Aker Philadelphia Shipyard, Inc. (APSI), the sole operating subsidiary of Aker Philadelphia Shipyard ASA (Oslo: AKPS), announced today that the Commonwealth of Pennsylvania has agreed to partner with the shipyard and to fund the purchase of certain fixed assets from APSI for a purchase price of $42 million. APSI plans to use the proceeds from the asset sale, together with a combination of construction period financing to be arranged with private lenders and its own available funds, to finance the construction of two newbuild tankers. The vessels would be the seventeenth and eighteenth vessels constructed at the yard. The Commonwealth's approval makes effective a tentative agreement between APSI and the Philadelphia Shipyard Development Corporation.
The transactions contemplated by today's greement are expected to close in March, subject to customary closing conditions as disclosed in the January release.
To further support continuing operations of APSI, the Philadelphia Metal Trades Council, which represents 11 unions at the shipyard, ratified a new collective bargaining agreement on January 18, 2011. This new labor contract will extend until January 31, 2015.
The shipyard has already begun preliminary production activities on Ship 17. It anticipates the acceleration of those activities in the coming weeks so long as sufficient progress is made towards the closing of the transactions contemplated by the Agreement.
A press release put out by the Philadelphia Shipyard Development Corporation says that the Commonwealth will invest $42 million in capital funds to acquire all of the existing capital assets of the Aker Philadelphia Shipyard, which were originally purchased by APSI over the last 10 years. The City of Philadelphia also will agree to temporarily defer $8 million in tax settlement payments due from APSI. In return, APSI will commit $210 million to complete the project through private investment -- both its own equity and through private financing -- and to guarantee the completion of the seventeenth and eighteenth ships"The Commonwealth is purchasing the remaining assets of the Shipyard, which have significant value regardless of whether APSI remains in Philadelphia or not," said Manuel N. Stamatakis, chairman of the Philadelphia Shipyard Development Corporation, which owns the site. "Taxpayers are getting full value for their participation, and this transaction preserves shipbuilding and the thousands of jobs that are connected to it directly and indirectly."
Mr. Stamatakis noted that the Commonwealth's approval of the transaction authorizes the parties to proceed to the next step in the transaction, which requires the completion of certain conditions by APSI before taxpayer funds are disbursed. The conditions, designed to safeguard the public's investment, include evidence that APSI has secured all of its remaining financing requirements, that at least $50 million of its working capital is in place, and that it has spent at least $40 million on Ship 17. Only then can it request the first installment of $21 million from the Commonwealth.
Mr. Stamatakis said that without the new partnership, the shipyard would have faced almost certain closure within the next 90 days. Nearly 700 workers have been laid off over the last six months.
In support of the transaction, a recent economic impact analysis prepared by the Philadelphia Industrial Development Corporation concludes that the Commonwealth's investment is well within the acceptable standards for public economic development. The study also concludes that if the shipyard can successfully bridge the gap to complete the construction of Ships 19 and 20, the Commonwealth and the City would recapture their investment in five years and enjoy a net benefit of $8.5 million.
"We are delighted to join forces with the Commonwealth in this expanded partnership to sustain commercial shipbuilding in Philadelphia, and we deeply appreciate the Commonwealth's continued support," said Jim Miller, CEO of APSI. "The forecast for the shipbuilding industry indicates that the demand for new Jones Act ships should increase significantly by 2014. With the construction of Ships 17 and 18, we will be well-positioned to win this and other heavy manufacturing work."
February 17, 2011