Another Blow To A P3 Bridge

If it was not enough that Michigan law does not allow for a P3 bridge, the Chairmen of the US House Committee on Transportation and Infrastructure and the Subcommittee on Highways and Transit are leery of P3s.

Now it appears that the basis of all of these deals, cheap money, may be drying up.

Here is the latest in a story published in the Toronto Star. If these types of stories have already hit the popular press, then you know there is a major problem:

• Chorus of fear grows over cheap money
  Jul 02, 2007 04:30 AM
  
  We reported a few weeks ago on the misgivings that the CEO of New York banking giant J.P. Morgan Chase has expressed about the dangerously cheap money that's fueling the global takeover boom. He's since been joined, last week, by the CEO of the huge Swiss bank UBS AG. Separately, a panel of European bankers fretted last week about a coming liquidity crunch if some of the recent, highly-leveraged takeover megadeals go sour. So did Michael Nobrega, also last week. Nobrega is CEO of Ontario Municipal Employees Retirement System (OMERS), which has more than 20 per cent of its assets tied up in infrastructure projects, whose price tags are getting way out of hand, Nobrega says.
  
  Speaking of OMERS, its venture with Apax Partners to take the Thomson Learning unit of Thomson Corp. private just became less lucrative as lenders in the deal last week demanded a higher interest rate on the buyout debt. Meanwhile, bankers are suddenly less willing to grant dealmakers so-called "covenant-lite" loans, in which lenders surrender their traditional power in deals that implode. Junk-bond interest rates rose last week, collateral damage from the sub-prime mortgage lending crisis, and central bankers in Canada, the U.S. and elsewhere are expected to raise their key lending rates by year-end.
  
  Warning to investors in the spectacular planned IPOs of buyout firms Blackstone Group and Kohlberg Kravis Roberts & Co.: Those firms stand to continue reaping 25 per cent annual returns only if the two giant deal-making shops have continued access to the cheap money and extraordinary co-operation of lenders in recent years. It may be an ideal time for private-equity kings Steve Schwarzman of Blackstone and Henry Kravis of KKR to cash out, but not so ideal for the IPO buyers padding the personal wealth of Schwarzman and Kravis.

Mr. Nobrega's comment is an interesting one. As we know, OMERS is involved in assets such as

1. DRTP


2. Confederation Bridge----The group generally doesn't release financial information, but it is known that at the end of 2003 the owners got a dividend payment of $2.6 million, not very much on a billion-dollar bridge.
   
   In 2032, ownership of the Confederation Bridge will transfer to the federal government. Representatives of OMERS told CBC News they hope their investment will begin performing better before then.


3. Scottish Pipelines---- "Although the SSE joint venture has paid the lowest premium to regulated asset value, its 10.1% premium still adds up to (pounds) 289 million. This is a very sizeable amount to recover when one considers that the combined total operating controllable cost base for the two LDZs is no more than (pounds) 190m in the current year.
   
   "Even with SSE's management experience, it will be impossible to recover that premium within the current regulatory period to 2008. This is a full price and recovery of the premium will prove extremely challenging. In our view the acquisition is value neutral at best."


4. Bruce Nuclear "Cameco Corp., the world's biggest uranium producer, withdrew from a plan to restart and refurbish nuclear reactors in Ontario because it didn't agree with the province's terms on the C$4.25 billion ($3.6 billion) project...
   
   Cameco said an agreement with the government ``did not meet its investment criteria.''


5. Associated British Ports Ltd---The Goldman-led consortium, Admiral Acquisitions, said it had agreed a deal with the AB Ports board at 910p a share in cash. That was a significant premium on its former agreed offer of 840p.
   
   
   The auction has delighted the AB Ports board led by Bo Lerenius, the chief executive, which had first agreed to be taken over by Goldman Sachs at the price of only 810p a share less than two weeks ago, before Macquarie appeared.
   
   "Clearly the Goldman consortium has demonstrated how extraordinarily keen they are to secure AB Ports and the issue is: are Macquarie as keen?" asked Gerald Khoo, an Oriel Securities analyst. "Management describe the offer as fair and reasonable. I would describe it as bloody fantastic."