Texas Port Weighs a Bond Is­sue

The Bond Buyer - - Front Page - BY RICHARD WIL­LIAMSON

DAL­LAS – The Port of Brownsville, Texas, may use rev­enue bonds to fi­nance dredg­ing op­er­a­tions to ac­com­mo­date larger ves­sels but is keep­ing the op­tion in re­serve for now, of­fi­cials said.

“Rev­enue bonds are on the ta­ble only as a means of last re­sort,” said Steve Tyn­dal, se­nior di­rec­tor of mar­ket­ing and busi­ness de­vel­op­ment at the port.

Like other ports around the na­tion, Brownsville — man­aged by the Brownsville Nav­i­ga­tion Dis­trict — wants to deepen its 17-mile ship chan­nel to 52 feet from its cur­rent 42 feet to han­dle the larger ships com­ing through the ex­panded Panama Canal and deeper-draft tankers car­ry­ing U.S. en­ergy ex­ports. But like the other ports, Brownsville must wait for fed­eral fund­ing and the U.S. Army Corps of En­gi­neers be­fore the $200 mil­lion project can be­gin.

“The cost is chal­leng­ing, es­pe­cially for an emerg­ing port like Brownsville,” said BND board sec­re­tary Ser­gio Tito Lopez.

The larger Port of Cor­pus Christi, 150 miles up the Gulf Coast, is is­su­ing its own bonds to fi­nance the dredg­ing in an­tic­i­pa­tion of even­tual fed­eral fund­ing. In March, the commission that gov­erns the na­tion’s fourth-largest port by ton­nage voted to is­sue up to $400 mil­lion of bonds to dredge the Cor­pus Christi Ship Chan­nel. The port has been seek­ing the promised fed­eral funds for 28 years.

Dredged to 54 feet from the cur­rent 45 feet and widened to 530 feet to al­low two-way traf­fic flows, Cor­pus Christi will have the deep­est draft nav­i­ga­tion port on the U.S. Gulf Coast and a sig­nif­i­cant ad­van­tage over the depth-lim­ited Port of Hous­ton. The ex­pan­sion is needed for grow­ing ex­port vol­umes of U.S. crude oil and nat­u­ral gas, which have made Cor­pus Christi the largest en­ergy ex­port port in the U.S. by vol­ume.

Ac­cord­ing to a Na­tional Oceanic and At­mo­spheric Ad­min­is­tra­tion study re­leased last year, a sin­gle ad­di­tional inch of draft al­lows a bulk grain ship to move 179 more tons

of cargo, val­ued at an ad­di­tional $30,000. A ship car­ry­ing trac­tors could move 36 more trac­tors val­ued at $2.4 mil­lion with just one more inch of draft.

Like Cor­pus Christi, Brownsville, ranked 67th in the na­tion in cargo vol­ume, is devel­op­ing as an en­ergy ex­port hub with rapid de­ploy­ment of pipe­lines from the boom­ing Ea­gle Ford Shale play of South Texas and plans for three liq­ue­fied nat­u­ral gas ex­port fa­cil­i­ties.

An Amer­i­can As­so­ci­a­tion of Port Au­thor­i­ties sur­vey in 2016 found that Texas ports and their pri­vate-sec­tor part­ners planned to in­vest $48 bil­lion on cap­i­tal im­prove­ments over five years.

The Army Corps of En­gi­neers es­ti­mates the cost of deep­en­ing the Brownsville chan­nel by an ad­di­tional 10 feet would be $200 mil­lion, with $60 mil­lion more needed to im­prove port in­fra­struc­ture.

While Congress has au­tho­rized the ship chan­nel to be deep­ened to 52 feet, it has not pro­vided the fund­ing.

The nav­i­ga­tion dis­trict has dis­missed the idea of us­ing gen­eral obli­ga­tion bonds for the project, but the idea of rev­enue bonds has earned board sup­port. After back­ing the bonds, the com­pa­nies that use the port would be re­im­bursed once fed­eral funds were re­ceived.

“As we move through the fi­nal per­mit­ting ef­forts, which by the way are daunt­ing, we are on a par­al­lel path to se­cure fund­ing and be­gin the project as soon as pos­si­ble,” Lopez said in a “State of the Port” ad­dress in March.

“How soon? It’s dif­fi­cult to pre­dict, but it’s much closer at hand with a higher prob­a­bil­ity of suc­cess than we pre­vi­ously imag­ined,” Lopez said. “Project com­mence­ment could be within a five-year event hori­zon, or sooner.”

Although the Port of Brownsville is sup­ported by prop­erty tax levies, Com­mis­sioner Ralph Cowen said that he did not want to en­cum­ber the gen­er­ally low-in­come cit­i­zens of his city when the ma­jor ben­e­fi­cia­ries would be wealthy ten­ants of the port.

Na­tion­ally, ports have iden­ti­fied $155 bil­lion in planned cap­i­tal im­prove­ments from 2016-2020, ac­cord­ing to AAPA. Six nav­i­ga­tion chan­nel deep­en­ing projects are un­der­way, the most in over a decade.

“There were jus­ti­fied com­plaints on the length of time it took the Corps to com­plete nav­i­ga­tion chan­nel im­prove­ment stud­ies,” said Jim Walker, di­rec­tor of nav­i­ga­tion pol­icy and in­fra­struc­ture for the AAPA. “This led Congress in 2014 to pass leg­is­la­tion re­quir­ing th­ese stud­ies be com­pleted within three years. The first of th­ese stud­ies are now be­ing com­pleted and ini­tial re­sults have been very pos­i­tive.”

For Brownsville, which lies on the bor­der with Mex­ico, the is­sue is not just ex­ports from the United States but im­ports for Mex­ico.

“The Port of Brownsville is a trans-ship­ment port, mean­ing about 95% of ev­ery­thing we move is bound for Mex­ico,” Tyn­dal said. “We also re­ceive sig­nif­i­cant im­ports from Mex­ico: sugar, lime­stone, fuel oil, scrap me­tal, chem­i­cals, etc.”

Like many cities and cross­ing points on the bor­der, Brownsville was con­cerned that Pres­i­dent Trump’s threat to scrap the North Amer­i­can Free Trade Agree­ment could hurt busi­ness and rev­enue. The re­cently an­nounced agree­ment be­tween the U.S. and Mex­ico eases the pres­sure some­what, though de­tails about the deal are yet to be re­vealed. Texas po­lit­i­cal lead­ers re­main con­cerned that Canada has been left out of an agree­ment that pre­vi­ously in­cluded all three coun­tries.

“We have be­come an in­te­grated eco­nomic unit: Mex­ico, Canada and the United States,” said U.S. Sen. John Cornyn, R-Texas. “Ex­clud­ing Canada would be self-in­flicted harm, and I hope we are able to get this done.”

Texas ex­ports about $7 bil­lion of crude petroleum, plas­tics and fuel an­nu­ally to Canada, the state’s sec­ond-largest trad­ing part­ner after Mex­ico.

One al­ter­na­tive to dredg­ing, at least for the en­ergy in­dus­try, is off­shore load­ing sta­tions.

Global com­modi­ties trad­ing firm Trafigura Group an­nounced in Au­gust that it plans to build the Texas Gulf Ter­mi­nals Project in the Gulf of Mex­ico, off the coast of Cor­pus Christi.

An off­shore ter­mi­nal would avoid port traf­fic and float in wa­ters deep enough to han­dle the largest tanker ships known as “Very Large Crude Car­ri­ers,” or VLCCs, fully loaded. Trafigura’s plans come after Hous­ton en­ergy com­pany En­ter­prise Prod­ucts Part­ners an­nounced a plan to build an even larger off­shore oil ex­port­ing ter­mi­nal south of Galve­ston.

The plans were an­nounced as Texas ports be­gan ex­port­ing more en­ergy prod­ucts than they im­ported.

The U.S. En­ergy In­for­ma­tion Agency said that the surge in U.S. oil ex­ports came so quickly that the Gulf Coast’s on­shore ports were strug­gling to en­sure space for VLCCs.

“The in­abil­ity to fully load larger and more cost-ef­fec­tive ves­sels has pric­ing im­pli­ca­tions for U.S. crude oil ex­ports,” EIA said. “Us­ing a num­ber of smaller ships re­quires a wider price spread be­tween U.S. crude oil and in­ter­na­tional crude oil prices to com­pen­sate for the lower economies of scale and costs as­so­ci­ated with re­verse ligh­ter­ing and par­tial load­ings.”

The Louisiana Off­shore Oil Port is the only U.S. fa­cil­ity able to ac­com­mo­date a fully loaded VLCC, ac­cord­ing to EIA.

As Texas ramps up its ex­ports of en­ergy prod­ucts, in­com­ing Mex­i­can Pres­i­dent An­drés Manuel López Obrador is vow­ing to halt im­ports of gaso­line and diesel from the United States by 2021.

Lopez Obrador made the prom­ise after a 20% hike in pump prices led to mass protests in Mex­ico.“Re­finer­ies will be built, gas ex­trac­tion will be pro­moted, and the elec­tric in­dus­try will be strength­ened,” López Obrador said be­fore his elec­tion Nov. 1. “All this to stop buy­ing gaso­line and other fu­els abroad.”

Mex­ico re­lies on U.S. re­finer­ies, with more than half of the gaso­line the United States ex­ported in 2017 go­ing to the neigh­bor­ing na­tion, ac­cord­ing to the EIA.

The value of U.S. en­ergy ex­ports to Mex­ico in­creased to a high of $25.8 bil­lion in 2017, in­clud­ing $23.2 bil­lion of petroleum prod­ucts, ac­cord­ing to the EIA. Over­all, the ex­port value was more than twice as much as the $11.1 bil­lion value of 2017 U.S. en­ergy im­ports from Mex­ico.

En­ergy ac­counted for more than 10% of the value for all U.S. ex­ports to Mex­ico and 4% of all U.S. im­ports from Mex­ico in 2017.

In ad­di­tion to petroleum prod­ucts, Brownsville has a bur­geon­ing steel in­dus­try built around ship sal­vaging op­er­a­tions.

Big River Steel, a steel pro­ducer with head­quar­ters in Arkansas, is in the due dili­gence phase of devel­op­ing a steel mill on the ship chan­nel.

The port also han­dles steel from Europe and other lo­ca­tions bound for Mex­ico. The port is connected by rail to its sis­ter city of Mata­moros, Mex­ico.

In 2014, the port en­tered a 30-year agree­ment with Om­niTrax Inc. and its par­ent com­pany, the BROE Group, to de­velop an in­dus­trial park within the dis­trict and op­er­ate a rail line un­der a fran­chise agree­ment. As part of the agree­ment, the BND re­tired its 2003 ju­nior-lien rail­road rev­enue bonds. The rail­road has sub­se­quently been re­named the Brownsville & Rio Grande Rail­way. Un­der the agree­ment, the rail­way pre­paid five years of non­re­fund­able fran­chisee pay­ments.

The BND has about $40 mil­lion in se­nior lien rev­enue debt out­stand­ing and about $8.2 mil­lion of gen­eral obli­ga­tion bonds, ac­cord­ing to Moody’s In­vestors Ser­vice, which rated the dis­trict A2 when it is­sued $27.5 mil­lion of rev­enue bonds in 2016.

S&P Global Rat­ings rates the dis­trict A with a sta­ble out­look. ◽

Brownsville Nav­i­ga­tion Dis­trict

The Port of Brownsville wants to deepen its ship chan­nel to 52 feet from the cur­rent 42 feet to ac­com­mo­date larger ves­sels.

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