Template revised January 10, 2019.

703312942 v1

COMMISSION

AGENDA MEMORANDUM

Item No.

8d

ACTION ITEM

Date of Meeting

September 8, 2020

ACTION REQUESTED

Request introduction of Resolution No. 3777, amending Resolution No. 3456, as amended,

regarding term, size and certain delegated authority with respect to the Port’s Subordinate Lien

Revenue Notes (Commercial Paper) program.

EXECUTIVE SUMMARY

As part of its debt management program, the Port uses Commercial Paper (CP) authorized under

Resolution No. 3456 to provide interim capital financing and general liquidity. Staff is

recommending that the program be updated to extend the expiration date from June 1, 2021, to

No. 3456. The program expires June 1, 2021. Over the past twenty-two years, CP has proved to

be an effective financial management tool, providing interim funding for the Port’s ongoing

capital program, as well as access to additional liquidity. CP is a flexible low-cost tool, and the

Port can issue CP as needed and repay outstanding CP as it matures. Maturing CP can be paid

with cash, the issuance of new CP (roll-over) or with proceeds from a long-term bond issue. CP

has been used for bridge financing in anticipation of grant receipts or a bond issuance. It has also

been used for longer-term variable rate financing and amortized gradually. The Port pays interest

on the outstanding CP only and not on the full authorized program amount, and because CP is a

short-term obligation it benefits from the generally lower interest rates at the short end of the

yield curve. The Port currently has approximately $18 million CP outstanding; outstanding

Template revised June 27, 2019 (Diversity in Contracting).

Although primarily used for capital funding, it can also provide additional liquidity. For example,

the Port has managed the program to maintain $50 million available for emergencies and has

thereby been able to avoid the purchase of costly earthquake insurance. The Port can also use

this liquidity layer to help manage temporary cash shortfalls; a potentially important tool as the

Port manages through the current business downturn caused by the pandemic.

CP, like the Port’s long-term variable rate bonds, are issued on the Port’s Subordinate Lien and

are secured by a direct pay letter of credit. The current LOC providers are Sumitomo Mitsui

averaged $276 million over the preceding five years (1996-2000); the Port’s average annual

capital spending over the most recent five years (2015-2019) has increased to $410 million.

Similarly, the Port’s operating expenses have increased over the past 20 years, from $194 million

in 2000 to $443 million in 2019. Due to the increase in capital spending and growth of the

organization and the expectation that during the life of the program the Port will continue to

grow, staff recommends increasing the CP program from $250 million to $400 million. However,

due to the high fees currently associated with LOCs and there being no immediate needs to utilize

the additional CP capacity, staff does not recommend adding a new LOC provider at this time. As

such, there is no cost associated with the additional authorization. A LOC can be added at a

future date, as needed, through a competitive selection. Staff further recommends that the

growth of the organization and costs of capital construction. Third, the Resolution amends the

delegation to staff to manage the letters of credit in order to be consistent with the Port’s other

Subordinate Lien variable rate debt. Pursuant to Resolution No. 3456, the amendment requires

consent from the existing LOC providers; both have reviewed and provided preliminary consent

to this amendment. The amendment will become effective upon final adoption and receipt of

the LOC providers’ formal consent.

ATTACHMENTS TO THIS REQUEST

(1) Resolution No. 3777

(2) Resolution No. 3456, as amended

Template revised June 27, 2019 (Diversity in Contracting).

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