Overview

Throughout our history, we have built and maintained a successful track record of sourcing, closing, managing and realizing controlling or influential minority investments in strategic infrastructure assets and businesses. Within our portfolios we seek to create a synergistic combination of contracted assets and GDP related businesses that have achievable upside potential and sustainable downside protection. In this regard, we believe we are particularly adept at spotting and harvesting ‘hidden value’ and growth potential in the investments we make, while always implementing best practices around risk management.

Highstar has consistently sourced and executed investments that we believe combine our value-added operational focus and expertise with a clear strategic vision and risk-management discipline, including the avoidance of investments primarily reliant on ‘financial engineering’ to generate results. We target superior, risk-adjusted returns to our investors. This approach has been the foundation of our investment success, and we expect it to be going forward. Collapse

Investment Strategy

Highstar makes controlling or influential minority investments for its funds in core, strategic infrastructure assets with achievable upside potential and sustainable downside protection. Specifically, we target investments where we see the potential to add significant value, principally through our operational, managerial, industry, risk management and financial experience and expertise. At the same time, we understand that infrastructure investments are subject to a number of risks which necessitate a specialized understanding to price, manage and harvest successful returns. With over a decade of experience investing in infrastructure, Highstar has developed a deep comprehension of the infrastructure asset class’ risk parameters and profile. Read Full

Our strategies for identifying and creating achievable upside potential and value include: (i) sourcing, developing, managing, motivating and empowering best-in-class management teams, (ii) identifying and executing operating efficiencies and costs discipline, and (iii) creating platform opportunities through accretive acquisitions.

We achieve sustainable downside protection and risk mitigation by acquiring businesses that offer an accretive combination of (i) contracted / regulated or stable cash flows, (ii) cost pass-through/inflation mitigation, (iii) long life, well positioned, core strategic assets fundamental to economic sustainability and growth, (iv) high barriers to entry, and (v) long standing, entrenched customer relationships and high services levels.

Our Competitive Advantage

How We Add Value

We target investments where we see the potential to add significant value, principally through our operational, managerial, industry, risk management and financial experience and expertise. We view investment opportunities through an operational lens, indentifying key value enhancing initiatives in due diligence and implementing them directly throughout the course of ownership. Read Full

For each of our investments, we seek to develop and implement a clear execution strategy, including well articulated goals, a defined timeline for success and measurable performance standards. In addition, we typically avoid investment opportunities that: (i) rely principally on financial engineering to achieve returns, or (ii) are low-growth annuity assets like toll roads, where we see little opportunity for operational value-add. We believe our track record demonstrates the effectiveness of this strategy as we have executed initiatives that have grown EBITDA by over 35% in our realized investments during the Highstar Funds ownership of these businesses.

The key components of our value creation strategy include:

Proactive Governance and Portfolio Company Direction

At Highstar, corporate governance means active leadership and management of each of our portfolio companies. Directors of our portfolio companies are encouraged to think both defensively about risk and compliance, and offensively about where to lead and add value. Our Partners and Senior Advisors have held senior executive positions with a number of infrastructure companies, including six of our portfolio companies. We have also historically always been a lead investor or an influential minority investor, actively participating on the boards of all of our portfolio companies. This approach ensures we can direct key operational and strategic decisions affecting our investments. We take a hands-on approach to governance through proactive leadership of our Portfolio Company management teams, and direct their performance by targeting key strategic, operational and financial drivers that we believe will materially enhance a business growth trajectory and cash flow.

Superior Deal Underwriting and Closing Skills

We believe that we enjoy a reputation as a well known market leader and first-mover in infrastructure investing with a long-standing reputation as both a sophisticated investor and effective closer. Our strengths include: (i) understanding, pricing and managing risk, (ii) using the results of our due diligence, risk assessment and industry knowledge to negotiate competitive acquisition agreements, and (iii) delivering closing certainty to sellers. We believe these attributes provide potential sellers with a strong motivation to transact with us, even in instances where we may not offer the highest price.

Regulatory Expertise

Building and sustaining value in regulated businesses requires specialized expertise and a high degree of credibility with regulators. We believe that Highstars credibility and experience investing in and managing regulated assets is a key differentiating factor and competitive advantage, and enables us to identify and create superior value. For example, we believe that we were the first financial buyer to successfully close on the acquisition of a regulated interstate natural gas pipeline (Southern Star) and a major regulated water and wastewater business (Utilities, Inc.) in the US.

Platform Building and Roll-up Expertise

We believe that our carefully developed blend of operational and financial expertise enables us to proactively identify and execute investment opportunities that may be further optimized through the execution of roll-ups, tuck-ins or other strategic add-ons. For example, the Ports America Companies, a roll-up of two large port operators, is now the largest independent marine terminal operator in the US. Similarly, in creating Highstars waste management platform, Star Atlantic, we have made 30 tuck-in acquisitions since acquiring the base businesses in 2005 and 2006. We view these platforms as an opportunity to enhance the strategic position and value of our businesses as well as to create economies of scale.

Capital Structure Expertise

We have significant experience executing a variety of levered and unlevered investment strategies. For each of our investments, we explore a number of financing alternatives to determine the optimal capital structure. Where we deploy debt, we devote significant time and attention to find what we believe is the right balance between: (i) the greater financial risk that comes with using debt, and (ii) the benefit of lowering a portfolio companys weighted average cost of capital through the use of debt. We size our debt based on what we see as reasonably foreseeable downside scenarios and we seek to mitigate interest rate and currency risks through the use of hedging strategies. We select our method of financing based on a number of factors, principally: (i) sizing, tenor, pricing, covenants and other key terms, (ii) flexibility to grow, and (iii) ability to meet working capital and other liquidity requirements. Three of Highstars Partners had significant banking experience prior to joining Highstar, and our Managing Partner, Christopher Lee, who spent many years as a commercial banker with strong credit and workout experience, has fostered a deep credit culture within Highstar. Collapse