NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'A' rating to Miami-Dade County (the County), Florida's $377 million in Seaport Revenue Bonds, series 2013A and 2013B, and Seaport Revenue Refunding Bonds, series 2013C and 2013D. The revenue bonds are secured by net revenues from PortMiami (the Port, the Seaport). The Rating Outlook on the revenue bonds is Stable.
KEY RATING DRIVERS
STABLE REVENUES: The Port benefits from stable revenue streams from various business lines (cruise operations 50% of revenues, container 40%). The Port does have some exposure to fluctuations in the cruise business and to the competitive port environment in South Florida and the south eastern seaboard.
Revenue Risk - Volume: Midrange
CONCENTRATION MITIGATED BY CONTRACTS: 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 and long term leases with cargo operators, with minimum guarantees expected to account for 66% of 2013 operating revenues.
Revenue Risk - Price: Stronger
SIZABLE CAPITAL PROGRAM: The Port's sizable Capital Improvement Plan (CIP) through 2018 totals $977 million in project costs, with 68% expected to be funded with bonds (includes current issuance and future fundings); 16% from federal and state grants; and 16% from funds provided by the County.
Infrastructure and Renewal Risk: Midrange
FIXED RATE DEBT: Both the revenue bonds and parity general obligation bonds are fixed rate. Final maturity in 2042.
Debt Structure: Stronger
MODERATE FINANCIAL PROFILE: The Port's financial profile has historically generated robust coverage levels above 3.0x for revenue bonds, and 1.6x or higher for revenue and GO bonds combined. With the 2013 issuance, revenue bond coverage is expected to drop to 2.0x or higher in the base case, and 1.5x or higher for revenue and GO bonds combined. Liquidity is moderate at 142days cash on hand based on 2012 operating expenses and the County's reported unrestricted cash balance of $23 million for August 2013. With the new issuance, leverage is initially high at 10x for revenue and GO bonds, though these levels are expected to fall to the 4-5x range over the next five years.
Debt Service: Midrange
RATING SENSITIVITIES
Maintenance of the rating will depend upon management's ability to deliver projected revenue growth; control expenses; and manage coverage levels in light of increased annual debt service requirements and CIP commitments.
Should additional future borrowing increase leverage significantly without corresponding increases to net revenues, the rating may be pressured.
Should the capital plan be successfully executed and leverage levels decrease as new revenue streams come online, upward rating migration is possible.
SECURITY
The revenue bonds are secured by a pledge of and lien on the Net Revenues of the Seaport Department, and are on a parity basis with the County's outstanding Seaport General Obligation bonds (not rated by Fitch), which are also payable from Net Revenues of the Seaport Department.
CREDIT SUMMARY
The County is issuing $377 million in Seaport Revenue Bonds in order to pay costs of certain capital expenditures for seaport facilities, including the funding of channel dredging, wharf improvements, crane purchases, tunnel construction, and other improvements; and to refund certain bonds previously issued by the County. The bonds consist of $239 million in Series 2013A Seaport Revenue Bonds; $108 million in Series 2013B Seaport Revenue Bonds (AMT); $12 million in Series 2013C Seaport Revenue Refunding Bonds; and $18 million in Series 2013D Seaport Revenue Refunding Bonds (AMT). All bonds are fixed rate, with a final maturity of 2042.
PortMiami derives approximately 50% of operating revenue from cruise agreements, 40% from cargo agreements, and 10% from property leases and other sources. Contractual guarantees provide a solid anchor for performance, with 2013's guarantees of $71 million expected to account for roughly two thirds of the year's operating revenues.
Cruise line agreements provide the PortMiami with annual guaranteed passenger volumes and revenues while providing the cruise lines with incentives for meeting guaranteed levels. PortMiami is guaranteed roughly three million annual passenger movements, and between $45 million and $50 million in revenues per year through 2018 (includes $7 million/year for new superferry service beginning in 2014), with 3% escalation built into the contracts. While 12 cruise companies operate out of PortMiami, three major cruise contracts (Royal Caribbean, Carnival, and Norwegian Cruise Line) provide 95% of guaranteed revenues.
Cargo revenues are also protected through minimum guarantees. PortMiami is a landlord port, with containerized cargo activity being handled by three individual terminal operators occupying approximately 268 acres: Seaboard Marine (Seaboard), South Florida Container Terminal/Terminal Link (SFCT) and the Port of Miami Terminal Operating Company (POMTOC). Together, Seaboard Marine and SFCT guarantee approximately $25 million per year in wharfage/dockage and land rent payments.
Operating margins at the Port have been relatively stable historically, ranging between 30% and 40% in the last five years. Operating revenues fell 2.7% in fiscal 2012 after rising 10.6% in 2011. Overall, operating revenues have increased at an annual growth rate of 2.3% since 2008, and grew through the 2006 -2008 period despite volume decreases during the economic downturn. Based on the first nine months of 2013, revenues are up 5.1% over the prior year, reflecting increases in cruise and cargo revenues.
Operating expenses before depreciation have been well contained in recent years, decreasing 9.5% in fiscal 2012 and decreasing at a compounded annual rate of 0.8% since 2008. This decline is largely due to reductions in security costs, including reduced personnel costs and overtime. For the first nine months of 2013, operating expenses have increased 7.8%, largely due to increases in cruise operations, maintenance, and general and administrative costs. Given the Port's increased annual debt service beginning in 2014 and higher CIP commitments in coming years, it will be important for management to continue to control operating expenses.
With the 2013 issuance, parity Seaport debt service requirements will step up to $38 million in 2014. As a result debt service coverage levels will increase from 5.2x and 2.4x in 2012 for revenue bonds and all parity obligations, respectively; to 2.0x and 1.5x respectively. This remains well above covenant levels of 1.25x for revenue bonds and 1.10x for GO bonds. Lower coverage levels are in part mitigated by the Port's liquidity position and relatively secure agreements with many of the Port's tenants. The County indicates that the Port's unrestricted cash position is $23 million as of August 2013, representing 142 days cash on hand based on 2012 operating expenses.
The Port's capital plan from 2013 to 2018 is sizeable at approximately $977 million. 44% will be funded through the 2013 Seaport Revenue Bonds, previously issued parity Seaport General Obligation bonds, and funds provided by the County through the issuance of Capital Asset Bonds and Sunshine State Loans. Another nearly 40%, or $387.5 million, is anticipated to be funded through future financings. The remaining 16% will be funded by federal and state grants.
The capital program aims to enhance on-port and off-port infrastructure in advance of the widening of the Panama Canal to be completed in 2015. As with any large infrastructure capital improvement plan, risks related to delays and scope changes are present. All contracts are guaranteed maximum price with built-in contingencies. Fitch will continue to monitor the extent to which the Port assumes additional leverage for scope changes and additional projects. Fitch notes that over 30% of senior parity principal is paid off in the next 10 years, leaving some room to assume additional debt if sponsor cash flow projections are met.
PortMiami is located one-half mile from the eastern edge of downtown Miami, Florida. PortMiami's 522 acre facilities are situated in Biscayne Bay and are linked to the mainland via a high-span vehicular bridge, a rail bascule bridge, and upon completion (expected May 2014), by the two tube Seaport Tunnel.
PortMiami is 2.5 miles from the main shipping channel for the eastern United States. The Port's two main business lines include multi-day cruise operations and containerized cargo operations. The Port is the second largest international container port in Florida, and ranks 12th in the United States. Additionally, PortMiami is the largest multi-day homeport for cruise vessels in the world, and handles 4 million passengers annually.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance' (July 12, 2012);
--'Rating Criteria for Ports' (Sept. 27, 2012).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867
Rating Criteria for Ports
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=688850
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=799684
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