Bloomberg News

Pennsylvania Hires Greenhill to Weigh Sale of State Assets

December 07, 2011

(Updates with Moody’s comment in fourth paragraph.)

Dec. 5 (Bloomberg) -- Pennsylvania hired investment bank Greenhill & Co. to help convert government assets and services into cash as states try to plug at least $40 billion in deficits next year by selling toll roads or turning over lotteries to contractors.

The New York-based firm employs Republican Governor Tom Corbett’s Democratic predecessor, Ed Rendell, as well as a banker who advised the state during Rendell’s unsuccessful effort to sell the Pennsylvania Turnpike in 2008.

Greenhill will review all Pennsylvania functions and services except the liquor system, according to the state’s request for companies to submit proposals. Parks and prison health care might be run privately, Corbett has said.

“State governments’ interest in privatizing crown jewel infrastructure assets has been a growing trend for years,” said Moody’s Investors Service analysts led by senior credit officer Richard Donner in a report today. “But the benefit of a one- time cash infusion for road and highway capital improvements is partly offset by the often politically unpopular decision.”

Now on Sale

Ohio on Nov. 22 hired KPMG LLP to advise it how to tap the Ohio Turnpike to generate money for highway and bridge projects. Philadelphia hired Lazard Ltd. last year to consider a sale of its gas works, and Ohio State University this year engaged Morgan Stanley to seek buyers for its parking system. New York City turned to Greenhill to consider options for office-space and parking assets, according to a report from cityhallnews.com.

The compensation for Greenhill, hired Nov. 30, won’t exceed $150,000 for three months, and pay for any future work hasn’t been set, said Eric Shirk, a spokesman for Corbett. Greenhill may negotiate deals on the state’s behalf.

Corbett formed an advisory council on the matter in September, saying companies may perform government activities while costing taxpayers less.

Consultant Public Financial Management, a unit of Philadelphia-based PFM Group, separately evaluated Pennsylvania’s liquor operations. In October, PFM estimated in a report that selling wholesale and retail liquor licenses for $1.6 billion may help close $29 billion in unfunded pension liabilities or help pay to improve infrastructure.

Nothing Doing

Greenhill’s effort is led by banker Robert Collins. While at Morgan Stanley in 2008, Collins advised Pennsylvania on an attempt to sell the Turnpike to investors for an upfront payment of $12.8 billion. Rendell championed the proposal, which failed to win support from state lawmakers.

Rendell left office at the end of 2010 because of term limits. This year he became a part-time adviser at Greenhill, assigned to boost the company’s services for governments.

In Ohio, options include leasing the 241-mile (388- kilometer) toll road, creating a partially private operation and selling bonds backed by toll revenue, according to the administration of Governor John Kasich. Private operations would boost the creditworthiness of the outstanding $600 million in bonds, Moody’s said. The turnpike, rated Aa3, the fourth-highest in Moody’s scale, is one of the largest and highest-rated toll roads in the U.S., the report said.

--With assistance from Mark Niquette in Columbus. Editors: Stephen Merelman, Mark Schoifet

To contact the reporters on this story: Romy Varghese in Philadelphia at rvarghese8@bloomberg.net; Zachary Mider in New York at zmider1@bloomberg.net.

To contact the editors responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net; Jennifer Sondag at jsondag@bloomberg.net


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