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Wednesday, November 22, 2017

The investment world's opinion of a smaller port's credit rating

Posted to Martin Rushmere (by on April 30, 2013

Moody's assesses the soundness of Longview's bond issue

The Port of Longview  in Washington has a reputation of being a tightly and well-run outfit within the maritime community. But operational efficiency is not good enough on its own in the 21 century and finance plays just as important a role.

So how does the professional financial world view the port? A good indication is given by a Moody’s assessment, which awards the port Baa1 for $6 million in revenue bonds.

“The rating primarily reflects the port's improving financial performance,” says Moody’s, “ its position as a competitive marine terminal, recently weakened debt service coverage levels that are expected to improve significantly over the near-term, and satisfactory legal provisions.” (“Bond Funds rated Baa-bf generally hold assets considered medium credit quality,” is the agency’s definition of this level of rating.)

STRENGTHS:

- Operating revenue trends benefiting from recent completion of a new grain terminal;

- Access to marine and ground transportation bolsters the port's competitive position;

- Sizable banked property tax levy capacity more than sufficient to cover annual GOLT (general obligation limited tax) debt service.

CHALLENGES

- Potential volatility for export markets, particularly in Asia;

- Concentrated customer base for operating revenues .

WHAT COULD MAKE THE RATING GO UP

- Persistently stronger debt service coverage levels;

- Diversification of the port's operating activities;

- Economic recovery that bolsters the port's marine terminal activities .

WHAT COULD MAKE THE RATING GO DOWN

- Declines in debt service coverage levels;

- Economic volatility that pressures the port's net operating revenues ;

- Trend of substantial tax base declines;

- Additional debt issuance that significantly leverages net revenues.”

Longview notched up a record year financially in 2012. Revenue rose 20 percent over 2011 to $34 million, while net operating income reached $8 million last year, a 20 percent jump from the $28 million in 2011.

Total cargo handled at 6 million tons was also a record.

Much of the credit for this success comes from the newly opened EGT grain terminal, which exported more than 4 million tons. When operations began in 2012 the future did not look too rosy because the ILWU took strike action and disrupted traffic over allegations that non-union workers were being held.

Several scuffles, arrests and private bargaining led to  tempers cooling down and a grudging acceptance by the union.

 

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