Fitch Rates Hillsborough County Port Dist (Port Tampa Bay, FL) Bank Loans at 'A'

NEW YORK--()--Fitch Ratings has taken the following actions on Hillsborough County Port District (the district):

--Assigned 'A' rating to $85 million in senior bank loans;

--Affirmed at 'A' approximately $15 million in outstanding Hillsborough County Port District (the district) port revenue bonds series 2006.

The Rating Outlook is Positive.

The rating reflects continued strong and growing throughput and revenue performance from diverse business operations, supported by contracted revenues which are sufficient to cover debt service obligations at 2.0x. The port's capital plan is supported by a favorable balance of ad valorem taxing power, grants, and port revenues, requiring less than 10% additional borrowing. The positive outlook reflects a favorable direction in the port district's operating and financial profiles through diversification of its maritime business lines, and an expectation that the port will maintain its historically strong financial profile. To the extent the port can manage its expectations of limited borrowings under its capital program while increasing operating revenues and coverage metrics, upward rating migration is possible.

KEY RATING DRIVERS

Revenue Risk: Volume-Midrange

Strategic Location: The port's proximity to downtown Tampa, with access to over eight 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: Price-Midrange

Diversified Revenue Base: No single maritime business line generates more than 23% 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 2019.

Infrastructure Development & Renewal: Stronger

Manageable Capital Plan: The port's five-year capital program through 2019 totals $300 million, and includes several improvement and expansion projects that seek to increase intermodal connectivity and enhancing the district's current revenue base. The 5-year CIP is largely funded with port revenues, grants and taxes, with only 7% anticipated to come from debt in the form of the 2015 State Infrastructure Bank (SIB) loan. 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.

Debt Structure: Midrange

Moderate Variable-Rate Debt Component: The port's variable rate debt accounts for approximately 32% 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 typically a structural weakness but is somewhat mitigated by a very strong unrestricted cash position, with 974 days cash on hand. Balances could be at risk to diminish as the authority executes its capital program under a scenario of limited grant funding availability.

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 (1.68x in FY 2014) 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 1.8x in fiscal 2014.

Peers: Peers include Jacksonville (rated 'A'/Stable Outlook) and Port Everglades (rated 'A'/Stable Outlook), with diverse cargo profiles and similar revenue bases. All benefit from MAGs covering roughly 2/3 of operating revenues, and Port Everglades and Port Tampa Bay have similar leverage and coverage metrics. While CIP size is comparable to Everglades, Port Tampa Bay requires less additional leverage to complete its plan than peers.

RATING SENSITIVITIES

Positive:

Should the port continue to see stable to growing revenues resulting in maintenance or improvement of current coverage levels, upward rating action will be considered.

Negative:

Inability to maintain a DSCR of at least 1.4x or higher on a sustained basis would be inconsistent with the current rating level;

Both material increases in leverage and meaningful reductions 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.

Transaction Summary

Fitch is assigning an 'A' rating to $85 million in outstanding senior bank loans, series 2008, 2011, 2012, and 2015. The loans are on parity with existing senior rated debt, and have maturities which run through 2027. The series 2011 and 2015 bank loans are fixed rate at 3.11 and 2.1% respectively, while the series 2008 and 2012 bank loans are synthetically fixed at 3.86% and 5.05% respectively. Swap counterparties are Compass Bank (BBB+/stable) for the series 2008 loan and PNC (A+/stable) for the series 2012 loan. The loans do not have debt service reserve requirements, but Fitch notes the port's strong cash position as a partial mitigant for the lack of a dedicated reserve.

Fiscal 2014 operating revenues increased to $48.5 million (up 9.7% over 2013), maintaining strong financial margins produced over the last decade. Among major revenue categories cruise revenue increased significantly (22.8%), while general cargo saw a modest increase (3.9%) and bulk saw a decline of 3%. The increase was higher port user throughput fees resulting from ethanol shipments through the Tampa Gateway Rail Facility and from petroleum shipments through the Petroleum Terminal Facility, increased bulk cargo shipments in limestone and phosphate, and increased cruise revenue as result of increased rates associated with the new agreement with Carnival Cruise Lines. For fiscal 2015 year to date through February, operating revenues are up 13.5%, and are performing 3.3% above budget.

Revenues are supported by long term lease revenues and minimum annual guarantees. The port has derived approximately 60% of its revenues the last three years on average from lease revenues and tonnage-based throughput guarantees. For 2015-2019, the port will receive a total of $97.5 million in tonnage-based minimum annual guarantees and $53.7 million in future lease revenue through 2019. Beyond 2019, an additional $308 million in Future Lease Revenue is guaranteed by lease contracts. MAGs going forward through 2019 are sufficient to cover debt service obligations 2.0x (gross coverage), providing stability to the rating.

Although cargo types served at the port have increasingly diversified, bulk cargo remains an important part of the port's business, representing approximately 21% of revenues in fiscal 2014. Bulk cargo was down 1.6% in fiscal 2014, but is up 16% for the first quarter of 2015. Cargo declines in recent years were attributable in part to lower demand for cement, limestone, and granite used in commercial and residential construction industries, which have been affected by the housing market in Tampa. However, dry bulk is recovering, with tonnage up 45% for the first quarter of 2015. Petroleum and sulfur volumes have also been lower, with liquid bulk volumes down 6.9% in fiscal 2014. However, the port should see gains in petroleum in the near term due to completion of the new petroleum terminal facilities. The facility began operations in November 2013 with a 25 year user agreement, and generated $2.3 million in additional user fee revenue in fiscal 2014. For the first quarter of 2015, liquid bulk volumes are up 6%.

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 15.8% of total operating revenues in fiscal 2014, up from 14% a year prior. New agreements are in place with Carnival Cruise Lines, Royal Caribbean and Norwegian Cruise Lines, growing revenues. Royal Caribbean has added an additional seasonal ship and the AidaVita is making 6 ports of call in fiscal 2015 and will make 7 in fiscal 2016, further bolstering cruise performance.

Container operations have also seen an increase, with volumes up 14% in fiscal 2014 and up a further 15% through March 2015. Management expects continued growth in the container business under its new agreement with Mediterranean Shipping Company. Management also notes potential for growth with the expansion of the Panama Canal and the trend towards new/expanded shipping alliances, leading carriers to revisit established networks and itineraries. While uncertain at this time, to the extent these opportunities are realized, the port would see positive revenue generation.

Fiscal 2014 debt service coverage increased to 1.68x from 1.55x in 2013 as a result of higher revenues and slightly lower debt service obligations. Management anticipates coverage may fall to 1.45x in 2015 due to higher debt service and conservative budget assumptions, followed by improving financial flexibility over time, resulting in 1.58x and 1.73x coverage levels in fiscal years 2016 and 2017, respectively. This profile anticipates revenue growth of 6% in the later two years based on realization of positive operating trends, coupled with modest 3% expense growth and steady debt service requirements around $15 million annually.

Fitch's base case assumes tepid revenue growth of 2%-3% through 2019, coupled with 3% expense growth. All in coverage remains in the 1.5x range, reflecting slightly increasing debt service requirements through MADS in 2020. Reflecting the rapid amortization of the debt profile in the near term, leverage rises to the 3x range, though this reflects the full effect of $135 million in cash contributions to the port's capital program. In a downside scenario which includes a 6% reduction in non-MAG revenues in 2016 and a 50 bps increase to expense growth, coverage still remains in the 1.4x range, and leverage in the 4x range. Fitch notes the port's flexibility throughout the forecast period despite the Port's drawing down significantly on cash balances to complete the full scope of the capital improvement program.

Security:

The district's outstanding revenue bonds and senior bank loans are secured by a parity lien on net revenues derived from port operations. Under the indenture, property tax receipts are excluded from the definition of pledged gross revenues.

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. 16, 2014).

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=795788

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=983268

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Contacts

Fitch Ratings
Primary Analyst
Emma Griffith
Director
+1-212-908-9124
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Tanya Langman
Director
+1-212-908-0716
or
Committee Chairperson
Seth Lehman
Senior Director
+1-212-908-0755
or
Media Relations:
Elizabeth Fogerty, +1 212-908 0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Emma Griffith
Director
+1-212-908-9124
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Tanya Langman
Director
+1-212-908-0716
or
Committee Chairperson
Seth Lehman
Senior Director
+1-212-908-0755
or
Media Relations:
Elizabeth Fogerty, +1 212-908 0526
elizabeth.fogerty@fitchratings.com