PhillyDeals: Planned PGW sale wins analyst's praise

The PGW facility at 2430 S. 28th St. as seen from the Passyunk St. Bridge.
The PGW facility at 2430 S. 28th St. as seen from the Passyunk St. Bridge. (CHARLES FOX / Staff Photographer)
Posted: March 08, 2014

If it gets past City Council and the Pennsylvania Public Utility Commission, Mayor Nutter's plan to sell Philadelphia Gas Works to UIL Holdings Corp. for $1.86 billion will be a "credit positive" move that could help boost the city's bond rating and cut its borrowing costs, analyst Michael D'Arcy wrote Thursday in a report to clients of Moody's Investors Service.

That's if Nutter is able to execute his plan to use surplus proceeds to bail out the city's underfunded pension plan - while also making sure the city adds millions each year for pensions even after the PGW cash infusion, D'Arcy added.

Nutter plans to use up to $631 million of the sale's proceeds to modestly reduce the city's several-billion-dollar pension deficit. The rest will pay off PGW debt and fund PGW workers' pensions.

But the report also noted that Philadelphia is risking a "popular backlash": Under UIL, after a three-year guaranteed rate freeze, gas rates "could increase significantly over time."

Also, the value of PGW could rise rapidly in private hands, leading to seller's remorse, which is what happened after Chicago sold a city highway and its parking-meter systems in the mid-2000s at prices that city officials and voters now believe were "not competitive," D'Arcy concluded.

Moody's adds that Pennsylvania has lately been a center for selling off public assets to pay debts that politicians (and the investment bankers and lawyers who live off them) have run up at public expense.

Last year, Allentown leased its water and sewer systems to the Lehigh County Authority in exchange for $220 million, which D'Arcy notes "largely eliminated the city's unfunded pension liability." Similarly, Harrisburg leased its state-worker parking garages "to raise $267 million to repay defaulted bonds" from a failed trash-incinerator boondoggle.

Mega data

Steel ORCA, based in Newtown, Bucks County, says it has started work on a $650 million commercial data center at a former Pfizer plant in Monmouth Junction, N.J. Construction manager is Gilbane.

The center is on the Eagles-Giants border - 40 miles from both Philadelphia and New York - so data can be shipped both places "in less than a millisecond," attractive to financial, Internet service and factory-robot users, said Dave Crocker, Steel ORCA's chief executive and chairman, a former software developer.

The firm planned to build in Fairless Hills. But Crocker told me that site, energy, customer and telecom availability made the ex-Pfizer site easier. "Subsidies were not a consideration," he added; he said New Jersey isn't giving any.

Another investor group, Data Centers L.L.C., wants to build a $1.1 billion data center and power plants at the former Chrysler Corp. plant on the University of Delaware campus.

Is that a lot of competition? I asked Gerald Marshall, chief executive of Amerimar Enterprises, part of yet another digital investors' group, which has pledged to pump $70 million into an update of the 1.3 million-square-foot computer-telecom center at 401 N. Broad St., where SunGard Availability Systems and other companies have been speeding corporate transactions since the late 1990s.

"Data centers are complementary, not competitive, to what we do," Marshall told me. The new centers "are like a parking lot: They store and process data," typically in suburban buildings, where heat from data processing can rise off the roof. "We're an interchange: We route data to where it's going."

He called 401 N. Broad "the premier telecommunications building between Manhattan and Virginia; We've got 80 carriers serving the building."

That means plenty of Internet and phone-service choice - for corporate America.



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