Fitch Affirms Port of Beaumont, Texas' Revenue Bonds at 'A'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed its 'A' rating on the Port of Beaumont Navigation District (the port or district) of Jefferson County, Texas' approximately $24 million outstanding revenue bonds. The Rating Outlook on all revenue bonds is Stable. Fitch also rates the port's general obligation (GO) bonds, last reviewed on July 1, 2011. The GO bonds are rated 'AA-'. For more information on the GO bonds please see the press release dated July 1, 2011 on our website at 'www.ficthratings.com'.

RATING RATIONALE:

--Competitive Position: The port's position as a niche bulk port in the Gulf provides stability, with the U.S. Army's Military Surface Deployment and Distribution Command headquartered at the port.

--Taxing Power: The district benefits financially from the added security of ad valorem taxing power for maintenance and operating expenses, which, while not pledged, also can include the payment of debt service.

--Solid Financial Position: The district benefits from solid operating results; robust liquidity with over 280 days cash on hand over the past decade; and a flat debt profile, moderate leverage, and no additional borrowing in the current capital program.

--Competition From Gulf Ports: The highly competitive nature of the Gulf Coast maritime port industry is a concern for some bulk cargo volumes.

--Commodity Volatility: The port's exposure to and reliance on volatile commodity products for throughput can affect throughput levels and associated revenues.

KEY RATING DRIVERS:

--Fluctuations in commodity throughputs, the exit of key port stakeholders and tenants, or drastic changes in the tax base, without management action, may warrant rating action. Similarly, a sustained trend of net operating revenues (excluding tax revenues) being insufficient to meet debt service requirements may result in rating action.

--Unforeseen capital spending that adds to the debt burden may also impact credit quality.

SECURITY:

The revenue bonds are secured by a gross revenue pledge of the port system and interest earnings on unrestricted fund balances.

CREDIT SUMMARY:

Overall tonnage at the port has grown slightly since 2003 at a compound annual rate (CAGR) of 2.1%, reaching 3.5 million tons in calendar 2010. This represents an increase of 23% over calendar 2009, though remains 1% below the peak of 2007. On a year-over-year basis through May, the first nine months of fiscal 2011 indicate an increase of 23%, demonstrating tonnages have largely recovered from the downturn. Revenues showed a more moderate recovery in 2010, increasing 3% over 2009. Based on the first nine months of 2011, management expects revenue to finish the year 9% above 2010. Exports continue to account for around 70% of tonnage. While the nature of commodities shipping can fluctuate over time, the port's cargo summary in calendar 2010 resulted in bulk grain comprising the largest percentage share of total tonnage (49%), followed by aggregate (22%), potash (17%), military (5%), iron & steel (3%), forest products (4%) and other (1%). The split for 2011 to date shows a jump in bulk grain to 69%, reflecting increased demand for grain exports.

The top four tenants and operators at the port generate roughly 80% of operating revenues, and serve as stabilizing factors for the port's revenue stream. These include the U.S. Army, whose military transportation headquarters for the Gulf are located at the port; Kinder Morgan, which operates a 13-acre bulk terminal handling construction aggregate rock, potash, soda ash, and other dry bulk materials; Louis Dreyfus, which operates the port's grain elevator under a long-term lease agreement; and Vestas Wind Energy, which ships wind generators into the port's general cargo terminal.

The port has maintained a strong balance sheet between fiscal 2003 and fiscal 2010, with $9.8 million unrestricted cash available in 2010, and over 280 days cash on hand in every year since 2003. While 2010's cash is lower than previous years due to spending related to the port's capital improvement program (CIP), management indicates that by year end 2011 cash will be in-line with previous years at $13 million.

The port has historically maintained a strong liquidity position, which Fitch believes is prudent given the nature of commodity fluctuations and the high tax base concentration. Also, the port's use of pay-as-you-go capital spending has produced very moderate debt levels, at approximately $40.8 million in fiscal 2010 (includes $16.4 million GO debt and $24.4 million revenue bond debt). Debt service is level through 2034 at $1.8 million a year. Fitch views this burden as manageable, with debt service coverage expected to be above 2.0 times (x) going forward, including available tax revenues. Net debt to CFADS is low at 1.8x. The availability of tax revenues to meet operating expense and some debt service obligations stabilized coverage levels through the recent downturn, and somewhat mitigates the volatility that can be associated with maritime operations.

The port's $65 million capital improvements program (CIP) is nearing completion, with over 50% of projects completed thus far. Recently completed projects include the new military headquarters building, the new Orange County general cargo wharf, mobile harbor crane, asphalting for lots 7, 11, and 12, and rehab of dock offices. The port has benefited from lower construction costs in implementing its CIP, with several projects coming in under budgeted levels. The CIP is currently 30% bond funded and 30% grant funded, with the balance funded by port revenues. Fitch believes the port's CIP is affordable and reasonable given the nature of operations.

The current capital plan does not include any additional future bonding. There is potential for an additional $5 million in revenue bonds to expand the port's Orange County cargo storage lot; this is contingent upon securing a business opportunity. Should this project go forward, management has indicated revenue guarantees will be secured to cover associated debt service. Management expects revenues from the project would cover expected debt service 4 - 5x, and that the project would be revenue generating from 2012 onwards.

The port is situated on the Sabine-Neches Ship Channel, 43 miles north of the Gulf of Mexico, between the ports in New Orleans, 292 miles to the east, and Houston, 72 miles to the west. The inland location of the port provides greater protection to facilities in the event of severe weather events than other facilities in the Gulf region, and as a result hurricanes have historically led to minimal disruption in port operations. The port is accessible from the Gulf and the Intracoastal Waterway via the Sabine-Neches Ship Channel. Port facilities include 7,347 linear feet of harbor front, nine ship berths, adequate warehouse and open storage space, and several heavy lift cranes. Ground transportation is facilitated by easy access to Interstate 10 plus rail transportation is provided by three major carriers, Burlington Northern Santa Fe (BNSF), Kansas City Southern (KCS), and Union Pacific (UP).

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Rating Criteria for Infrastructure and Project Finance' (Aug. 16, 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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