Amid Fierce Questioning, PortSL Defers Bond Request For Avondale Purchase
Nine months ago, the board of commissioners of the Port of South Louisiana (PortSL) made waves by voting to approve an agreement for the port to purchase the former site of Avondale Shipyard, now marketed as Avondale Global Gateway, from T. Parker Host for $445 million.
Host bought the site from Huntington Ingalls in 2018 for $60 million and has reportedly invested close to $100 million to return Avondale to commerce.
In the months since, the port has engaged in a “due diligence” process to evaluate the original price, outline a basic plan for the site and formulate revenue projections for Avondale. Taken together, that effort would provide the basis for selling revenue bonds to finance the deal.
Port officials went public with the results of that due diligence period last month when they announced to port commissioners a newly-agreed-to purchase price of $330 million. Of that total, the port intends to raise $280 million through a bond sale, with the remaining $50 million coming through a note from T. Parker Host.
At the commission’s August 30 meeting, port officials said they planned to fast-track the bond application, with the Louisiana State Bond Commission possibly approving the measure at its September 21 meeting. Ideally, the port would then hold a bond sale in November and close on the property toward the end of December.
That timeline, though, is now in doubt following intense questioning at the bond commission’s September 21 meeting, which saw PortSL CEO Paul Matthews voluntarily defer the application for at least a month.
Matthews told bond commissioners that, throughout the negotiation process with Host, his team has been focused on securing a purchase agreement that benefits the state.
“Our No. 1 priority has been to ensure that the state of Louisiana gets the best deal possible,” Matthews said. “This is a win-win for the community and for the state.”
Still, Matthews admitted to the “compressed” timeline of the deal, and in view of that, he agreed to defer the measure for a month.
That delay, though, could pose a problem for the agreement, which offers a 90-day window beginning on September 1 to close on the property.
“Under this agreement, the only way for us to move forward currently is to actually be in a position to sell bonds and close the transaction by the end of this year,” said Jason Akers, managing partner at Foley & Judell and bond counsel for the port.
Louisiana State Treasurer John Schroder, a candidate in the upcoming governor’s race, said he took issue with the port “getting the cart before the horse,” in terms of having a signed purchase agreement in place before the issue ever came before the bond commission.
“As I told Mr. Akers, I had some heartburn with the commission taking a position before something important needing to be done that could kill the deal,” Schroder said.
What followed was a thorough series of questions from the bond commission as members sought to understand the origin of the port’s pursuit of Avondale, the terms of the sale and the financial framework on which a bond sale would be based.
Louisiana Commissioner of Administration Jay Dardenne highlighted the disparity between what T. Parker Host has invested in the property—a total of $160 million—and the port’s initial and subsequent purchase prices of $445 million and $330 million.
“That’s a pretty good return on investment,” Dardenne said, noting that the property was not even on the market when the port began negotiating with Host.
Matthews went on to explain the timeline of the port’s discussions with Host, along with the condition of the sale that requires Host to be hired as the stevedore for the terminal.
“It’s curious,” said Dardenne, who went on to ask whether a state agency like the Port of South Louisiana has an obligation to issue a public request for proposal for that kind of contract.
Dardenne also raised the issue of Avondale’s location within Jefferson Parish, which is statutorily part of the Port of New Orleans’ jurisdiction.
“I think there is a very significant jurisdictional issue,” he said.
Dardenne also questioned whether the port would be “cannibalizing” business from other ports rather than attracting new business.
In reply, Matthews pointed to the ports of Houston and Mobile, which he said have siphoned tonnage from ports along the Mississippi River. He also reiterated his commitment to cooperating with other ports in the region.
Dardenne then referenced the report from John C. Martin & Associates that was prepared for PortSL, which valued the property at anywhere between $194.2 million and $327.9 million and called for an immediate capital expenditure of $45 million to get the property up to speed.
“The transaction price is well less than [50 percent] of the original price that was based on the appraisal value,” the Martin report said.
That same report, Dardenne noted, questioned whether the highest and best use for Avondale was for it to be a public bulk and break bulk port.
Port officials countered by saying Avondale would be a multifaceted facility and not just a marine terminal.
Other issues raised by bond commission members included whether the port would qualify for investment grade bonds or so-called “junk” bonds and whether the commission’s inaction at the September 21 meeting put the entire deal in jeopardy. Commission members even asked if a proposal of that magnitude should be deferred until the next administration is in place.
But the discussion ended on a contentious note as commission members voiced displeasure over the deposit—$1.5 million—the port has already paid to Host. Of that total, Host would reportedly keep $500,000 if the deal falls through. Several commission members stated they had never heard of a state agency committing money in that way prior to securing support of the bond commission.
“Who agreed to that?” Schroder said. “I don’t mean to put, Paul, you on the spot, but I don’t know if I would have agreed to it in my private world, particularly because of the makeup of the seller, because we know people aren’t knocking down the doors. To me, this means more to the Port of South Louisiana than to the seller.”
Dardenne said members on the board couldn’t think of a similar situation in the past.
“We’ve never seen it in a transaction,” said Dardenne, who later added, “Really, the [Attorney General] would have to answer the question of whether it’s permissible legally or what could be done to prevent it from happening.”
Senate President Page Cortez summed it up this way: “We always leave ourselves an out, if not four or five.”