BCFS Finances - $lightly $implified

Part 1 Privatization

On April 1st, 2003, the Crown owned British Columbia Ferry Corporation was transformed.

First, Ferry Terminals - berths, crown land, foreshore, water lots and parking lots - were all transferred to BC Transportation Financing Authority, a Crown holding company holding provincial highway assets and lands.

In exchange, BCTFA gave BC Ferries a promissory note for $330 million dollars, which was immediately handed back to prepay a 60-year lease on these terminals.

Ferries, now a paid-up tenant, was still responsible for taxes, insurance and maintenance

. Swarz Bay

The Coastal Ferry Act
then legislated
BC Ferry Corporation out of existence.

Enter BC Ferry Services, Inc.
The newly created BCFS was obliged to buy all the old Ferry Corporation’s remaining assets from the province with a debenture – an IOU - for $427.7 million dollars, due March 31st, 2006.

BCFS also gave the province 75,000 non-voting shares, which pay 8% and are valued at $1000 per share.

Finally, BCFS was given a 60-year Coastal Ferry Services Contract.
Ferries undertook to maintain agreed service levels, at a set price cap . Few of the routes made a profit (and still don't), so the province paid a negotiable service fee

Maximum service fees payable by the province are about $94 million – less the $6 million dividend paid on the government’s shares.

Shell game

On the other hand, BCF forfeited roughly $74 million in annual subsidy from the Provincial Motor Fuel Tax – although the money once allocated to ferries is still being collected by the government.
Part 2 Borrowing
In order to repay the provincial debenture AND finance terminal and ship construction, BCFS was obliged to borrow funds.
First, a Credit Agreement was set up between BCFS and the ‘Big Four’ Canadian banks, for a variety of terms and rates.	Back to Top
Essentially, this was a line of credit for up to $335 million dollars.
plus $250 million dollars (bonds)
The Series 04-1 Bonds were issued. Offered at 5.74% interest per year, they are due for repayment (in full) in 2014.
Proceeds from these two sources were used to pay off the $427.7M owed to the province. The government had thereby completed the ‘privatization’ of BC Ferries by relieving it of nearly half a billion dollars - while still owning it by virtue of holding all the shares.
Both loans and bonds are secured against the same assets: ships, equipment, inventory and terminal leases; plus the Coastal Ferry Service Contract itself.

Which evidently was not enough …
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$710 million dollars - extra collateral
Series 04-2 ‘Senior Secured’ Bonds were also issued, with no maturity date, which pay 25% interest per year if activated.

Which are held by the trustee - Computershare Trust Company of Canada. If BCFS defaults on the debt owed to the banks, then the banks will take possession of these bonds.
Which evidently was still not quite enough …
Because later the same year, another Bond release was announced: “the aggregate principal amount of Series 04-3 Bonds that may be issued is unlimited” at a rate of 25% interest per annum. These bonds are also held by the trustee.	Back to Top

New construction
In September 2004, the BCFS board approved a total budget of $542 million to build three “super-C” Coastal class ferries in Germany.
	Flensburger

And more bonds: another $250 million
In October 2004, Series 04-4 ‘Senior Secured’ Bonds were released, paying 6.25% interest, due in 2034. The proceeds from this issue were used to repay and cancel part of the Credit Agreement.
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So far, we’ve borrowed enough to pay off the province’s $428 million debenture for the BCF assets. Another $542 million is committed to build the new Coastal ships – but not yet spent. In the meantime, that leaves … $227 million.
Throw in some loose change from behind the couch (actually, the ‘major route’ profits, when there are any) and -
Lets go shopping!

2 new boats from the shipyard:
Northern Expedition (Germany) – $133 million ($200 million total project cost.
Island Sky (BC) - $57 million
Plus 2 second hand vessels:
Northern Adventure (ex Sonia - Greece) - $102 million (less $68 million insurance collected for the lost Queen of the North)
MV Kuper (ex Burr - USA) - $12 million
Which comes to $303 million.

And a major “midlife” refit program, covering:

Queen of Coquitlam	$35 million
Queen of Cowichan	$33 million
Queen of Oak Bay	$35 million
Queen of Surrey	$37 million
Queen of Alberni	S38 million
Queen of Nanaimo	$15 million
Spirit of BC	$13 million
Spirit of Vancouver Is	$10 million
Quinsam, Quinitsa & Queen of Capilano	$24 million
Grand refit sub-total	$240 million

The total bill for ships – including those German Super C boats, the other new & used vessels, and major refits to the existing fleet – comes to $1.085 billion.
	Hence yet more bonds - Another $250 million:
In early 2007, the Series 07-01 Bonds appeared – which pay 5.021% interest and are due in 2037. Back to Top
There – that’s got it. Except …
we’ve already spent plenty on those airport-style terminal renovations.


Not to worry. More bonds will do the trick … another $200 million worth:
In January 2008, a new Bond Series was issued, which pays 5.581% interest per annum for a term of 30 years.
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Besides, the Coastal Ferry Act (remember that?) says we must pass on the cost of new ships directly to the passengers. If necessary, by adding a surcharge at the fare box - just like the fuel surcharge.


The debt to 2008 Bonds:
The outstanding bond issue (if we exclude the series held for collateral) now totals: $950 million. Interest on these bonds is $51.6 million per year paid to the banks.
Plus …
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Current bank loans:

KfW, a German export credit bank, will lend $180 million toward the first two German built ships: Coastal Renaissance and Coastal Inspiration
Plus there is $155 million in local bank credit still available.

Together, available bank loans total $335
million.

The score to date:

The outstanding bond issue debt:

$950 million.

The bank loans available:

$335 million.

Total

$1.285 Billion

Part 3 – Who owns BC Ferries?
The province still retains its shares valued at $75 million and paying 8% per year. So – you and I own BC Ferries. but …
There is one other share - a single, voting share which was given to the newly created BC Ferry Authority, which thereby controls BCFS through its Board of Directors (which coincidently shares 9 members with BCFS).
The Authority must follow the terms of the Coastal Ferry Act and of the Service Contract. This is overseen by a government appointed Commissioner. but …
If something goes wrong, and BC Ferries defaults on repayment of its loans …
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the banks are entitled to recover their money.

All loans and bonds are backed by BCFS assets, and by the $710M (plus) reserve bonds … which are also backed by the same BCFS assets. From there it is apt to get a bit messy…
	Photo by Chris Cornwell
Photo by Sean Goerzen