S&P lowers Port of Long Beach's bond rating: L.A. port's cruises by.

Standard & Poor's has downgraded its rating on bonds issued by the Port of Long Beach, while the Port of L.A. was able to avert such a downgrade.

The downgrade took place June 16 and is the second action taken recently against the Port of Long Beach. In the first, Standard & Poor's placed the ports of Long Beach, Los Angeles, San Francisco and Oakland on Creditwatch after the state passed SB 844 in June 1992. SB 844, allowed some port funds to be transferred annually for two years to city coffers.

With the passage of SB 844, the City of L.A. took $44 million from the Port of L.A. during fiscal 1993, and the City of Long Beach took $8 million from the Port of Long Beach. During fiscal 1994, Long Beach is expected to take $8 million from its port's funds, while Los Angeles is predicted to take $25 million to $30 million from its port.

These transfers are "in seeming violation of the State Tidelands Trust, which specifies that port money be used solely for maritime and commerce purposes," stated a Standard & Poor's press release.

The amounts being taken from the Port of Long Beach during this two-year period appear manageable, the Standard & Poor's press release stated. "However, the increased scrutiny from cities with budget problems will likely change the way California ports operate."

Added Peter Bianchini, a director in Standard & Poor's San Francisco office, "Our sense is that California ports in the future will be less likely to maintain the strong balance sheets that they have in the past."

For instance, shippers will question any tariff increases the ports try to make since the ports seemingly have enough money to give to their cities, Bianchini said.

The Port of L.A. avoided a downgrade of its credit rating by adjusting its bond payments in what is called a "defeasance," Bianchini said. A defeasance is a setting aside of funds to cover the outstanding principal and interest of bonds.

The Port of Oakland, meanwhile, was taken off the Creditwatch list after it refinanced all its debt to obtain lower interest payments, and the Port of San Francisco is still under review, Bianchini said.

Standard & Poor's lowered the Port of Long Beach's credit rating, though, from AA to AA-minus.

"AA-minus is still a very good rating and nothing to be ashamed of," said Paul Brown, assistant executive director at the Port of Long Beach. The downgrade "is not that significant and we still have a very strong credit."

The Port of Long Beach has $310 million of rated long-term debt currently outstanding. If the owners of these bonds decide to sell, the bonds may fetch a slightly lower price, but the difference would be "minuscule," Brown said.

Also, if the port tries to issue more bonds, it would have to pay interest that is 0.05 percent higher than it previously paid, he added.

The Port of Long Beach has several upcoming projects it needs to finance, but plans to finance them with short-term debt, which will not be rated until just before it is issued, Brown explained.

Port officials anticipate a good rating for the debt because it will be backed by a bank that is rated AAA, Brown said.

"Standard & Poor's expects that Long Beach will continue to be able to provide for the facilities necessary to remain competitive, and that long-term prospects for growth at the port remain good," stated the Standard & Poor's press release.

Moody's Investors Service plans to maintain its AA rating of the Port of Long Beach's bonds, added David Brodsly, manager of Moody's western regional office, adding that this is an extremely strong rating.

The money being transferred from the port to the City of Long Beach over the two-year period "is not a fundamental credit consideration," he said.

There is also little reason to assume the transfers might continue in future years, Brodsly said.

Meanwhile, on June 30 the Port of Los Angeles plans to take $145 million and invest it in U.S. government securities, such as treasury bills and notes, said Jim Preusch, chief financial officer for the Port of L.A. About $132 million of this $145 million will come from cash in the port's harbor revenue fund and $13 million will come from the port's various bond funds.

The principal and interest from these securities investments will be used to pay off the port's bonds, Preusch said.

These types of payments are viewed by credit analysts, investors, attorneys and accountants as much more secure than bond payments the port makes from its cash reserves, he said.

The port has $131 million in bonds outstanding. They come due on Oct. 1 of this year, on Oct. 1, 2018 and at several times in between, Preusch said.

Thus, Standard & Poor's credit rating of the Port of L.A.'s credit rating remains AA.