PORT OF SEATTLE 
MEMORANDUM 
COMMISSION AGENDA               Item No.      6c 
ACTION ITEM 
Date of Meeting    September 30, 2014 
DATE:    September 25, 2014 
TO:      Tay Yoshitani, Chief Executive Officer 
FROM:   Michael Burke, Director, Leasing and Asset Management
Jasmin Contreras, Property Manager, Leasing and Asset Management
SUBJECT:  LDC Washington LLC New Lease Agreement for the Terminal 86 Grain Facility 
ACTION REQUESTED 
Request Commission authorization for the Chief Executive Officer to execute the following
agreements between the Port and LDC Washington LLC, substantially as drafted: (1) a new 20-
year lease with two 10-year extension options and (2) a Termination Agreement and Release. 
SYNOPSIS 
The grain terminal at the Port's Terminal 86 has been in operation for 46 years under the current
lease agreement, dated March 26, 1968, as amended ("Lease"). The Lease was assigned in 2000
from Cargill to Louis Dreyfus Corporation, a company in Louis Dreyfus Commodities Group. In
2010, as part of its internal reorganization, Louis Dreyfus Corporation assigned the Lease to LD
Commodities Seattle Export Elevator LLC, a subsidiary of Louis Dreyfus Commodities LLC 
(each a company within the Louis Dreyfus Commodities Group)  and Louis Dreyfus
Commodities LLC entered into a guaranty. The new tenant, LDC Washington LLC (formerly
known as Louis Dreyfus Commodities Seattle Export Elevator LLC, hereinafter "Lessee") is also
within the Louis Dreyfus Commodities Group and is an affiliate of Louis Dreyfus Commodities
LLC. Louis Dreyfus Commodities LLC will enter into a guaranty of the new lease, as well. Since
2000, a Louis Dreyfus Commodities entity has actively and successfully marketed and operated
the terminal. 
In 2004, the Lease was amended to change the rental structure where the Port received payment
based upon tonnage volume with a market share component plus base rent. As a result of this
change in how rent is calculated, combined with the ability of the facility to handle large
volumes, financial performance improved for the Port from 2004 to 2012. Under the current
Lease, Lessee has one remaining 5-year option to extend the term of the agreement through
November 15, 2020. 
The proposed new lease will replace Lessee's current Lease, and a Termination Agreement and
Release ("Termination") will be required to provide certain releases upon the terms and
conditions set forth in the Termination agreement, including bringing resolution to an insurance
dispute between the Port and Lessee as described below. 

Template revised May 30, 2013.



COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
September 25, 2014 
Page 2 of 8 
LEASE BACKGROUND 
In an effort to maximize Seaport net operating income by managing and controlling expenses
and shifting all maintenance and capital improvement responsibilities to the leaseholder, the Port
restarted lease negotiations with Lessee for a new long-term lease agreement. To assist with
these negotiations, Port staff procured a property appraisal in 2011 for Terminal 86, which
included a market value opinion based on the continued use of the site as a grain export terminal. 
The 2012 drought, one of the most severe and extensive droughts in at least 25 years, seriously
affected U.S. agriculture and had a strong impact on key commodities. This drought damaged
portions of major field crops in the Midwest, particularly field corn and soybeans.1 The Terminal
86 facility has been handling mostly corn and soybeans; therefore, the terminal had several
months of inactivity and volumes were very low for the 2012/2013 Crop Year (August 2012 to
September 2013). 
The proposed new lease substantially improves the Port's position in the following areas: 
1)  With the new lease, the Port will secure a tenant for the grain terminal for the next 20
to 40 years. The number of ship loading export grain terminals (special use facilities) is
relatively small. The potential market pool of lessees or owners (buyers) of export
facilities is limited due to the handful of multi-national grain trading companies. 
2)  The proposed lease increases the Port's compensation over the existing Lease. The
proposed new lease has a minimum annual rent provision that protects the Port if
volumes decline. The minimum annual guarantee (MAG) amount is equivalent to current
market lease rates for land on a per-square-foot basis. Having a MAG puts the Port in a
better financial position potentially reducing revenue volatility. With the new proposed
lease, the Port receives a MAG equivalent to market rentals for that site (in its current
industrial use). 
3)  The proposed lease clarifies and shifts maintenance,  repair,  and future capitalimprovement
responsibilities from the Port to the tenant for the term of the lease. On
average, the Port's costs for these items over the last 10 years have averaged
approximately $842,000 per year. 
4)  As further described in the Additional Comments section below, the current Lease
agreement has outdated insurance language. The new agreement resolves present and 
future insurance disputes and issues. 



1 United States Department of Agriculture: Economic Research Service, July 26, 2013, http://www.ers.usda.gov/topics/in-the-news/us-drought-
2012-farm-and-food-impacts.aspx

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
September 25, 2014 
Page 3 of 8 
Proposed New Lease vs. Existing Lease Comparison Summary 
Lease Provision             Current Lease                                 Proposed New Lease 
Term        Original term for 20 years with six 5-year     Initial term of 20 years with two 10-year options. 
options (as amended). The current Lease
expires 11/14/2015: tenant has one more 5-
year option to extend term to 11/15/2020. 
Base Rent      Compensation to the Port based on volume    Compensation to the Port based on volume throughput with an Annual
throughput with a low minimum rent        Minimum Rent requirement of $1.8 million, as noted below. 
requirement of $550,000 annually. 
Tonnage Rent   Tonnage fee at a fixed $1/metric ton for higher  Tonnage fee increases by 10% in Year 1 (2014) of the new Lease and provides
volumes. Limited compensation protection to   volume incentives. Future fee increases commence in Year 7 by 2% and will be
the Port in low volume years.               adjusted annually thereafter 
Net Revenue    Average Annual Net cash to the Port is       Average Annual Net cash to the Port approximately $5.8 million/year (assuming
approximately $4.8 million/year (using 2004-    2004-2013 volumes). 
2013 volumes and after capital investments
and expensed repairs). 
Minimum Rent  Minimum export requirement (approx. $1.06   Annual Minimum Rent requirement of $1.8 million protects the Port in the
million) based on percent volumes compared   event of variable volumes. 
to the Ports of Tacoma, Kalama, and Seattle.
This requirement is problematic to administer   This provision will guarantee a market return to the Port on the land value (6%). 
due to the following: 1) requirement is on a
Crop-Year basis (Sept to Oct) and is effective    The Tonnage Rent provides Lessee a discount incentive to run high volumes
the following year, 2) volume information for   through the facility, which would generate additional revenue to the Port. 
one of the grain terminals in Kalama is
proprietary; and 3) the requirement does not
include newer grain facility volumes. 
Rental       The Base Rent increases by CPI every 5 years,   Base Rent and the Minimum Rent increase by CPI, not to exceed 10% every 5-
Increases       but it should not to exceed 10%. The current    year period. Tonnage fees would increase by 10% in year 1 and would stay flat
lease does not provide for other rate         for seven years (same period remaining term of the current lease with extension
adjustments.                         option) and then a 2% increase every year thereafter. 
Termination    The current lease does not address early      Lessee has the right to early termination in the event that the lessee can
termination rights for Lessee.               demonstrate to the Port that the terminal has no long-term viability as a grain
terminal due to circumstances beyond the Lessee's control, such as failure of
the Railroad to provide adequate rail service to the terminal. The Port will not
have the right to terminate for a Port Major Capital Improvement. The Port is
not at risk of not recovering any investment cost in the terminal, as Lessee is
responsible for all future improvement costs. 
Insurance      Pending dispute on the property insurance     The new lease provides better-defined property insurance language with regard
deductible owed by Lessee for past spout      to responsibility for the property insurance deductible. Lessee will pay 100% of
damage claims. Insurance language is outdated  property losses for any single loss that is below $20,000, subject to a maximum
and there is a risk for continued future        of $100,000 per Agreement Year. The Port and Lessee will share the cost of the
disputes due to unclear insurance lease       loss on a 50/50 basis up to the point where the property insurance deductible is
language.                            met; however, Lessee will never pay more than $500,000 on a per loss basis for
property losses and never more than $1 million in the annual aggregate over the
course of the Agreement Year. By executing a new lease, the Port releases
Lessee from liability related to past insurance claims ($2 million). 
Surety         The Port has a $550,000 bond and a lease      An affiliate of Lessee having a net worth of no less than $250 million shall
Guaranty Agreement. The Lease requires 1     provide a guaranty of Lessee's payment and performance obligations under the
year of the Base Rent.                   lease. 
Lessee Capital   Tenant is responsible for all maintenance and   Tenant is responsible for all maintenance, repair, and Capital Improvements,
Improvements  repair. The Port is responsible for repairs      including damage and destruction. The Port will not be required to perform
stemming from "damage and destruction." In   capital improvements at the facility. 
the past 10 years, the Port has spent about $7
million in capital expenses. 
Environmental   Outdated environmental language from the    Updated environmental language to contain new agency requirements. The
1970s                            Port will be responsible for pre-existing hazardous substances prior to March
26, 1968, the effective date of the original Cargill Lease Agreement.

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
September 25, 2014 
Page 4 of 8 
GRAIN TERMINAL BACKGROUND 
Terminal 86 Grain Facility 
The Lessee operates, manages, and maintains the grain facility. Terminal 86 was constructed in
the late 1960s and has been operating as a grain facility since then. Terminal 86 was originally
designed to export wheat; today it handles primarily corn, soybeans, and sorghum from the
Midwest, as the production of these commodities are primarily concentrated in the northern and
Midwestern states. 
The Terminal 86 facility receives grain by rail and sets it aboard ocean vessels. Despite its age,
the facility has a highly efficient system that can receive, store, sort, blend, and ship large
amounts of grain of uniform quality to a diverse international customer base, primarily in Asia. 
In 2012, China became the largest market for U.S. agricultural exports; the increase is backed by
strong sales of soybeans, cotton, and corn.2 
The grain facility is unique in its ability to load bulk ships directly from rail or via its network of
silos (storage towers). Loading the ships directly from railcars reduces handling costs and
breakage of product while preserving its quality; the silos enable the product to be received from
rail prior to arrival of the ship, reducing costs associated with demurrage of railcars. The silos
also allow a variety of types and grades of grain to be received. The ocean vessels can be filled
with different commodities and a shipment can be prepared to meet exacting standards by
blending various grain grades from the silos. 
The grain elevator industry is in a period of rapid change. Over the past 15 to 20 years, the
industry has been in a consolidation phase where the small elevators have either closed or
merged with other local elevators to become larger units. The margins in the grain business have
decreased over the years; hence, larger volumes must be handled by elevator facilities in order to
be economically viable. With its array of sophisticated electronic controls and mechanical
devices, Terminal 86 is a completely automated grain facility that has the ability to handle large
volumes. 
Grain Industry Overview 
The agricultural sector in the U.S. is one of the most advanced in the world, enhanced by
technology, well capitalized, and highly integrated among commodities. Grains are an essential 
source of food in many developing nations and play an important role in the traditional diets of
many developed countries. The grain export system in the U.S. is a large, diverse, and evolving
industry including public, private and cooperatively owned and managed facilities and trading
entities. According to the North American Export Grain Association, as much as one third of all
grain produced in the U.S. moves into export. 
Exporting grain is both a competitive and a capital-intensive industry. Since the margin of profit
to be earned from moving a ton of grain can be quite small, exporters depend upon moving large
volumes very quickly. Companies seek to achieve an economy of scale that lowers their average

2 
United States Department of Commerce http://www.commerce.gov/news/fact-sheets/2013/02/19/fact-sheet-national-export-initiative

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
September 25, 2014 
Page 5 of 8 
fixed costs per unit of volume handled, provides operating flexibility, increases bargaining power
in chartering for shipping, and improves the services they can provide worldwide.3 
As one of the world's leading exporters of wheat, oilseeds, and cotton, and as one the primary
origins for corn exports, the U.S. is a dynamic and essential domestic market for agricultural
commodities serving key consumption regions such as Europe, Asia, Africa, and the Middle
East. With China buying significant quantities of U.S. grains and oilseeds, structural changes in
protein demand will continue to take place. 
COMPANY PROFILE 
Louis Dreyfus consists of a holding company with actively managed interests in operating
companies, such as Louis Dreyfus Commodities, a global merchandiser of commodities, a major
asset owner, and an agricultural goods processor. Lessee is a subsidiary of Louis Dreyfus
Commodities. 
Louis Dreyfus was founded in 1851 and has been instrumental in the development of grain
trading throughout the world. It has since expanded its  expertise to a wide variety of
commodities and participates in various diversified businesses.4 The Commodities Group, which
includes its grain export operations at Terminal 86, conducts business throughout Europe, the
Middle East, Africa, Asia, and North, Central, and South America. In 2010, Louis Dreyfus
Corporation had a legal reorganization of its domestic agribusiness operations. As part of this
reorganization, it formed a new limited liability company, Louis Dreyfus Commodities, a
company that holds all of the company's domestic agribusiness operations through a number of
affiliates such as the Lessee. 
Louis Dreyfus is among the top exporters of wheat, soybeans, and corn. Grains are the
company's longest standing business. The company's history and achievements in this platform
have helped build its global reputation, and today it is one of the world's largest merchandisers
of wheat and corn.5 
Louis Dreyfus's import and distribution network includes key consumption regions such as
Europe, Asia, Africa, and the Middle East, and it manages the movement of grains all around the
world from farm to fork using its extensive logistics network. Over the past century, Louis
Dreyfus has developed a deep understanding of regional consumer needs and achieved strong
access to all key destination markets. Its network of processing and storage and distribution
assets across the globe is highly developed and increases its control of product flow from farm to
fork. 
FINANCIAL IMPLICATIONS 
Budget Status and Source of Funds 
No funds are needed for this request. The new lease increases the Port's compensation in
comparison to the existing agreement. The 2014 Operating Budget revenue was based on the
3 
North American Export Grain Association, http://naega.org/exporting/ 
4 
Louis Dreyfus corporate website http://www.louisdreyfus.com/about-us/overview/ 
5 
Louis Dreyfus corporate website http://www.ldcommodities.com/our-business/regional-footprint/north-america/

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
September 25, 2014 
Page 6 of 8 
existing agreement, so the new lease will create a favorable revenue variance for the last three
months of the year, assuming budgeted volume levels are achieved. 
Financial Analysis and Summary 
CIP Category    Not applicable 
Project Type     Not applicable 
Risk adjusted    Not applicable 
discount rate 
Key risk factors   Tenant does not properly maintain the facility, which is mitigated by: 
Lessee has maintenance and repair responsibilities under the lease. 
The Port performs periodic property condition audits to evaluate property
condition and tenant's performance of maintenance and repair. 
Risk of tenant default, which is mitigated by: 
Lessee will provide a lease guarantee by an affiliate of Lessee having a net
worth of no less than $250,000,000 
Project cost for   Not applicable 
analysis 
Business Unit    Seaport Lease & Asset Management - Grain 
(BU) 
Effect on       The following table summarizes the approximate net increase in revenue to the
business       Port, based on three volume scenarios, generated by the proposed new lease as
performance     compared to the existing lease if extended through 2020: 

Revenue Increase (in $000's)                   2015      2016      2017      2018      2019 

Low Volume - 1.3 million metric tons            $730     $675     $675     $675     $720 

~ Avg Volume - 5 million metric tons              $550     $495     $495     $495      $510 

High Volume - 6.4 million metric tons              $482     $427     $427     $427      $442 

The table does not factor in additional financial benefit to the Port created by
shifting responsibility for all maintenance and capital improvements to the
leaseholder. The table also does not factor in the fact that the Port is releasing the
Lessee from any liability related to past Port Spout Damage Claims in the amount
of $2 million. Legal uncertainties make it unclear how much the Port would collect
on the claim should the Port continue to press for collection. 
The basis for establishing the minimum annual guarantee (MAG) market rate for
the lease is described in the memo under the "Synopsis" section. 
IRR/NPV      Not applicable

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
September 25, 2014 
Page 7 of 8 
Environmental Responsibility 
Lessee has a history of operating cleaner rail at Terminal 86. The company started using ultralow
sulfur diesel fuel in its switcher locomotives in 2009 three years before the regulatory
requirements to burn this fuel. In 2010, Lessee installed idle-reduction equipment on two of the
locomotives. They also worked with BNSF Railway Company to replace three of its switcher
locomotives with cleaner and more fuel-efficient engines. 
Community Benefits 
Lessee maintains a Seattle job base of approximately 50 positions related to multi-shift elevator
operations, facility maintenance, and security and local management oversight. 
ALTERNATIVES AND IMPLICATIONS CONSIDERED 
Alternative 1)  The Port considered having Louis Dreyfus exercise its renewal option, continue 
with the current lease for the remaining 7-year term, and allow the lease to expire naturally. As
market conditions will change in the future, this alternative could put the Port at a risk of
negotiating a less favorable agreement. Other major risks with this alternative are 1) the Port may
be required to make large capital improvements to the facility due to the age of the facility; 2) the
Port may have future insurance deductible disputes due to outdated insurance language in the
current lease and due to Terminal 86 being an aging facility; 3) the Port will continue to receive
rent under the current rent structure and not benefit from the higher expected rent under the
proposed new lease; and 4) the Port will not have a Minimum Annual Guarantee in the event of a
downturn in the grain business. This is not the recommended alternative. 
Alternative 2)  The Port considered doing a request for proposal (RFP) to select competitive
proposals from potential tenants to operate and manage the Terminal 86 facility when the current
lease expires. According to the Tenth Amendment to Lease, the Port may not solicit or entertain
discussions with any other prospective tenant until the current lease terminates. If the Port waited
until the lease expiration (year 2020) to start a traditional RFP process for selecting a tenant, it
would expose the Port to unknown risks because the RFP offers a pricing snapshot of the current
market, a market that is constantly evolving. The RFP takes time to produce, and using the RFP
as a systematized process for selecting a tenant could potentially take several months before the
Port could secure a qualified tenant. Another disadvantage of the RFP alternative is that there are
limited large-scale grain elevator operators that would meet the qualifications the Port is seeking
from an operator. This is not the recommended alternative. 
Alternative 3)  Execute a new lease agreement using updated lease language to clarify
responsibilities and obligations between the Port and Lessee  on capital improvements,
maintenance and repair, damage and destruction, insurance, and incorporate a new tonnage
volume rate structure that will include a minimum annual guaranteed component that will
maximize asset utilization to create value, additional revenue, and profit  for the Port.
Concurrently with the new lease, the Port will release the Lessee from any liability related to past
Port spout damage claims in the amount of $2 million, and terminate the Standstill and Tolling
Agreement dated September 24, 2012. This is the recommended alternative.

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
September 25, 2014 
Page 8 of 8 
ADDITIONAL INFORMATION 
Summary of Insurance Claim Issue 
The proposed new agreement will also bring resolution to an insurance dispute between the Port
and Lessee. During the October 1, 2006, to April 30, 2007, timeframe, two separate spouts
collapsed at the grain facility and the Port made the repairs in accordance with the Damage and
Destruction section of the current Lease. The Port repaired the two spouts at a total cost of
approximately $3.4 million. At the time of the loss, the Port's deductible/self-insured retention
for the property insurance on the facility was $1 million per loss. Under the current Lease, the
Port is not responsible for property damage on Terminal 86 for loss or damage that results from a
condition of the Premises. The Lease does give the Port the right to apply available insurance
dollars following the loss. However, when insurance dollars are not available, which includes the
deductible cost, then the Port is not responsible for damage if the damage resulted as a condition
of the Premises. The spout damage was a result of the condition of the facility, and the Port
pursued reimbursement from Lessee for $2 million for the collective portion of the losses coming
within the deductible. The Lessee disputed the claim, as the lease is silent on this matter. The
current Lease does not define the amount of property insurance the Port is to carry on the
facility; nor does the current Lease put an overall cap on the property insurance deductible or cap
what the Lessee is responsible for regarding the deductible on a per loss or annual aggregate
basis. Pending a dispute resolution, the Port and Lessee agreed to enter into a Standstill and
Tolling Agreement. The Port reviewed the legal issues surrounding the claims with the assistance
of outside counsel. The Port then negotiated with the Lessee on insurance requirements for the
new agreement and agreed to forgo the $2 million claim recovery against the Lessee in
consideration for the other benefits the Port would receive through the new business deal. The
new agreement clearly defines the responsibilities and obligations between the Port and Lessee 
for capital improvements, maintenance and repair, damage and destruction, and insurance. 
ATTACHMENTS TO THIS REQUEST 
Final Draft Lease Agreement (substantially as drafted) 
Final Draft Termination and Release Agreement (substantially as drafted) 
Standstill and Tolling Agreement dated September 24, 2012 
PREVIOUS COMMISSION ACTIONS OR BRIEFINGS 
None for this new agreement