The Alameda Corridor Transportation Authority in Southern California sold over $216 million in revenue refunding bonds to restructure its debt through a combined tender offer and debt restructuring plan.
The bond sale allowed ACTA to reshape its profile to avoid projected debt service shortfalls and match anticipated revenue growth.
The rail corridor consists of a 20-mile multi-track rail system linking the yards and tracks at the ports with the transcontinental rail routes near downtown Los Angeles. The rail corridor, which began operation in 2002, consolidated freight rail traffic from 90 miles of pre-existing rail lines into an integrated system separate from non-rail traffic.
The restructuring uses capital appreciation bonds to reduce debt service in the early years, so it can avoid tapping shortfall advances from the ports of Los Angeles and Long Beach, said Kevin Scott, the authority's chief financial officer.
ACTA has an agreement with the ports in which it pays up to 40% of debt service if there are revenue shortfalls, but, Scott said, the authority has only had two shortfall advances of $5 million in 2011 and 2012.
"We have revenue that comes in from container fees and other charges," Scott said. "That money flows into a protected fund to pay debt service, senior debt, subordinate and then second subordinate."
On Jan. 23, the Alameda Corridor Transportation Authority priced $41.2 million of tax-exempt senior lien revenue refunding bonds, $10.9 million of taxable senior lien revenue refunding bonds, $29.7 million of tax-exempt subordinate lien revenue refunding bonds and $134.6 million of taxable subordinate lien revenue refunding bonds. The bonds are insured by Assured Guaranty Municipal Corp.
The senior debt received an A rating from Fitch Ratings, A-minus from S&P Global Ratings and A3 from Moody's Investors Service. The subordinate debt received BBB-plus rating from Fitch, BBB-plus from S&P and Baa2 from Moody's.
Bond proceeds along with ACTA cash and debt service reserve fund releases were used to fund the defeasance and purchase of certain tendered bonds. The tender and restructuring of ACTA's debt reduced aggregate debt service in fiscal years 2026-2033 by approximately $280 million.
J.P. Morgan Securities and RBC Capital Markets were co-senior managers, with Goldman Sachs, Ramirez & Co., and Siebert Williams Shank as co-managers. PFM Financial Advisors and Frasca & Associates were the co-financial advisors, O'Melveny & Myers was bond counsel, Sheppard, Mullin, Richter & Hampton was disclosure counsel and Nixon Peabody was tax counsel.
The authority could have issued up to $1.36 billion, based on a S&P Global Ratings report, which included the par amount of the debt at maturity being considered in the pre-issuance tender offer. The authority had $3.2 billion in outstanding debt as of Oct. 1, 2023, according to bond documents.
ACTA had assumed that roughly 20% of the 2026-2033 maturities for the series 1999A&C bonds, senior lien, and 2004A&B, subordinate lien, and 20% of the outstanding 2046 maturity of the 2022B bonds, senior lien would be tendered, with the proceeds of the 2024 issue used to fund the purchase.
"We had anticipated 20%, but it came in at 21% to 22% on the tender offer," said Michael Leue, ACTA's chief executive officer.
The tax-exempt series was oversubscribed 6.4 times and the taxables were oversubscribed 6.8 times, according to ACTA's spokesman.
ACTA was able to renegotiate its operating agreement, which it originally stretched to 2037, out to 2062, which enabled it to address the higher bond payments coming up soon, by refinancing into longer majority dates, said Leue.
The authority had originally assumed its revenues would have doubled by this point, and its bonds were structured that way, but that's a scenario that failed to materialize.
"The bonds were structured to mature in 2037 with a doubling of debt service in 2026. Revenues were expected to handle that doubling in debt service, but we haven't been able to achieve those forecasts," Scott said.
That was a fundamental shift that occurred from 2010-2016 in which cargo was going to warehouses near the ports rather than being transported directly by rail, Leue said. "That's why the use and operating agreement was renegotiated and extended out."
The debt is being restructured now, because the authority has a "big chunk of bonds callable in 2026," Scott said.
