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Blackstone, Cerberus invest in shipping venture

The two firms have invested $430 million in a $500 million joint venture with US Shipping Partners.

The Blackstone Group and Cerberus Capital Management have teamed up with marine transportation services provider US Shipping Partners in a joint venture to build deep-water tankers for the domestic energy market.

The New York-based private equity firms have contributed $430 million (€336 million) of the $500 million joint venture, including $105 million of equity and $325 million of senior debt, according to reports. The investment will give the firms a combined 60 percent stake in the venture, and Blackstone will own 75 percent of that investment.

US Shipping Partners has raised approximately $527.5 million in a separate committed financing, which it will use to invest $70 million of equity for the remaining 40 percent interest in the venture. That financing was led by Lehman Brothers and CIBC World Markets.

The publicly traded shipping giant, based in Edison, New Jersey, provides long-haul transportation services for refined petroleum products traveling around the US coast. The company’s new venture will finance the construction of nine double-hulled vessels over the next seven years. The order is one of the largest of its kind in US history.

The company had received a previous investment from Westport, Connecticut private equity firm Sterling Investment Partners. The firm took US Shipping Partners public in November 2004 at $22.25 per common unit. The trading price of the company’s stock has since fallen.

“Our industry is facing significantly shrinking capacity issues due to a confluence of three major factors,” said Paul Gridley, chairman and chief executive officer of US Shipping, in a statement. “The regulatory environment has mandated that the US’s aging single-hull fleet be replaced by 2015; the growing domestic demand for energy has increased the need for a reliable delivery system for petroleum products; and the lack of pipelines in certain areas of the western and southern United States has increased the need for water-borne transportation.”

The move toward double-hulled vessels was brought on by the Oil Pollution Act of 1990, enacted in response to the Exxon Valdez oil spill the year before. The law requires single-hulled tankers to be phased out of service.

The company said that the addition of the new ships will more than double its capacity and will increase fuel efficiency, resulting in significant cost savings.