Port of Tacoma stands to lose US$24 million in runaway bond issue

THE Port of Tacoma needs to reach agreement with banks to prevent it from issuing US$230 million worth of bonds to finance a container terminal it no longer needs, reports the Seattle Post-Intelligencer.

Failure to come to favourable terms with the banks could lead to the port paying them more than $24 million to extricate itself from bond financing agreements.

Tacoma port's treasurer David Morrison said he believes the port can work out a deal with its bankers that makes both of those "potentially painful scenarios unlikely".

Mr Morrison is said to be talking with Dexia Credit and Merrill Lynch Capital Services about a complicated new deal that could even save the port money in the future.

The problem stems from signing financing deals two years ago that obligated the port to issue bonds to finance its Blair-Hylebos Project that involved building a new terminal for NYK Lines at the port.

But port authorities and NYK scrapped the terminal deal last year when container volumes plummeted during the recession. Instead, NYK signed a lease for an existing port terminal vacated by a shipping line that moved to Seattle.

The report said the port undertook a complicated interest rate swap deal with Dexia and Merrill Lynch to lock in money for construction at a fixed rate.

Under the terms of those deals, the port is not allowed to decline issuing the bonds without paying termination fees to the banks totalling $24.2 million. Those termination fees vary depending on the prevailing interest rates.

Mr Morrison hopes to craft a new deal with those institutions to allow the port to substitute some existing bonds for some of the new bonds it would have had to issue.

Lehman Brothers was one of the "counterparties" on bonds the port issued to pay for the initial work on the NYK Terminal.

"We had a signed contract with NYK before we made these agreements," he added. "Who could have anticipated it would be cancelled?"
(Source:www.schednet.com)