CPA satisfied with $20M bond rating

Commonwealth Ports Authority executive director Carlos H. Salas said he is satisfied with the BBB minus rating given by Fitch/IBCA to the $20 million airport bond.

The bond rating, which came out on March 9, has at least prevented the current interest rate of 6.25 percent from increasing to 6.70 percent. Salas said this would also entice investors to buy the bonds from current bondholder the Franklin Fund.

However, the ports authority is still awaiting the investment grade rating for the $33 million seaport bond. Salas has expressed concern that the delay may have something to do with the projected drop in orders from garment manufacturers here in connection with the $1 billion lawsuit filed by garment workers against manufacturers and buyers.

Since 50 percent of the cargo traffic in the CNMI belongs to the garment industry, the drop in shipment would lead to a reduction in the seaport revenue.

“It would have a devastating effect on the seaport earnings,” said Salas.

A study conducted by Booz, Allen & Hamilton on the seaport operation has revealed that the departure of the garment industry would severely affect CPA’s capability to repay the $33 million seaport bond.

The study also noted that the long term future of the garment industry remains uncertain due to international trade agreements and potential legislations which may immediately end its continued stay.

Although the island’s tourism economy has been severely affected by Asia’s financial crisis, Fitch/IBCA believes that the Northern Marianas remains an attractive destination in the Pacific.

“We just hope that the garment industry would continue doing business on the island, otherwise, we would be facing a big problem,” said Salas.

In rating the airport bond, Fitch/IBCA noted the actions taken by the CPA board and management to weather the current economic crisis.

Aside from Fitch IBCA, the ports authority had asked Standard & Poor’s to rate the $53 million bond, one year before it carried out the bond flotation. The ports authority has carried out various cost-cutting measures to be able to meet its financial obligations and continue operation.

The CPA management and board had approved the increase in airport rates and charges effective March 1,2000. However, the seaport rates, charges and fees will be raised beginning July 1, 1999.

Should the Legislature be able to come up with the needed funding for the ports authority to meet its debt service requirement, management would no longer raise its airport fees.