NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the 'A' rating on approximately $136.2 million of outstanding Hillsborough County Port District (the 'district') port revenue bonds. The Rating Outlook for all district bonds is Stable.
RATING RATIONALE:
The 'A' rating reflects the port's diversified revenue base with no single maritime business line generating more than 25% of total operating revenues, resilience during the recent economic downturns, status as a landlord port limiting operational risk and providing basis for a predictable revenue stream, healthy financial performance and ability to generate strong financial margins in excess of 40%, modest leverage levels of less than 4.0 times (x) net debt to cash flow for debt service, and the port's internally funded capital plan. Credit concerns include competition from other Florida ports and from major ports along the Atlantic and Gulf coasts of the U.S. and the moderate exposure to the emerging economies of Mexico, Brazil, and China which make up the port's largest trading partners, and the potential impact on commodity-based revenue streams due to the volatile nature of the cargo business and the stagnant residential and commercial construction sectors in the State of Florida.
The Stable Outlook reflects the port's stable financial performance overtime and while not pledged to bondholders, the port's credit is further enhanced by the district's ability to levy an ad valorem tax used to fund capital projects reducing the dependency on the port's operations for funding. In light of the slowly improving economic conditions, the district has embarked on several improvement and expansion business projects with expectations of enhancing the district's current revenue base. Fitch recognizes the future revenue generating ability of these projects and expects management to maintain operating margins consistent with historical levels to support the district's current rating.
KEY RATING DRIVERS:
--Substantial changes in cargo volume processed at the port and supporting revenues;
--Divergence from current leverage levels due to changes in the port's cost structure and scope of capital plan.
SECURITY:
The district's outstanding revenue bonds are secured by a lien on the gross revenues derived from port operations. Under the indenture, property tax receipts are excluded from the definition of pledged gross revenues.
CREDIT SUMMARY:
The port encompasses 2,500 acres of land adjacent to downtown Tampa with access to 8 million people within 100 miles of the city. It is the largest cargo port among Florida's 14 deepwater ports and ranks among the 20 largest in the U.S. The port features excellent connections to the national interstate system and has on-premises rail service from CSX Transportation Co. Historically, the port relied on high volume, low value bulk cargo such as phosphate and petroleum but has successfully diversified its revenue sources over the decade. While bulk cargos remain an important element of the port's operations, cruise activity, container shipments, and parking are increasingly significant to the port's overall revenue mix. The port operates as a landlord, entering into long-term leases with shipping, stevedoring, and real estate entities for use of its lands. Fitch views the revenue generated from these tenants, in the form of rents and charges, together with built-in minimum annual revenue guarantees as providing the port with a stable and predictable revenue stream.
Operating revenues increased 1.5% and 1.9% in fiscal 2009 and 2010 respectively producing strong financial margins in excess of 40% for both years despite the 8.1% drop in cargo tonnage going through the port in 2009. Operating expenses increased slightly by 1.3% in 2009 followed by a slight dip of 0.6% in 2010. Fiscal 2010 cargo is up 13.7% largely due to higher tonnage of commodities such as petroleum and sulfur being moved through the port as the economic recovers. Fitch notes that the district's resilience to the economic downturn in 2007 and 2008 was displayed in its ability to generate sufficient revenues to support its operations and debt service obligations. Fiscal 2010 1.52x debt service coverage is consistent with historical levels. The district expects coverage to remain largely the same in 2011 despite an anticipated 9% rise in operating costs relating to security and deferred facility maintenance. Fitch expects the district to maintain similar coverage going forward to maintain current ratings. The district's liquidity remains healthy with unrestricted cash supporting 1,479 days worth of operating costs.
The district's five year capital plan running through fiscal 2015 calls for $194 million in improvement and expansion projects expected to generate additional capacity as well as operating revenues for the port. Projects underway include the container terminal expansion which will extend the port's berth with the potential of quadrupling capacity. This project is funded in conjunction with Ports America Inc., the port's terminal operator. The district is also redeveloping its petroleum terminal facilities to be able to handle larger vessels potentially increasing throughput at the port, as well as the construction of the Tampa Gateway Rail Facility making this the only on-dock unit train facility in the State of Florida. The majority of funding consists of 33% from ad valorem tax revenues, 25.8% from grants and 33% from a mix of operating revenues and previous balances of construction funds. In support of the five year capital plan, the district is contemplating a $16 million new money issue by 2015, however, subject to economic conditions and the port's performance.
Additional information is available at www.fitchratings.com.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance' (Aug. 13, 2010).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548345
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