Tender offer may fuel up to $3 billion deal from California rail corridor

Bonds

Fitch Ratings assigned A, BBB-plus and BBB ratings and a stable outlook to three tranches of bonds totaling up to $3 billion the Alameda Corridor Transportation Authority plans to price as part of a tender offer and debt restructuring plan.

The authority operates a 20-mile freight rail corridor primarily along Alameda Street that transports goods from the twin ports of Los Angeles and Long Beach to railyards in downtown Los Angeles.

The corridor handles nearly one-third of the throughput of the ports and provides an essential intermodal transportation link between the ports and two of the national’s largest railroads, Union Pacific and BNSF, according to Fitch’s report, released Thursday.

Alameda Corridor Transportation Authority

Roughly one-third of cargo that comes out of the twin ports of Los Angeles and Long Beach is transported along the 20-mile rail corridor operated by the Alameda Corridor Transportation Authority, according to Fitch Ratings.

The authority announced a tender offer on 17 series of bonds Friday, simultaneously posting a 514-page preliminary offering statement for four series of bonds.

Fitch assigned an A rating to an estimated up to $1.9 billion in senior bonds A, a BBB-plus rating to $560 million in subordinate revenue bonds and a BBB rating to $585 million second subordinate revenue bonds, though it noted in its ratings report that “the final par amount of the series 2024 bonds will be subject to tender participation.”

The preliminary offering documents the authority posted on munios.com on Friday do not contain amounts for the series.

The senior lien debt also received A-minus and A3 ratings from S&P Global Ratings and Moody’s Investors Service, respectively. The subordinate debt received BBB-plus and Baa2 ratings from S&P and Moody’s.

JP Morgan and RBC Capital Markets are lead managers. PFM and Frasca & Associates are co-municipal advisors. O’Melveny and SheppardMullin are co-bond counsel.

The invitation, part of the authority’s plan to refinance all or a portion of the bonds, is open to all owners of the bonds, Michael Leue, ACTA’s chief executive officer, wrote in the statement announcing the tender offer.

“The refinancing plan is being undertaken by the authority for the purpose of better aligning debt service on the authority’s bonds with estimated future authority revenues and potentially reducing the frequency and amount of future payments required to be made by the Port of Long Beach and the Port of Los Angeles as further described in the Preliminary Official Statement dated January 5, 2024 for the Authority’s Series 2024A Bonds, Series 2024B Bonds, Series 2024C Bonds, and Series 2024D Bonds,” Leue said. “There can be no assurance that the Invitation or any component of the refinancing transaction will be completed.”

The deadline to tender bonds for purchase is 5:00 PM New York time on Jan. 19.

The authority has not announced a pricing date for the bonds that are part of an ongoing financing plan that involves a series of tender offers and restructurings designed “to reduce or eliminate projected revenue shortfalls to support debt service payments through the bond year ending October 2037,” Fitch analysts wrote.

“The current transaction is expected to alleviate shortfall advances through bond year 2033 with a series of tender offers and restructurings,” Fitch wrote.

The current transaction includes four series of debt, the series A&B bonds will be issued as senior lien refunding bonds, while the series 2024C&D bonds will be issued as subordinate lien refunding bonds.

“All series are dependent on a successful tender participation,” Fitch wrote.

Proceeds of the senior bonds will be used to pay the purchase price to holders of the 1999A, 1999C and 2022B bonds who accept the tender offer, to fund the debt service reserve fund and to cover the costs of issuance.

“ACTA has assumed that approximately 20% of the outstanding 2026-2033 maturities for the series 1999A&C bonds (senior lien) and 2004A&B bonds (subordinate lien), and 20% of the outstanding 2046 maturity of the 2022 bonds (senior lien) will be tendered, with the proceeds of the 2024 bonds being used to fund the purchase,” Fitch wrote. The current transaction may extend the final maturity of ACTA’s exiting debt from 2052 to 2062, reduce ACTA’s near-term debt service obligations, and alleviate the need to call on shortfall advances from the twin San Pedro Bay ports until bond year 2033, the rating agency said.

ACTA’s activity levels were affected by declines in twenty-foot equivalent unit (a port container standard measurement) volumes, reflecting a variety of factors including normalization of trade patterns following pandemic-related spike in consumer activity, and cargo shifts to east coast ports amid west coast slowdowns during labor negotiations, Fitch wrote.

But Fitch’s ratings bake in an assumption of 1.5% growth in TEUs and also growth in fees paid by the ports in 2024. It also baked in potential recessionary stress from 2024 through 2027 should the country enter a recession.

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