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Lafayette, La., considering offer from Bernhard Capital to manage utility

Lafayette Utilities System LLC, the municipal utility serving Louisiana's fourth-largest city, is considering an offer by NextGEN Utility Systems, an affiliate of private equity investor Bernhard Capital Partners Management LP, to manage its electric, water and sewer operations.

The proposal was delivered Oct. 5 to the Lafayette City-Parish Council office, according to reporting by The Daily Advertiser newspaper. NextGen representatives are scheduled to explain the offer at an Oct. 10 meeting.

Under the proposal, Lafayette Utilities Systems, or LUS, and NextGen would enter into a 40-year cooperative endeavor agreement. Ownership of LUS would remain with the city and the Lafayette Public Utilities Authority.

NextGEN in its Oct. 5 proposal offered to pay the city $140 million in upfront cash and assume $184 million of LUS debt, according to The Daily Advertiser. That offer is lower than the $246 million in cash and assumption of $216 million in debt offered several months earlier.

NextGEN reportedly said the reduction in upfront cash is because the company will continue making payments from LUS to the City of Lafayette in lieu of taxes and would cut electric rates by 10% for the first three years of the cooperative endeavor agreement. Additionally, LUS has reduced its revenue forecast by $28 million and increased projected capital expenditures.

After fielding interest from several parties earlier in 2018, Joel Robideaux, the mayor-president of Lafayette, reversed course and confirmed in July that the local utility is not for sale, saying the city would have to receive an offer "far, far above fair market value" to consider a deal.

An economic analysis of NextGEN's most recent offer by Louisiana State University professor James Richardson valued the proposal as benefiting Lafayette by $1.3 billion to $4.1 billion.

Under the offer, NextGEN will undertake strategic initiatives and present a proposal in 2021 for new electric rates, which may extend the lower rates beyond 2021. Water and wastewater rates will be set based on projections from a city consulting engineer.

If NextGEN can grow LUS revenues by more than 2.1% annually, it would share half the profits with the city.

Additionally, Bernhard would build a new, $8 million corporate headquarters for NextGen, which reportedly aims to acquire utility systems across the southeast.