Mike Miller, MPA 410-633-1143 - Maryland



Mike Miller, MPA 410-633-1143 BPW –12/16/09

mmiller@ REVISED

Cathy Beasley Oliver, MdTA 410-537-7894

cbeasleyoliver@mdta.state.md.us

DEPARTMENT OF TRANSPORTATION

ACTION AGENDA

PUBLIC PRIVATE PARTNERSHIP (P3) LEASE AND CONCESSION AGREEMENT/

REAL PROPERTY CONVEYANCE

ITEM: 8-RP MMC# 09-7009

MARYLAND PORT ADMINISTRATION/

MARYLAND TRANSPORTATION AUTHORITY

Property Location: Seagirt Marine Terminal (+/-183 acres) and Canton Property (+/-18 acres), 2600 Broening Highway, Baltimore, Maryland 21222, totaling +/-201 acres.

NATURE OF REQUEST: Approval is requested for this two-part transaction, which involves both the Maryland Port Administration (MPA), and the Maryland Transportation Authority (MdTA). Part A of the transaction is a subsequent Lease and Concession Agreement (“Agreement”) between MPA and Ports America Chesapeake, Inc. which provides a public private partnership for Seagirt Marine Terminal. Part B of this transaction is the Inter-Agency transfer of the subject property from MdTA to MPA. The transfer and valuation was approved by the Maryland Transportation Authority Members on November 12, 2009 and will satisfy a previous agreement between MdTA and MPA concerning the subject property. The Agreement with Ports America will provide all consideration required under both parts A and B of this transaction.

Transaction Part A – LESSOR: Maryland Port Administration (MPA)

Transaction Part A – LESSEE: Ports America Chesapeake, Inc. (Ports America)

Transaction Part B -GRANTOR: Maryland Transportation Authority (MdTA)

Transaction Part B -GRANTEE: Maryland Port Administration (MPA)

BACKGROUND: The Seagirt Marine Terminal has for the past 20 years been the Port of Baltimore’s premier container facility, owned by the MdTA and operated by the MPA. At Seagirt, MPA enters into service agreements with ocean carriers to handle containers on and off vessels. With the evolution of larger container vessels and the new expanded Panama Canal due to open in 2014, Seagirt Marine Terminal has outgrown its three 45-foot depth berths and is in need of a fourth 50-foot berth if it is to remain competitive. In addition to the 50-foot berth, Seagirt Marine Terminal will require significant capital and system preservation investment at a time when the Transportation Trust Fund is over-committed. This transaction allows private sector investment in Seagirt Marine Terminal while the State retains ownership.

ITEM: 8-RP (Continued) BPW -- 12/16/09

REVISED

BENEFITS TO THE STATE: This P3 is the culmination of MPA’s goal to seek a long-term private sector partner for Seagirt Marine Terminal that will operate Seagirt, build the 50’ berth, make capital and system preservation improvements, and provide an ongoing revenue stream to the MPA. MPA’s partner, Ports America has agreed to enter into a 50-year lease and concession agreement with MPA to lease the Seagirt Marine Terminal and Canton Property.  In return, Ports America has agreed to construct a 50-foot berth for the Port of Baltimore that is expected to result in increased business opportunities and larger vessels that will be able to dock at the Port.

The partnership between the MPA and Ports America is expected to produce 5,700 new jobs, while the total investment and revenue from this agreement to the State of Maryland has the potential to reach more than $1.3 billion over the life of the agreement. 

With this Agreement, the MPA is able to secure the Port’s long-term future with a 50-foot berth that will serve the larger vessels coming through the expanded Panama Canal in 2014.

Once the agreement is finalized, Ports America will be responsible for running the daily operations of the Seagirt Marine Terminal, as well as investing in a new 50-foot berth, cranes, and other infrastructure at Seagirt.  Ports America will make an annual payment and provide ongoing revenues to the MPA during the life of the agreement.  The State of Maryland will continue to own Seagirt.

Of the 5,700 new jobs that will result from this agreement, 3,000 jobs will be one-time construction jobs over the next three years for Port and Maryland Transportation Authority (MdTA) highway improvements.  Another 2,700 permanent direct, indirect and induced jobs will come from the increased and sustainable container business that the Port will see upon completion of the 50-foot berth in 2014.  It also is projected that this agreement will generate $15.7 million per year in new taxes for the State. 

Under the agreement, the MdTA, as the current owner of Seagirt Marine Terminal, will receive an immediate payment in excess of $100 million to pay for much needed system preservation of its roads, tunnel, and bridge facilities. 

Ports America is MPA’s current contractor and has operated Seagirt Marine Terminal since it opened in 1990.  Ports America has also run operations at the Dundalk Marine Terminal since 1996. 

In addition to full control over daily operations of Seagirt Marine Terminal and the obligation to design and build the 50-foot berth pursuant to MPA’s required standards, Ports America receives:

▪ Assignment of existing revenue agreements (ex.: Mediterranean Shipping Company, Evergreen Marine) and rights to revenues generated by Seagirt;

▪ The right to move and consolidate all current container business to Seagirt Marine Terminal;

▪ Control over timing and nature of system preservation costs as long as standards are met;

▪ Ports America’s capital investment gives them the capacity to depreciate improvements in the facility and technology over the long term.

With the development of a 50-foot berth, the Port of Baltimore will become only the second port on the East Coast with a 50-foot berth and 50-foot channel.  When the Panama Canal expansion project is completed in 2014, it is expected that a greater and larger number of ships will travel to East Coast ports to reach their customers more quickly and less expensively than via their current route using West Coast ports and sending products by rail to markets throughout the country.  Without a 50-foot berth, those

ITEM: 8-RP (Continued) BPW -- 12/16/09

REVISED

larger ships would not have enough water depth to dock and bring additional business to the Port of Baltimore.   The cost to develop the 50-foot berth and four cranes is approximately $105.5 million.

PROCESS: MPA established primary goals for the Seagirt Marine Terminal P3 solicitation:

▪ Fund construction of Seagirt Berth IV with 50 foot depth and four cranes.

▪ Fund repayment to MdTA for investment in Seagirt Marine Terminal.

▪ Provide ongoing revenues to MPA for administrative and other port purposes.

▪ Terminal Security remains with MPA.

MPA/MDOT retained Public Financial Management (PFM) as an advisor for the P3 process in October 2008. PFM performed valuation analyses in conjunction with MPA’s consultants AECOM and Martin Associates to estimate and establish a range of market values for Seagirt. PFM released to the maritime and financial communities a brief description of benefits of partnering with MPA at Seagirt. MPA issued a public Request for Qualifications and Expressions of Interest (RFQ) in April 2009. Due to the nature of this transaction and the financial expectations it was likely that only a few stevedores/terminal operators could demonstrate the experience and financial wherewithal for this project. One, Stevedore Services of America (SSA), was conflicted due to a prior non-compete agreement with one of the other two prospective bidders.   As a matter of record, PFM approached SSA about waiving the conflict, and they demurred, effectively leaving two prospective bidders, Ceres and Ports America.   MPA received Qualification Statements from the remaining two entities and deemed them to be qualified. The entities were among the largest terminal operating companies in the world, with strong financial partners. MPA issued a confidential Request for Offers (RFO) in June 2009. MPA conducted in-depth management meetings with both potential bidders, including Seagirt site tours. Ceres and its financial partner dropped out the week before bids were due after having done a great deal of work in MPA’s data room and on-site. Subsequently, MPA received an offer for a P3 from one company – Ports America in September 2009. During late September and October, MPA conducted and concluded extensive and rigorous negotiations with Ports America for the Seagirt Marine Terminal P3. MPA consultant, AECOM confirmed Ports America’s operating and capital projections. PFM’s independent model validated Ports America’s final offer. Approvals of the P3 transaction are required from the MdTA, the Maryland Port Commission (MPC) and the Maryland Board of Public Works (BPW). Approvals have been obtained from the MdTA and MPC. Fifteen-day notification to the Maryland General Assembly was made November 23, 2009.

CONSIDERATION: This Agreement grants to Ports America Chesapeake, Inc. a leasehold interest in certain real estate in Baltimore City, Maryland comprising Seagirt Marine Terminal (+/-183 acres), plus the Canton Property (+/-18 acres), but excludes the Intermodal Container Transfer Facility (ICTF). The premises will also include Newgate Avenue, a closed road running across SMT, that MPA is in the process of acquiring from the City of Baltimore and will transfer to Ports America as soon as possible.

▪ The term is 50 years, with no option periods, but with Ports America allowed to extend the term in the event of delay events, casualty events, and force majeure.

▪ Ports America has a right of first refusal to lease the ICTF at the end of the MPA/CSX lease (currently 2014 with options to 2019) at $30,000 per acre, plus CPI-U adjustments, unless MPA/MdTA leases to CSX, a Class 1 railroad or the Canton Railroad.

▪ Ports America pays an upfront payment to MdTA in excess of $100M. This payment satisfies MPA’s obligation to MdTA on Seagirt. MdTA will use these funds to pay for needed system preservation of its roads, tunnel, and bridge facilities.

ITEM: 8-RP (Continued) BPW -- 12/16/09

REVISED

▪ Ports America commits to build and have operational by July 1, 2014 a 50-foot berth together with four cranes at an estimated cost of $105M needed for the new larger ships expected through the expanded Panama Canal, and relieves MPA of capital costs to build it.

▪ Ports America will also pay annually rent to MPA of $3.2M, plus $15 per container for containers over 500,000, plus $2.50 per ton above 400,000 short tons, all subject to CPI-U, not to be below 1.5% or above 3.5%. Additionally, Ports America will perform renovations at the Canton Warehouse property, subject to rent credit for expenditures up to $3M.

▪ Ports America will release to MPA 65 acres of land at Dundalk Marine Terminal currently occupied by Ports America and Amports. The release of 65 acres at Dundalk Marine Terminal will free up land and give MPA the opportunity to create two new RoRo terminals at Dundalk.

▪ Ports America may not assign, sublet or otherwise dispose of the Agreement without the prior approval of MPA.

▪ Ports America may name and rename the terminal, subject to MPA and BPW approval.

▪ The Maryland Economic Development Corporation (MEDCO) will serve as the conduit issuer of tax exempt bonds for the project.  By having MEDCO issue these bonds, Ports America has access to lower interest debt and allows PAC to share the savings with the State by providing a greater capital reinvestment payment.  On October 19, 2009, the MEDCO Board authorized its Executive Director to help facilitate the P3 because the project’s objectives for economic development are consistent with MEDCO’s mission and purpose.  The terms of the MEDCO financing are substantially complete, but will depend on rating results, market conditions, and other factors.

▪ As part of the MEDCO bond transaction, MPA will assign its interest in and grant a security interest in the Agreement and proceeds thereof to the bond trustee, Wells Fargo Bank, National Association. The bond trust agreement between MEDCO and Wells Fargo provides for a “waterfall” payment schedule under which the trustee will first pay the fees and charges due to MPA, followed by debt service on the bonds and other payments. Approval is also requested for the Assignment and Security Agreement.

SPECIAL CONDITIONS: This transaction has additionally been approved by the Maryland Port Commission on November 20, 2009.

LEGISLATIVE NOTICE: Notice was sent to the House Appropriations Committee, House Ways and Means, the Senate Budget and Taxation Committee, and the Senate Finance Committee of the Maryland General Assembly on November 23, 2009 in accordance with the 2009 JCR. Notice under SFP§10-305(b) for both Part A and Part B is not applicable, per advice of OAG counsel.

PRIOR OWNER CLEARANCE: N/A

STATE CLEARINGHOUSE: N/A as to Part A due to Delegated Authority by BPW on 12/04/02 Item 12-GM and due to continued same use of subject property. N/A as to Part B due to Inter Agency transfer.

REMARKS: The Deed for the Inter Agency Transfer between MdTA and MPA has been forwarded to the Executive Secretary, Board of Public Works for execution.

__________________________________________________________________________________

BOARD OF PUBLIC WORKS ACTION - THE ABOVE REFERENCED ITEM WAS:

APPROVED DISAPPROVED DEFERRED WITHDRAWN

WITH DISCUSSION WITHOUT DISCUSSION

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