Private equity-owned firm alleges government discrimination
NEW YORK (Reuters) - A shipping company owned by the world's largest private equity firm filed a lawsuit against the Department of Transportation on Tuesday alleging its application for financing support was being held up on purpose due to its ownership.
American Petroleum Tankers LLC (APT), which transports refined petroleum products between ports in the United States and is controlled by The Blackstone Group LP, claims it is being discriminated against because of its private equity ownership.
APT's lawsuit does not speculate on why a private equity connection would be an issue for the government. But the lawsuit comes at a time in which the industry has been thrust into the political spotlight as Republican presidential hopeful Mitt Romney defends his record as chief of Bain Capital LLC from attacks by President Barack Obama's campaign.
In its lawsuit, APT accuses Secretary of Transportation Ray LaHood, the lone Republican in the Obama Cabinet, of "unlawful interference" and the Department of Transportation Credit Council, mostly consisting of Obama appointees, of stalling its application that has been pending for 23 months.
Department of Transportation officials did not immediately respond to a request for comment. Blackstone declined to comment.
"We have been told that our ownership is a problem, that is the primary issue. It certainly appears to be coming from the Department of Transportation. We tried to do everything possible to make this application as attractive and as less risky as we can," APT CEO Robert Kurz told Reuters in an interview.
The Plymouth Meeting, Pennsylvania-based company applied for $470 million of loan guarantees with the Maritime Administration (MarAd) on August 31, 2010 to refinance debt it took on to construct five petroleum tankers.
In its complaint filed on Tuesday in a Washington D.C. court, APT alleges that LaHood violated statute by asking MarAd to seek the recommendation on the application of the Credit Council, which oversees his department's credit programs.
APT claims the Credit Council has to date not endorsed APT's application, based "primarily on the fact that APT is owned by investment funds managed by private equity firms" rather than the merits of its application.
Dominated by Obama appointees, the nine-member Credit Council includes Brandon Neal, a former fundraiser for Obama for America, and Federal Highway Administrator Victor Mendez, a member of Obama's presidential transition team.
MarAd informed APT that its application was complete in December 2010 but in May 2011 agreed to an extension of the process, from 270 days to a two-year time frame, due to delays caused by concerns over the shipping company's ownership, APT said in its complaint.
To boost its chances, APT scaled back its loan guarantee claim, first to $400 million and then to $340 million. This meant APT ended up applying for only 51.2 percent of the costs of its tankers, well below the average 83 percent for applications over the past decade, the company said.
Kurz, in a written declaration to the court, also said that he ended a meeting with Deputy Secretary of Transportation John Porcari, a Democrat, in September 2011 on the understanding that concerns about the company's ownership had been resolved.
But in April 2012, Maritime Administrator David Matsuda told APT that, while he supported its claim, applications for loan guarantees were being given more scrutiny in the aftermath of the Solyndra loan default and that the private equity ownership issue had resurfaced, APT said.
Solar module maker Solyndra, which received $535 million in federal loan guarantees and had private equity backing, filed for bankruptcy last year as it succumbed to pressure from Chinese rivals amid allegations the White House had pushed for the loans to reward its political supporters.
Although the deadline for the Department of Transport to approve or reject APT's application is August 31, the company filed a lawsuit on Tuesday because it thought it was possible that it would not have received an outcome on its application by then, Kurz said.
"We can secure long-term (federal ship financing) guaranteed debt at a very low rate, it just makes us so much more competitive. It would give us a platform to do other things in the industry," Kurz told Reuters. He was never informed by the Department of Transportation in writing that private equity ownership was an issue, only in oral communications, he added.
In its complaint, APT asks the court to prohibit LaHood from interfering with MarAd's consideration of APT's application and direct Matsuda to make a decision by August 31. It also asks the court to declare that the Credit Council has no role in the application process.
New-York based Blackstone took over American Petroleum Tankers in 2006 in a $500 million deal. Blackstone's CEO Stephen Schwarzman is a major Romney backer while his No. 2, Blackstone's President Tony James, is an Obama supporter.
Obama has accused Romney of being responsible for the firing of workers and bankruptcies of companies during his tenure at Bain.
He and most other Democrats in Washington also favor lifting the levy on carried interest, a cut of private equity profits going to fund managers, which is now taxed at the 15 percent capital gains rate rather than the top 35 percent rate applied to wages or salary.