Alabama ports may restructure short-term borrowing
The Alabama State Port Authority is examining a possible restructuring its short-term debt because of turmoil in the market for a type of short-term bond called auction rate securities.
The board of directors of the authority, which oversees the Port of Mobile, has engaged Goldman Sachs & Co. to underwrite the possible issuance of refunding bonds, and also engaged Hand Arendall, LLC as bond counsel.
James K. Lyons, director and chief executive officer for the authority, said his agency has seen the interest rate on about $60 million in variable rate auction rate securities climb slowly since last fall, and very sharply in recent weeks.
The rates are reset at auctions held every 14 days. Just a month ago the state authority was paying 4.5 percent on the bonds. The rate jumped to 6 percent two weeks ago and Monday the bonds were reset at 8 percent.
The increase from 6 percent to 8 percent means the agency will pay about an extra $3,000 in interest every day, Lyons said.
Alabama isn’t alone — the same thing has happened to the Port Authority of New York and New Jersey and other ports and agencies with auction rate bonds in recent weeks.
While the underlying financial condition of the Alabama State Port Authority hasn’t changed — its debt is still rated A- by Moody’s and Fitch — investors that had formerly been attracted to auction rate securities have become wary of them because of worry that bond insurers may have exposure to subprime real estate debt.
Lyons said no definite decision has been reached on whether the agency will refinance the bonds, which represent about 19 percent of the port’s indebtedness. He said if it did, it would consider other sorts of variable rate bonds.
The Port Authority of New York and New Jersey said it plans to get out of auction rate securities over the next six to eight weeks.
Alabama ports may restructure short-term borrowing
