Seattle makes Moody's uneasy
The spotlight is on the Hanjin deal
Seattle’s credit rating is coming under strain from the ratings agencies. Moody’s has become a little more grim-faced, dropping the ratings on all liens of outstanding revenue bonds from stable to negative. At the same time the individual ratings of bonds have been reaffirmed, all within A category range.
As always with Seattle, the seaport’s status must be stripped out from that of the airport. “Container cargo levels have declined for the past seven years, except for strong growth in 2010 when Maersk increased operations at the port; throughput levels in 2013 are down 21.6% through April 2013 and are expected to remain lower due to the move of the Grand Alliance to the Port of Tacoma,” says the agency.
Rival agency Fitch, in its own assessment of a series of bonds, says: “Container cargo levels have declined for the past seven years, except for strong growth in 2010 when Maersk increased operations at the port; throughput levels in 2013 are down 21.6% through April 2013 and are expected to remain lower due to the move of the Grand Alliance to the Port of Tacoma.
“Seaport container traffic exhibited strong growth of 35% in 2010 and has recorded declines of 5% and 8.1% for 2011 and 2012, respectively. Container traffic continues to be weak through the first quarter of 2013.”
And then Fitch makes a very important point. “The declining container traffic has had an impact on the seaport's financials to a much lesser degree than otherwise expected because the port's lease structure for marine terminals is based on a per-acre rate (which were readjusted every five years) rather than on volume. Going forward, leases are based on volume with per-acre minimum annual guarantees (MAG) that feature inflationary adjustments, and the Port's financial projections reflect only the MAG amounts. The lease at Terminal 46, [Hanjin] which was due to expire in 2015, was extended through 2025, though at a rate lower than that previously charged.”
Moody’s takes a slightly different tack. “The market position of the seaport has been markedly impacted by the Grand Alliance's decision to move to the Port of Tacoma and the Port of Seattle's decision to change the terminal lease rate structure to a per acre volume basis with minimum annual guarantees that will provide substantially lower revenues. The combination of these two stresses, in particular, will suppress the Port's ability to continue its recovery from the economic downturn as quickly as expected.”