Canadian Bank Plays Big Role in Keystone Pipeline, Oakland Coal Terminal

Although “Bank of Montreal” is hardly a household name in the U.S., Bank of Montreal is now playing an outsized role in efforts to build Oakland’s proposed coal terminal as well as the Keystone XL Pipeline newly revived by Trump Administration proclamation.

The Canadian bank’s role in arranging financing for developer Phil Tagami’s coal terminal was first dissected over a year ago in No Coal in Oakland’s earlier post, “Coal’s Frontmen in Oakland: Who Owns TLS?”  The article revealed how Jeffrey Holt, a Bank of Montreal investment banker stationed in Utah, orchestrated the deal that would provide $50 million of Utah public money and $200 million of private funds (most likely from pension funds) to fund developer Phil Tagami’s construction of a coal terminal.

Bank of Montreal has become a major player in other efforts to expand fossil fuel infrastructure in the United States, notably the oil industry’s signature Keystone XL project.  Bank of Montreal, one of the “Big Five” banks in Canada, and JP Morgan Chase, the largest bank in the United States, are the lead banks arranging credit for construction of the KXL.

TransCanada, the company building the pipeline, depends on the support of banks to complete the massive project to bring tar-sands oil from Northern Alberta to the Gulf of Mexico. Twenty-one financial institutions currently serve as TransCanada’s ATM, offering over $5 billion in revolving credit to its pipeline business in three loans that were each updated this past December.

Banker targets Oakland for coal terminal

Jeffrey Holt’s personal background provides some clues as to how a Bank of Montreal agent became the wheeler-dealer behind the plan to construct a coal terminal in Oakland.  Before working for Bank of Montreal, Jeffrey Holt worked in the San Francisco offices of Goldman Sachs where he focused on financing West Coast ports among other things.

As East Bay journalist Darwin Bond-Graham reported in 2012, Holt is considered an expert on privatization of infrastructure through specialized private investment funds such as the one he oversaw at Goldman Sachs.  Upon leaving Goldman in 2008, Holt moved to Utah and became a managing director at the Bank of Montreal as well as chairman of the Utah Transportation Commission.

Until the end of 2012, Jeffrey Holt was both Bank of Montreal’s managing director in Utah and, for seven years, Utah’s commissioner of transportation.  While holding both of these positions, he became the adviser of the four Utah coal mining counties that became the public front for the effort of Bowie Resource Partners (a coal-mining company) to export Utah coal to Asia through a new marine terminal planned for Oakland.

Tagami had assured Oakland in December 2013 that rumors of a plan to ship coal through Tagami’s proposed Oakland Bulk and Oversized Terminal (OBOT) were unfounded but, it appears that, at some point in 2014, he and Holt worked out the broad outlines of a 66-year deal to ship coal from four Utah counties through the new terminal to be built near the Bay Bridge toll plaza.

“The script was to downplay coal.”

Bowie’s targeting of Oakland was supposed to be kept under the radar.  “The script,” dealmaker Jeffrey Holt wrote in an email to Utah government officials and others, “was to downplay coal.”  But in April 2015, the plan to turn the former Oakland Army Base into the largest coal export facility on the West Coast burst into public view when the Utah Community Impact Board approved a $53 million loan of public funds to four Utah counties for investment in the OBOT.  The Community Impact Board disburses rebates of royalties from mining on federal lands to county and local governments for projects to mitigate the impacts of the mining activities within their borders.

Enough details emerged of the deal to evoke an immediate uproar in Oakland.  Environmental groups quickly built an alliance with labor, faith, economic justice, and other community groups to demand that the City Council consider a ban on coal, and, in September 2015, the Council held a public hearing on health and safety impacts of coal exports, a step required before the City Council could pass an ordinance banning coal exports.

Meanwhile, energy industry analysts questioned why anyone would want to invest in a coal export terminal at a time when demand for coal is slumping and foreign countries are aiming to reduce coal use in order to cope with air pollution and climate risks.

In September 2015, Tom Sanzillo of the Institute for Energy Economics and Financial Analysis prepared a comprehensive analysis of the economics of the coal exports project that was submitted by Earthjustice at the Oakland City Council’s s public hearing in September 2015. Sanzillo’s analysis explored everything that was publicly known about the financial aspects of the proposal to ship coal through Oakland, as well the economics of the coal industry, and concluded that, “[f]rom Day One, the coal component of the [Oakland Army Base] project will be a financial drain on the City of Oakland, and will remain so for the foreseeable future.”

Sanzillo analyzed published reports and emails that revealed many aspects of the transaction, but noted that, the published minutes and public records disclosed by the State of Utah did not “provide details of the actual legal structure of the transaction, including how the funds would be transferred from the State of Utah or its counties to the Oakland Army Base, City of Oakland, Port of Oakland, the developer (CCIG) or any other party.”

“Investing in a coal terminal is like building a stateroom on the Titanic after it hits the iceberg,” said Clark Williams-Derry, director of energy finance at the Seattle-based think tank Sightline Institute.

Email to county officials reveals plan

The financial details of the coal export plan remained somewhat opaque.  Documents obtained through a government record act request–an email dated March 25, 2015, from Jeffrey Holt to numerous public officials in Utah–appears to fill in some of the gaps.  Attachments to Holt’s email suggest that Terminal Logistic Solutions (TLS), the proposed operator of OBOT and an entity with no track record of ever having run anything, was conceived by Holt more as a tool of Bowie—a local front for the coal company—rather than a truly independent Oakland-based entity.

The plan is outlined in one of the attachments to Holt’s email, a “Preliminary Term Sheet” for the multi-commodity bulk export terminal to be built in Oakland.  The term sheet states, “TLS will be created as part of the business arrangement between the [four Utah] Counties, Bowie, and any other users [of OBOT] that can be contracted ahead of time, and will own a 66-year operating concession on the terminal from the City of Oakland.”

The term sheet also included the following points:

• The Oakland terminal would cost a total of $275 million dollars.
• Bowie would “contribute throughput guarantees sufficient to secure $200 million in (unrated) project debt” from pension funds, in exchange for which Bowie would be “the Series A shareholder,” a status implying that Bowie would hold valuable shares in TLS while the pension funds who contributed most of the money would own none.
• The four counties would pay in $50 million and receive preferred (i.e., nonvoting) shares that would pay quarterly returns out of TLS profits.
• The remaining $25 million would come “from local California sources (for site prep and some waterfront infrastructure).” There is no mention of any equity in exchange for this contribution and it is not clear whether this refers to private or government money.

After No Coal in Oakland published its original report on Holt’s plan to create TLS as part of the “business arrangement” between the Utah Counties and Bowie, Bowie’s executive chairman John Siegel confirmed that Bowie “has a vested interest in” TLS.  See Brian Maffly, Proponents buried coal’s role in Oakland export terminal; now questions remain (Salt Lake Tribune, March 27, 2016).   The Tribune also reported that, besides the State of Utah, no other investors in the $275 million terminal are known.  According to the Tribune, BMO Capital Markets “is seeking $200 million from private investors, and is marketing the opportunity to pension funds.”  In an earlier story, the Tribune reported that Carbon County Commissioner Jae Potter, a key proponent of Utah’s investment in the Oakland coal export scheme, confirmed that BMO is “packaging the needed $200 million in private investment as unrated debt to be sold to pension funds.”  See Brian Maffly, Utah’s coal-export deal still faces high hurdles (Salt Lake Tribune, March 18, 2016).

Coal’s proponents in Oakland have never identified any investors who would back their scheme to build a dedicated coal export facility other than the State of Utah.  So far most of the money that would fund the terminal is unaccounted for.  The State of Utah, against its people’s wishes, agreed to chip in $50 million, but, by the developer’s estimates, the coal terminal will cost over $250 million to build, leaving the $200 million funding gap.  In accord with reports from the Salt Tribune, a presentation by the coal scheme’s advocates to a Utah government body, “[t]he remaining $200 million required to complete the terminal will come from third-party lenders, likely one or more North American pension funds.”

Raising money for coal

Pension fund experts have told No Coal in Oakland that the most likely way the $200 million investment in the Oakland coal terminal could be marketed to pension funds would be by a consortium of banks creating a multi-billion dollar infrastructure private debt investment fund that would appeal to pension funds eager to obtain better returns than stocks and bonds are predicted to offer over the next decade.  The contributors would put their money in and the bankers would then decide how to invest it.  Bankers make money off the investors regardless of whether the funds are successful.

At a time when the phrase “infrastructure investment” appears to suggest a sure thing, truth in advertising may be the first casualty.  The term sheet cheerily describes the Oakland terminal as “(almost?) fully permitted,” explaining that it “requires permits from the City of Oakland which are ‘administrative’ only,” an apparent reference to building permits.  The author of the Preliminary Term Sheet appears to be Holt himself.  In a second email attachment, a March 25, 2015 memorandum that accompanies the term sheet, Holt identifies himself as the “Strategic Infrastructure Advisor” to the four coal counties that were to obtain the money for their investment in TLS through a loan administered by Utah’s Community Impact Board.

But Holt’s role appears to go far beyond providing “strategic advice” to the four counties.  Holt is an investment banker and managing director of BMO Capital Markets Inc., the investment banking arm of Canada’s Bank of Montreal, and had been serving as chairman of Utah’s Transportation Commission since 2009.  His bank could earn fees advising the counties, more fees putting together the deal for Bowie, more fees from a related rail project, and yet more fees from providing third-party investors with the opportunity to lend their money to TLS.

In December 2015, Holt abruptly resigned from the Utah Transportation Commission and moved his family from Utah to New York but he is presumably still hoping to close the deal.  Meanwhile, the identity of the pension funds he was planning to line up for the $200 million investment is unknown. Given Holt’s role working for BMO Capital, it appears likely that BMO Capital stands to get a cut of any deal to fund the West Gateway terminal.

No Coal in Oakland is launching a new campaign to warn pension funds to be wary of proposed investments in black box infrastructure funds and demand that their financial advisors reveal the specific projects to which their money may be loaned.  If pension trustees insist on answers, they may be surprised to learn that a poor investment like the Oakland Bulk and Oversized Terminal may be hiding in a package with a glamorous title and joint marketing by some of North America’s biggest banks.

 

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