The Rating Outlook on both liens is Stable.
The port's 'A+' ratings reflect diverse revenues from aviation, maritime, and commercial real estate operations. Residual airline agreements on the aviation side coupled with long term contracts generating 80% of maritime operating revenues provide stability for the port's revenue profile and for debt service coverage. The capital improvement plan is manageable, with approximately 20% of the program expected to be funded with debt, though aviation-related passenger facility charges are expected to provide support for debt service.
The port's 'A-' rating reflects the aforementioned qualitative factors, but also considers the lower coverage levels and weaker covenant protections seen on the intermediate lien.
KEY RATING DRIVERS
O&D Traffic Base with Exposure to Competition: The port enjoys a favorable geographic location for the maritime and aviation divisions that serve a large economic area. Concentration risk from Southwest's dominant presence is somewhat offset by
Diverse Revenue Base: The port benefits from revenue diversity, with 48% of operating revenues derived from maritime operations and 48% from aviation activity. The airport's costs are supported by a largely residual rate-making methodology that resulted in competitive cost per enplaned passenger (CPE) of
Conservative Debt Structure: Both senior and intermediate lien port revenue bonds are fixed rate with no refinancing risk; subordinate CP is variable rate and has some refinance risk. All bond reserves are cash funded, except for approximately
Elevated Leverage and Stable Revenue Trends: The port maintained adequate liquidity in fiscal 2013 of
Manageable Capital Plan with Possible Future Borrowing: The port's
--A material change in the current traffic base or the ongoing commitment from the port's anchor airline carrier, Southwest Airlines, would likely lead to a downgrade;
--Additional leveraging absent commensurate growth in the port's revenue profile would weaken financial flexibility and the credit profile.
--Significant increases in the port's cost profile, or notable declines in annual port and aviation sector revenues, would pressure margins as well as the rating.
--Given the competitive nature of the service area and recent and expected metrics, positive migration of the ratings is not expected at this time.
The port's senior revenue bonds are secured by a gross revenue pledge of all port revenues, including the aviation (
The port's main business segments, aviation and maritime activities, have largely recovered after experiencing steep activity declines during the recession. On the aviation side, concentration risk remains a concern, with Southwest accounting for 68.9% of enplanements in fiscal 2013, though this risk is partially offset by the high share of O&D traffic (approximately 86% in 2013) using the airport. The three-year airline use agreement expiring in 2016, is a largely residual agreement which supports airport costs. The terms of the agreement, which are largely similar to prior agreements, allows for cancellations with 30-days' notice, and do not require the port to obtain approval of the airlines to undertake capital projects or to incur debt.
Fiscal 2013 enplanements increased 3.1% over the previous year to 4.97 million. For the first 11 months of fiscal 2014 through May, enplanements are down 1.5%; this reflects drops in enplanements in the July-November period, with enplanements recovering strongly since
In calendar year 2013, the seaport's cargo traffic, as measured in twenty foot equivalent units (TEUs), was essentially flat at 2.3 million (up 0.1%). For the first 10 months of fiscal 2014 through April, loaded TEUs are up 1.9% over the same period a year prior, and are also up 1.8% above budget. Fiscal year 2013 maritime revenues were down slightly by 0.7%, though the Port presently expects a 1.5% decline for fiscal 2014, reflecting shifts in cargo among terminals. Fitch views favorably the port's strong minimum annual guarantee agreements (MAGs) and other fixed lease payments which and are long-term in nature, which are expected to account for roughly 80% of total maritime revenue in 2014. Three agreements representing roughly 10% of MAGs are set to expire in 2014 (Ports America OHT B25-26, Oakland International Gateway/BNSF, and Shippers Transport Express) and are currently being renegotiated. Fitch will monitor developments with respect to those agreements.
Favorable financial performance has resulted in improved debt service coverage ratios in fiscal 2013 when compared to the prior year, with all-in coverage of 1.59x above fiscal 2012 levels of 1.50x. Senior lien coverage remained strong, increasing to 2.49x in 2014 from 2.33x. The port was able to achieve an increase in net revenue as a result of higher operating revenues (up 3.1% to
The port anticipates eventually issuing PFC-backed debt for approximately
Even with additional CP borrowing that is assumed in the capital program leverage is moderate and coverage is stable, remaining consistent with the current rating levels under various forecast scenarios. Under Fitch's base case which assumes modest traffic and revenue growth along with conservative expense assumptions through 2019, coverage remains above 2.7x on the senior lien, above 1.3x for the intermediate lien, and at 1.3x on an all in basis. Leverage rises to 7x, but returns to below the 6x range by the end of the five-year forecast period. In the more conservative rating case, which assumes flat revenues and expense growth 50 basis points above the base case, coverage remains above 2.5x on the senior lien, at or above 1.2x for the intermediate lien, and at or above 1.1x on an all in basis. Leverage rises to 7x and stays at that level in the rating case. Fitch notes that coverage and leverage levels produced under the rating case are consistent with current rating levels.
Additional information is available at 'www.fitchratings.com'.
--'Rating Criteria for Infrastructure and Project Finance' (
--'Rating Criteria for Airports' (
--'Rating Criteria for Ports' (
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for Airports
Rating Criteria for Ports
Source: Fitch Ratings
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