Fitch Affirms Port of Long Beach, California's Harbor Revs at 'AA'; Outlook Stable

NEW YORK--(Business Wire)--
Fitch Ratings affirms the 'AA' rating on approximately $804 million City of Long
Beach, California (Port of Long Beach) harbor revenue bonds. The bonds are
secured by a gross lien on port revenues, with a final maturity in 2027. The
Rating Outlook is Stable.

The 'AA' rating reflects the port's geographic advantage, proximity to a very
large population base, and excellent intermodal access to large rail networks
and highways that result in the port's dominant position as the nation's second
largest container port. The port has a very healthy balance sheet with a
superior liquidity position, very stable revenue sources through long-term lease
agreements that ensure solid operating margins and largely mitigate downside
financial risk, modern and contiguous facilities, and a good diversity of
terminal operators and shippers. Concerns include the overall weak global
economy that is resulting in shrinking global trade volumes, the very
competitive trans-pacific trade lanes and ports of entry, increasing competition
of all-water routes to the east and gulf coasts, growing base for expenses
related to environmental and community needs, the capital intensive nature of
port facilities that require long lead times, and several outstanding litigation
matters that could have a financial impact on the port.

While these are meaningful concerns, the Stable Outlook reflects the high
liquidity levels and low debt that provide a tremendous amount of financial
flexibility. The port's unrestricted cash balances totaled $725 million at the
end of fiscal 2008, representing 2,280 days cash on hand. The port's
unrestricted cash to debt ratio for fiscal 2008 was approximately 90%. The port
entered this economic cycle from a position of great strength, and has the
ability to absorb a considerable amount of volatility over the near term.
However, should the reductions in trade persist through the outlook period and
management does not make adjustments to the port's operating and capital
expenditures, financial pressures may result.

Similar to other ports along the west coast, the Port of Long Beach has
experienced reductions in volume due to the economic slowdown and the overall
reduction in consumer spending. The port was down 11.3% in total container
volume resulting in 6.5 million 20-foot equivalent units (TEUs) at the end of
calendar 2008, and in the first seven months of calendar 2009, the port is down
26.8% over the same period in 2008. Part of this loss can be explained by
shipping lines making adjustments to their schedules and ports of call, while
the majority of this loss is attributable to the economy. To address the issue
of shipping and route adjustments, the port has implemented incentive programs
to encourage intermodal cargo. The downside volume risk is partially isolated
from the port's finances through the use of strong minimum annual guaranteed
lease revenues and the terms of the leases that provide for a floor of revenues.
Historically, the port has been very profitable and produced operating margins
of 76% on average over the last five years (2004-08). For fiscal 2009, the port
is expecting some pressure on its operating margin as expenses are estimated to
increase by 5% and operating revenues are estimated to be down 16%.

In general, the port budgets conservatively and establishes various reserves to
meet its future obligations. However, despite the port's prudent financial
planning, total operating expenses, net of depreciation and amortization,
(fiscal 2004-2008) grew at a very high 21% average annual rate to reach a high
of $116 million in fiscal 2008 up from $54 million in fiscal 2004, largely
driven by many significant one-time expenses as well as general increases in
both security and environmental costs. Despite the rapid operating expense
growth rate, operating income remained healthy as a result of continued growth
in operating revenues that reached $359 million in fiscal 2008, up from $281
million in fiscal 2004 and attributable to the historically strong container
growth rates and favorable leases. Fitch expects that management will make
adjustments and control the expense profile to preserve the port's profitability
and meet all internal policies.

The port's capital improvement plan (CIP) totals approximately $2 billion in
various projects, for which approximately $1.4 billion is related to various
terminal and pier improvements. The remainder of the port's capital program
includes channel dredging, fire stations, security, and various miscellaneous
projects. Management has not committed to an ultimate plan of finance for the
capital program and continues to review its options and time frame for
execution. Under various Fitch scenarios that contemplate continued volume
declines in container throughput through 2011 and the funding of the capital
plan, assuming an additional $500 million-$600 million of debt and careful
management of operating and capital expenditures, forecasted debt service
coverage levels are expected to remain in excess of two times and remain
consistent with the port's policy to meet that target level.

Fitch's rating definitions and the terms of use of such ratings are available on
the agency's public site, 'www.fitchratings.com'. Published ratings, criteria
and methodologies are available from this site, at all times. Fitch's code of
conduct, confidentiality, conflicts of interest, affiliate firewall, compliance
and other relevant policies and procedures are also available from the 'Code of
Conduct' section of this site.

Fitch Ratings, New York
Jesse Ortega, 212-908-0235
Emma Walker, 212-908-9124
or
Media Relations:
Cindy Stoller, 212-908-0526
Email: cindy.stoller@fitchratings.com

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