LOS ANGELES — California’s Alameda Corridor Transportation Authority plans to price a $265 million refunding on Jan. 24 that’s part of a debt restructuring plan for the key trade link.
The new bonds will refund $288.9 million in aggregate principal of outstanding Series 1999A current interest bonds.
ACTA, a joint-powers authority of Los Angeles and the ports of Los Angeles and Long Beach, runs a 20-mile grade-separated multi-track rail line that speeds container freight from the twin ports to the rail yards downtown. “Before the corridor was built there were two very circuitous, slow moving routes connecting the ports to the rail yards,” said James Preusch, ACTA’s chief financial officer.
The $2.4 billion enterprise was constructed in the late 1990s with funding from $1.2 billion of revenue bonds, $800 million from the Los Angeles County Metropolitan Transportation Authority and the ports, and a $400 million Transportation Infrastructure Finance and Innovation Act loan from the U.S. Department of Transportation. The authority still has $2.07 billion in outstanding debt, according to the preliminary official statement.
The road has been a bit rocky for ACTA in the decade since it began operations in April 2002.
In early 2003, the authority discovered that revenues were less than expected, bond documents say. Instead of collecting container fees on the expected 50% of traffic passing through the ports, ACTA was receiving fees for 31% of the traffic. The shortfall came because some containers were being shipped on trucks to distribution centers for consolidation before leaving the area — cutting the authority out of the shipping chain.
The shortfall could have resulted in a loss of $1.5 billion in revenue for ACTA from 2003 to 2025, but it reached an agreement with railroads for a permanent $0.90 increase in container fees to cover the shortfall, the POS says. The economic crunch also has affected ACTA as container traffic through the twin ports slowed.
Container traffic funneled through the corridor grew 15.8% in fiscal 2010, declined 1.5% in fiscal 2012, but is projected to stabilize in 2013, according to a Fitch Ratings report.
The ports are anticipating 14 million 20-foot equivalent units, or TEUs, a standardized measurement for container traffic, for fiscal 2013 and 14.4 million for fiscal 2014, Preusch said.
“The economy is growing, but there are a lot of uncertainties in Southern California around solving long-term economic problems,” said Sohail Bengali, managing director with Stone & Youngberg, book-running manager for the bonds. He said given some of the economic uncertainties, it’s notable that port officials aren’t anticipating a huge drop-off in port traffic.
ACTA’s bonds are protected through an operating agreement it has with the ports in the event of revenue shortfalls. The operating agreement requires the ports to pay shortfall advances of up to 20% each to cover debt service if container fee revenue falls short. The ports have been required to pay shortfall advances twice, once in 2011 and once in 2012, according to the preliminary official statement.
The new bonds also carry insurance from Assured Guaranty. Despite the recent multi-notch downgrade of Assured by Moody’s Investors Service, Preusch deemed it likely that ACTA would retain the insurer when commitments are finalized. “We remain confident about Assured’s future and AGM’s support of ACTA’s 2013A bond transaction,” he said in an e-mail exchange.
The current refunding that could save ACTA $50 million, Preusch said, is just its most recent effort to better match revenue with debt service. In 2004, it paid off the $400 million DOT loan. In October 2011, it used what he called excess construction funds to call debt maturing in October 2013. It used an $84 million Railroad Rehabilitation & Improvement Financing loan to call bonds maturing in 2014. Those efforts and the upcoming refunding will restructure much of the debt all the way out to 2039, he said.
The corridor has no plans to issue new debt for capital improvement projects, partly because “the revenue stream is pledged to the debt service,” Preusch said. ACTA would have to find a new revenue stream if it wanted to do capital improvement projects, but the corridor is in very good shape mechanically, he said.
“The project has a 100-year life span and we are only 10 years in,” he said.
ACTA received an A3 rating from Moody’s and an A rating from Fitch Ratings on the planned refunding with stable outlooks from both. The most recent rating from Standard & Poor’s on Dec. 30, 2011, gave ACTA’s outstanding senior-lien bonds an A-minus.
Bank of America Merrill Lynch is co-manager on the bond sale.
ACTA’s net road show will be available through Thursday at http://www.netroadshow.com using the entry code ACTA2013.