Funding Strategy Module

Case Studies

The Funding Strategy module is the first tool developed for the Port Planning and Investment Toolkit.

The following series of case studies or examples illustrates the range of projects and the means to fund those projects for your use. Ideally, while reading these case studies, you will begin identifying your own issues and brainstorming opportunities to take action. This process takes time and careful consideration, but the use of methods contained in this module will help lead to your port’s success.

Long Term Capital Planning
Upgrading Capacity
Asset Backed and Leased Financing
Weighing Traditional vs. Alternative Financing
Responding to Environmental Requirements

Long Term Capital Planning– One Port’s Approach

Funding Strategies in Use
Port officials have applied the methods contained in the Funding Strategies Module to plan for long-term projects and discover new, effective ways of creating capital – even access to capital they didn’t previously know they could use – ultimately leading to successful projects and a newly invigorated port.

Plan of Action
This large port authority had an ambitious long-term capital plan to expand its container terminals and warehouse facilities and construct a new deep-water port through the use of a public-private partnership. The plan for port finance and development staff and advisors included the following steps:

Gather data about their specific port [Port Profile]
Complete a market analysis
Carefully think about and discuss all aspects of the potential project
Determine if the project is realistic by analyzing data gathered and performing a risk analysis [Project Due Diligence Profile]
Creating a debt profile and completing a credit analysis [Credit/Debt Profile]
Operating and business structure identification [Identify Structural Alternatives]
Finance and delivery alternatives evaluation via a financial model [Financial Model]

Once these steps were carefully completed, the port began obtaining funding for the proposed project using one or more of following means:

Project bond issuance [Debt Implementation & Management]
Concession terms and conditions development and solicitation via P3 [Public-Private Partnerships]
Grants and loans procurement from various governmental sources [Grant Funding & Government Loan Programs]

(Note: There is no one way to fund a project. This port decided to obtain funding through three (3) different options to ensure the project is fully funded.)

Results
Careful planning, data gathering and teamwork coupled with proper capital plan implementation allowed this large port to obtain the funding needed for their long-term projects, ultimately benefiting everyone who depends on the port.

Upgrading Capacity — Renovation in the Making

Funding Strategies in Use
In order to complete two sizable port projects in a timely and cost effective manner, time-tested planning and research methods were applied by port officials. The methods used are succinctly explained in the Port Planning and Investment Toolkit.

Plan of Action
Presently, this port authority wants to upgrade and improve the capacity of its current facilities to maintain a competitive advantage in dry bulk handling and storage capabilities. To do this, the port plans to extend its on-dock rail to the bulk facilities, offering greater efficiency to bulk carriers serving industries across the country.

This project needs substantial funding and is issuing port system revenue bonds [Port System Net Operating Revenue Bonds]. Management of the debt issuance process is crucial [Debt Transaction Management], so the port takes the following steps:

A financing team, financial advisor and bond counsel are selected
Completed development of a plan to address debt and credit structures [Approach for Development of a Financial Plan]
Creation of a transaction schedule to ensure funding is available when needed throughout the project
Created bond documents and investor marketing materials
Developed a credit rating strategy [Rating Agency Considerations]
Determined how bonds will be sold
Implemented post-issuance compliance procedures [Post-Issuance Compliance]

Results
The port officials planned properly and managed the debt transactions correctly resulting in low cost, permanent financing to fund the upgrading of its facilities without jeopardizing its financial condition or credit ratings.

Asset Backed and Lease Financing — Staying Competitive Leads Port to Upgrade

Funding Strategies in Use
This example shows how strategic funding research and planning can lead to a range of funding resources. This port took a very unique approach to funding the cranes they needed to remain competitive. Port officials may not have been aware of this unique means of funding had it not accessed the toolkit and followed the process through completion. As a result, the port’s project was a huge success.

Plan of Action
Vessels operated by global and regional carriers are getting bigger, a trend predicted to continue into the foreseeable future. The port’s gantry cranes can handle current vessels, but not for much longer. The cranes need to be upgraded if the port wants to be competitive.

After exploring all possible funding options, port officials utilize the toolkit to complete the following steps:

Created an efficient financing structure to lease new gantry cranes [Port Asset Backed Debt]
Chose asset-backed leasing. Leasing cranes in this manner allows for tax-exemptions, is more cost effective, and allows for more aggressive lease terms for the equipment
Contacted several local financial institutions to determine the interest in providing this type of funding
Submitted requests for proposals (RFP) to determine the most competitive terms available

Results
The result of the RFP reveal the best terms, aligned with the port’s overall funding needs. The cranes are funded allowing the port to attract new container services and larger ships, benefiting everyone involved.

Weighing Traditional vs. Alternative Financing — Dual Financing Leads to Success

Funding Strategies in Use
Port officials used more than one means of financing to meet their ongoing capital needs. Prior to using these methodologies, the port thought it could only use traditional financing, and they found that pursuing multiple funding options allowed port officials to select the best method to accomplish projects.

Plan of Action
Officials at this port require ongoing funding needs in addition to existing debt [Debt Profile]. Both traditional financing and alternative financing options are needed to maximize the efficiency of its borrowings. The port issues a Request for Proposal to bank credit facilities [Commercial Bank Financing] to generate alternatives for the financing.

The port receives several proposals, one of which provides the best terms for financing with a loan that allows the port flexibility to make future capital funding decisions. Some benefits of the bank loan financing include:

Does not require the transaction to be rated [Rating Agency Considerations]
No offering documents or registration required [Debt Transaction Management]
Banks usually do not require debt service reserves
Disclosure is usually limited to receipt of financial statements and budget [Post-Issuance Compliance]
Minimal cost of issuance

Results
The port found the most promising financial institutions to handle their needs and with the use of two means of financing, continued to function effectively.

Responding to Environmental Requirements — Port Meets Environmental Standards Through Grant Funding

Funding Strategies in Use
The port addressed ongoing needs by effectively planning and writing a grant to fund their environmental upgrades. By using proven grant planning and writing strategies, the grant was more effective, resulting in project completion [Grant Funding and Government Loan Programs].

Plan of Action
A port requires infrastructure upgrades and equipment to enable cruise ships to “plug-in” while at berth. These upgrades will align the port with environmental standards but are extremely costly. The port researches many options and identifies a grant funding solution is the best option to supplement the port’s pay-go resources available for the upgrades.

In order to obtain funding for the project, the port positions itself for a state environmental grant using the following attributes in the grant application:

State of good repair: Port infrastructure and facilities upgrades are necessary to attract cruise business to the port.
Economic competitiveness: The port’s cruise business impacts the regional economy.
Quality of life: Demonstrated by reduced air pollution for surrounding community.
Environmental sustainability: Measured by reduced air emissions.
Safety: Technology enables seamless switchover from ship-power to shore power without impact to passengers.
Innovation: Portion of the cost for utility service supply design and infrastructure construction is planned to be refunded to the port based on certain power usage thresholds.
Partnerships: Vendor designs, procures, installs and maintains equipment, while infrastructure is provided through traditional public works contracting.

Results
The port is able to obtain grant funding from the state. Some grants have rules the port must follow, in this case, emissions reduction. This results in the port taking on a certain level of risk in return for state funding.

These are just a few of the potential situations that the Port Planning and Investment Toolkit Funding Strategies Module can help you to address.

This material is based upon work supported by the US Department of Transportation Maritime Administration under Agreement No DTMA-91-H-2013-004. Opinions or points of view expressed in this document are those of the authors and do not necessarily reflect the official position of, or a position that is endorsed by, the U.S. Government, the U.S. Department of Transportation, or any sub-agency or employee thereof.