SAN FRANCISCO — Moody’s Investors Service downgraded the Alameda Corridor Transportation Authority’s senior and subordinate debt yesterday, citing declines in trade volumes at the Los Angeles-Long Beach port complex.
Carson, Calif.-based ACTA is a joint-powers authority that owns and operates a 20-mile rail corridor that links the nation’s busiest port complex to downtown Los Angeles and the U.S. rail system.
Moody’s downgraded $965.8 million of senior-lien revenue bonds to A3 from A2 and $738.5 million of subordinate-lien bonds to Baa1 from A3. The agency put the ratings on watch list for further downgrades.
“The downgrade reflects the decline in cargo levels and operating revenues that have resulted from the global economic downturn and the resulting decrease in debt-service coverage,” analyst Baye Larsen said in a report. “Despite recent signs of stabilization, cargo and revenue recovery will be protracted and future debt-service coverage levels will be additionally pressured by an increasing debt-service schedule.”
The authority, like the two big Southern California ports, benefited from a surge in trade after China joined the World Trade Organization, but it has been hit by a deep decline in imports by U.S. retailers over the past year.
Cargo shipped through the rail corridor declined 23% from fiscal 2007 to 2009, according to Moody’s.
“We’re disappointed, but the fact of the matter is that the port volumes are off substantially and our volumes are also off,” ACTA chief financial officer Jim Preusch said in an interview.
The authority plans to restructure about $400 million of debt this year to lengthen debt maturities, to lessen a jump in debt-service requirements over the next five to 10 years, and to better match its debt-service payments with expected revenue.
“Our ratios remain strong, but this [restructuring] will increase them,” Preusch said. “One of the things we hope to do through the process is to restore the senior debt and the subordinate debt to their ratings before Moody’s action.”
The authority’s aggregate debt-service coverage ratio declined to one times in fiscal 2009 from 1.27 times in 2007 on a net revenue basis, according to the Moody’s report. The coverage ratio is forecast to fall below one in fiscal 2010, forcing ACTA to tap reserves.
The Port of Long Beach and the Los Angeles Harbor Department have pledged to pay up to 40% of the rail corridor’s debt service if it ever faces a shortfall.
When the two double-A rated ports’ pledges are included in debt-service coverage calculations, the authority’s coverage ratio rises to 1.3 times for fiscal 2010.
Preusch said restructuring ACTA’s debt would allow the agency to make debt-service payments without drawing on the ports. As currently structured, the debt-service requirements are scheduled to increase by 40% between 2011 and 2015.
“We’ve never taken a port shortfall backstop, and the intent of the restructuring is to continue to avoid that,” Preusch said. ACTA also recently delayed a $10 million bridge capacity expansion to bolster debt-service coverage this year.
Moody’s said it would review the ratings again after the restructuring.