Port approves long-term funding for Capital Improvement Plan

To continue the funding of the Port of Tacoma’s five-year, $616 million Capital Improvement Plan, the Port Commission today authorized the 2006 issue of $100 million in 30-year variable rate revenue bonds.

According to Jeff Smith, the Port’s Senior Director of Finance and Administration, the Port will enter into a forward-starting payment agreement at a fixed interest rate not to exceed 4.5 percent.

Payment agreements of this type are used to manage interest rate risk and – when possible – reduce overall interest expense. “In simple terms,” explained Smith, “these arrangements are similar to locking in the interest rate on your home mortgage. The Port is contracting for a 30-year fixed interest rate today for a bond issue that will occur next year. This does three things that are consistent with our Plan of Finance: It provides long-term budget certainty, it lowers our risk, and finally, it lowers our overall cost of borrowing.”

According to Port of Tacoma Executive Director Timothy J. Farrell, the arrangement fits well with the Port’s progressive, yet conservative financial policy. “We continue to utilize the most responsible means for financing Port growth,” he said. “Keeping costs low and stable allows the Port to build job-generating infrastructure that our customers need to accommodate their growing business.”

Port of Tacoma Commission President R. Ted Bottiger noted that sound financial policy is critical to the Port’s long-term mission. “The Port of Tacoma exists to create economic vitality for our region. The 2006 bond issue and forward-starting payment agreement provides us the ability to grow today and build an environment for greater job creation in the future,” he said.

Revenue bonds fund a portion of the Port’s Capital Improvement Plan, which includes terminal and infrastructure development. “These are projects that strengthen our competitive position on the West Coast by maintaining and enhancing the Port’s efficiency,” Farrell said. “Efficiency is key to our customers’ success and so to the success of the many great people of Pierce County who are employed in the industry.”

According to Smith, the Port’s 2005 Plan of Finance goals include improving financial capacity and reducing the average interest cost on debt. “The Port will meet or exceed the debt service coverage established in the bond covenants and our two-times-debt-service-coverage goal of our Plan of Finance. The term of the bond matches the life of the assets being financed,” he said.

Underwriters will competitively bid the interest rate to be paid by the Port under this payment agreement. The firm with the lowest interest rate will win the bid. Other bidders will have an opportunity to match the bid and receive a portion of the contract.