The Port of Wilmington is closer to having a new operator after a state board approved a deal with Boston-based Enstructure. | DBT PHOTO BY JACOB OWENS
WILMINGTON – A month after announcing that it selected Boston-based Enstructure to take over operations of the Port of Wilmington, a state board was able to negotiate a slightly better deal for taxpayers.
The Diamond State Port Corporation, a state-created entity that manages the publicly owned port, approved a new 55-year concession agreement with Enstructure at its Friday meeting after determining that previous operator, GT USA Wilmington, failed to fulfill the terms of its lease of the port. The new agreement is subject to a review and vote by Delaware state legislative leaders.
Gulftainer’s failure to advance the future container port at Edgemoor weighed heavily on the DSPC board, which is chaired by Secretary of State Jeffrey Bullock.
Under the terms of the original concession agreement, GT USA Wilmington was required to spend $250 million to advance the Edgemoor project by the end of 2020 – a timeline that was not met, at least in part due to the impact of the COVID-19 pandemic. It was expected to invest upward of $500 million within the first decade.
To pay for the bevy of improvements, GT USA Wilmington obtained a $350 million leasehold mortgage on the port operations in January 2019, principally predicated on its holding of the core concession agreement, according to county land records. It was required to maintain good standing on its concession agreement to tap the funding though.
After its financiers forced the Emirati subsidiary company to replace its board and leadership following several years of reported deficit cash flows, however, GT USA Wilmington was unable to identify alternative long-term financing for the Edgemoor project. Meanwhile, the DSPC began to apply for permits and pay for work to advance the desired Edgemoor project, also in violation of the concession agreement with Gulftainer that required it to bear those costs.
“We have loan consultants and lawyers participating at the port that are incredibly expensive, and a huge drain on the operating cash that’s available at that facility. It just cannot continue any longer,” Bullock said.
The DSPC hired a Philadelphia-based consulting firm, PFM Financial, to review the status of the deal and seek out alternatives. In the end, six companies bid for the contract and ultimately Enstructure was chosen from finalists that also included Estonian company Liwathon and Holt Logistics, which operates at the Port of Philadelphia.
Enstructure has completed a deal to acquire GT USA Wilmington’s debt from its senior noteholders, with closure expected no later than July 14, Enstructure Co-CEO Matthew Satnick said. It is likewise negotiating a transfer of operations with Gulftainer this month.
“Over the next few weeks, we would expect to close everything and be in a position to start operating,” Satnick said. “We’re eager to get in there.”
Bullock advised the new operator of two lessons the DSPC learned under Gulftainer’s contract, saying, “Number one, don’t make promises you can’t keep. Number two, stay in good communication.”
The concession agreement will be extended about 55 years to Oct. 1, 2078, and Enstructure will agree to not operate any international shipping container handling terminals in Baltimore or on the Delaware River.
Under the agreement, Enstructure would pay an annual concession fee of $1 million – a reduction of 66% from Gulftainer’s $3 million annual fee – that will increase annually by the lesser of 5% or the annual consumer price index. Following negotiations with the state, Enstructure has agreed to reset its annual concession fee to between $1.5 million and $2 million, depending on port revenues, with the escalator clause still in effect.
Although the future of Edgemoor weighed heavily on the operator change, DSPC officials were also frustrated by the amount of investment needed at the current port too.
Included in the preliminary funding commitments was $87 million in upgrades at the Port of Wilmington, including $45 million spent before the end of 2032. After additional due diligence, officials reported Friday that Enstructure they have plans to invest more and faster at the port.
“You can’t not invest in a 100-year-old facility for a year and a half to two years without seeing some pretty significant deterioration,” Bullock said Friday. “Things are getting worse and we need to move on that. Not only is it a safety concern, but it’s obviously going to affect productivity and efficiency and our customer base.”
Enstructure will also make a single, non-refundable payment of $21.5 million at the outset of the deal to move the 100-acre Edgemoor container port ahead. It would also agree to include its adjacent 25-acre, waterfront parcel currently home to its Port Contractors Inc. subsidiary to the port plans, increasing the project’s shoreline by about 45% and its total acreage by 30%.
The company is reportedly already in discussions with a global carrier regarding the development of Edgemoor as a best-in-class container terminal. The identity of that carrier was redacted from the released records.
In public comment following the approval of the concession agreement, representatives from the AFL-CIO and the International Longshoremen’s Association supported the new operator. Jim Maravelias, president of the Delaware AFL-CIO, commended Enstructure for quickly signing a Project Labor Agreement to use union workers on its projects.
“Edgemoor’s expansion is our future jobs,” he said.
But Darrell Baker, a Wilmington lawyer representing Holt, said he was dismayed at the DSPC’s rejection of his client’s bid, which reportedly offered larger annual payments to the state and a higher initial project investment, but also would require the DSPC to cover the coast of dredging the approach channels.
“This obfuscation is just amazing. And where is the after-action report like you would see in the Army, or when the FAA investigates a plane crash? This was a $700 million mistake, and to add to that five years lost,” he said.
