* Claims improper interference by Department of
* Scaled back application to $340 million from $470 million
* Lawsuit filed amidst heated political debate on private
By Greg Roumeliotis
NEW YORK, July 17 A shipping company owned by
the world's largest private equity firm filed a lawsuit against
the U.S. 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
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
"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 Aug. 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 Aug. 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 Aug. 31. It also asks the
court to declare that the Credit Council has no role in the
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
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.