Galveston weighs lease deal with Hutchison, Carlyle

Galveston weighs lease deal with Hutchison, Carlyle    Galveston Wharves' Board of Trustees and the Galveston City Council will meet Thursday morning to discuss a 75-year lease of the Port of Galveston to a joint venture between Hutchison Port Holdings and the Carlyle Group.
   According to information from the Port of Galveston’s financial advisor, BMO Capital Markets, an affiliate of BMO Bank of Montreal, 80 firms were solicited for their interest in a master lease, and 17 firms signed confidentiality agreements with BMO and began due diligence.
   But in a presentation last month, BMO said “only one bidder was determined to be sufficiently qualified and willing to offer a sufficient return to the trustees in exchange for the 75 year master lease.”
   Both the length and the scope of the lease are unusual. Many port leases are for a single terminal, and most are for 50 years or less. For example, in 2008 and 2009 Port America signed deals to develop and operate terminals in Oakland and Baltimore for 50 years; in 2008, the Jacksonville Port Authority reached a deal with Hanjin Shipping for development and lease of a terminal for 30 years.
   In a draft proposal presented by BMO, Carlyle and Hutchison have proposed a 75-year master lease that would include:
   ' Existing leased assets at the port.
   ' A 100-acre terminal to be developed on the western end of the south side of the Galveston Ship Channel.
   ' A 20-acre roll-on/roll-off terminal to be developed on the eastern end of the south side of the Galveston Ship Channel.
   ' Land on Pelican Island, where the ports of Galveston and of Houston are considering a joint container terminal.
   ' Cruise terminals and associated assets and port operations.
   BMO said the proposal is still subject to final negotiation, but in exchange for the lease the port would receive compensation that includes debt relief, upfront cash, ongoing payments that includes revenue/profit sharing from cruise and freight operations, and a commitment to a decade of capital expenditures. An article in the Houston Chronicle said the port has an estimated $60 million in debt.
   Last month the consulting firm AECOM presented a study that concluded Pelican Island could be developed into a container terminal. It said “no clearly preferred location on the island is identified by the level of analysis performed in this study,” but examined three possible locations for building such a facility.
   AECOM estimated the cost of building a five-berth terminal capable of handling 3.4 million TEU per year would range from $1.34 billion to $1.63 billion, depending on where on the island the facility was built and whether rubber-tire gantry cranes or automatic stacking cranes were used in the container yards.
   Last month Hutchison announced plans for an initial public offering. ' Chris Dupin