Tuesday, December 6, 2022

Deep Dive: State treasurer asks Bald Head Limited to donate $47 million ferry system, company denies request

The Bald Head Island Transportation Authority is working to acquire the island's multi-million dollar, privately-owned ferry system. (Port City Daily photo/Johanna Ferebee)
The Bald Head Island Transportation Authority is working to acquire the island’s multi-million dollar, privately-owned ferry system. (Port City Daily photo/Johanna F. Still)

Update 4:50 p.m.: This article has been updated to include a response from Bald Head Island Limited.

BRUNSWICK COUNTY — On the heels of his first visit to Bald Head Island, N.C. State Treasurer Dale Folwell is publicly asking Bald Head Island Limited, LLC to donate — rather than sell — its ferry system, valued at $47 million.

The treasurer’s request comes less than two weeks before the Local Government Commission is set to review key aspects of the private-to-public ferry sale in approving up to $59 million in bond financing.

Related: Trouble in paradise: Bald Head Island Council objects to private-to-public ferry sale

It’s likely to throw a wrench in the deal, pressuring Bald Head Island Limited to take a more altruistic path and forgo $47 million. The company has been offloading its assets over the past decade as part of an effort to settle the estate of the late oil tycoon, George Mitchell, whose family developed the island in the ’80s.

Mitchell was worth $2 billion at the time of his death, according to a 2013 Forbes estimate.

The family’s deep pockets and lengthy tenure overseeing the island are reasons it’s kept its charm over the decades, protected from overdevelopment, anchored with luxury accommodations lesser developers would have cut corners on.

“I believe the best outcome for all would be for the Mitchell family to gift the ferry system to the people of Southport, the Village of Bald Head and/or the authority [BHITA],” Folwell said in a Wednesday release. “It would be a win-win for everyone concerned.”

Reached Wednesday afternoon, Chad Paul, CEO of Bald Head Island Limited, said the company is not likely to meet the treasurer’s request.

“The Mitchell estate is not in a position to donate $47 million to the state of North Carolina,” Paul said.

Paul added the company did not receive any formal request to donate the system outside of Folwell’s press release. Past independent appraisals have assessed the ferry system’s value at $55 million, Paul said, higher than the latest assessment of $47 which the company agreed to sell it for.

“In essence, the Mitchells have given an $8 million gift to the authority,” Paul said referencing the sale price. “I would suggest in today’s market we could get well north of $55.786 million.” 

A ‘gift’

By law, the Bald Head Island Transportation Authority is mandated to “acquire by gift, purchase” or lease the privately owned ferry system at or below its appraised value.

“It’s in the spirit of the Mitchell family’s obvious love for the island that I’m asking for them to donate the ferry system for the benefit of all,” Folwell said in the release. “I think it would be a fitting tribute to the legacy of Mr. Mitchell. It would solve all of the current problems with the sale and provide certainty to those who live, work and recreate there.”

Last week, Bald Head Island council sent a letter to Folwell objecting to various aspects of the transaction, urging the LGC to put the brakes on the proposed deal, set for review Jan. 4. Council (and now, Folwell) is concerned island residents have been cut out of important negotiations, the authority may end up overpaying for the system and be riddled with debt it can’t adequately manage, and ticket fares will increase.

Related: Deep Dive: Inside the three-year, unique, $47 million private-public Bald Head Island ferry transaction

As the state’s first maritime authority, the one-of-a-kind transaction has caught the attention of the treasurer, who first became aware of the deal earlier this month.

Unlike the publicly-owned Southport-Ft. Fisher ferry system located less than a half-mile from Deep Point Marina, Bald Head Island’s system would operate outside the N.C. Department of Transportation’s purview. Folwell suggested the state should instead coordinate with island and public officials to address overall transportation needs, pointing to the nearby NCDOT ferry.

Once transferred, the ferry system will no longer be regulated under the N.C. Utilities Commission, which limits its ability to change schedules and rates without undergoing an arduous, months-long process. In the end, the authority will regulate itself.

‘Love it or shove it’

Headed by an 11-member board, the authority has been negotiating a purchase price and other transactional items for more than three years, since Senate Bill 391 was signed into law in July 2017. The authority anticipates closing the deal — pending LGC approval — in early February.

Bald Head Island has three appointees on the authority; Southport has one; Brunswick County has one; the governor has one; the general assembly has two; NCDOT has three.

Village of Bald Head Island Mayor and BHITA trustee Andrew Sayre leads his council in opposition to the deal. Held the day after a BHITA majority approved an Asset Purchase Agreement and management transition services agreement with Bald Head Island Limited and forwarded its bond financing application to the LGC, village council agreed in a Dec. 9 meeting they needed to raise some red flags.

Sayre said even as the statute creating the authority was being created in 2017, his council was in the dark. (Ultimately, the village unanimously endorsed the legislation.) In the meeting, Sayre said he’d like to revisit the original legislation to include more representation for the island on the makeup of the authority.

“Most of the members of the transportation authority are not engaged in the island, they don’t ride the ferry, they don’t use the barge, they don’t use any of that — we do,” Claude Pope, a BHITA trustee, said at the village council meeting.

Pope said he got the sense from other trustees that the transaction even months ago was already a “done deal.” He said Paul, CEO of Bald Head Island Limited, has dangled the idea that the company could simply sell the ferry system to another private buyer.

“Chad’s threat the whole time is, ‘Hey, I could put this up, sell the parking, sell the barge, and you guys would be stuck with a ferry that can’t meet its obligations,'” Pope said. “Now we’ve got a deal— love it or shove it, basically. Now what do we do with it?”

Last week, Paul said the company has come out of pocket (with no expectation of being reimbursed), spending more than $400,000 to finance the authority to pay consultants to prepare for the deal. The whole point of the private-to-public transaction, rather than a private-to-private sale, is to maintain a public trust for the island, ensuring access for its residents for decades to come, Paul said.

“We can pursue the public purpose that takes the profit motive out of the system which should result in lower and more stable fares over time,” Paul said Wednesday. “Or we can pursue a private sale to a private operator that has a profit motive.”

The village is also concerned about projected ferry and barge price increases, set to go into effect in July. Ferry tickets will increase from $23 to $27; barge rates are projected to increase from $55 to $60 per 6 feet.

Because the village pays for its employee’s travel expenses to and from the island, council members worried the price increase would squeeze the village’s finances. According to Paul, rates haven’t kept up with inflation; the ferry fee has increased just once since 1993.

In an interview earlier this month, Folwell said his main focus is ensuring fairness for all users of the ferry systems — for those who own the yachts and those who “clean the yachts,” and for “those that make their living with their hands, their back and their feet and those that don’t.”

“I’m most concerned about the forgotten citizen who may end up getting the short end of this deal through higher fares. Often times the number of people working on the island is four times the number of residents. Nearly all of them have to leave the island every day and night,” Folwell said in the release. “The best way to keep that from happening is for the Mitchell family to continue their philanthropic legacy in the area by donating the system for the benefit of all.”

A deep opposition

Earlier this month, a negotiating subcommittee of the authority (which has no island residents), “the supposed consultants” (Sayre’s description), and Limited offered a preview presentation to the LGC. In the village’s letter to the LGC, it complained of one-sided consulting documents prepared by Limited that were overly generous to the company. Paul later pushed back on this claim, stating financial projections have come from an independent third-party.

“I don’t really understand why the seller was there arguing for the purchase price that the buyer is going to have to pay,” Sayre said of the LGC presentation. “That to me was very strange.”

BHITA trustee Pope said he was perturbed that the group representing the authority indicated there was no opposition to the deal.

“When asked by Treasurer Folwell and members of the LGC whether there was any opposition to this transaction the BHITA representatives said no,” the treasurer’s release states. LGC guidelines require community support for the project, “especially for non-voted debt.”

“That kind of took us back a little because there’s a very deep opposition,” Pope said in the village meeting.

Council aired concerns, as eventually specified in their Dec. 15 letter to the LGC, that the purchase price did not account for necessary improvements to the system, including financing set aside to expand parking at Deep Point Marina in Southport.

Because the new authority lacks any credit history, it’s unlikely to receive a flawless bond rating, which could lead to high interest rates, and eventually, more debt. The authority has received at least three preliminary indicative bond ratings to date. This information is considered confidential at this point, according to BHITA Chair Susan Rabon.

Including the barge, parking, and ferry operations, the transportation businesses accounted for $2.32 million in total profit in 2019 and $894,000 in 2018, according to the company’s audited financial statements. Part of the ferry operation’s business includes contracts with Limited, the parent company that owns Bald Head Island Transportation, Inc.

The ferry side of the business pays Limited $1.25 million in fees annually to lease space at the terminals, around $115,000 in management fees, and last year, paid $374,000 in interest payments towards an $18.3 million debt it has with the company (not an outside lender).

Mayor Pro-tem Mike Brown said he was concerned the authority’s revenues aren’t enough to cover incoming bond debt and necessary system improvements.

“Finances are so tight that improvements that have been deferred and improvements that we would like to be put in place are going to be very hard to put in place over the next 30 years,” he said at the council meeting.

Send tips and comments to Johanna Ferebee Still at johanna@localdailymedia.com

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