Tuesday, March 5, 2024

Mitchell family begins Bald Head ferry sale process on open market, authority still preferred buyer

BRUNSWICK COUNTY –– The Mitchell family is actively pursuing a competitive sale process of its Bald Head Island transportation assets to dissolve the estate of their late patriarch. 

Throughout this year’s ferry chaos, the island’s original developers have not once directly spoken publicly on the contentious sale of their system –– not even after the state treasurer’s unprompted request for them to donate it to the state of North Carolina instead. That is, until last week. 

Hinted at on numerous occasions by the family’s representative, Chad Paul, CEO of Bald Head Island Limited, the Mitchells formalized their threat to sell the system on the open market –– potentially in pieces –– in a Sept. 15 letter to village mayor Andrew Sayre. 

The island’s mayor recently sought a sit-down with the family, represented in sale negotiations thus far by Paul. It did not work. Negotiations must continue through Paul, Limited’s CFO, and legal counsel, the Mitchells wrote.

“[W]e will no longer allow the personal or political agendas of a few individuals to be used to delay the sale process,” the family members wrote, signed by representatives of the Mitchell Family Corporation, the Board of Managers of Bald Head Island Limited, and the Board of Directors of Bald Head Transportation, Inc. (a subsidiary of Limited). 

Limited represents a private operation with two public prospective buyers having submitted formal offers. Little appears to stand in Limited’s way of seeking a private buyer –– or buyers –– of its choosing while the public offers hang in limbo with the Local Government Commission. 

“The Mitchells are committed to getting closure on this,” Paul said Monday. “This has been going on too long and now it’s personal politics.”

Sayre and the village government launched a campaign this year to purchase the ferry assets at a cheaper price. Acting as a competitive buyer, the village intervened in the previously quiet and uneventful proposed sale to the Bald Head Island Transportation Authority, created by the 2017 Ferry Transportation Act. The authority has seats for the village, governor, legislature, state transportation department, Brunswick County and Southport; the county and Southport –– where Deep Point Marina sits –– both signaled their support for the authority in April, weeks after the village’s first public offer to purchase the system. 

All relevant governing bodies unanimously co-signed the legislation (including two opposing gubernatorial administrations) four years ago. “[T]he undersigned find the VIllage’s withdrawal of its unanimous support and consent for the acquisition of the system by the Authority after almost five years into the proces ill-considered and its reasons for doing so unpersuasive,” the Mitchells wrote.  

Motivating the Mitchell’s decision is a majority of ferry riders, barge customers, and property owners opposed a village-operated system, the family wrote, controlled by a sliver of voting island residents that represent 5% of property owners and 10% of annual ferry ridership.

At this point, both public systems have applied for bond financing approval with the Local Government Commission; the LGC is at an impasse and has not placed the items on its agenda for approval in months. 

Open waters

The competitive sale process has already begun, Paul said Monday. “We’re in due diligence with certain parties.”

The assets encompass the regulated ferry and island-based tram system and the unregulated parking and barge operations. There’s potential that each system sold individually would summon a higher total valuation, the Mitchells contend, but the preference is still to sell the assets as one unit to the authority.

“The Mitchells are going to find homes for these assets and these operating assets with people that have experience operating those things,” Paul said. If sold apart, each asset would be disposed of to entities with experience working with the given system, he said. 

“I’m trying to hold it together and not break it up into pieces,” Paul said. “That would be the best thing, to keep it together as one unit. But who knows what happens in the next 30, 60, 90 days relative to how things shake out.”

It’s theoretically still possible for the village to purchase the system, but Paul said it’ll have to fork out more than the $47 million being offered now to match another private buyer.

Though much ado has been given to the 1999 right-of-first-refusal agreement between Limited and the village, it’s unlikely to stand up in court, Paul said, should it ever reach that point. 

“That agreement’s DOA,” Paul said. “I’m not worried about the right of first refusal being a problem. Does the village throw a lawsuit out there on it? Sure. But I don’t think it’ll stand up to muster very long.”

The agreement stipulates that Limited will give the village 60 days before selling to another party. It was recorded in the Brunswick County Register of Deeds, which prompted title insurance representatives to seek a resolution to clear it for a clean transaction. The village relinquished its rights in this agreement in a year-long waiver that expired at the end of August.

Language in the agreement states it is effective “only upon” the approval of the N.C. Utilities Commission –– an apparently overlooked requirement, as no such approval was ever granted, according to Paul. Plus, he said the statute of perpetuities of the indefinite agreement expired two years ago. 

In a response to the Mitchell letter, the mayor wrote in a letter last week the village “expects that Limited will honor its obligations and respect the Village’s rights under that agreement.”

Besides the potential legal disagreement, the N.C. Utilities Commission would have to approve of any transaction involving a private buyer of the ferry or tram operations. Paul said Limited could set up a sale subject to the commission’s approval and feasibly close on barge, real estate, and parking assets beforehand. 

Splitting up transportation assets to seek the highest bidder “would appear inconsistent with [the Mitchell’s] history, vision, and values,” Sayre wrote, harkening to the family’s stewardship of the island. “That was the parties’ exact concern that led to Limited and the Village agreeing to a right of first refusal.”

At this point, Limited’s biggest obstacle is the impending village bond referendum. 

On Nov. 2, a few hundred island residents will vote whether to approve $54 million in general obligation bonds –– a first step before the LGC can weigh in on the village’s application. If the referendum is approved and the LGC favors the village’s bond application, Limited won’t sell to the village (unless it matches another entity’s purchase price). If the referendum fails, the LGC can’t approve the village’s application, and may in turn approve the authority’s. In the meantime, Limited is done waiting around. 

“The Mitchells would make a move if the sun, the moon, and the stars aligned,” Paul said when asked if a sale could occur prior to the referendum. “Now, can we get the sun, the moon, and the stars to align, and sign something before Nov. 2? Maybe –– that’s a tall order.”

The village has touted significant savings, due in part to its credit rating as a municipality, compared to the higher interest rates that would be assigned to the authority, a brand-new entity lacking a credit history seeking revenue bonds. Savings amount to $13.3 million with a village-operated system over the 30-year life of the bonds compared to the authority’s plans, according to the village.

“Any time that you save a penny of interest on this transaction, it’ll mean that fares stay lower,” N.C. State Treasurer Dale Folwell said last week. “This is a very unique situation. I mean, this is basically a public utility that’s owned by a private entity.”

Folwell is open to a village-operated system, but added the LGC is only interested in maximizing the transaction’s transparency and getting the “right amount of governance so it can continue to operate at the lowest possible cost, and that’s it.”

To his knowledge, this is the first time the LGC has been tasked to review two financing applications from governing bodies competing over the same assets. “We have two applications,” he said. “What will happen is, if the bond referendum passes, the LGC will have to evaluate which of these applications falls within the parameters of how we’re supposed to be making decisions.”

Folwell said the LGC doesn’t have any particular concern about the village’s ability to take on the debt.

“There’s no mathematical dispute that if the village is able to issue bonds, general obligation bonds, that they can do that at lower interest rates than a revenue bond,” Folwell said.

Earlier this month, a village consultant reviewed the authority’s second appraisal of the system, which came in about $2.9 million under the contested first appraisal. Loftis Appraisal Company concluded the second appraisal did not use appropriate methods or contain enough data to support the $48 million total price tag for the assets.

Folwell suggested the family influenced the selection of consultants that ultimately led to the valuation –– a claim authority representatives say is untrue (Limited infused the authority with seed funding to pursue the purchase but authority members, including island residents, independently selected consultants without input from the company, according to the authority’s chair).

Susan Rabon, chair of the authority, countered the insinuation that the materials compiled in preparation for a sale were handpicked by Limited, which has spent more than $1 million trying to prop up a public trust solution, according to the Mitchell letter. “The sellers have had no role in choosing either appraisal,” Rabon said Monday. “They’ve had no influence, no role, and the last one we set up a special committee to interview the three candidates.”

The authority’s appraisal selection subcommittee was prompted by scrutiny of the first appraisal’s value and methodology by the village and LGC, notably drawing condemnation from the treasurer and state auditor. Island residents sat on the authority subcommittee, Rabon said. “We are following up with our appraisal to get any reaction he has,” to the Loftis report, she said.

RELATED: Second appraisal of ferry assets shaves about $3M off value as Bald Head seeks its own bonds

The Mitchell letter apparently tipped another major stakeholder in favor of the authority. 

Bald Head Island’s property owners association weighed in on the messy dilemma, formally asking the mayor to end the village’s campaign as a buyer and instead help aid the state-created authority purchase the system. 

Long a neutral stakeholder in this year’s tumult, the Bald Head Association leaders concluded the delays and drama aren’t worth the proposed savings. “We have hit a critical point where the risks outweigh the rewards and a drawn-out process could likely gain minimal to no benefit for all riders and property owners,” the association leaders wrote. 

In the business world, officials could litigate the debacle for years, and “treat it like a chess game,” they wrote. But ensuring a secure transportation system to the island isn’t a game, they wrote –– it’s their life. “This is our little paradise that we have worked all our lives to reach,” they wrote. 

To date, the village has spent $97,000 and counting on consultants studying the feasibility of its proposed deal so far, with several invoices forthcoming, according to the village’s spokesperson. 

Catch up on past PCD reporting on the topic:

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

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