Investment Service Cuts Port District Credit Rating
In the wake of the bankruptcy of the creators of Ventura Harbor Village the Ventura Port District’s credit rating has been lowered, making future borrowing by the district more expensive.
Richard W. Parsons, general manager of the Ventura Port District, said this week that the decision by Moody’s Investment Service to downgrade the district’s bond rating from “A” to “Baa"--the lowest investment-grade bond which banks, trusts and large institutions will purchase--will have no immediate impact on the district’s finances.
But he conceded that “if at some point we want to proceed with some major public works improvement . . . it will up the cost of our borrowing.”
No such plans now exist, he said. A spokeswoman for Moody’s said the lowered rating was prompted by the district’s default on 1981 bonds that it issued to finance construction of Ventura Harbor Village by a private firm, Ocean Services Corp. “The recent default alters key security considerations and results in the revised rating. . . . The port has failed to pay debt service on the certificates since Jan. 1, 1987,” according to a statement issued by Moody’s. Parsons blamed the default on the bankruptcy of Ocean Services, which was to make interest payments on the bonds. The lowered rating puts the district “at the low end of the investment-grade spectrum,” said Gavin Murphy, managing editor of a trade newsletter called the California Municipal Bond Advisor. “They’re perceived as having a higher degree of risk.”
First Issue Downgraded
In 1962, bonds financed construction of Ventura Harbor. Investors hold about $2.5 million in these bonds. In 1981, the district issued an additional $9.5 million in bonds known as certificates of participation, turning the proceeds over to Ocean Services for construction of Harbor Village, a 32-acre complex of retail shops, restaurants and boating slips that is at the core of all harbor tourist activity.
While only the latter bonds are in default, Moody’s downgraded the first issue. The second issue consists of a type of bond that is not customarily rated. The 1981 bonds were issued in the name of the district, but Ocean Services agreed to make interest payments on them. It also agreed to give the district a percentage of its revenues.
In case of default on those payments by Ocean Services, the district was to pay the bond debt out of any surplus it might accrue. But no surplus exists, Parsons said.
Parsons said Ocean Services has not made any payments to the district since July, 1986, leaving the district unable to pay off the bondholders, who are owed $6.5 million. Murphy called the district’s predicament one of two “significant certificate defaults in the state” and adds that there is some concern that the trustee, Bank of America, might attempt to hold the district liable for the outstanding debt. No Bank of America spokesman could be reached for comment.
‘District Has Problem’
“These people don’t go away. The district has a problem and . . . they’re going to have to resolve it,” Murphy said.
The district’s credit rating can be restored once those problems are resolved, a Moody’s spokeswoman said.
The default and ensuing bankruptcy by Ocean Services illustrates the dangers that public entities can encounter when they issue municipal bonds to fund developments by private firms and make interest payments dependent on revenues from those projects.
The peril stems from “corporate debt issued in a municipal guise,” Murphy said.
“Certificate holders are under the impression that they’re buying the debt of the Ventura Port District. Really, what they bought is a tax-exempt corporate bond, which isn’t considered as safe or strong as a municipal bond,” Murphy said.
The revised debt rating, which went into effect Oct. 19, is the latest snarl in the tangled legal, financial and administrative web that has wound tight around Ventura Harbor and Ocean Services over the years.
It began as an amiable partnership in 1979, when Ocean Services, a partnership formed by Montecito businessman Edward W. Jenks, approached the Ventura Port District with a proposal to build a $20-million marina complex that might include a boat yard, a two-story marine aquarium and research center, a commercial fishing facility, boat slips, retail shops and restaurants.
Projections were optimistic--overly so, district officials now admit--and were fueled by estimates that the nearby Channel Islands National Park would draw 1 million visitors a year and that a marine center and aquarium might also draw a million.
Instead, the park draws about 200,000 visitors each year. The marine center and aquarium were never built.
Officials at Ocean Services could not be reached for comment Tuesday or Wednesday. In the past, principals said they were forced into bankruptcy because projected revenues were not enough to pay off long-term debts on Harbor Village, which took an estimated $20 million to build.
Harbor Village has posted increasing revenues each year, with gross sales hitting $9.7 million in the calendar year ended September, 1987, Parsons said.
But that hasn’t represented enough revenue to Ocean Services for the company to pay off its bond debt, company officials have said.
To keep operating and complete construction plans, Ocean Services borrowed an additional $8 million from Great Western Savings & Loan Assn. and Security Pacific National Bank, which have become its two largest creditors.
The two banks foreclosed in October. Since then, Security Pacific has continued to pay some Ocean Services employees, including Jenks, to manage the property while it sorts out what it has inherited.
“We’re still trying to get a handle on what we have here. Our forte is probably not running marinas,” said Gerald P. Gamble, a Security Pacific vice president.
Gamble says the bank is seeking a “top-notch manager” to run the harbor. Ocean Services is not a candidate, he said.
Bank officials say they are committed to stimulating tourism at Harbor Village and have hired a public relations firm to hold special events during the Festival of Lights boat parade Dec. 12.
Gamble said the banks must decide whether to take over payment on the certificates of participation and spruce up the harbor for eventual sale or to allow the certificate trustees to foreclose on the property and divide the property up piecemeal.