Fitch Ratings has affirmed its 'A' rating on the Port of Beaumont Navigation District (the port or district) of Jefferson County, Texas' approximately $23.8 million outstanding revenue bonds. The Rating Outlook on all revenue bonds is Stable. Fitch also rates the port's general obligation (GO) bonds, last reviewed on July 1, 2011. The GO bonds are rated 'AA-'; for more information on the GO bonds please see the press release dated July 1, 2011.
KEY RATING DRIVERS
ESTABLISHED NICHE PORT IN COMPETITIVE REGION: Despite the highly competitive nature of the Gulf Coast maritime industry, the port's unique position as a bulk and break bulk port in the Gulf provides stability, with the U.S. Army's Military Surface Deployment and Distribution Command headquartered at the port. The port's exposure to and reliance on volatile bulk commodity products, including grain, aggregates and potash, for throughput can affect throughput levels and associated revenues.
DIVERSE REVENUE BASE WITH CONTRACTED TENANTS: Port of Beaumont benefits from the dual cash flow of maritime-based revenues and district ad-valorem property taxes. Maritime revenues are diverse and are anchored by long-term contracts with three of its major tenants, accounting for 60% of operating revenues. Minimum annual guarantees (MAGs) offer minimal protection in revenues, responsible for only 6% of operating revenues in fiscal year (FY, ending Aug. 31) 2011. While not pledged, the property taxes provide overall revenue stability to counteract maritime revenue volatility.
MINIMAL CAPITAL DEVELOPMENT NEEDS: The port's current $65 million capital plan is largely completed. No new money bonds are currently planned, though there may be minimal borrowing of under $5 million in the near term. Borrowing is expected to be contingent upon securing customer-based contracts to cover the additional debt obligations. Management estimates the port will undertake $5-10 million in maintenance projects over the next 3 - 4 years, which are expected to be all cash funded.
CONSERVATIVE DEBT STRUCTURE: All of the port's debt is in fixed rate mode with debt service payments flat at approximately $1.8 million through maturity. The port is currently completing a private-placement refunding of its 2001 bonds, which is expected to result in $1 million in present value savings and will shorten the maturity profile by 2.5 years.
LOW LEVERAGE AND STRONG LIQUIDITY: The port's net debt-to-cash flow available for debt service (CFADS) of 0.90 times (x) is measurably lower than peer port credits. In FY 2011, the port's debt service coverage increased to 5.43x from 4.36x with the benefit of a 6.3% gain in operating revenues. Port liquidity is healthy as evidenced by $12.9 million in unrestricted cash, equivalent to 367 days cash on hand. The district benefits financially from of its ad valorem taxing power which contributes approximately $6.5 million to the port. Residual tax revenues after payment of GO debt service are available for port operations, including payment of revenue bond debt service.
WHAT COULD TRIGGER A RATING ACTION
--Shift in maritime operations due to a loss of key port stakeholders and tenants.
--Material changes in the tax revenue support.
--Unforeseen capital spending that adds to the debt burden may affect credit quality.
The bonds are secured by and payable from an irrevocable first lien on and pledge of the Pledged Revenues, equal to Gross Revenues of the Port. Pledged Revenues are further pledged irrevocably to the establishment and maintenance of the Interest and Sinking Fund and the Reserve Fund. All revenue bonds are on parity with respect to their claim on this pledge.
Overall tonnage at the port has grown slightly since 2003 at a compound annual rate (CAGR) of 3.4%, reaching four million tons in FY 2011. This represents an increase of 16.3% over FY 2010, and is 12.1% higher than the peak of 2007. On a year-over-year basis through May, the first 9 months of FY 2012 indicate significant decrease of 41.3%, driven by declines in the grain market and drops in dry bulk cargo levels. Revenues showed a more moderate recovery in 2011, increasing 6.3% over 2010. Based on the first eight months of 2012, management expects revenue to finish the year 6.8% below 2011, largely due to decreases in grain and dry bulk tonnage.
The top four tenants and operators at the port generate roughly 80% of operating revenues, and serve as stabilizing factors for the port's revenue stream. These include the U.S. Army, whose military transportation headquarters for the Gulf are located at the port; Kinder Morgan, which operates a 13-acre bulk terminal handling construction aggregate rock, potash, and other dry bulk materials; Louis Dreyfus, which operates the port's grain elevator under a long-term lease agreement; and Vestas Wind Energy, which ships wind generators into the port's general cargo terminal. Eighty to ninety percent of cargo is shipped out of the immediate region. The port benefits from good highway access and service by three class 1 rail carriers.
The port has maintained a strong balance sheet in recent years and current liquidity translates to 367 days cash on hand based on $12.9 million of unrestricted cash available in fiscal 2011. The port has also historically maintained a strong liquidity position, which Fitch believes is prudent given the nature of commodity fluctuations and the high tax base concentration. The port's continued use of pay-as-you-go capital spending has produced moderate debt levels, at approximately $40.8 million in FY 2011 (includes $13.6 million GO debt and $23.8 million revenue bond debt). Revenue bond net debt to CFADS is low at 0.90x. Revenue bond debt service is level through 2034 at $1.8 million a year. Fitch views this burden as manageable, with debt service coverage expected to be above 2.0 times (x) going forward, including available tax revenues.
The availability of tax revenues to meet operating expenses as well as the port's general obligation debt service payments is a key support for the 'A' rating level, as it has allowed for greater stability in coverage levels during the volatility of the recent downturn. In 2011, tax revenues of $6.5 million were levied off a taxable assessed valuation (AV) base of $8.66 billion. The recent trends in the taxable AV base have been positive, and the port's tax rate remains well within its authorized tax levy authorization. Fitch will monitor the tax levy and collection trends, as it is viewed as a key rating driver.
The port's current $65 million capital improvement program (CIP) is expected to be complete near the end of September 2012, with over 50% of projects completed thus far. The expansion of the Orange County terminal is progressing, with the port investment in this public/private partnership near completion. The port has invested approximately $35 million in the project, with private partners expected to contribute about $150 million. While the next five-year CIP has not yet been finalized, management indicates that the port will likely undertake $5 - 10 million in minor capital improvements over the next three to four years; these improvements are anticipated to be paid for in cash.
Management does not expect to issue any new debt for the current plan, but there is potential for an additional $5 million in revenue bonds to rehab existing rail if agreements are reached with class 1 railways that would provide sufficient revenues to cover any additional debt service.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance' (Aug. 16, 2011);
--'Rating Criteria for Ports' (Sept. 29, 2011).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for Ports
70 W. Madison Street
Chicago, IL 60602
Elizabeth Fogerty, +1-212-908-0526