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A Road To Riches For Citi-Led Group?
While the deal has already garnered the support of Rendell, it must pass state legislative approval before Citi can take the reins of the lease.
May 19, 2008
Citi Infrastructure Investors led a group of investors who have put in a bid of $12.8 billion to take over control of the Pennsylvania Turnpike, a move billed by State Governor Edward Rendell as a “slam dunk.”
The New York infrastructure investment unit of Citigroup, joined by advisory group Babcock & Brown and Spanish transport and communications firm Albertis Infrastructure, edged out rival bidding groups led by Goldman Sachs and Macquarie to win rights to the highway. The Citigroup division announced that it was named the “preferred bidder” of the Pennsylvania Turnpike on Monday.
While the deal has already garnered the support of Rendell, it must pass state legislative approval before Citi can take the reins of the lease. If approved, CII and Albertis will maintain joint management control of the 537-mile turnpike, which has a 75-year lease. The plan is for the state to raise $150 million annually through the deal and it currently has Pennsylvania dropping plans to institute tolls on Interstate 80, according to a statement.
Mayer-Brown attorney John Schmidt served as legal counsel to the state of Pennsylvania, while Debevoise & Plimpton attorneys Ivan Mattei, Craig Bowman, Burt Rosen, Emilie Hsu, Alicia McCarthy, Lucy Xi Cheng, Paul Epstein, Steven Huntzinger, David Lebolt, Serge Mezhburd and Harry Zirlin counseled the Citi Infrastructure consortium.
Meanwhile, the Pennsylvania Turnpike Commission made a $229.2 million payment at the end of April, derived from a $245 million bond issuance, to Pennsylvania and brings the total it has paid to the state to $750 million. The payments represent the turnpike system’s participation in Act 44, a measure signed into law last summer to help address the shortfall in the state's transportation funding.
The Pennsylvania turnpike will make four additional quarterly payments of $212.5 million through this year and 2009. Ultimately, $500 million of the payments will be used to fund road and bridge projects, according to the commission.
Citi Infrastructure’s deal marks the latest backing of a highway toll operation. In January 2005, Cintra Concessions and Macquarie Infrastructure took control of the 7.5 mile Chicago Skyway toll bridge for $1.8 billion, marking a precedent-establishing deal within the US highway infrastructure business.
For Citi Infrastructure, the deal with the Pennsylvania Turnpike represents its latest win following its new partnership with the Vancouver Airport Authority. As part of the deal it announced on May 13 with the Canadian airport operator, Citi acquired a 50% stake in YVR Airport Services, which operates 18 airports in seven countries.
The infrastructure investment follows reports earlier this year that Citigroup is raising up to $3 billion for infrastructure investments, and comes as investors increasingly target the space. Last week, New York’s Kohlberg Kravis Roberts formed an infrastructure investment team led by George Bilicic, formerly the head of global power, energy and infrastructure banking at Lazard, amid reports that it was raising new funding to pursue infrastructure investments, while The Blackstone Group, also a New York private equity firm, is reportedly considering a similar effort.
Separately, Morgan Stanley and Global Infrastructure Partners publicized the closings of new infrastructure funds last week.
A joint study from the Urban Land Institute and Ernst & Young estimates that the US will experience a $170 billion shortfall for infrastructure needs.
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