“We
have been at this thing for five very long, grueling years. We haven’t quit on
this project or this community, and we’re not about to quit now.” CATS founder
Dominick Delucia is determined to find a recovery plan for the ferry that CATS
and the city can approve. In his mind, ferry service should be resumed as “an
open, honest public-private partnership.” And he wants the private portion of
that equation to be filled by CATS.

In
a discussion with City Newspaper following the city’s proposal to restart ferry service, Delucia acknowledged
the criticism CATS has faced since abruptly terminating service in September.
But he doesn’t agree with it.

“There’s
been a certain very subtle undercurrent that CATS management let some things
slip,” said Delucia, who is a principal of CATS but says he is not part of the
company’s management. “But, look, talking from an equity-holder’s standpoint,
if there was something wrong with CATS management, nobody has a bigger
incentive than me to say something negative. Those guys have worked night and
day to try and get this thing done and get the problems solved. And they’ve
done an unbelievable job.”

Factors
outside of CATS’ control — 9/11, the SARS outbreak, the train crash in
Charlotte, the ferry crash in New York, wildly escalating fuel costs, and
problems getting approval for transporting commercial trucks — led to the
shutdown of service, he said. “Remember: This was a startup company,” he said.
“This had never been done here before.”

In
his interview with City, Delucia
discussed CATS’ efforts to procure more private funding for the ferry project.
He also talked about the proposals for resuming ferry service that CATS made to
its lenders. An edited version of that discussion follows.

City: You say you want to come to some mutually agreeable recovery
plan for the ferry. Practically speaking, what needs to occur over the next few
weeks for that to happen?

Delucia: CATS and the
City of Rochester need to get a plan that they can both agree to. Until that
happens, it can’t go anywhere.

City: You had been meeting right up to Thursday morning [November
18], just before the mayor’s announcement.

Delucia: Yeah. The good
news is that we’re talking. We’re still talking. And we’re still trying to find
that elusive, mutually acceptable way to work through this thing.

City:The way it’s playing in the public, I’m not
sure people can believe you guys are still talking. Seems you’re in opposition
right now.

Delucia: You know, I
can’t go there. I apologize, but I just can’t get into that right now.

CATS
and the city

City: What’s your opinion of the city’s business plan… the idea
that the revenue from the ferry will be enough over 15 years to pay off the
bondholders?

Delucia: I think we
agree with much of Bill Johnson’s plan. But remember how the federal government
helped the airlines recover after 9/11. The government is protected by having a
good slug of the stock or equity in the company. But you don’t make the company
an ink spot.

If
the city thought they could draw upon some expertise to run the business better
— even though I don’t think it was run poorly — we’re open to having
anybody help.

City: The city is saying the new authority might hire an
independent management firm to handle ferry operations.

Delucia: To even make
the implication that there would be a different private company that would
manage it is, frankly, deeply offensive to me and, I’m sure, to CATS
management. We can point to more than a handful of millions of dollars that
affected this organization that were completely beyond our control. Here’s a
simple fact: Approximately 140,000 people rode this boat in essentially two
months. The vast majority of those people got off that boat happy and excited.
That’s what management is all about. And CATS management ran a magnificent boat
and customer-service enterprise.

If
somebody wants to put the equivalent of a state control board over the
enterprise, OK. If that’s what it takes to protect the public investment, we’d
be open to that. And hopefully, that control board would actually add value.

City: Do you think the abrupt termination of service damaged CATS’
reputation as managers of this project?

Delucia: It certainly
didn’t help. But CATS management didn’t have any choice. CATS was out of enough
money to run this thing properly. We also had creditors breathing down our
neck, all this back debt. One of the things we feared was, if we go on one more
run to Canada, what if somebody places a lien on the boat in Canada, where the
laws are different than they are in the US?

What
a lot of people don’t understand is that we were trying to do what was best for
everyone involved in this project, to protect the state’s investment and the
city’s investment. Because if that boat has a lien put on it in Canada, it
could be a different game.

How
urgent?

City: There’s a time element to all this now. According to the
mayor, EFIC has considered selling the boat on the open market. If CATS is
still trying to come up with another arrangement, how much longer do you think
EFIC will be willing to put up with this?

Delucia: I think EFIC
does want to work with us to keep the boat in Rochester. And all I can say is
that I think the city and CATS will probably have to agree to disagree with
EFIC’s timeline. That’s not to say we don’t need to urgently work together. But
I don’t think the urgency is necessarily caused by EFIC. The urgency is to work
together to make sure that service is running properly by this spring.

Unfortunately,
we were attempting to recapitalize CATS for roughly a month and a half before
shutdown.

City: With private money?

Delucia: Yes. The deal
fell apart literally on the morning of the Tuesday after Labor Day. So we knew
that if we were going to have to shut down, the best thing to do would be to
talk about it a week in advance, to give our guests the chance to understand
what was going on. But right at the end, things fell apart. There was truly no
choice.

City: You’ve been trying to gather private investment for the
ferry since shutdown as well. What happened with that?

Delucia: We quickly
zeroed in on one particular group of investors. The senior lenders [EFIC] were
requiring a credit enhancement of some sort: some way to take an amount of risk
off the table for them. They didn’t care where that money came from. They were
looking for $4 million in new equity and $6 million in credit enhancement to be
provided by some party. It could have been anybody in the capital structure. It
could have been Austal Ships, the State of New York, City of Rochester, other
private investors….

We
also wanted to have a discussion around Video Lottery Terminals at the Port of
Rochester, and the land development at the port as well.

City: And these were all deal breakers as far as the mayor is
concerned.

Delucia: Yeah, but you
know, I’m not quite sure why. We’ve been working with the city for the better
part of four years. Charlotte Harbor Group [a development group that shares
some partners with CATS] has been working with the city for more than four
years. Charlotte Harbor Group won that through a very legitimate RFP and
bidding process. So why that would come off the table is a little strange.
We’ve also been talking about the VLT issue for quite some time. And why we
couldn’t continue to have that discussion strikes me as odd as well.

This article appears in Nov 24-30, 2004.