NEW YORK--()--Fitch Ratings affirms the 'A' rating on approximately $70 million of outstanding Hillsborough County Port District (the district, the port) port revenue bonds. The Rating Outlook for all district bonds is Stable.
The port also has $55 million in unrated bank loans outstanding which are on parity with the rated revenue bonds.
Key Rating Drivers:
Strategic Location: The Port of Tampa's proximity to downtown Tampa, with access to over 8 million people within 100 miles of the city, and its competitive position as the deepest port in Florida, support its cargo and cruise businesses that have shown modest resilience during economic downturn. The port's moderate exposure to the emerging economies of Mexico and Brazil, the volatile nature of revenue related from the commodity-based cargo business, and continued contraction in the region's construction sector remain concerns.
Diversified Revenue Base: No single maritime business line generates more than 22% of total operating revenues. The port's status as a landlord port limits its operational risk and approximately 60% of operating revenues derive from long-term lease agreements. Increasingly strong cruise activity continues to bolster revenues.
Large Variable-Rate Debt Component: The port's variable rate debt accounts for approximately 37% of total outstanding debt, with interest costs structured to be synthetically fixed through two interest rate swaps. The current capital structure reflects a rapid amortization profile over the next eight years though refinance risk associated with the 2012 bank loan is present. The port lacks a cash funded debt service reserve, as required debt service reserve funds on the revenue bonds have been funded with surety policies. The unrated bank loans do not have debt service reserve funds.
Stable Financial Profile: The port's healthy financial performance has generated strong financial margins historically in excess of 40%. Debt service coverage levels remained stable through the economic downturn with coverage at or above 1.5 times (x) in each of the last five fiscal years (fiscal year ends Sept. 30). The rapid debt amortization profile is expected to result in lower coverage levels over the next eight years as debt service obligations escalate through fiscal 2020. The absence of a cash funded debt service reserve fund is somewhat mitigated by very strong cash position, with over 1,107 days of unrestricted cash on hand. Net debt to cash flow available for debt service (CFADS) is modest at 2.41x in fiscal 2012, though this may increase to the 4-5x range if additional borrowing is undertaken for the port's capital program.
Manageable Capital Plan: The port's five-year $315 million capital program includes several improvement and expansion business projects with expectations of increasing the port's intermodal connectivity and enhancing the district's current revenue base. No new money debt issuance is contemplated over the next two years, but there is a possibility that the port may issue new debt over the medium-term, depending on the future levels of grant funding and excess liquidity. 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.
--Inability to maintain debt service coverage levels of approximately
1.4x despite increasing debt service requirements in the medium term
would be inconsistent with the current rating level;
--Increased leverage accompanied by a meaningful reduction in currently strong liquidity levels could pressure the rating;
--Substantial declines in cargo activity and cruise passengers processed at the port and supporting revenues could also pressure the rating.
The district's outstanding revenue bonds are secured by a lien on net revenues derived from port operations. Under the indenture, property tax receipts are excluded from the definition of pledged gross revenues.
Fiscal 2012 operating revenues increased to $43.7 million (up by 3.7% from fiscal 2011), producing strong financial margins despite the 2.5% decline in total cargo tonnage going through the port. Although there has been increasing diversification away from bulk commodities, bulk cargo remains an important part of the port's business, representing approximately 22% of revenues in fiscal 2012. Cargo declines were attributed to lower tonnage of commodities such as petroleum and sulfur being moved through the port due to continued economic weakness. The port experienced stabilization in volumes of phosphate chemical, limestone and steel. Management projects an increase in cargo volume in fiscal 2013, due largely to resurgence in steel and building materials volumes.
While bulk cargo remain an important element of the port's operations, cruise activity, container shipments, and parking fees are increasingly significant to the port's overall revenue mix. Cruise revenues (excluding cruise parking) represented approximately 15.5% of total operating revenues in fiscal 2012. The port reported an 11.3% increase in passenger counts during the 2012 fiscal year and fiscal 2013 performance is expected to be similarly strong. In addition, management expects growth in container business as a result of new service from Mediterranean Shipping Company, which began in January 2013 and is operated in conjunction with the port's longstanding container carrier partner Zim Integrated shipping.
Fiscal 2013 operating revenues are budgeted to increase by 3.7%, with minimum financial guarantees (including future lease revenues and annual tonnage guarantees) at $28.1 million, or 62% of budgeted operating revenues. Historically, management has implemented prudent cost control strategies that allow for changes in the cargo markets. Fiscal 2012 operating expenses were held flat at $23.6 million with fiscal 2011 levels (down by 0.5%) and in line with the budget. For fiscal 2013, operating expenses are budgeted to increase by 3% from fiscal 2012 levels. For the first four months of fiscal 2013, expenses are 9.1% below budgeted expectations.
Fiscal 2012 debt service coverage increased to 1.68x as revenues grew, operating costs remained flat, and debt service costs were reduced as a result of the 2012 refunding of the series 2002A bonds. The district expects coverage to decrease in fiscal 2013 to approximately 1.38x as debt service requirements increase and Fitch expects the district to maintain at least this level of coverage despite the increased debt service requirements. Should coverage levels drop below this level, resulting metrics would be inconsistent with the current rating. The district's liquidity remained healthy with $71.8 million in unrestricted cash supporting 1,107 days worth of operating costs. The district also has $2.3 million in renewal and replacement funds that would be available to support debt service, if necessary.
The district's five-year capital plan running through fiscal 2017 calls for $315 million in improvement and expansion projects expected to generate additional capacity as well as operating revenues for the port. Projects underway include the redevelopment of the petroleum terminal facilities to allow for the handling of larger vessels, potentially increasing throughput at the port. The port's container terminal, which is capable of being quadrupled in size, is being expanded. This expansion project is funded in conjunction with Ports America Inc., the port's terminal operator. The majority of capital plan funding consists of 21% from ad valorem tax revenues, 20% from grants and 39% from internal liquidity. The capital plan includes a possible new money issue in fiscal 2016; however, management has indicated that the size and timing of any bond issuance will be subject to the levels of future grant funding, excess cash and economic conditions.
Fitch notes that construction of the Tampa Gateway Rail Facility was completed in September 2012, which makes Tampa the only port in Florida with an on-dock unit train facility.
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 (July 12, 2012);
--'Rating Criteria for Ports' (Sept. 27, 2012).
Applicable Criteria and Related Research
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for Ports