Three revisions and Ascension Sewer deal still STINKS

As the Parish Council considers the largest capital improvement project ever contemplated for Ascension, the proposed agreement with Ascension Sewer continues to be amended.  While the latest permutation, dated November 27, encompasses a few changes for the better (from the parish’s perspective), there is much that could be done to protect the tax and rate paying public.

With a Special Meeting scheduled for Tuesday, the greatest cause for consternation remains “Operator Termination Fee” which will, when eventually invoked, bankrupt Ascension Parish.  A “fair market value” acquisition provision having been eliminated, what’s left is…

Appendix IV-Operator Termination Fee

The Operator Termination Fee shall be an amount equal to the following:

(ii) if such termination is due to any reason other than an Event of Default of Operator pursuant to Section 8.1 hereof, the sum of (a) the principal amount of any outstanding debt incurred by the Operator associated with the System and any associated prepayment penalties or costs, such that the Operator Termination Fee shall be sufficient to retire such debt incurred by the Operator, provided, that, if any of such outstanding debt constitutes DEQ SRF borrowing, the District may elect to assume such debt, to the extent permitted, in lieu of paying the Operator therefor; and (b) the aggregate amount of equity contributed to the Operator by its owners as of the Termination Date less the aggregate amount of distributions made to such equity owners prior to the Termination Date; and (c) an amount necessary to achieve no less than an 8% return on the aggregate amount of equity contributed to the Operator by its owners calculated from the Transfer Date through the Termination Date.

NOTE:  Subparagraph (i) would be applied in the event of Operator (Ascension Sewer is “the Operator”) default.  It omits clause (c) and the “8% return.”

We have a few questions.

  1. There is a $60 million, .95% interest loan envisioned from Louisiana’s DEQ which will be “outstanding debt” when the agreement is inevitably terminated (whether that happens at the end of the 30-year contractual term or before then).  What other “outstanding debt” is envisioned in (a)?
  2. What about “any associated prepayment penalties and costs?”  The DEQ loan is not subject to any penalty for early payment, so who will reap that windfall should the deal go south prior to its 30-year term’s expiration?
  3. How are such prepayment penalties calculated; and to whom is it paid?
  4. In (b), does the parish have any means to control “aggregate amount of equity contributed?”  Assuming such equity is invested to pay for construction costs, eventually borne by Ascension Parish taxpayers, why is the project not subject to Louisiana’s Public Bid Law?
  5. Is there any cap on the amount of debt/equity infused into the project by Ascension Sewer and the money behind it, Bernhard Capital Partners (BCP)?
  6. There is a credit in (b), envisioning a reduction of the amount received by “equity owners” in the amount of “distributions” already made.  Will such pre-termination distributions include a return on equity investment?
  7. When it is time to cash out, (c) ensures that “8% return” on ALL equity contributed.  Why is there no credit given the parish in the event that pre-termination distributions included a return on equity investment?
  8. What is the difference between “outstanding debt” in (a) versus “aggregate amount of equity contributed” in (b) and (c)?
  9. Would Ascension Parish taxpayers receive a credit for prepayment penalties on “outstanding debt” against the “amount necessary to achieve no less than an 8% return on the aggregate amount of equity contributed” in (c)?
  10. If not, wouldn’t that artificially increase the “8% return?”

The more debt that is loaded into this project, the bigger Ascension Sewer’s guaranteed return.  The parish has no contractual ability to rein in the amount of debt.  Ascension Sewer is entitled, by the agreement’s terms, to hire any contractor (including any of BCP’s affiliate companies) pursuant to any terms it deems appropriate.

There is nothing to prevent the hiring of Brown & Root for instance, owned by BCP, to build “the System” at a non-competitive price of BCP’s choosing.  Anyone believe the construction price will not be inflated since the cost is recuperated with a guaranteed “8% return?”

And that bill comes due within 180 days of the agreement being terminated by Ascension Sewer (BCP) which retains complete control over that “Termination Date” with the parish having none.  How bad is it?

Section 9.3 of the Agreement is entitled Termination Payment to Operator.  It includes the following:

If this Agreement terminates and as a result the District owes an Operator Termination Fee, but it will not have cash resources available to make such payment in full, the District agrees that it will promptly, and in any event within one hundred eighty (180) days of the date of the issuance of a notice of termination (i) issue bonds or other debt obligations in an amount sufficient to pay the termination payment or (ii) enter into another long-term operation and maintenance contract, in respect of the System that generates an up-front payment that, when combined with the other cash resources at the District’s disposal, is an amount sufficient to pay the Operator Termination Fee.

And that obligation would be owed to the unspecified “equity owner” which will be BCP, not some third-party lender.  BCP knows full well that the parish will not have the cash on hand to satisfy the obligation.

Sooner or later, Ascension Parish’s solvency relies upon the generosity of Bernhard Capital Partners which is willing to take a mortgage on the parish’s soul.