Seaports Magazine - Fall 2014 - (Page 40)

STRONG FINANCIAL RATINGS OPEN THE DOOR OF OPPORTuNITy By Jeff Strader Chief Financial Officer Port Freeport S trong credit/debt ratings from agencies such as Moody's, Standard & Poor and Fitch and financial certificates, including that from the Government Finance Officers Association, are one of the ways in which ports can prove their overall strong financial standing and obtain access to external capital for infrastructure expansion or new equipment. Each of these ratings and certificates provide a unique view of a port's financial picture, but together they ultimately represent whether a port will be given access to various forms of external funding and the extent to which that organization will be allowed to borrow. The stronger or more recognized rating a port has also reduces the cost of that capital in the long term. Traditionally, Moody's, S&P and Fitch are the three agencies that assess and assign a credit rating that reflects the degree to which the port is successful in managing its operations and financial affairs. They also take into consideration a port's strategic vision and supporting financial plan for the future. The relative value of each credit rating can be measured by the interest rate spread between, for example, a AA, A or BBB rating. Depending on the interest rate yield curve at any given time, the savings on the interest cost of a 10-, 20- or 30-year bond issue can be significant, potentially making or breaking the ability of the issuer to fund the envisioned project. The Certificate of Achievement for Excellence in Financial Reporting from GFOA is a recognition that's return is a little more difficult to calculate, yet is still 40 AAPA SEAPORTS MAGAZINE THE BOTTOM LINE Positive credit rankings and certificates give ports important access to external capital, and they make that funding more affordable by showing the port's credit worthiness and demonstrated level of fiscal control. important in the broader picture of a port's financial accomplishments. The certificate recognizes fiscal responsibility with respect to managing and reporting financial results and can certainly provide additional assurance to potential creditors as well as equity partners. It is not a recognition that every port pursues; however, the absence of a certificate is not indicative of a lack of sound financial stewardship. Another often overlooked, yet still significant, rating is that of Dun & Bradstreet, which provides trade and commercial credit ratings. They are an important source to investigate possible business associations or partnerships either as a customer or vendor. In general, ports are under ever increasing pressure to find new and different ways to fund capital expansion projects. While ports do have programs at the federal level, including the Port Security Grant Program and the TIGER grants, that Congress continues to fund, competition for those dollars is steep. On a local level, cities and states have less money available for infrastructure improvements and face a battle of priorities when it comes to road, rail and other public works projects. In part because of these challenges, ports must ensure they position themselves with strong credit and demonstrated fiscal reasonability in order to have the ability to issue their own debt or partner with the private sector though public-private partnerships in order to maintain existing operations and adequately plan for the future. Having these external sources of capital available is also key when a market opportunity strikes that requires an investment in infrastructure. Access to these funds makes it possible to meet and capture demand that leads to new revenue and years of success. Now you may be asking, how does a port establish or improve on its credit rating? While the strategy may be slightly different for each rating agency, there are general best practices that ensure a port is on the path to good financial standing. * Establish a strategic vision for the port and develop a corresponding business plan. * Devise and revise as necessary, a comprehensive long-range financial plan/ model that supports your business plan and vision. * Ensure your balance sheet demonstrates financial strength and very specifically adequate liquidity. * Manage your operations to ever increase financial strength in a manner consistent with your business plan and vision. * Make sure port leadership takes ownership of the organization's vision. They have to walk the walk and talk the talk or all of the above will fail. By strengthening the port's financial position in order to garner stronger credit and debt ratings and obtain certificates and recognitions, it opens the door of opportunity today and in the future. ● Jeff Strader is Chief Financial Officer at Port Freeport on the Texas Gulf Coast, and he is also chair of the AAPA Finance Committee. He has more than 25 years of experience in public and private sector finance.

Table of Contents for the Digital Edition of Seaports Magazine - Fall 2014

AAPA Seaports Magazine
From the President’s Desk
The Big Ship Race – Is Bigger Better?
Shipping Lines Partner to Stay Afloat
Cruise Lines Set Sail for Growth
Bulk Cargo Ports Valuable to the Community
Crafting Funding Solutions for Port Projects
Sister Agreements Spread Cultural Wealth
Strong Financial Ratings Open the Door of Opportunity
Customer Service a Key to Strong Bottom Line Results
Plug in to the Fuel of the Future: Electricity
Houston Thinks Outside the Box With Non-Traditional Lines of Business
Ohio Port Authorities Know How to Rock Economic Development
XXIII Congress of Latin American Ports
Index of Advertisers

Seaports Magazine - Fall 2014