APPROXIMATELY $18.2 MILLION IN PARITY DEBT AFFECTED
Revenue and Refunding Bonds, 2011A (Taxable)
Expected Sale Date
Revenue and Refunding Bonds, 2011B (AMT)
Expected Sale Date
Revenue and Refunding Bonds, 2011C (Tax Exempt)
Expected Sale Date
NEW YORK, Jan 12, 2011 -- Moody's Investors Service has assigned a Baa1 rating to the Port of
Longview Revenue and Refunding Bonds, Series 2011A (Taxable), Series 2011B
(Private Activity - Non-AMT), and Series 2011C (Tax-Exempt) in the aggregate
amount of approximately $13.08 million. Moody's has affirmed the Baa1 rating on
the port's revenue bonds outstanding in the amount of $18.2 million, including
the current offerings. Additionally, Moody's has also affirmed the A1 rating on
the port's limited tax general obligation debt outstanding in the amount of
$15.1 million. The revenue bonds are secured by the net revenues of the
port. The proceeds of the current offerings will be used to reimburse the
port for a property acquisition, and to refund certain maturities of the port's
Series 1998 and 1999 revenue bonds.
The Baa1 rating on the port's revenue bonds reflects the port's
improving financial position, growth in operating revenues, and
continued satisfactory debt service coverage which has been supported by a
rebound in cargo tonnage. The A1 limited tax general obligation bond
rating reflects the port's stable tax base, limited local economy and
below-average socioeconomic indicators.
LIMITED LOCAL ECONOMY FEELING THE EFFECTS OF THE RECESSION
Despite the lingering effects of the recession, the port continues to benefit
from a growing and diversifying industrial and commercial base. The port is
located on the Columbia River, 66 miles inland from the Pacific Ocean and 40
miles north of Portland. The port district encompasses the northern two-thirds
of Cowlitz County (Issuer Rating Aa3 / LTGO bonds A1) including the cities of
Longview (LTGO bonds A1), Kelso, and Castle Rock where the local economy had
historically been dependent on the forest products industry but has experienced
notable growth in its industrial base since the early 2000s. While the county's
socioeconomic indices are below those of the state, the port's full value per
capita is relatively healthy at $92,624. The port's taxbase has benefited from
continued diversification; the three largest taxpayers, all of which are pulp
and paper companies, constitute about 14.0% of the port's total assessed
valuation as opposed to the port's top three taxpayers comprising 36% in 1996.
Moody's notes that the local economy's continued dependency on the forest
products industry represents a modest economic vulnerability. Unemployment in
the City of Longview is typically two to three points above the state and nation
rates, although in the current recession, this differential has narrowed
slightly, with an October 2010 unemployment rate of 8.6% as compared to 8.5% in
Washington, and 9.0% nationally.
SATISFACTORY DEBT SERVICE COVERAGE DUE TO REVENUE GROWTH AND A MODEST RECOVERING
TREND IN TONNAGE; TAXING POWER PROVIDES ADDED FLEXIBILITY
Tonnage at the port rebounded in both 2008 and 2009 by 16.3% and 12.4%,
respectively, which Moody's believes is a favorable trend given the overall
declines in tonnage since 2000. As a result of the previous declines, the
average annual growth rate in tonnage was flat at 0.7% over the last five
years, although revenue growth over the same period was more favorable 12.6% as
a result of some higher value activities across the port's docks. It is notable
that tonnage and revenues grew despite a drop in the number of ship calls. While
shipments of wind generation components had originally been expected to be
shipped through the port only through 2007 this cargo has continued to enter the
port into 2009 and 2010, and is expected to continue in the near-term.
Growth in operating expenses, however, exceeded operating revenues. As a result
of this an increasing debt service requirements, net revenue debt service
coverage, excluding tax receipts, declined over the fiscal 2008 to 1.88 times.
The port continued to maintain adequate cash reserves with fiscal 2009 net
working capital improved to 52.6% of gross revenues, or $14.5 million, and days
cash on hand improved to 186. Preliminary estimates for 2010 show continued
narrowing of coverage to 1.45 times.
Moody's notes that property tax receipts generally provide added
financial flexibility of over $1.0 million after payment of general obligation
debt service. The port's property tax is levied on an assessed valuation of
approximately $7.3 billion and currently levies at a rate of $0.40 per $1,000 of
assessed valuation (as compared to the maximum rate $0.45). Although the port's
tax levy cannot be used directly for revenue bond debt service, it does offset
operating expenses, thereby providing indirect support for revenue bonds. With
the addition of property tax revenues, annual debt service coverage by 2009
revenues increases to 2.20 times, and the estimated 2010 coverage is 1.94 times.
Moody's believes the port's ability to continue to diversify and expand its
shipping business will be a key determinant in maintaining and improving the
credit quality of its revenue bonds. A new grain export facility under
construction and expected to be completed in mid-2011 adjacent to port's new
Berth 9 is anticipated to further diversify the port's operations and provide a
more profitable product line. The facility is expected to be in operation for
the fall 2011 harvest and will provide three sources of revenue for the port: a
base land lease, wharfage fees, and dockage fees. The facility is expected to
handle 9 to 11 million tons a year. The port reports that it is the only
facility in the northwest which can handle whole unit trains without break-up
due to its rail loop design. The port has also signed a lease with a steel
manufacturer and officials report that log exports have rebounded, as well as
soybean shipments. Moody's expects port management to continue to market its
competitive position along the Columbia River just inland from the Pacific Ocean
and along the Interstate 5 corridor.
DEBT POSITION IS MODEST; LEGAL PROVISIONS PROVIDE FOR SLIGHTLY WEAKER RATE
Moody's expects the port's debt position to remain modest. The proceeds of the
current offerings will be used to reimburse the port for a property acquisition,
and to refund certain maturities of the port's Series 1998 and 1999 revenue
bonds. Comprised of 307 acres of industrial zoned land in city, the property had
been assessed at $7 million, but the port purchased the parcel for $2.7 million.
The port's enterprise system debt ratio was 27.6% in fiscal 2009 and is expected
to moderate given the lack of additional revenue bond borrowing plans. Typical
of Washington ports, Longview's general obligation debt burden is a modest
0.2%. Amortization of principal for the port's revenue bonds is 93.8% in ten
years; for all of the port's debt this figure is also rapid at 86.1% in ten
years. All of the port's bonds have been issued as fixed rate obligations.
The current issue is secured by net revenues of port operations. Upon issuance
of the Bonds ,the port's rate covenant is standard. Net revenues must be at
least equal to 1.25 times current annual debt service, revised from 1.35 times.
The system's bond reserve requirement is standard; an amount equal to the
lesser of (1) maximum annual debt service; or (2) 125% of average annual debt
service. In the event of future parity bond issuances, the port covenants to
make equal annual payments into the reserve account so that by five years from
the date of future parity bond issuance the amount in the reserve account will
be equal to the reserve account requirement. The additional bonds test is also
standard at 125%.
Moody's notes that the rate covenant will be revised to 1.25 times, however, at
the earlier of (i) the date on which any outstanding parity bonds are no longer
outstanding; or (ii) the date on which the owners of at least 60% of all parity
bonds then outstanding consent to the amendments made in this resolution. As
such, the revision to 1.25 times will occur with the issuance of these bonds.
Although this represents a modest weakening of the port's legal covenants,
Moody's believes his amendment does not warrant a ratings revision.
What could make the rating move - UP
- Continued growth and diversification of the port's operations and further
diversification of the local economy
What could move the rating - DOWN
- Significant decrease in pledged revenues and a resulting narrowing of debt
- A significant deterioration in the district's financial position
Revenue Bonds (fiscal 2009 ratios):
Operating ratio: 89.7%
Annual debt service coverage: 1.88x
Annual debt service coverage, including tax revenues: 2.20x
Maximum annual debt service coverage: 1.72x
Maximum annual debt service coverage, including tax revenues: 2.01x
Net working capital as a % of gross revenue: 52.6% ($14.5 million)
Days cash on hand: 186
Debt ratio: 27.6%
Payout of principal (10 years): 93.8%
Estimated fiscal 2010 debt service coverage:
Annual debt service coverage: 1.45x
Annual debt service coverage, including tax revenues: 1.94x
Maximum annual debt service coverage: 1.32x
Maximum annual debt service coverage, including tax revenues: 1.77x
2000 per capita income (Cowlitz County): $18,583 (80.9% of state)
Average annual growth in full value, 2005 - 2010: 6.7%
2010 full valuation: $7.3 billion
Full valuation per capita: $92,624
Direct debt burden: 0.2%
Payout of principal (10 years): 68.4%
The principal methodology used in this rating was Moody's Rating Methodology for
U.S. Ports published in February 2005.
Information sources used to prepare the credit rating is the following: parties
involved in the ratings.
Moody's Investors Service considers the quality of information available on the
credit satisfactory for the purposes of assigning a credit rating.
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Public Finance Group
Moody's Investors Service
Matthew A. Jones
Public Finance Group
Moody's Investors Service
Journalists: (212) 553-0376
Research Clients: (212) 553-1653
MOODY'S ASSIGNS Baa1 RATING TO THE PORT OF LONGVIEW REVENUE AND REFUNDING BONDS
Moody's Investors Service
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