AAPA explores new ways of funding
April 18, 2011
As all of our nation’s major ocean cargo gateways attempt to expand their footprints and compete with enhanced infrastructure, finding the money for many such projects continues to be a daunting challenge.
Last week’s biennial Port Administration and Legal Issues Seminar in San Francisco (sponsored by the American Association of Port Authorities) featured an in-depth discussion on port funding and public finance management. And while many paths can be taken toward achieving a financing goal, most speakers advised a “go slow” approach.
“It is crucial that one set priorities with all the port stakeholders before moving forward,” said Karl Pan, chief financial officer for the Port of Los Angeles. “Before getting started, make sure you understand the risks and whether you are staffed with the administrative skill sets to the get the job done.”
According to Pan, interest costs are not the only concern ports should have when borrowing money. There are debt service reserve fees; financial covenants; and unique reporting requirements.
“So when you are trying to sell your plan to a Board,” he said, “it’s important to avoid financial jargon.” Pan also insisted that complete transparency be provided in any presentation, as “there is no place to hide.”
Given the economies of scale that most ports are now under, financial advisors are “a must,” said Pan.
“We must always remember that advisors are in this business for one main reason – to make money. But because our ports are so sorely stretched thin, they are absolutely essential,” he said.
Jessica Soltz Rudd, senior director with Frasca & Associates, LLC, concurred, noting that advisors can help ports navigate the intricacies of the financial marketplace.
“Back in the ‘go-go nineties’ ports were bringing in so much cargo that money for expansion was a given,” she said. “The growth multiples were three times or more each year, and given the capital intensive nature of port operations, money was not that hard to raise.”
But in the wake of a severe recession, and with consumer confidence now just beginning to gain traction, ports are under pressure to justify investment before trying to raise money.
“Even with a bond rating like LA’s – ‘triple A’ with Moody’s, S&P, and Fitch – it’s not an easy thing to do,” said Sotlz Rudd. “And once you get the funding, it’s important to stay on your guard, and remain proactive. You are only as good as your credit.”
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