LOS ANGELES—The Port of Los Angeles plans to sell $339 million of bonds the week of Sept. 2, bringing an infrequent issuer with high ratings to the municipal bond market.
The port last issued debt in 2011, when it sold $91 million in revenue refunding bonds.
It returns with revenue bonds rated Aa2, AA, and AA by Moody's Investors Service, Standard & Poor's, and Fitch Ratings respectively. All assign stable outlooks.
Wells Fargo Securities and Siebert Brandford Shank & Co. are the lead managers in a syndicate that also includes Bank of America Merrill Lynch, Cabrera Capital Markets, RBC Capital Markets, and Stifel.
The port will sell the bonds in three tranches, with a retail order period Sept. 3 and institutional pricing slated for Sept. 4. The first tranche is the $205.7 million 2014 Series A, with interest subject to the alternative minimum tax, and split between new money revenue bonds and refunding revenue bonds. The Series B consists of $89.5 million in refunding revenue bonds sold as exempt facility non-AMT bonds. The $44.7 million Series C revenue bonds are being sold as governmental non-AMT.
Roughly $200 million of the total $339 million sale planned is new money with the balance going to refunding existing bonds.
"We try not to borrow money when we don't need to borrow money," said Karl Pan, the port's chief financial officer.
"We don't try to out-guess the market," Pan said. "I don't think we are that smart."
The port has a good amount of cash on hand and spends cash to pay for capital projects down to what it considers a reasonable reserve, he said.
As a landlord port, the port has leasehold contracts with terminal operators and also charges based on the number of containers moved through the ports. Revenues from those activities pay for infrastructure improvements.
"We are a government entity, but we operate a lot like a corporation," Pan said.
The port may not seek to time the market but its timing appears good.
"Supply is looking very thin this week heading into the holiday with only approximately $2.5 billion in new issuance expected," said Peyton Studebaker, managing director with Caprin Asset Management
"A large AA deal this week should be well received as the higher-grade rating should draw in retail investors, and the larger deal size should garner the interest of institutional buyers," he said.
The port's fiscal 2013-14 budget for capital expenditures is $281 million. The port typically sees operating revenues of $200 million a year. It also had close to $600 million cash-on-hand - so rather than issuing debt, it has been drawing down on those reserves to pay for capital-expenses.
Since upcoming expenditures for capital improvements exceeded annual EBIDTA of roughly $200 million, it was time to borrow, Pan said.
The port hit its highest historic container volume in 2007 at 8.6 million twenty-foot equivalent units. The port is anticipating it will have around 8.2 million TEUs for fiscal 2013-14 when the numbers come in from year-end July 30, Pan said.
"In terms of the level of growth in TEUs, we are not seeing the growth that we were seeing 10 years ago when China was becoming the manufacturing center of the world," Pan said.
When evaluating future cash flows, the port has always been fairly conservative, he said.
The new money will partly help fund $510 million in improvements to the TraPac container terminal. That project is in the first year of a three-year construction schedule. Pan anticipates another refunding in 2016, but said the port is not likely to issue new money again for another three to four years.
"If the port has a project that will generate a reasonable value for its stakeholders, the port could be back in the market sooner though," he said.
Port officials are closely watching talks between International Longshore and Warehouse Union and port terminal operators, but POLA is not a party to the negotiations. ILWU, which represents all west coast longshoremen, has been working without a contract since June 30.
Pan added that he has not fielded any questions from investors about labor negotiations. The rating agencies have "been curious about the status," he said.