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New Issue:

MOODY'S ASSIGNS Baa1 RATING TO THE PORT OF LONGVIEW REVENUE AND REFUNDING BONDS

12 Jan 2011

APPROXIMATELY $18.2 MILLION IN PARITY DEBT AFFECTED

Ports
WA

Moody's Rating

ISSUE

RATING

Revenue and Refunding Bonds, 2011A (Taxable)

Baa1

  Sale Amount

$5,430,000

  Expected Sale Date

01/25/11

  Rating Description

Port Revenue

 

Revenue and Refunding Bonds, 2011B (AMT)

Baa1

  Sale Amount

$5,895,000

  Expected Sale Date

01/25/11

  Rating Description

Port Revenue

 

Revenue and Refunding Bonds, 2011C (Tax Exempt)

Baa1

  Sale Amount

$1,755,000

  Expected Sale Date

01/25/11

  Rating Description

Port Revenue

 

Opinion

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.

RATING RATIONALE

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 COVENANT

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 service coverage

- A significant deterioration in the district's financial position

KEY STATISTICS

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

LTGO Bonds

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%

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was Moody's Rating Methodology for U.S. Ports published in February 2005.

REGULATORY DISCLOSURES

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.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Analysts

Patrick Ford
Analyst
Public Finance Group
Moody's Investors Service

Matthew A. Jones
Backup Analyst
Public Finance Group
Moody's Investors Service

Contacts

Journalists: (212) 553-0376
Research Clients: (212) 553-1653


Moody's Investors Service
250 Greenwich Street
New York, NY 10007
USA

MOODY'S ASSIGNS Baa1 RATING TO THE PORT OF LONGVIEW REVENUE AND REFUNDING BONDS
No Related Data.
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