Jeff Smith, the port’s senior director of finance and administration, said the Lehman bankruptcy brought an automatic termination of two deals involving Lehman Brothers and port bonds.

In one, Lehman Brothers was the remarketing agent for $117 million in Port of Tacoma bonds. With Lehman forced into bankruptcy by its exposure to subprime home mortgages, the port is splitting that work between J.P. Morgan and Barclays Capital Services. Barclays has acquired Lehman’s bond remarketing services, among other assets.

Smith said the port divided the work between the two institutions to allow them to compete. The port can move all or part of its business to one or the other without any penalties after it assesses how well they perform. Those firms will handle financial transactions involving redemption and resale of those port bonds in financial markets.

In the other deal, Lehman Brothers was involved in part of a complex $100 million 2005 port bond issue. Lehman’s share of that deal amounted to $30 million, with Morgan Stanley Capital Services handling the remainder.

The Lehman bankruptcy triggered a termination of the $30 million bond financing arrangement.

Based on contract terms, the port will pay Lehman $1.4 million because the interest rate at the time of the contract termination was less than the initial rate of 3.795 percent. The port expects to more than recoup that payment over the life of the bonds because the new interest rate of 3.32 percent is lower than the port had agreed to pay three years ago.

The port commission’s approval of the new financing deals at a special meeting Monday could be a harbinger of more financial volatility for the port in the future.

Wall Street’s current crisis will likely mean both higher interest rates for port bond issues in the future and more difficulty in finding financing for future port capital projects, Smith said.

Based on the port’s 2008 budget, it expects to need at least $620 million in financing over the next five years. That figure will likely float upward if material and labor prices increase, said port spokeswoman Tara Mattina. Higher financing costs could squeeze the port’s profit margin on contracts it has signed with shipping and terminal companies for new facilities.

But in calculating those costs, said Smith, the port has included a contingency amount that can absorb some increased costs.

In some existing cases, lower interest rates than the port had projected are widening the port’s margins on some projects, he said.

Port Commissioner Claire Petrich said late Tuesday afternoon that the complexity and uncertainty of the port’s financing arrangements are daunting.

“The big question for the port is whether financing will continue to be available in the future,” she said.

John Gillie: 253-597-8663

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