Fitch Rates Canaveral Port Auth, Florida's $16.5MM Revs 'A'; Stable Outlook.

NEW YORK -- Fitch Ratings assigns an 'A' rating to the Canaveral Port Authority (the authority), Florida's $16.5 million port revenue refunding bonds, series 2005. The Rating Outlook on the authority's revenue bonds is Stable. The series 2005 bonds are scheduled for negotiated sale by Citigroup during the week of April 25, 2005 and have a final maturity on June 1, 2021. Bond proceeds will refund a portion of the outstanding series 1996B bonds. The authority plans to insure the bonds through FGIC, whose insurer financial strength is rated 'AAA' by Fitch.

The 'A' rating reflects the growth of the cruise industry at Port Canaveral (the port), which has generated increased revenues, strengthened financial operations, and produced sound debt service coverage levels. Rating concerns include the port's high level of revenues derived from the economically sensitive cruise sector and the competitive nature of the port industry in the southeastern U.S. The Rating Outlook for the authority is Stable, reflecting the anticipated addition of new ships to the port's cruise fleet, as well as the growth seen in the port's cargo operations.

Centrally located on Florida's east coast, immediately adjacent to the Kennedy Space Center and 56 miles east of Orlando, the port benefits from the region's broad tourism-based economy that includes the Walt Disney World and Universal theme park resort complexes, as well as the Kennedy Space Center. The port's accessibility to the Orlando region and favorable sailing distance to popular Caribbean destinations prompted the Walt Disney Company (senior unsecured debt rated 'BBB+' by Fitch) to base the operations of the Disney Cruise Line at Canaveral beginning in 1998. In addition to the two ships operated by Disney, Canaveral serves as the home port to two ships operated by Carnival Cruise Lines (senior unsecured debt rated 'A-' by Fitch) and two ships operated by Royal Caribbean International, making for six home-ported ships in total, versus four in 2001. All three lines sail year-round, offering three-, four-, or seven-day itineraries to ports in the Caribbean. In addition, two casino boats sail several times a day from the port to nearby international waters where gaming is allowed.

The port ranked as the state's second busiest cruise port in terms of total passengers during 2005, behind the Port of Miami and ahead of Broward County's Port Everglades. Since 1999, the number of cruise passengers passing through the port has increased 12% on average annually to reach a record 4.6 million passengers in fiscal 2004. This period of growth includes the 5% drop in 2001 due to the events of Sept. 11 and the national economic recession. Passenger traffic rebounded 6% the following year, in 2002, 7% in 2003, and a further 12% in 2004. While the port's passenger base had been primarily composed of multiday cruise passengers, the addition of the two casinos boats in 1999 has stimulated significant growth in one-day gambling excursions. The number of one-day passengers increased 171% in 1999, the first full year of service of the gambling boats, and has steadily increased in each year since. One-day passengers constitute 43% of the total current traffic, relative to 30% in 1998. Management has conservatively forecasted moderate single-digit growth in total passengers in the near term, significantly less then the double-digit growth seen historically.

Cruise operations represented the port's largest revenue source in fiscal 2004, at 75% of total port revenues. Cargo ship operations (14% of annual revenues) and land leases with tenant companies (11%) round out the port's revenue base. Overall operating revenue increased at a 9% average annual rate to reach $42.6 million in 2004. Operating expenses increased 7% annually during this period to reach $29.5 million in 2004, with much of the increase driven by post-Sept. 11 federal and state security mandates. The port maintains strong financial margins, with debt service coverage at 3.55 times (x) for 2004 and at a minimum 2.34x since 2000. Debt service coverage is expected to remain at or near current levels as management forecasts limited need for revenue bond debt in the near term. The current capital plan, which projects $20 million in annual capital expense, will be funded through a combination of state, federal, and authority funds. Significant future capital expansions would only be initiated once certain demand targets are met and would likely include equity contributions from cruise line or tenant partners.

The port's reliance on cruise-based revenue sources represents the largest credit concern due to the industry's economic sensitivity and, with the exception of Disney, the lack of long-term contracts with cruise operators to maintain their presence at the port. Also, the port faces strong competition for both cruise passengers and cargo from ports throughout the southeastern U.S., especially Florida ports in nearby Miami, Fort Lauderdale (Port Everglades), Jacksonville, and Tampa. Mitigating these concerns is the proven ability of the cruise industry to recover from severe downturns. The port's credit is further enhanced by the authority's ability to levy an ad valorem tax of up to 3 mills on property within its boundaries, an option it has not exercised since 1986.