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Fitch Rates Port of Los Angeles Harbor Dept.'s $115MM 2006D Bonds (AMT) 'AA'

Posted on: Friday, 28 July 2006, 18:00 CDT

Fitch assigns an 'AA' rating to $115,320,000 Harbor Department of the City of Los Angeles, California, revenue bonds series 2006D (AMT). The Rating Outlook is Stable. The bonds are scheduled for competitive sale during the week of August 14, 2006. The financial advisor is Gardner, Underwood & Bacon LLC. Additionally, Fitch affirms the 'AA' rating and Stable Outlook on $705 million outstanding in parity Harbor Department of the City of Los Angeles (POLA or the port) bonds.

POLA's 'AA' rating reflects its strong natural geographic position within the international goods distribution network, which is enhanced by its location in the Los Angeles metropolitan area. Furthermore, the port also benefits from deep harbors and channels, substantial terminal acreage, efficient throughput and good intermodal connectivity, including on-dock rail-yards and direct connections to the national rail network through the Alameda Corridor, a multi-user near-dock facility operated by Union Pacific, and excellent access to the Southern California system of freeways. POLA remains the West Coast container market share leader at 38% in 2005; however, over the last year other regional ports witnessed strong growth eroding POLA's market share by 5%. Together the Port of Los Angeles and Long Beach comprise the San Pedro Bay Port Complex, which ranks 5th in the world in terms of container traffic, behind the ports of Hong Kong, Singapore, Shanghai, and Shenzhen. The complex is a gateway to more than 40% of the U.S.'s waterborne imported goods.

Operating under a landlord-tenant model, the port utilizes long-term leases with major shipping tenants that provide stability for operations and capital planning. During fiscal-year (FY) 2005, port tenants provided a substantial $239 million in minimum annual lease revenue. This stability of revenues assisted the port in achieving a strong liquidity position of 501 days cash on hand in FY2005, thereby providing the port with adequate resources to fund ongoing capital needs from cash. Increasing trade growth with China during 2000-2005 supported the port's 8% average annual operating revenue growth during that period. The operating ratio at the port remains strong at 58% in FY2005, but continues declining from a high of 66%. The port's strong, stable revenue stream provides excellent debt service coverage, with FY2005's result of 3.51 times (x) well above management's internal target of 2.0x.

Credit concerns include growing expenses and capital needs, especially related to environmental/community concerns and security. Operating expenses grew by 13% on average annually during 2000-2005, which is 4% higher than operating revenues during the same period. Port management faces increasing demands to address environmental and community concerns. Fitch expects these demands to expand over the next several years, resulting in the port absorbing the related costs without benefit of gaining revenue-producing assets. Currently, POLA is reassessing its capital program, but another $1 billion is expected over the long-term for facilities development, including programs for environmental and security related improvements. Growing competitive pressures and the recent market share decline, also add concern, as all ports on the West Coast are competing to become more efficient in receiving cargo from the Far East, particularly from China. The quest for efficiency has raised the prospect of potentially new or improved port facilities in Mexico. Moreover, the Port of Los Angeles' dependence on the Far East remains at 88% in FY2006, up from 72% in FY2000, with China alone representing well over half of that percentage.

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.

Source: Business Wire

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