Fitch Ratings has affirmed the Port of Beaumont (POB) Navigation
District of Jefferson County, Texas' approximately $17.03 million
outstanding revenue bonds series 2007 and 2008 at 'A'. The Rating
Outlook is Stable.
Fitch also rates the district's general obligation (GO) bonds, last
reviewed on June 18, 2015. The GO bonds are rated 'AA-' with a Stable
Outlook. For more information on the GO bonds please see Fitch's press
release dated June 18, 2015.
The rating affirmation reflects the cargo and military focused port with
an established operating history, flat overall revenue since the
recession from cargo alongside strong cost management and a minimal
capital program with no material borrowing anticipated. The conservative
debt structure, modest leverage, and strong coverage metrics would
likely remain resilient under more volatile conditions, which Fitch
views as credit strengths. While not pledged to revenue bonds,
additional tax revenues provide overall revenue stability to the port.
KEY RATING DRIVERS
Revenue Risk: Volume - Midrange
ESTABLISHED NICHE PORT IN COMPETITIVE REGION: The Port of Beaumont (the
port) provides one of the Gulf's only bulk and break-bulk maritime
services as well as hosts the U.S. Army's Military Surface Deployment
and Distribution Command headquarters. The port relies heavily on
volatile bulk commodity products, including grain, aggregates, and
petroleum which can affect throughput levels and associated revenues.
Revenue Risk: Price - Midrange
DIVERSE REVENUE BASE WITH CONTRACTED TENANTS: A dual cash flow of
district ad-valorem property taxes and diverse maritime revenues fund
port operations. Property taxes, though unpledged, provide overall
revenue stability to counteract maritime revenue volatility, and
long-term contracts from established tenants anchor maritime revenues.
The top five tenants accounted for approximately 55% of fiscal 2015
operating revenues.
Infrastructure Development/Renewal - Midrange
MINIMAL CAPITAL DEVELOPMENT NEEDS: Approximately $70.25 million worth of
projects are currently in progress. Projects on hold will proceed with
public/private partnership(s) at little to no cost to POB. New money
bonds will not be needed as the remainder of funding will come from
grants and internal capital. POB has already paid the local match
portion of the $11 million Orange County Overpass and is expecting
approximately $6.8 million from the Federal Highway Administration to
complete the project. The port is expecting remaining port costs to be
minor engineering change orders.
Debt Structure- Stronger
CONSERVATIVE DEBT STRUCTURE: The district's debt is 100% fixed rate, and
revenue bonds have level annual debt service payments of approximately
$1.8 million.
Fiscal 2015 Financial Metrics
MODERATE LEVERAGE AND LIGHT LIQUIDITY: Net debt-to-cash flow available
for revenue bond debt service (CFADS) remained stable in FY2015 and
increased slightly to 2.10x from 1.80x in fiscal 2014, remaining in line
with peer port credits. Fitch-calculated debt service coverage ratio
(DSCR) with tax revenues dropped to 3.98x at fiscal year-end 2015 from
4.80x at FYE2014. Fitch-calculated DSCR with all pledged revenues but
excluding tax revenues dropped to 1.56x at fiscal year-end 2015 from
2.62x at FYE2014 due to increased operations costs. Fitch-calculated
base case coverage including tax revenues should remain above 4.0x
through the five-year forecast. Liquidity remains relatively low with
only $4.7 million in unrestricted cash, equivalent to 137 days cash on
hand (DCOH) at FYE2015.
Peer Group:
The Port of Beaumont's metrics remain at the higher end of the 'A'
rating category, and like peer (Hillsborough County Port Authority,
'A'/Positive Outlook), the POB benefits from city tax revenues that
support port activities along with port revenues. The Alabama State Port
Authority ('A-'/Stable Outlook) has mixed bulk cargo similar to POB but
handles more tonnage over the past five years.
RATING SENSITIVITIES
Negative: Downward shift in maritime operations due to a loss of key
port stakeholders and tenants;
Negative: Material changes in the tax revenue support, or an increase in
GO debt that has a higher ranking claim on tax revenues than the rated
revenue bonds;
Negative: Unforeseen capital spending that adds to the debt burden may
affect credit quality.
Positive: Positive rating actions are considered unlikely in the near
term based on the port's size and volume profile.
SUMMARY OF CREDIT
Overall tonnage at the port remains volatile, with fiscal 2015 tonnage
increasing 14.8% and only 2.6% below the peak fiscal 2011 level. Tonnage
has grown at a 4.2% CAGR over the past 10 years but is flat year-to-date
through January (fiscal 2016) in comparison to the same months last year
as increases have cancelled out decreases. The port's top five tenants
and operators generated roughly 55% of operating revenues in fiscal
2015, and the U.S. Army continues to provide diversity and stability as
the largest tenant, accounting for 30% of operating revenues.
Fiscal 2015 operating revenues increased 20.6% mostly from wharf and
dockage. Operating revenues made up 76% of total revenues, with the
balance largely made up of tax collection revenues which are important
to the port's credit profile. Fiscal 2016 year-to-date operating
revenues are 22% higher than last year, while total revenues are up 13%.
Fiscal 2015 OpEx increased 16.6% from increased maintenance and
operating expenses following use of the wharf and dock facilities but
still have only grown at a 0.5% 5 year CAGR 2010 - 2015. Fiscal 2016
year-to-date total expenses are 17% ahead of the same months last year
due to increased admin and operations expenses.
The port uses tax revenues for OpEx as well as general obligation debt
service payments, which allows for stable coverage levels during
downturns and supports the 'A' rating. While 11% more tax revenues
counted for fiscal 2015 debt service, Fitch-calculated coverage slightly
dropped from 4.80x to 3.98x during fiscal 2015. Fitch notes that revenue
bond coverage should increase further once GO bonds mature in fiscal
2018 as management does not plan to issue additional GO bonds in the
near term. Fitch continues to monitor the tax levy and collection trends
as key rating drivers.
Revenue bond net-debt-to-CFADS (leverage) is still relatively strong for
the rating category and increased only slightly to 2.01x during fiscal
2015 (1.70x in fiscal 2014). Leverage is also expected to remain below
2x going forward even in the Fitch rating case given the relatively
level revenue bond debt service.
Fitch's base case assumes total operating revenues and expenses to both
grow at around a 1% five-year CAGR. Under this scenario but holding tax
revenues available for debt service flat, DSCR is expected to remain
above 4x, with leverage starting at 1.89x before dropping down to 1.33x
as debt is paid off. Fitch's rating case assumes -1.0% five-year CAGR in
total operating revenues with expenses growing at a 1.4% five-year CAGR
due to revenue shocks mid-forecast. Under this scenario and with tax
revenues available for debt service held flat, DSCR is expected to
remain above 3x, with leverage still dropping down to 1.70x as debt is
paid off.
The port has not seen any significant impact resulting from fluctuating
oil prices. Oil companies are the port's largest tenant and keep
expanding. Oil as a commodity provides a push-pull effect. When oil is
high, revenues are generated from new wells; when oil is low, revenues
are generated from refineries (the port has four refineries as well as
the new crude-by-rail terminal). The port's tax revenues have also not
fluctuated with oil prices. Tax revenues may drop when the GO bonds
mature in 2018, but have been mainly constant historically.
SECURITY
The port revenue bonds are secured by a first lien pledge on port
operating revenues. Port general obligation debt is secured by a parity
pledged of port operating revenues as well as property taxes levied
within the port district.
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
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1001405
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1001405
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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