Item No. 10a supp
Meeting Date: March 24, 2026

Subordinate Lien Revenue Debt Refresh
March 24, 2026

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Commission Actions
• Adoption of the Subordinate Lien Master Resolution No. 3845

- Establishes key credit provisions that will apply to all Subordinate Lien
Revenue Bonds

• Amendment of the two Series Resolutions for currently outstanding
Subordinate Lien bonds
- Incorporates changes in the Master Resolution

Note: Actions today do not include any new bond issue authorization
- Likely Commission request for new bond(s) later this year

2

Background
• Subordinate Lien was established in 1992

- Debt service obligations on Subordinate Lien bonds are paid from the Port's net
revenues after payment of First Lien and Intermediate Lien obligations

• Beginning in 1997, the Subordinate Lien has been used primarily
for variable rate debt backed by bank credit
• Only ~4% of the Port's total debt portfolio is variable rate (all on
the Subordinate Lien):
- Commercial Paper Notes - total authorized, $400 million ($120 million outstanding)
- 2008 Variable Rate Demand Bonds - $110 million outstanding
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Purpose
• Staff is proposing updates that will make the subordinate lien more
usable and easier to manage
- Certain provisions are now out of date or inconsistent with other liens

• Refresh will help pave the way for future issuance of Subordinate Lien
variable rate debt
- The Port can improve its overall debt management by issuing more
variable rate debt - see appendix for additional details on variable rate
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Key Updates
Topic
Legal
Structure

Current

New

Purpose

Each series of bonds is governed by
its own bond resolution

Similar to the First and Intermediate
Liens, a Master Resolution will govern
material provisions, and a series
resolution will govern the mechanics of
each series of bonds

Clear consistency of primary
credit provisions

Debt Service
Coverage

1.0x based on the subordinate lien
alone (income after First and
Intermediate Lien bonds are paid)
divided by the subordinate lien debt
service

1.0x based on aggregate coverage - net
income of the Port divided by the debt
service of all liens

Aggregate coverage provides
a clearer and more
meaningful calculation

Debt Service
Offsets

PFCs and CFCs did not exist when
lien was formed

The Port may use off sets such as PFCs
and CFCs to reduce debt service in the
coverage calculation

Flexibility to use off sets

Additional
Bonds Test

1.5x coverage based on the
subordinate Lien only

1.05x aggregate coverage or 1.10x if
debt service off sets are pledged

More flexibility to issue new
debt

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Process
Step

Status

Input from Port's investment banking team on recommended
changes to the subordinate lien
Consent by Bank of America and Sumitomo - Letter of Credit
providers on the Port's outstanding Subordinate Lien bonds
and notes
Commission Authorization
Confirmation from Rating Agencies
Extension of Letter of Credit on Series 2008 Bonds

Completed
In Progress

March/April
April
April

6

Commission Action
• Request Introduction on March 24, 2026
• Request Adoption on April 14, 2026
1. Adopt new Subordinate Lien Master Resolution No. 3845
2. Adopt Series Resolution No. 3846 - Commercial Paper Notes

• Amends Subordinate Lien Series Resolution No. 3456 (as previously amended
by Resolution No. 3777)

3. Adopt Series Resolution No. 3847 - 2008 Variable Rate bonds
• Amends Subordinate Lien Series Resolution No. 3598

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Appendix - Variable Rate Debt

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Variable Rate Debt Can Lower the Port's Cost of Capital
• Variable interest rates reset
frequently, e.g. each week
• Short-term municipal rates on
average are lower than longterm rates
Average Rates 2000-2025
SIFMA

MMD

1.48%

3.54%

- SIFMA: Securities Industry and Financial Market Association Index of
municipal short-term rates
- MMD: Municipal Market Data index of long-term rates
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Other Benefits
Asset-Liability Management
• Reduce interest rate risk by hedging interest expense and interest earnings

Flexible Structure

• Some variable rate products provide for flexible principal payments
10

Rate Volatility is a Risk
• The Port retains interest rate
risk, but manages that by
off-setting variable rates on
its investment portfolio

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The Port Retains Credit and Liquidity Risk
Risk

Mitigation

• The Port's variable rate is backed by a
bank letter of credit
• Problems with the market or
problems with the bank's credit can
result in higher rates or in a lack of
investors

• The Port negotiates agreements with
the bank(s) to minimize the increase in
rates and to provide time to cure the
underlying problem
• Diversify bank exposure

- The Port experienced this during the
credit crisis in 2008

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