Fitch Ratings has affirmed the City of Long Beach, CA’s approximately $469.2 million of outstanding senior lien harbor revenue bonds at ‘AA’ and the $491.9 million of outstanding subordinated lien Transportation Infrastructure Finance and Innovation Act (TIFIA) loan at ‘AA-‘. The Rating Outlook is Stable.
RATING RATIONALE
The rating reflects the Port of Long Beach’s (POLB) strong market position in a large and economically diverse region, with resilient revenues from long-term contractual guarantees that are sufficient to cover both the port’s outstanding senior debt obligations and the subordinate TIFIA loan. Contractual guarantees should continue to provide revenue stability as the port proceeds with its long-term capital improvement plan (CIP), focused on ensuring the port’s competitive position and enhancing capacity to meet growth going forward.
The port continues to maintain strong financial metrics and considerable liquidity levels that are far exceeding management’s ongoing guidelines of 2.0x minimum debt service coverage ratio (DSCR) and 600 days cash on hand (DCOH), despite variations in throughput levels. These strengths provide revenue stability for the port and a strong financial cushion to withstand uncertainty related to changes in trade policy and the resulting impact on maritime trade and volumes. The one-notch rating differential on the TIFIA loan reflects its subordinate claim on revenues.
KEY RATING DRIVERS
Revenue Risk – Volume – High Stronger
Strong Market Position: The POLB is one of the nation’s largest container ports, located on the West Coast. Together with the neighboring Port of Los Angeles, CA (AA/Stable), the two constitute the San Pedro Bay Port Complex, one of the largest port complexes in the world. The POLB’s ability to handle larger ships, its sizable local market share, and its strong representation across shipping alliances continue to position the port favorably. These strengths serve as mitigants to POLB’s ongoing exposure to fluctuations in international trade, labor risks, and throughput levels that remain largely dependent on East Asian imports.
Revenue Risk – Price – Stronger
Resilient Revenues: Most operating revenues are derived from the container business, exposing the port to fluctuations in international trade and competitive pressures that can lead to volume volatility. However, the port’s revenues have proven to be largely insulated from trade-related revenue volatility due to the high percentage of long-term guaranteed contracts in place with most tenants. Minimal annual guarantees consistently account for around 80% or more of operating revenues and are expected to continue to provide revenue stability going forward, with counterparties honoring agreements through periods of volatility.
Infrastructure Dev. & Renewal – Stronger
Modern Facilities, Manageable Capital Program: The port benefits from modern facilities with excellent intermodal access. Several sizable projects that have been underway in recent years are now complete, and the port’s 10-year CIP (2026-2035) is manageable at $3.2 billion. Major upcoming projects will focus on rail improvements and supply chain efficiency. The current CIP is expected to be almost entirely funded with port revenues, existing bond proceeds, and grants, with management indicating modest additional borrowing expected in the medium term. Ongoing rail improvements are expected to extend beyond the CIP period.
Debt Structure – 1 – Stronger; Debt Structure – 2 – Midrange
1 – Senior Debt; 2 – Sub/TIFIA Loan
Fixed-Rate, Amortizing Debt: The senior bonds are all fixed-rate and benefit from strong covenants, although outstanding debt does not benefit from a cash-funded debt service reserve fund (DSRF). Fitch does not view the lack of DSRF as a credit negative given the robust current and anticipated levels of unrestricted reserves.
The port manages its financial profile to a minimum of 2.0x net coverage and 600 DCOH, per an ordinance adopted by the Board of Harbor Commissioners in 2011. Fitch views this policy as providing liquidity stability for bondholders and sees continued management to these levels as important to maintenance of credit quality given the lack of cash-funded DSRFs. The subordinate TIFIA loan is fixed rate and benefits from a fixed amortization profile but has a junior claim to revenues.
Financial Profile
Financial performance at POLB has remained strong despite cargo volatility in recent years. The port’s balance sheet has also strengthened despite drawing on cash to fund the ongoing CIP. Unrestricted cash reached nearly $966 million in fiscal year (FY) 2024, equal to over 1,600 DCOH compared to a historical five-year average of close to 1,500 DCOH. Historically, the port has maintained high DSCRs, with net coverage on all obligations in the 3.0x range over the past decade. Total DSCR increased to 5.2x in fiscal 2024, with leverage decreasing to 0.1x net debt to cash flow available for debt service (CFADS) on all obligations.
Fitch’s rating case conservatively assumes that trade volumes decline amid the ongoing trade policy uncertainty in the last quarter of FY 2025 (ending on Sept. 30), with the changes in volume primarily observed in the first half of FY 2026. Fitch assumes a 10% decline in FY 2026 volumes and revenues to reflect a hypothetical recession and potential impact of tariff volatility, followed by low annual growth of 1%-3% as trade normalizes once the global trade environment becomes clearer. Under these assumptions, total DSCR averages a robust 4.4x through FY 2029 (4.1x through FY 2034), and leverage remains modest at 2.2x in FY 2029 when including a potential CIP-related issuance of $200 million in 2028.
POLB cargo volumes and operating revenues may decline moderately in the next six to 12 months from current levels due to ongoing trade war and tariff uncertainties. However, Fitch believes POLB’s financial profile will remain resilient during this period of transition in the maritime trade industry, supporting strong financial metrics and considerable liquidity that will remain well above management’s ongoing guidelines of 2.0x DSCR and 600 DCOH. POLB’s significant guaranteed annual minimums (GAM) with long-term shipping partners will also provide significant financial cushion to offset near-term volume and revenue volatility emanating from trade policy uncertainty.
PEER GROUP
Among peers in the ‘AA’ rating category, such as Port of Los Angeles and the Hawaii Department of Transportation (AA-/Stable), the POLB demonstrates comparably strong cargo activity and robust coverage metrics. Leverage for all three ports is consistent with the ‘AA’ rating category. Los Angeles and Long Beach share the San Pedro Bay and access to the Alameda Corridor.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
–Higher than anticipated volatility or a steady downward trend in port container volumes leading to a sustained reduction in DSCRs falling below the 2.0x range in Fitch’s rating case;
–Financial forecasts indicating inability to meet management’s policy of maintaining 2.0x DSCR on all obligations and liquidity equivalent to 600 DCOH;
–Divergence from current very low leverage levels to materially above 6.0x due to upward revisions to the capital program, a higher dependence on debt funding, and/or a material depletion of port liquidity.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
–Given POLB’s already high rating level and sector-wide risks inherent to ports, upward rating action is unlikely.
SECURITY
The senior lien bonds are secured by a pledge of and lien upon gross revenues; all revenue bonds are on parity with respect to their claim on this pledge.
The TIFIA loan is secured by a first lien on the port’s subordinate revenues, or gross revenues of the port remaining after the payment of debt service on senior bonds and other senior obligations and the funding of any debt service reserve funds established for the senior bonds and other senior obligations.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Long Beach, City of (CA) [Port Facilities] has an ESG Relevance Score of ‘4’ for Labor Relations & Practices due to follow-on impacts of labor relations between port tenants and longshoremen during periods of contract negotiations, which has a negative impact on the credit profile and is relevant to the ratings in conjunction with other factors.
The highest level of ESG credit relevance is a score of ‘3’, unless otherwise disclosed in this section. A score of ‘3’ means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch’s ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision.
Source: Fitch Ratings