The global terminal market, particularly the container terminal segment, is becoming a high stakes poker game with assets changing hands as investors try to adjust their portfolios. In the game of poker, as well as investment in global container terminals, knowing when to hold the assets and knowing when to fold them [to paraphrase American country singer Kenny Rogers] is a key stratagem to ensuring a positive return on investment. Right now, there is a major reshuffling of the deck as institutional investors appraise current market conditions in an effort to position themselves for an uncertain future. Unusually, the industry restructuring is beginning with the Americas. Given the dominance of Asia, Europe and even the Middle East in the terminal business, this would seem to be the most unlikely region to inaugurate a change in business climate. Investment in marine terminals, particularly in container terminals, has often been considered a safe play. An industry neatly slotted within an institutional investor’s infrastructure portfolio of pipeline, toll roads, rail, transit, airports and waterworks. Just prior to the global crash in 2008 there was a spate of institutional investment in global marine terminals. Goldman Sachs through their infrastructure fund took a 49% stake in SSA Marine, a Washington State based terminal operator with interests (stevedore services as well as management) in nearly 200 terminals at the time. Another institutional investor, Highstar Capital (at that time AIG Highstar) acquired Ports America (which was largely the old P&O Ports America) that had interests in nearly forty ports scattered throughout North America. While these investments were high profile, non-traditional investors like OTPP (Ontario Teachers’ Pension Plan) surprised nearly all the analysts. OTPP took the plunge buying GCT (Global Container Terminals) in 2007 from Hong Kong-based containership operator OOCL, [terminals: Delta BC, Vancouver BC, Bayonne NJ, Staten Island NY] and placing them in their infrastructure portfolio. Interestingly, OTPP as part of their portfolio has an investment in the Australian investment group Macquarie, which is strong in the infrastructure sectors. Many times one fund leads another in marine terminal and transportation investment. In the past, the reasoning behind the strategy was more to spread the financial load and risk. But now this new norm of the tag teaming of transportation targets represents a new twist in institutional investment tactics. With new rules limiting direct financial investments for the public banking finance sector, the importance of private sector financing is rising - and North American container terminals are at the top of the list. Another reason for the spike in investor interest in marine terminals is that container operators have been under a decade long cash crunch and need partners with deep pockets. In January, Mitsui OSK Lines (MOL) sold a 49% stake in containership operator’s TraPac subsidiary, which has interests in box terminals in Los Angeles and Oakland, to Toronto-based Brookfield Asset Management. The avowed purpose of the transaction was a first step in a “strategic alliance” between MOL and Brookfield to expand the terminal business. Brookfield with around $175 billion in assets is no stranger to terminal investment, operating PD Ports in the UK, Euroports (bulk terminal) in Europe and Dalrymple Bay Coal Terminal in Australia. In February, Brookfield also added to its widening portfolio a 50/50 joint-venture deal with Maersk Lines APM Terminals on the ownership of the New York/New Jersey terminal. More recently, APM Terminals sold its terminal in the Port of Virginia to Alinda Capital Partners, one of the largest infrastructure fund specialists particularly active in inland ports, and (similar to OTPP following Macquarie) UK-based Universities Superannuation Scheme Ltd. APM Terminals had wanted to take over the operations of the Port of Virginia but were stymied in the effort, resulting in a decision to fold the operation. For many of the ocean carriers, terminals are “house money” a stake stuffed in a mattress for a rainy day. An asset that can be sold to a wide variety of buyers, as opposed to vessels whose second hand value is limited. Recently, Hyundai Merchant Marine (HMM) said it will sell off US terminals to raise $140 million. HMM plans to sell convertible stock in California United Terminals in Los Angeles and Washington United Terminals in Tacoma, Washington. The sale would be a nice influx of cash for the Korean carrier, which posted a loss $672.4 million in 2013. The anticipated buyer is Lindsay Goldberg, a private equity firm. In 2013, New York City-based Lindsay Goldberg acquired a 49% in Odfjell Terminals, a group that specializes in tanker terminal operations. Folding & Holding: Terminal Investment & Risk The attraction for investment in North American terminals is easy to understand. Fitch Ratings in their “Peer Review of U.S. Ports” anointed an “A” rating for most U.S. ports, reflecting relatively low credit risk. Emma Griffith, Director in Fitch’s Global Infrastructure Group, said at the release of the study, “With approximately 95% of port sector ratings maintaining Stable Outlooks, Fitch expects stable rating trends in the near to immediate future.” However, there is more to the attraction than low credit risk. The US container terminals have a big upside. The entry costs for an investor are relatively low, the country and regulatory risks are minimal, labor costs are dropping [although at this writing the ILWU (International Longshoremen and Warehouse Union) is still in the process of negotiating a West Coast contract] and finally, and perhaps most importantly, automation is coming. As a result of the favorable investment climate, there has been a considerable reshuffling of terminals’ assets in North America. In January, an infrastructure fund run by Goldman Sachs sold its 49% stake in the holding company of SSA Marine. SSA has interests in over two hundred terminals, mostly in the US but also Mexico, Chile, Columbia and Vietnam. GS Infrastructure Partners sold its shares in SSA Marine’s ultimate parent company, FRS Capital Corp (the founding Smith/Hemingway family). In turn, Mexican businessman Fernando Chico Pardo acquired a 49% share in the terminal operator from FRS. Why GS decided to sell their stake could simply be part of a divestment strategy or a confluence of independent events adding up to an opportunistic exit plan. There were good reasons to throw down the hand. The environmentalist opposition to the coal facility (Gateway Pacific Terminal) in Washington State bogged down the project. GS could well have tired of the process – for sometime now the investment firm has been moving out of coal and commodity based investment. A chance to cash in may have outweighed any hypothetical benefits of holding on to the terminal assets. Certainly, it appears that GS is divesting itself of port holdings. Recently, GS said it would be selling off its 33.3% stake (its shares with Prudential PLC) in Associated British Ports Holdings (ABP). The GS led consortium bought ABP for £2.8 billion pounds ($4.47 billion) in 2006 edging out Australian competitor Macquarie Bank Ltd. For his part, Pardo through his chairmanship of Grupo ASUR has an interest in nine airports in Mexico. But beyond the airports he has also been building a portfolio of other transportation and commodity based investments over the last two years. For FRS this again provides access to necessary capital for developing their terminal and other infrastructure assets with fewer strings attached. Another one of the big players from the pre-crash investment boom has also reshuffled the deck. On the surface the announcement didn’t look too significant but on a closer look has a lot to say about how the terminal market is shaping up. In early February 2014, Ports America announced that it had refinanced the debt facilities of both Ports America, Inc. (PAI) and MTC Holdings, Inc. (MTC) into a single, unified capital structure. The refinancing consisted of a new five year, $475 million senior secured credit facility, including $170 million of revolving credit and letter of credit facilities, and a new 7-year, $375-million “Holdco” (holding company) financing. A group lenders led by Royal Bank of Canada provided the senior credit facility. The Holdco facility was provided by CPPIE (Credit Investments Inc., a wholly-owned subsidiary of Canada Pension Plan Investment Board). Ironically, Goldman Sachs was one of Ports America advisers on the deal. But the real story was unveiled in June when Oaktree Capital Group, arguably one of the world’s largest distressed-debt investors with more than $190 billion of assets under management, acquired Highstar Capital itself. According to reports, Oaktree has been seeking to invest more in infrastructure in North America, partly to gain a stake in the booming oil and gas segment, while building out their infrastructure portfolio, especially in the port segment. Another game changer is the moves by up and coming UAE-based terminal operator Gulftainer. Gulftainer (subsidiary of Crescent Group) acquired a 51% share of Gulf Stevedoring in 2013, making the port terminal company the largest port operator in the Middle East. In June of 2014, Gulftainer took a big step towards joining the elite operators when the group was awarded a 35-year concession at Port Canaveral. The award gives Gulftainer an unexpected foothold on the east coast of North America. It is significant because Dubai-based DP World was blocked by the US Congress from operating in the US, following their purchase of P&O Ports in 2006. After a contentious battle DP World sold the US operations to Ports America. With container terminals seeking capital to keep pace with the containership business, box ship operators looking to cash in their chips and private equity groups looking where to place the next bet, it’s likely that they’ll be a more than a few shifts in the terminal sector before it settles down.