Fitch Affirms Hillsborough County Port Dist (Port Tampa Bay, FL) Seaport Revs at 'A'; Outlook Stable

NEW YORK--()--Fitch Ratings affirms the 'A' rating on approximately $62.8 million of outstanding Hillsborough County Port District (the district) port revenue bonds, series 2005A and 2006. The Rating Outlook for all district bonds is Stable.

The rating reflects continued stable financial performance anchored by sizable and growing contractually guaranteed revenues, further bolstered by Port Tampa Bay's (the port) improved infrastructure. The affirmation also reflects the port's strong liquidity as well as elevated debt service requirements through 2020, with no additional planned parity debt issuances.

Key Rating Drivers:

Strategic Location: The port'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; both have shown modest resilience during the economic downturn. The port's moderate exposure to the emerging economies of Mexico and Brazil, the volatile nature of revenue related to the commodity-based cargo business, and potential fluctuations in the region's construction sector give the port a somewhat volatile demand profile. Revenue Risk: Volume-Midrange

Diversified Revenue Base: No single maritime business line generates more than 27% of total operating revenues. The port's status as a landlord port limits its operational risk, and nearly 60% of operating revenues are derived from long-term lease agreements and cover annual debt service requirements by nearly 2.0x on a gross basis through 2018. Revenue Risk: Price-Midrange

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. 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. Infrastructure Development & Renewal: Stronger

Moderate Variable-Rate Debt Component: The port's variable rate debt accounts for approximately 38% of total outstanding debt, and is hedged via two interest rate swaps. The current capital structure reflects a rapid amortization profile over the next eight years. The absence of a cash funded debt service reserve fund is somewhat mitigated by a very strong cash position, with over 1,000 days of unrestricted cash on hand, though balances could diminish as the authority executes its capital program under a scenario of limited grant funding availability. Debt Structure: Midrange

Stable Financial Profile: The port's healthy financial performance has generated strong financial margins averaging 46% since 2000. Net debt service coverage ratios (DSCR) remained stable through the economic downturn, remaining at or above 1.5x since 2005 and expected to remain at that level going forward despite slightly increasing debt service through 2020. Net debt to cash flow available for debt service (CFADS) was modest at 2.25x in fiscal 2013.

Rating Sensitivities:

--Inability to maintain DSCR at around 1.4x on a sustained basis 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.

Security:

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.

Credit Update:

Unaudited fiscal 2013 operating revenues increased to $44.2 million (up by 1.1% from fiscal 2012), maintaining strong financial margins produced over the last decade and despite broadly flat cargo tonnage throughput and a 12.3% decline in cruise passenger volume. The decline relates to Carnival's 'Legend' ship's relocating to the Mediterranean in the summer of 2013; since then, the ship has returned to the port. The port recently signed an extended agreement with Carnival through 2017 and will host a new Royal Caribbean ship starting in the fall.

Although cargo types served at the port have increasingly diversified, bulk cargo remains an important part of the port's business, representing approximately 24% of revenues in fiscal 2013. Cargo declines in recent years were attributable to lower tonnage of commodities such as petroleum and sulfur due to continued economic weakness and ongoing construction of the port's new petroleum facility, scheduled to be completed this summer. The project is aimed to enhance the efficiency, safety and navigation of the petroleum operations at the port, and management expects to generate an additional $2-3 million annually in additional usage charges. The port has also experienced stabilization in volumes of phosphate chemical, limestone, and steel.

While bulk cargo remains an important element of the port's operations, cruise activity, container shipments, and parking fees are increasingly significant in the overall revenue mix. Cruise revenues (excluding cruise parking) represented approximately 14% of total operating revenues in fiscal 2013. In addition, management expects continued growth in container business as a result of relatively 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.

Management expects to achieve further revenue growth and diversification from several recently signed long-term contracts. In December of 2013, the port finalized an agreement with AmPorts for the development of a new auto-processing terminal to service the growing manufacture of passenger cars in Mexico. In addition, in a proposed partnership with CSX, the port plans to build a new refrigerated warehouse facility that would receive perishables from Central and South America to be shipped to CSX-served facilities in the Midwest.

Fiscal 2014 operating revenues are budgeted to increase by 9.3%, with minimum guarantees (including future lease revenues and annual tonnage guarantees) at $28.8 million, or 60% of budgeted operating revenues. The opening of the new petroleum facility, increases in container tonnage, and the return of Carnival's 'Legend' are expected to result in the budgeted increase. Revenues through February of 2014 slightly lag the budget, only 0.3% below projections. Expenses are budgeted to increase 17.7% above fiscal 2013 unaudited actuals, due to increased insurance and security costs from new capital projects placed into service as well as new land purchases. Fitch notes that year-to-date expenses for fiscal 2014 through February are 9.9% below budget. Historically, management has implemented prudent cost control strategies in response to changes in the cargo markets. Continued proactive expense management will be necessary as debt service requirements remain elevated through 2020.

Fiscal 2013 debt service coverage decreased to 1.55x from 1.68x in 2012 as a result of increased debt service requirements. Management expects coverage to drop to 1.38x in fiscal 2014 - the result of further increasing debt service requirements and elevated budgeted expenses. Management anticipates improving financial flexibility over time resulting in 1.48x and 1.65x coverage levels in fiscal years 2015 and 2016, respectively.

Fitch's base case assumes the port maintains steady financial margins consistent with historical results. Coverage takes a one-time drop to the 1.4x range in 2014 as debt service requirements ramp up but steadily increases back to the 1.5x range by 2018. Reflecting the rapid amortization of the debt profile in the near term, leverage remains at or slightly above 3.0x throughout the forecast period despite the Port's drawing down significantly on cash balances to complete the full scope of the capital improvement program.

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' (Oct. 3, 2013).

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=719985

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=825771

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Contacts

Fitch Ratings, Inc.
Primary Analyst
Tanya Langman, +1-212-908-0716
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Emma Griffith, +1-212-908-9124
Director
or
Tertiary Analyst
Charles Askew, +1-212-908-0644
Associate Director
or
Committee Chairperson
Saavan Gatfield, +1-212-908-0542
Senior Director
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings, Inc.
Primary Analyst
Tanya Langman, +1-212-908-0716
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Emma Griffith, +1-212-908-9124
Director
or
Tertiary Analyst
Charles Askew, +1-212-908-0644
Associate Director
or
Committee Chairperson
Saavan Gatfield, +1-212-908-0542
Senior Director
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com