Long Beach, California, will price $88 million in marina revenue refunding bonds on Tuesday, just days after it hosts the five-day world championship Congressional Cup, the oldest continuously-held yacht sailing race.
The bonds are a unique credit in the municipal market. It's been nearly a decade since the city issued marina revenue bonds for the first time in 2015, and Long Beach may have the only municipal revenue bonds backed by a marina system.
It is the only marina debt rated by Fitch Ratings and S&P Global Ratings, according to their ratings reports. Fitch upgraded the rating to BBB-plus from BBB ahead of the deal; and S&P assigned an A rating in its first time rating the city's marina bonds. Both assigned stable outlooks.
"When we hired our underwriters, we asked them if there are other comparable marina systems with financings," said Mark Young, a KNN managing director, the municipal advisor. "They queried the market and couldn't find any other bond issues that had been issued for a publicly-owned and operated marina system."
Morgan Stanley and RBC Capital Markets are lead managers with Cabrera Capital Markets as co-manager on the pricing that will refund the marina's 2015 bonds and defease them. Kutak Rock is bond counsel and Stradling Yocca Carlson & Rauth is disclosure counsel.
In addition to the attraction of scarcity and the uniqueness of the bonds, Long Beach, with its conservatively-managed finances, has been popular with retail and professional retail investors, Young said, adding when the city priced sewer bonds last year they received "overwhelming support from mom and pop as well as professional retail."
"We think the bonds will be well-received by investors," said Jesse Ortega, Long Beach's assistant treasurer and debt manager. "When you start at the base and layer in the features we have: the governing structure; that the marinas are managed by Long Beach, a big name in the market; our 10-year documented history of maintaining occupancy above 90% and debt service levels."
The triple-B-plus/single-A ratings also mean it's an opportunity for investors to pick up some yield compared to other California bonds, Young said.
"Everyone on the finance team is very bullish about the market reception of these bonds," Young said.
Though the upgrade from Fitch is "additive, and positive," Young said, they will lead with the A rating from S&P, because many separately managed account investors stipulate a rating from S&P or Moody's Ratings as a prerequisite.
"Fitch's rating says, they have taken a second look at this system and it has been outperforming and warrants an upgrade," Young said.
Fitch cited the marina's improved financial profile, evidenced by declining leverage and an established market position with Southern California's competitive marina landscape.
Long Beach has a population of roughly 450,000, according to the U.S. Census and its shoreline is peppered with restaurants, the Long Beach Convention Center and hotels. The city has three marinas: Rainbow, Long Beach Shoreline and Alamitos Bay with a total of 3,337 boat slips.
In addition to the city's proximity to Orange County, which it borders, and Los Angeles, 20 miles north, the marina system benefits from direct access to one of the most affluent and active boating communities in the country, said Hank Kim, the city's treasurer.
"We have a large breakwater wall, which creates calm water for recreation," Ortega said.
Long Beach also is the closest marina system in Southern California to Catalina Island, a big sailing and recreational destination," Ortega said.
Fitch cited the wait list across slip sizes, consistently high occupancy levels, competitive slip rental rates and it's stable financial performance for its rating. The city adopted annual rate increases of 2% to 3% annually in 2015.
"The wait list is now at 893 and has grown by 217% over the years," Ortega said. "I think it's a testament to how we have been running it."
The system's prime location and desirable access evidenced by the waiting list's growth and the fact it maintained the low occupancy rate through COVID-19 and the 2008 crash were cited by S&P in the A rating.
"We believe the system benefits from its large number of slips (3,337) relative to nearby marinas and proximity to popular attractions like Catalina Island, downtown Long Beach and the Long Beach Convention Center," S&P analysts wrote.
The 2025 bonds will finance redemption of the 2015 bonds and fund a bond reserve at 50% of maximum annual debt service.
The refunding is expected to result in present value savings of $6.1 million and annual debt service savings of roughly $532,000, according to an online investor presentation.
To gauge the potential market interest and likely savings, Young said the team looked at the horizon of California credits for the past several weeks that had an enterprise relationship, such as A-rated lease revenue bonds. They only drew comparisons between other California debt, because debt issued in the state trends to price tighter than national levels, he said.
The savings will go to improve the marina system's bottom line, Young said.
"There are no plans to issue additional debt," he said. "The improvements will be funded using revenues on a pay-go basis."
Proceeds from the 2015 bonds were used for asset hardening projects, such as concrete decks and seawalls to protect against sea wall rise. Those concrete docks have a 50-year life span, Ortega said.
The roughly 20 landside projects include improvements to the restrooms, maintenance and beautification projects ahead of the 2028 Olympics.
Long Beach will host 11 Olympic events. Those at the marinas include sailing, beach volleyball, open water swimming, rowing and canoe sprint.
The state's seventh-largest city, Long Beach has a population of roughly 450,000, according to the U.S. Census. It is also known for much bigger boats than those docking at its marina system; two miles west of the Shoreline Marina downtown, the Port of Long Beach is one of the
