Seaport bond on edge of default

The Commonwealth Ports Authority has reported that its seaport revenue bond is also on the brink of technical default.

Acting CPA executive director Lee Cabrera in a report to Gov. Benigno R. Fitial and the Legislature said that CPA may have to increase rates at the Port of Saipan because the seaport is not making enough revenue to meet bond requirements.

CPA, which is under a state of emergency originally because of problems with its airport revenue bond, has recently increased airport fees.

“With the 60 percent reduction in revenue at the Port of Saipan, CPA expects that the debt service ratio will also become an issue for the seaport revenue bond,” said Cabrera, who attributed the seaport’s decreasing revenue to the decline of Saipan’s garment manufacturing industry.

As with the airport revenue bond, the seaport bond indenture agreement requires CPA to make timely payments and to maintain a 1.25 revenue-to-bond payment ratio at all times in the duration of the bond. This means for every $1 owed on the bond, CPA must have $1.25 of net revenue in reserve.

Citing preliminary information, Cabrera said the Port of Saipan currently has debt service coverage of 0.84, well below the requirement of 1.25. To comply with the seaport bond indenture CPA has hired BST Associates, a consulting firm based in Kenmore, Washington, which specializes in seaport rate reviews.

“As you may well know by now, the rate study will propose rate increases which will be passed on to the shipping industry in the form of tariffs and will further affect all involved in our local economy. Unfortunately, CPA is faced with having to undertake this reality as a result of the bond indenture agreement for the seaport bond,” Cabrera said.

A huge portion of CPA’s $33-million seaport bond was used to complete the $43 million Saipan Harbor Improvement Project.

Cabrera reiterated CPA’s request for the Legislature to pass a law writing off the $6 million that CPA owes the Commonwealth Development Authority for capital improvement projects. CPA is paying CDA approximately $68,000 a month for the loan. Cabrera said the loan forgiveness will help improve CPA’s financial standing.

House Floor Leader Joseph Camacho said yesterday that the bill is still being discussed by the House leadership.