Fitch Rates Broward County, FL's Port Facility Revs 'A', Affirms Outstanding; Outlook Stable
WHAT COULD TRIGGER A RATING ACTION:
--Maintenance of the current rating will depend upon management's ability to deliver projected revenue growth; control expenses; and manage coverage levels in light of increasing annual debt service requirements and CIP commitments.
--The rating could be pressured if the port's recovery stalls but management proceeds with the full borrowing component of the CIP.
NEW YORK--(BUSINESS WIRE)-- Fitch Ratings assigns an 'A' rating to Broward County, Florida's $137 million port facilities refunding revenue bonds, series 2011A, 2011B, and 2011C. Fitch also affirms its 'A' rating on outstanding parity senior revenue and refunding bonds. All senior bonds are secured by net revenues from Port Everglades (the port). The Rating Outlook on all senior bonds is Stable.
Fitch also rates Broward County's subordinate port facilities refunding revenue bonds, series 2008 'AA-/F1+'. The rating is based solely on support provided by an irrevocable direct-pay letter of credit (LOC) issued by Scotia Bank, securing the bonds. Details are provided in the press release dated July 7, 2008.
KEY RATING DRIVERS:
--Diversified Revenues: The port benefits from diversified revenue streams from various business lines (cruise operations, container traffic, and petroleum distribution).
--Primarily Local Cargo Market: The port's primarily local/regional cargo market limits its exposure to global trade fluctuation compared to peers. However, the port does have some exposure to the competitive port environment in South Florida and on the east coast.
--Exposure to Discretionary Spending: The port has some exposure to fluctuations in the discretionary cruise business, though this is partially mitigated by the existence of long-term guaranteed contracts with key cruise customers.
--Sizable Capital Program: The port's sizable yet flexible fiscal year (FY) 2012-2016 capital improvement plan (CIP) which totals $471 million in project costs and which could increase leverage and reduce coverage.
--Strong Financial Profile: The port's strong financial profile generates moderate coverage levels and allows the port to build its liquidity position.
WHAT COULD TRIGGER A RATING ACTION:
--Maintenance of the current rating will depend upon management's ability to deliver projected revenue growth; control expenses; and manage coverage levels in light of increasing annual debt service requirements and CIP commitments.
--The rating could be pressured if the port's recovery stalls but management proceeds with the full borrowing component of the CIP.
SECURITY:
The revenue bonds are secured by a lien on, and pledge of, the net revenues derived from the operation of the port facilities and the moneys on deposit in specific funds and accounts established by and outlined in the resolution.
CREDIT SUMMARY:
The port is issuing $137 million in 2011A, 2011B, and 2011C bonds to currently refund all or a portion of outstanding series 1998B and 1998C bonds, as well as all remaining 1989A bonds. The refunding bonds will be fixed rate, and are expected to have a debt service reserve funded with a surety policy from Assured Guaranty. The refunding is expected to result in $6.7 million in present value savings, with savings structure upfront. Post issuance, total senior par outstanding will be around $250 million.
Historically, financial operations have been stable at the port. After dropping 5.6% in 2009, operating revenues rebounded 8.9% in fiscal 2010. Overall, operating revenues have increased at an annual growth rate of 3.3% since 2005. For the first nine months of fiscal 2011 through June, revenues are up 14.9%, largely reflecting increasing cruise revenues from introduction of Royal Caribbean's Oasis class cruise vessels in fiscal 2010. These ships dock exclusively at the port and provide 10%-15% higher annual passenger throughput. Recent contract renewals with Royal Caribbean and Carnival and minimum guarantees with both operators provide stability to the cruise revenue base and $50 million in cost recovery payments related to bond-financed capital improvements, although the port remains vulnerable long term to the cyclical nature of the cruise industry and competition from other nearby ports. In fiscal 2010, cruise revenues accounted for 37% of total operating revenues, container revenues 24%, petroleum revenues 20%, and the balance (bulk, real estate, and other revenues) 19%.
Operating expenses before depreciation have been contained over the past three years, increasing 1.4% in 2008, 0.2% in 2009 and 1% in 2010. This is a change from previous periods, when expense growth ranged from 5% to 15%. For the first nine months of fiscal 2011 through June, operating expenses are up 0.1% over the same period in 2010. Given the port's increased annual debt service and higher CIP commitments in coming years, it will be important for management to continue to control its expense profile going forward.
Debt service requirements stepped up in 2010 to $29 million from $22 million the year prior, and as a result debt service coverage levels were lower at 1.77 times (x) senior / 1.59x all-in. Prior to 2010, robust annual financial results and stable debt service resulted in debt service coverage consistently above 2.0x on the senior lien and above 1.7x on an all-in basis since 2004. Looking forward, senior coverage is expected to remain lower as a result of the increased CIP and higher annual debt service. Lower coverage levels are in part mitigated by the port's solid liquidity position and relatively secure agreements with many of the port's tenants. The port has maintained strong cash and investment balances in recent years equalling over 900 days cash on hand ($186 million cash and investments in fiscal 2010, $208 million as of June 2011) while paying for capital improvements. Fund balances are expected to be maintained, although the port intends to use some of these funds for pay-go capital investments.
The port's 2012-2016 CIP is $471 million, slightly lower than last year's plan. This program incorporates cruise terminal expansions, improved intermodal connectivity, and a dredging program to accommodate larger vessels. Primary funding sources for the CIP include a combination of internal funding/port fund balances (53%), potential future bond proceeds (34%), and grants (13%). There are also projects anticipated in the 10-year and 20-year window, with the full master plan expected to cost $1.7 billion.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance', dated Aug. 16,, 2011;
--'Rating Criteria for Ports', dated Sept. 29, 2011.
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
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