Fitch rates Jaxport top in Florida container business
“ The authority's main business segments currently show increases. Automobile revenues are up 8% over a year prior, while container revenues are up by 2%. With the MOL/TraPac terminal now online, the authority maintains the largest container business in Florida, with 12 of the 15 largest carriers in the world now serving the port,” Fitch
NEW YORK--(BUSINESS WIRE)--
Fitch Ratings has affirmed its long-term 'A' rating on the Jacksonville Port Authority's (Jaxport) outstanding 2008 revenue bonds. The Rating Outlook is Stable.
Key Rating Drivers:
--Modest Sized Port in Competitive Southeast: The port benefits from a strategic location with good and improving intermodal connectivity and infrastructure and maintains strategic importance as the second largest U.S. port for vehicle imports and largest for vehicle exports. The number one container port in Florida, Jaxport is located in the highly cargo competitive Southeast and historically has been reliant on relatively volatile trade with Latin America and the Caribbean.
--Diverse Revenue Base with Contracted Tenants: The port's increasingly diverse revenue base has benefited from the opening of the Mitsui O.S.K. Lines, Ltd. (MOL)/TraPac container terminal in early fiscal 2009. Long-term contracts and minimum annual guarantees (MAGs) through fiscal 2015 from a diverse group of tenants provide additional downside protection for revenues.
--Adequate Infrastructure with Modest Development Needs: The port's current $42 million capital plan is modest, with funds coming from grants, internal sources, and residual bond proceeds. The port has received $50 million in state grant funding since the new governor took office in January 2011 and another $10 million in Transportation Investment Generating Economic Recovery (TIGER) III Federal grant funding, largely for renewal and replacement projects. Deferral of expected capital spending for a second container terminal operated by Hanjin Shipping beyond the previously indicated 2015 time frame should relieve pressure on the port's financial and debt metrics in the medium term.
--Midrange Debt Structure: Senior lien debt is 67% fixed rate, with the other 33% consisting of 2009 variable rate taxable and tax-exempt revenue notes. The variable rate portion is synthetically fixed, with both the port and counterparty paying and receiving based on LIBOR, serving to mitigate interest rate and basis rate risk. The debt service reserve fund (DSRF) is 50% cash funded, with $7.8 million in cash and another $5 million consisting of a letter of credit (LOC) with Wells Fargo (Fitch Issuer Default Rating 'AA-' with a Stable Outlook) and a surety bond with Assured Guaranty (not rated by Fitch) for $2.7 million.
--Positive Revenue Trends and High Coverage: The port has seen growing revenues despite the unfavorable economic climate in recent years, leading to senior lien debt service coverage ratios (DSCRs) in excess of 2 times (x) on average, expected to be stable in that range going forward. The port maintains low liquidity with approximately 148 days cash on hand and high leverage of 7.45x as of Sept. 30, 2011, mitigated somewhat by its status as a landlord port with minimum annual guarantees in excess of senior debt service requirements through 2015. The port also benefits from intergovernmental transfers from the city of Jacksonville.
What Could Trigger a Rating Action:
--Additional leveraging absent continued stability in the authority's revenue profile which could weaken financial flexibility and margins;
--Inability to control operating expenses given the authority's elevated debt service obligations.
The 2008 revenue bonds are secured by net revenues generated from the Blount Island Marine Terminal (Blount Island); the Talleyrand Marine Terminal (Talleyrand); and the Dames Point Marine Terminal (Dames Point). The bonds are further secured by excess revenues from the City of Jacksonville from an annual appropriation of $800,000, plus an amount equal to 1/4 mill from the Jacksonville Electric Authority and a percentage of the raise in communications tax revenue over a base amount established, adjusted by an index.
Originally issued in April 2008 to fund a portion of the MOL/TraPac terminal project and other port capital improvements, the 2008 revenue bonds were structured with the option to redeem $65 million of the original principal of $90 million within 90 days of Nov. 1, 2012. The authority plans to take advantage of expected net present value (NPV) interest savings to redeem the $65 million and use the projected savings to issue an additional approximately $15 million in new money debt later this calendar year. The additional $15 million will be used to fund Jaxport's portion of renovation costs for the Blount Island Marine Terminal, with the remaining $15 million of the project funded by the state.
Year-to-date (YTD) operating revenues are up by approximately 1% over the previous year, with growth dampened by lower than expected military and cruise results. Military revenues represent about 3% of JaxPort's overall business but are currently down about $376,000 due to reduced military activity. Cruise revenues, about 7% of JaxPort's operations, are also down approximately $200,000, reflecting delays with a new contract from Carnival (originally expected to be executed October 2011, now executed with service beginning June 2012). Netting out military and cruise revenues, operating revenues would be up by around 3-4%. The authority now expects on average one military ship per month for the next 12 months to dock at Jaxport facilities, mostly from Afghanistan for post-war cleaning and rehabilitation services. There is also the potential for military revenues from the pre-deployment positioning of about four thousand humvees. This cash flow depends on the terms of a potential contract with Pakistan.
The authority's main business segments currently show increases. Automobile revenues are up 8% over a year prior, while container revenues are up by 2%. With the MOL/TraPac terminal now online, the authority maintains the largest container business in Florida, with 12 of the 15 largest carriers in the world now serving the port. Total tonnage for 2012 YTD is up 4% over the prior year, fueled by increases in automobile cargo and shipments of rock for construction from the Bahamas and Nova Scotia. YTD operating expenses are $1 million below April totals from last year, mainly due to lower than budgeted dredging costs.
For fiscal 2013, the authority is forecasting an increase of 2-3% in net revenues; $600,000 of this reduction stems from cessation of loss-making ferry operations at the end of the current fiscal year.
The port has seen meaningful increases in grant funding in recent years, with Governor Rick Scott providing the port with roughly $50 million in state funds for capital projects and with another $10 million received from Federal grants. Management indicates that the Governor views Florida ports as essential for job creation and investment. $15 of the $60 will be used for the Blount Island Terminal renovation, $15 for increasing dredging spoil site capacity and another $20 million for Intermodal Connectivity Transportation Facility (ICTF) expansion of the rail yard at the Blount Island terminal.
The authority owns and operates three public marine terminals and one passenger cruise terminal in Jacksonville: Blount Island; Talleyrand; and Dames Point, which includes the authority's cruise terminal. The authority is governed by an unpaid seven-member board of directors; four are appointed by the city's mayor of and three by the governor. Board members serve four-year terms and may be appointed to one additional term.
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' (Aug. 16, 2011);
--'Rating Criteria for Ports' (Sept. 29, 2011).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for Ports