Fitch Ratings has assigned an 'A' rating to the Jacksonville Port Authority, Florida's (JaxPort) $92 million series 2012 revenue and refunding bonds. In addition, Fitch Ratings has affirmed the 'A' rating on JaxPort's approximately $90 million in outstanding series 2008 revenue bonds. The Rating Outlook is Stable.
KEY RATING DRIVERS:
--MODEST SIZED PORT IN COMPETITIVE SOUTHEAST: The port benefits from a strategic location with good and improving intermodal connectivity and infrastructure and maintains strategic importance as the second largest U.S. port for vehicle imports and largest for vehicle exports. The number one container port in Florida, JaxPort is located in the highly cargo competitive Southeast and historically has been reliant on relatively volatile trade with Latin America and the Caribbean.
--DIVERSE REVENUE BASE WITH CONTRACTED TENANTS: The port's increasingly diverse revenue base has benefited from the opening of the Mitsui O.S.K. Lines, Ltd. (MOL)/TraPac container terminal in early fiscal 2009. Long-term contracts and minimum annual guarantees (MAGs) from a diverse group of tenants provide additional downside protection for revenues.
--ADEQUATE INFRASTRUCTURE WITH MODEST DEVELOPMENT NEEDS: The port's current $117 million capital plan is modest, with funds coming from grants, internal sources, and bond proceeds. The port has received $50 million in state grant funding since the new governor took office in January 2011 and another $10 million in Transportation Investment Generating Economic Recovery (TIGER) III Federal grant funding, largely for renewal and replacement projects.
--MIDRANGE DEBT STRUCTURE: Senior lien debt is 64% fixed rate, with the other 36% consisting of 2009 variable rate taxable and tax-exempt revenue notes, not rated by Fitch. The variable rate portion is synthetically fixed, with both the port and counterparty paying and receiving based on LIBOR, serving to mitigate interest rate and basis rate risk.
--POSITIVE REVENUE TRENDS AND HIGH COVERAGE: The port has seen growing revenues despite the unfavorable economic climate in recent years, leading to senior lien debt service coverage ratios (DSCRs) in excess of 2 times (x) on average, expected to be stable in that range going forward. The port maintained low liquidity with approximately 148 days cash on hand and high leverage of 7.45x in fiscal 2011 (fiscal year ends Sept. 30) mitigated somewhat by its status as a landlord port with minimum annual guarantees and rental income. The port also benefits from intergovernmental transfers from the city of Jacksonville.
WHAT COULD TRIGGER A RATING ACTION
--Additional leveraging absent continued stability in the authority's revenue profile which could weaken financial flexibility and margins;
--Inability to control operating expenses given the authority's elevated debt service obligations.
SECURITY
The senior revenue bonds are secured by a first lien
pledge on net revenues generated from the Blount Island Marine Terminal
(Blount Island); the Talleyrand Marine Terminal (Talleyrand); and the
Dames Point Marine Terminal (Dames Point). The bonds are further secured
by excess revenues from the City of Jacksonville from an annual
appropriation of $800,000, plus an amount equal to 1/4 mill from the
Jacksonville Electric Authority and a percentage of the raise in
communications tax revenue over a base amount established, adjusted by
an index. JaxPort's outstanding subordinate obligations, not rated by
Fitch, have a subordinate lien pledge on net revenues.
TRANSACTION SUMMARY
The series 2012 transaction consists of the
issuance of an estimated $65 million in refunding bonds and an estimated
$15 million of new money revenue bonds. Proceeds from the refunding
bonds will be used to partially refund JaxPort's outstanding series 2008
revenue bonds that were structured with the option to redeem $65 million
of the original principal of $90 million within 90 days of Nov. 1, 2012.
Net present value savings for the refunding is currently estimated at
approximately $10.9 million through the life of the bonds or 16.8% of
the refunded principal. There will be no change in the final maturity of
the refunded bonds; the refunding bonds will mature in 2039. Proceeds
from the $15 million in new money debt issuance will be used to fund
JaxPort's portion of renovation costs for the Blount Island Marine
Terminal, with the remaining $15 million of the project funded by the
state. Additionally, bond proceeds are expected to fully cash fund
JaxPort's debt service reserve requirements.
Fiscal year-to-date (FYTD) through June operating revenues are up by approximately 2% over the previous year, with growth dampened by lower than expected military and cruise results. Military revenues represent about 3% of JaxPort's overall business but are currently down due to reduced military activity. Cruise revenues, about 7% of JaxPort's operations, are also down approximately $200,000, reflecting delays with a new contract from Carnival (originally expected to be executed October 2011, now executed with service beginning June 2012).
The authority's main business segments currently show increases. Automobile revenues are up 5.6% over the same period last year, while container revenues are up by 4.5%. With the MOL/TraPac terminal now online, the authority maintains the largest container business in Florida, with 10 of the 15 largest carriers in the world now serving the port. FYTD operating expenses are $1.3 million or 5.6% below last year's expenses over the same time period, mainly due to lower than budgeted dredging costs.
For more information on JaxPort and its recent performance, please refer to Fitch's press release dated May 29, 2012.
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' (July 12, 2012);
--'Rating
Criteria for Ports' (Sept. 29, 2011).
Applicable Criteria and Related Research:
Rating Criteria for
Infrastructure and Project Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867
Rating
Criteria for Ports
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=652165
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Fitch Ratings
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Fitch, Inc.
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New York, NY
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Director
or
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