Fitch Affirms Hillsborough County Port Dist (Port Tampa Bay, FL) Bank Loans at 'A'
Fitch Ratings has affirmed the 'A' rating on the Hillsborough County
Port District's (the district) approximately $81.5 million in
outstanding senior bank loans. The Rating Outlook is Positive.
The authority also has approximately $15.4 million in unrated parity
senior bank loans and $12 million insubordinate state infrastructure
bank (SIB) loans outstanding.
RATIONAL
The rating reflects continued strong and growing throughput and revenue
performance from diverse business operations, supported by contracted
revenues which bolster revenue stability. The port's $304 million
five-year capital plan is supported by a favorable balance of ad valorem
taxing power, grants, and port revenues. The current plan does not
include any additional borrowing; however, port projects related to the
Port Tampa Bay Channel District Vision Plan could result in additional
debt issuances in the medium term. The port's diverse operations and
healthy financial metrics compare favorably with Florida port peers such
as Jacksonville Port Authority and Broward County.
The Positive Outlook reflects a continued 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 maintain both sound liquidity and 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 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 periods
of 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.
Infrastructure Development & Renewal: Stronger
Manageable Capital Plan: The port's current five-year capital program
through 2019 totals $304 million, and includes several improvement and
expansion projects that seek to increase intermodal connectivity and
enhancing the district's current revenue base. The five-year CIP is
largely funded with port revenues, grants and taxes, with only 4% coming
from debt in the form of the already issued 2014 SIB loan. However,
Fitch notes that the publically funded portion of Tampa's Channel
District Vision Plan, not included in the current five-year CIP, is
estimated at roughly $200 million, some of which will be funded by the
port, and may potentially include additional borrowings. 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 debt is largely fixed
rate, with 32% synthetically fixed and hedged via two interest rate
swaps. The current capital structure reflects a rapid amortization
profile over the next eight years, though potential additional borrowing
for future projects may extend the amortization profile. The absence of
a cash-funded debt service reserve fund is somewhat mitigated by a very
strong cash position, with 864 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.
Stable Financial Profile: The port's healthy financial performance is
evidenced by stable debt service coverage ratios (DSCR) remaining at or
above 1.5x since 2005 (1.71x in FY 2015). Net debt-to-cash flow
available for debt service (CFADS) was modest at 1.38x in fiscal 2015,
and is expected to rise to 3x-4x in Fitch's base case forecast.
Peers: Peers include Jacksonville ('A'/Stable) and Port Everglades
('A'/Stable), with diverse cargo profiles and similar revenue bases. All
benefit from minimum annual guarantees (MAGs) covering roughly 2/3 of
operating revenues, and Port Everglades and Port Tampa Bay have similar
leverage and coverage metrics. CIP size is comparable to Everglades,
though Port Tampa Bay's upcoming master plan may include additional
projects not in the current CIP.
RATING SENSITIVITIES
Positive: Continued growth in operating revenues resulting in coverage
levels at or above the 1.6x to 1.7x range, while maintaining sound
liquidity and low overall leverage may result in an upward rating action.
Negative: Leverage above the 5.0x level or meaningful reductions in
currently strong liquidity levels could pressure the rating;
Negative: Substantial declines in cargo activity and cruise passengers
processed at the port and supporting revenues could also pressure the
rating.
SUMMARY OF CREDIT
Fiscal 2015 operating revenues increased to $51.32 million (up 5.9% over
2014), maintaining strong financial margins produced over the last
decade. Among major revenue categories, cruise revenue increased
slightly (1%) while general cargo saw a strong increase (5.6%) and bulk
saw a significant rise of 16.5%. The total operating revenue increase
was primarily due to higher petroleum shipments through the recently
completed Petroleum Terminal Facilities and a rise in limestone
throughput. For fiscal 2016 year-to-date through March, operating
revenues are down 4.4%, and are performing 0.4% below budget. The
majority of this decline is due to a decrease in cruise activity in
combination with a new parking agreement where the port recognizes 75%
of parking revenue going forward (while also eliminating the port's
responsibility for corresponding expenses).
Revenues are supported by long-term lease revenues and MAGs. The port
has derived approximately 60% of its revenues the last three years on
average from lease revenues and tonnage-based throughput guarantees. For
2016-2020, the port will receive a total of $93.9 million in
tonnage-based MAGs and $54.6 million in future lease revenue through
2020. Beyond 2020, an additional $318 million in Future Lease Revenue is
guaranteed by lease contracts. MAGs going forward through 2020 are
sufficient to cover debt service obligations on average at 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 23% of revenues in fiscal 2015. Bulk cargo
tonnage was up 11.6% in fiscal 2015. Historical cargo declines were
attributable in part to lower demand for cement, limestone, and granite
used in commercial and residential construction industries, which were
affected by the housing market in Tampa during the downturn. However,
dry bulk has been consistently recovering, with tonnage up 10.6% in
fiscal 2015. Limestone, which now represents 15% of total cargo volume,
has increased significantly year over year with a compounded annual
growth rate (CAGR) of 35% since fiscal 2012. Petroleum is the largest
contributor towards overall cargo volume at the port, currently
representing 48%. The new petroleum facility, which has contributed to
higher petroleum throughput in fiscal 2015, began operations in November
2013 with a 25-year user agreement.
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% of total operating revenues in fiscal
2015, down from 15.8% a year prior. New agreements are in place with
Carnival Cruise Lines, Royal Caribbean and Norwegian Cruise Lines,
growing revenues. While sailings were down in 2015, management indicates
sailings will return to historical levels for 2016, with increased
services from Carnival, Royal Caribbean, Norwegian, and Holland America.
Container operations have also seen an increase, with volumes up 17.4%
in fiscal 2015. Management expects continued growth in the container
business under its agreement with Zim Integrated Shipping Services and
Mediterranean Shipping Company. Management also notes potential for
growth with the expansion of the Panama Canal this summer 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 2015 debt service coverage increased to 1.71x from 1.68x in 2014
as a result of higher revenues and minimal expense increases.
Management's budget anticipates coverage may fall to 1.58x in fiscal
2016 due to conservative budget assumptions. This profile anticipates
revenue growth of 12% in 2018 based on realization of positive operating
trends, coupled with modest 2.2% average expense growth and steady debt
service requirements around $15 million annually.
Fitch's base case assumes revenue growth rates in line with management's
projections for 2016 and 2017, followed by more moderate growth
assumptions for revenue in 2018 (7% revenue growth versus management
forecast of 12%) followed by 3.5% growth, coupled with expense growth
around 4.0% from 2018 onwards. In this scenario, senior debt service
coverage averages 1.69x and remains above 1.58x while total coverage
averages 1.63x and remains above 1.53x. Through the forecast period,
debt service requirements slightly rise through MADS in 2020. Reflecting
the rapid amortization of the debt profile in the near term, all-in
leverage rises to the 3x-4x range, though this reflects the full effect
of $142 million in cash contributions to the port's capital program.
Fitch's rating case maintains management forecasts for 2016, but assumes
more tepid revenue growth coupled with higher operating expenses through
the forecast period. In this case, senior debt service coverage averages
1.51x with a minimum of 1.43x, while all-in coverage averages 1.46x with
a minimum of 1.31x. Under this scenario, all in leverage is slightly
higher in the 4x-4.5x range. Fitch notes the port's flexibility
throughout the forecast period despite 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
Rating Criteria for Infrastructure and Project Finance (pub. 28 Sep 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=870967
Rating Criteria for Ports (pub. 20 Oct 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=872725
Additional Disclosures
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