S&P Drops Port of Oakland

Standard & Poor’s cut the underlying rating for the Port of Oakland’s senior-lien revenue bonds to A from A-plus, citing weakness at the agency’s airport and seaport businesses.

Standard & Poor’s also cut the underlying rating on the port’s intermediate-lien revenue bonds to A-minus from A.

“The lowered ratings reflect our view that a sharp downturn in airline passenger traffic at Oakland International Airport, coupled with a downturn in container traffic at the seaport, may pressure the port’s financial position, increase airline costs at the airport on a per-passenger basis, and lower financial margins,” the agency said in a release.

The port runs two businesses that have been hit hard by the economic downturn and are facing increased competition as a result. The airport faces increased competition from other San Francisco Bay Area airports for passenger traffic, while the seaport faces competition from other West Coast ports for discretionary cargo traffic.

Discretionary cargoes are goods that are destined for markets beyond the port’s immediate service area. Much of the discretionary traffic that flows through West Coast ports is shipped by train and truck to the Midwest, and the business flows to the ports that make moving the goods cheaper and easier. Major ports have been competing for business this year by cutting prices to maintain volume amid a sharp decline in U.S. consumer product imports.

While the port is being slammed in two lines of business, Standard & Poor’s said its diversity of business operations is generally a credit strength. Analysts also cited strengths such as a balance between import and export volumes at the seaport, the airport’s position as a Bay Area hub for low-cost air carriers, and management’s willingness to cut expenses and capital spending in response to the downturn.

“We expect that the port will continue to actively manage its financial position and capital plans during the downturn, that financial performance going forward will be near current projections, and that the liquidity position will remain adequate for the rating level,” said Standard & Poor’s analyst Robert Hannay.

The agency said the outlook for the port’s rating is stable.

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