced was that the Port Authority of New York and New Jersey would not authorise the sale of the New York assets until certain conditions were met, and Teachers' is believed to have made a payment to the Authority in addition to the required capital expenditure at the site. This delay resulted in two separate financial closes.

GCT Terminals
Status: Closed January and May 2007
Size: $2.35 billion
Location: US and Canada
Description: Acquisition of 4 container terminals
Sponsor: Ontario Teachers' Pension Plan
Debt: $1.88 billion
Equity: $885 million
Mandated lead arrangers: RBS and RBC
Tenor: 7 years
Margin: Starting at 140bp over Libor, then linked to debt/Ebitda
Financial adviser to sponsor: HSBC
Sponsor legal counsel: Sullivan & Cromwell, McCarthy Tetrault (Canada)
Lenders' legal counsel: Linklaters, Miller Thomson (Canada)
Financial adviser to seller: UBS
Legal counsel to seller: O'Melveny & Myers
Technical adviser: PB Consult