The agency that operates the Port of Charleston will take on another $400 million in debt this year to pay for new construction projects and upgrades to its workhorse Wando Welch Terminal in Mount Pleasant.
The State Ports Authority's board of directors on Wednesday approved issuing the revenue bonds during a teleconference meeting during which there was no public discussion of the new debt.
Once the bonds are issued, the authority will have $1.35 billion worth of outstanding debt backed by revenues from shipping line contracts, cruise line charges and other operations.
While the new bonds would substantially increase the authority's debt, rating agency S&P Global said in a report last year that growth in cargo volumes will offset the increased liabilities.
"Although we expect (the authority's) debt burden will rise substantially from current levels, we expect revenue growth will mitigate the rising debt burden, enabling the authority to maintain what we view as a very strong debt and liabilities capacity," S&P said.
The debt to be issued later this year would be subject to the federal alternative minimum tax and would be divided into two series — $260 million for construction of the first phase of the Leatherman Terminal in North Charleston and $140 million for the access road being built to connect that terminal with Interstate 26.
The SPA last went to the bond market about a year ago to issue $300 million in debt. Those bonds received an A-plus rating from S&P and an A1 from Moody's. Those agencies cited the authority's "very strong management and governance" and the port's ability to handle large container ships serving "a robust demand base for import and export activity" as reasons for the high ratings.
The new bonds would be expected to receive similar ratings based on the port's record cargo volumes in the fiscal year that ended June 30. Nearly 2.4 million cargo containers measured in 20-foot increments moved through the SPA's terminals in that period — an 8.8% increase over the previous year that helped give the authority a 44% increase in operating earnings to $54 million.
The authority is predicting roughly 2% cargo growth this fiscal year.
"I think it's fair to say we had a good year — a lot of positive progress handling record volumes," said Jim Newsome, the authority's president and CEO. "There's a lot good going on at the port right now."
The first phase of the 280-acre Leatherman Terminal, under construction at the former Navy base in North Charleston, will include a 1,400-foot wharf that can accommodate ships hauling up to 18,000 20-foot cargo containers. The initial phase of the $762 million project is scheduled to open in 2021.
The $330 million port access road, a joint project of the authority and the state’s Department of Transportation, will help separate cargo-carrying trucks from highway commuters and residential traffic.
In addition to those projects, the bonds will help pay for new ship-to-shore cranes and container-handling equipment at Wando Welch, which handles three-fourths of the port's container cargo.
The authority's board also approved a potential bond refunding of up to $125 million that would pay off some of the higher-cost bonds issued in 2015 and 2018 and replace them with lower-interest debt. The authority won't make a decision on whether to go ahead with the refunding until closer to the time the new bonds will be issued.
Also, the board voted to terminate interest rate swap contracts issued in 2005 and 2008 as a hedge against variable-rate bonds that were based on the Libor lending benchmark. The Libor, or London Inter-Bank Offered Rate, is being phased out in the wake of rigging scandals by traders that cost global banks billions of dollars in fines.
Canceling the interest rate swap contracts will cost the authority up to $650,000.
"With changes in the marketplace, we think it's desirable to terminate these before we pursue the 2019 bond issuance," said Phillip Padgett, the SPA's chief financial officer.