The rating reflects PortMiami's importance as the largest port for cruise in the world and among the largest in
KEY RATING DRIVERS
The Port benefits from stable revenue streams through diversified business lines (cruise operations 54% of revenues, container 38%). The Port does have some exposure to fluctuations in the cruise business and to the competitive port environment in
Revenue Risk - Volume: Midrange
CONCENTRATION MITIGATED BY CONTRACTS:
The Port has some exposure to fluctuations in the discretionary cruise business, though this is partially mitigated by the existence of long-term guaranteed contracts with key cruise customers and long term leases with cargo operators, with minimum guarantees as of
SIZABLE CAPITAL PROGRAM: The Port's sizable five-year capital improvement plan (CIP) totals approximately
DEBT STRUCTURE: The 2013 revenue bonds and parity general obligation bonds are fixed rate. The 2014 revenue bonds are variable rate with a five-year direct pay LOC, representing 30% of parity senior debt. Final maturity is in 2051 with debt service expected to escalate through 2022. The MADS rate covenant and additional bonds test (ABT) are quite stringent when compared with peers.
Debt Structure: Midrange
MODERATE FINANCIAL PROFILE: The Port's financial profile has historically generated robust coverage levels above 3.0x for revenue bonds, and 1.6x or higher for revenue and GO bonds combined. The mistreatment of a credit under a cruise line incentive program resulted in a rate covenant violation in 2013, which the Port subsequently resolved. Liquidity is moderate at 144 days cash on hand. With the new issuance, leverage is initially high at 14x for revenue and GO bonds, though these levels are expected to fall to the 5x range over the next five years.
A second consecutive year of rate covenant violations would likely result in negative rating action.
Maintenance of the rating will depend upon management's ability to deliver projected revenue growth; control expenses; and manage coverage levels in light of increased annual debt service requirements and CIP commitments.
Should additional future borrowing increase leverage significantly without corresponding increases to net revenues, the rating may be pressured.
Should the capital plan be successfully executed and leverage levels decrease as new revenue streams come online, upward rating migration is possible.
The revenue bonds are secured by a pledge of and lien on the Net Revenues of the
The County is issuing
In 2013 PortMiami derived 54% of operating revenue from cruise agreements, 38% from cargo agreements, and 8% from property leases and other sources. Contractual guarantees provide a solid anchor for performance, with 2013's guarantees of
Cruise line agreements provide the PortMiami with annual guaranteed passenger volumes and revenues while providing the cruise lines with incentives for meeting guaranteed levels. PortMiami is guaranteed between
Cargo revenues are also protected through minimum guarantees. PortMiami is a landlord port, with containerized cargo activity being handled by three individual terminal operators occupying approximately 240 acres: Seaboard Marine (Seaboard),
The Port is also aided by the pledge of certain State Comprehensive Enhanced Transportation System Tax (SCETS) revenues which begin to flow from the
Operating margins at the Port have been relatively stable historically, ranging between 30% and 40% in the last five years. Operating revenues grew 5.4% in fiscal 2013 after a 5.1% drop in 2012. Overall, operating revenues have increased at an annual growth rate of 2.9% since 2008, and grew through the 2006 -2008 period despite volume decreases during the economic downturn. For the first four months of fiscal 2014 through January, operating revenues are 9.1% higher than the same period in fiscal 2013, largely reflecting an increase in cruise revenues.
Operating expenses for fiscal 2013 increased approximately 10.9% from 2012, primarily as a result of cruise and cargo incentive payments for the purpose of attracting and/or retaining business. This follows three consecutive years of declines in operating expenses, resulting in a modest compounded annual growth rate of 1.4% since 2008. For the first four months of fiscal 2014 through January, operating expenses were 7.3% lower than the prior year, primarily due to the partial recognition in fiscal 2013 of an incentive payment to a cruise line with the remainder to occur fiscal 2015. Given the Port's increased annual debt service and higher CIP commitments in coming years, it will be important for management to continue to control operating expenses.
The port's rate covenant test is conservative, based on maximum annual debt service (MADS) (1.25x MADS on revenue bonds and 1.10x on GO bonds). In 2013 the port was found to be in violation of the MADS-based covenant, due to an adjustment to revenues required during the 2013 audit. Due to a correction to an accrual entry for a credit due under a cruise line incentive agreement, the port was
While this stringent test provides extra protection for bondholders, it may be challenging for the port to honor in the near term as revenues related to ongoing capital improvements come online. The port is taking steps to modify its master ordinance in order to, among other changes, base the annual rate covenant on current year debt service rather than MADS. However, such a change requires consent of 51% of bondholders and is not expected to come into effect in the near term. Fitch will continue to monitor the port's results going forward. Should a second rate covenant violation seem likely, negative rating action may be warranted.
With the 2014 issuance, as well as an additional
The Port's capital plan through 2019 is sizeable at approximately
Additional information is available at 'www.fitchratings.com'.
-- 'Rating Criteria for Infrastructure and Project Finance' (
-- 'Rating Criteria for Ports' (
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for Ports
Source: Fitch Ratings
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