S&P Negative on Stockton Port

Standard & Poor’s cut the outlook to negative from stable on the Stockton Port District’s BBB-rated revenue bonds this week.

The action affects about $29 million of Series 2007A and B bonds. The port also has about $47 million of parity debt outstanding.

“The revised outlook is based on our view of the continued downturn in cargo traffic at the port, coupled with a weak liquidity position,” said analyst Robert Hannay. “In our view, the low level of unrestricted cash reduces the port’s financial flexibility, particularly if decreased operating activity weighs on revenues and debt service coverage.”

The district owns and operates the Port of Stockton on the Stockton Deepwater Ship Channel, about 75 nautical miles east of San Francisco’s Golden Gate Bridge. The port primarily handles bulk cargo for agricultural, steel, building and industrial shippers.

Standard & Poor’s said the port’s waterborne cargo tonnage fell 27.8% in fiscal 2008 and 35.2% in 2009. The downward trend continued in the first five months of fiscal 2010 with another 21.9% drop in cargo. However, a jump in overland gain ship shipments bolstered fiscal year-to-date total cargo by 21.3%.

The port’s lease revenues from tenants have been more stable than its traffic during the recession, but it liquidity position was low at $1.7 million, or 25 days cash and investments on hand, as of Dec. 2, according to Hannay.

“In our view, the port’s low liquidity position is a credit concern, given its exposure to fluctuations in cargo activity and exposure to lease tenants,” he said.

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