Los Angeles port sees a ratings boost from S&P amid a cargo decline

BY SourceMedia | MUNICIPAL | 11/18/22 12:21 PM EST By Keeley Webster

The Port of Los Angeles in conjunction with the Port of Long Beach may have lost its ranking as the busiest port in the U.S. over the past few months, but that hasn't hurt its ratings.

S&P Global (SPGI) raised the port's revenue bond rating to AA-plus from AA on Nov. 4, citing strong finances and a competitive position. Prior to the upgrade, the port had been rated AA since 1996.

The Los Angeles port also holds an Aa2 rating from Moody's Investors Service (MCO) and a AA rating from Fitch Ratings. All have stable outlooks.

New Jersey and New York ports grabbed the No. 1 spot, with the Los Angeles port falling to No. 3 after holding the top slot for 22 years, as shippers moved some goods to the east coast while contract negotiations with port workers dragged on. The Port of Long Beach ranks second.

In a Tuesday briefing, Gene Seroka, the port's executive director, cautioned reporters not to count Los Angeles' port out. Though he projected that port volume would remain down through the end of the year, he expects it to pick back up, and that LA could regain its top ranking, as congestion has become a problem on the east coast with the increased volume.

Cargo volume at the port dropped as the port handled 678,429 twenty-foot equivalent units (TEUS) in October, 25% less than October 2021. It has processed 8.5 million TEUS during the first 10 months of 2022, down about 6% from last year's record pace.

"With cargo owners bringing goods in early this year, our peak season was in June and July instead of September and October," Seroka said. "Additionally, cargo has shifted away from the west coast as some shippers await the conclusion of labor contract negotiations."

Seroka added the port will do everything it can "to get that cargo back, because the best route between Asia and the United States is straight through the Port of Los Angeles."

The landlord port has $577.3 million in fixed-rate bonds, and no commercial draws outstanding, S&P analysts said.

It has no plans to issue new debt over the next 12 months, said Marla Bleavins, the port's deputy executive director and chief financial officer.

At The Bond Buyer's California Public Finance conference in September, she noted the landlord port doesn't generally have the need to issue debt regularly, because its tenants typically shoulder the cost of renovations to their berths. And the port has typically been so fiscally healthy that it has been able to fund most improvements on a pay-go basis.

While the Port of Los Angeles is a department of the City of Los Angeles (Los Angeles Harbor Department), it is not supported by city taxes. Operating as a landlord port with more than 200 leaseholders, the port generates most of its revenues from fees for shipping and leasing of facilities. Revenue bonds are issued by the port to finance capital improvement projects.

The AA-plus rating demonstrates that the port "remains fiscally responsible while managing its debt obligations and supporting job creation," Bleavins said. "With a continued focus on enhancing infrastructure and redevelopment, the port is well-positioned to meet its strategic objectives and priorities."

S&P's rating is the highest given to a seaport without taxing authority.

"The upgrade reflects our view of the port maintaining its historically high financial metrics and extremely competitive position during the COVID-19 pandemic," said S&P Global Ratings credit analyst Scott Shad. "Trade tensions with China have not resulted in weaker financial performance, and supply chain disruptions and congestion have somewhat subsided, thereby mitigating operational challenges."

S&P also cited the port's continued strong business position, stable portfolio of assets and excellent historical financial performance as rating factors.

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

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