Can seaport float with its debt?
Written by Scott Blake on April 9, 2014
County commissioners on Tuesday questioned whether PortMiami is taking on too much debt after administrators asked their permission to issue up to $225 million in bonds to help pay for the seaport’s aggressive capital improvements program.
The county estimates the aggregate principal amount of the 2014 bonds will be $209.1 million, and the county would pay interest amounting to $204.6 million over the 35-year life of the bonds, according to a memo from Miami-Dade Mayor Carlos Gimenez to commissioners.
In addition to taking on that debt, some commissioners expressed concerns about being given short notice recently about an accounting issue caught by auditors at the county-owned seaport.
“All of a sudden we’re having problems at the port?” said Commission Chairwoman Rebeca Sosa. “It never happened before and, all of a sudden, someone discovered that?”
Still, Ms. Sosa and other commissioners unanimously approved the bond issue after county officials assured them the port remains on solid financial ground, with enough revenues projected for the future to pay off debts.
“The seaport needs to pay its bills,” Deputy Mayor Ed Marquez explained to commissioners, adding that the bonds will be backed by “the county’s general credit.”
Mr. Marquez, meanwhile, said the accounting issue stemmed from one of the port’s “cruise partners” having to adjust its revenue related to a “credit line” that was needed. He wasn’t more specific. “We had to get the auditors to agree on what the proper treatment was” to remedy the situation, he said.
The seaport revenue bonds approved Tuesday are to be used to produce $180 million to help pay for PortMiami’s new twin-tunnel system, slated to open next month.
The bonds also are to produce $20 million to improve the seaboard cargo yard, acquire more super post-Panamax gantry cranes and improve port facilities.
The bond issue was part of a resolution that also approves the selection of a “liquidity provider to provide a direct pay letter of credit for the variable rate series of the 2014 bonds and a covenant to annually budget and appropriate from legally available non ad-valorem revenues any amounts due to be paid to the liquidity provider if seaport revenues are insufficient to make such payment,” the mayor’s memo states.
Among five firms that responded to the county, The Bank of Tokyo-Mitsubishi UFJ Ltd. submitted “the most economical proposal based on overall cost and the term,” the memo states.
In addition, the memo adds, the resolution approves other payments: making a deposit of up to $7.2 million into a reserve account; paying $1.9 million in costs of bond issuance, including the premium cost of any reserve facilities; and “making available additional authorization in the amount of $15.8 million in the event more principal is needed if interest rates go up at the time of [the bond] pricing, which would impact the amount of proceeds available for the projects.”
Before the vote, some commissioners expressed reservations.
“Are we safe doing this? Are we placing the port in a risky position at any point?” Ms. Sosa asked. “If we don’t approve this, then what is the price the port will have to pay?”
Jose “Pepe” Diaz said he would support the bond issue because the capital improvements being made at PortMiami eventually will pay off with increases in business, especially after the expanded Panama Canal opens.
Mr. Diaz indicated that he trusts county administrators to “know what needs to be done to stay competitive at the port.”
He added: “We live for trade and tourism… I don’t like losing ground to any other port [in Florida] or any other port in another state.”
Xavier Suarez, however, asked whether the port has received any “letters of interest or intent” from shipping companies to bring in bigger cargo ships once the new Panama Canal opens – now expected in 2016.
So far, the port has no such firm commitments, said newly appointed Port Director Juan Kuryla, but shipping companies are keeping tabs on the situation.
“We’re reaching out to them [the shipping lines] and they’re reaching out to us to ensure we have the extra [channel] depth” to accommodate the larger vessels, Mr. Kuryla said.
Esteban Bovo questioned why officials didn’t mention the accounting problem at a recent state-of-the-port luncheon.
“I received a memo dated 4/7 [April 7] and I’m being asked on 4/8 [April 8] to make a decision that could have a large impact on the budget,” Mr. Bovo said.
Mr. Kuryla said the auditors recognized the problem after the state-of-the-port event.
Ms. Sosa questioned how the port’s finances could be impacted if a cruise line were to unexpectedly pull a ship out of PortMiami.
Mr. Kuryla suggested that shouldn’t be a problem, noting that PortMiami’s “minimum guarantees” from its two main cruise lines – Carnival and Royal Caribbean – each extend several more years.
Despite the related debt, Ms. Sosa said, the county should follow through on its development plans for the future of the seaport.
“This is something we have to honor,” she said. “This is something we have to make happen.”