Confidential document sheds light on equity firm’s push to manage NC city’s utilities
A private equity management company said in a document provided to Fayetteville officials that its proposal to manage city-owned water, sewer and electric utilities could be worth more than $750 million in benefits to the state’s sixth largest city.
“Utility proposal offers the City of Fayetteville over $750 million in benefits,” says a document Bernhard Capital Partners provided Fayetteville city officials nearly a year ago. It was dated May 29, 2020, and marked “CONFIDENTIAL.”
The News & Observer obtained the document Tuesday through a public records request to the city. The document refers to a proposed concession agreement that would last 30 years. All other details about the proposal and the benefits to the city were redacted.
In a brief telephone interview Tuesday, Jeff Jenkins, a co-founder of Bernhard Capital, said that number is “totally outdated,” and he’s not sure what it includes. He said that with what the company has learned about the city in recent months, he expects the value of those benefits would be higher today.
He said given Fayetteville’s size, the benefits from an agreement “would just naturally likely be much higher.”
He declined to provide specifics as to what the company is proposing now, citing nondisclosure agreements with the city and the Fayetteville Public Works Commission, which operates separately from the city.
On Saturday, The News & Observer reported Bernhard Capital, a company based in Baton Rouge, Louisiana, had begun reaching out to roughly a dozen North Carolina cities two years ago proposing concession agreements that would pay tens of millions of dollars in upfront payments in exchange for managing their utilities for a 30-year period. The company would capture the revenues the utilities would take in. Documents the N&O obtained from Kinston showed a preliminary proposal with an upfront payment of $92 million, and another from New Bern offered $70 million.
The company expects that the agreements will bring a return on investment in the 8 to 11% range, Jenkins said. He said it has raised $3 billion to invest in such agreements and it has reached out to more than 100 communities in the Southeast.
Nondisclosure agreements between Bernhard and some of the communities have accompanied these proposals, making it difficult to determine all the details.
Fayetteville is much larger than New Bern or Kinston, but the $750 million may reflect more than an upfront payment. Other correspondence the N&O obtained last week indicated that Bernhard pitched putting a corporate headquarters in Fayetteville as part of the deal and potentially additional corporate headquarters for other companies that are part of Bernhard’s portfolio. The company in its proposals to communities also offers to take care of a utility’s debt.
Bernhard’s proposal to the city was preliminary and could change. The newly released correspondence shows Bernhard seeking financial information earlier this year such as projected operating costs, capital expenditures and annual debt. The company has said it needs that information to formulate a hard proposal.
Those in the public-power business have viewed Bernhard’s proposed agreements with skepticism, worried that the short-term gain from the upfront payments may cost communities in the long term. Officials with several communities — Greenville, New Bern, Shelby and Wilson — told the N&O they were not interested.
Bernhard officials contend the communities can use the upfront payments to pay for amenities that would help them grow economically.
Fayetteville has a separate agency, the Fayetteville Public Works Commission, that operates utilities. As a result, any agreement Bernhard would strike likely would need approval from the commission as well as the city.
Documents the N&O obtained from the commission suggested that it was backing away from Bernhard’s proposal, but Mayor Mitch Colvin wanted the talks to continue. The city council has authorized hiring an expert to evaluate Bernhard’s proposal.
But Colvin in an interview last week declined to provide specifics, citing nondisclosure agreements Bernhard has struck with officials there as well.
The N&O could not reach the mayor on Tuesday for this story.
This story was originally published April 13, 2021 at 5:33 PM.