Fitch Rates Jacksonville Port Auth, FL's $54.9MM Revs 'A'; Stable Outlook.

NEW YORK -- Fitch Ratings assigns an 'A' rating to the Jacksonville Port Authority, Florida's (the authority) $54.9 million port revenue refunding bonds, series 2006 (AMT). The Rating Outlook on the authority's revenue bonds is Stable. The series 2006 bonds are scheduled for negotiated sale by UBS Investment Bank during on or about Oct. 31 and have a final maturity of Nov. 1, 2018. Bond proceeds will refinance all or a portion of the outstanding series 1996 bonds. The authority plans to insure the bonds through MBIA, whose insurer financial strength is rated 'AAA' by Fitch.

The 'A' rating reflects the port's stable cargo trends, its sound and conservative financial profile and the historical support afforded by the City of Jacksonville (the city) and the State of Florida (the state) for both operations and capital project funding. Credit risks center on the extremely competitive nature of cargo trade in the southeast, relatively light levels of liquidity, as well as the port's historical reliance on trade with Latin America and the Caribbean.

Container and automobile import and export drive the port's cargo trade. The port ranks as the nation's 18th largest port in terms of container trade and as the third largest in the state of Florida. The port is also the nation's second largest for the import and export of automobiles behind the Port Authority or New York and New Jersey. Container trade represents approximately 39% of the port's annual revenue base and the 777,318 20-foot equivalent (TEU) containers shipped through the port in fiscal 2005 represented an increase of 7% over fiscal 2004 and 4% on average annually over the past decade.

While the port's container trade has been stable, its 10-year average annual growth of 4% trails behind the average annual rate for U.S. Atlantic trade as a whole (7% on average annually over the past decade) as well as some of its competitors (including ports in Charleston, SC; Savannah, GA; and Norfolk, VA). The competitive and discretionary nature of the container trade, where shipping lines have significant flexibility to redirect cargo to other ports on an ongoing basis, combined with the port's close proximity to competitors that have more expansive container trade lines or deeper harbors, led lower rates of growth. Additionally, imports from high-growth areas in Asia have driven recent trends in the U.S. container trade, and the port's shipping lines have historically focused on Latin America and the Caribbean, regions whose economies have experienced slower growth or volatility in the past decade.

The authority's recently executed 30-year contract with Mitsui O.S.K. is expected to make Mitsui the largest tenant at the port and spur additional cargo growth by opening new Asia trade lines. The new terminal will be completed prior to the end of fiscal 2008 and operations are forecasted to add approximately 300,000 to 400,000 TEUs (39% of current traffic) in the first several years of operations, eventually growing to 800,000 TEUs. The terminal was largely funded through a combination of special facility debt backed by Mitsui and by City of Jacksonville excise tax bonds.

Automobile shipments at the port have been stable over the past decade, increasing at 3% on average annually since 2000 but there has been significant volatility in the past five years. Automobile-related revenue declined 8% between fiscals 2002 and 2004, and remained roughly stable for fiscal 2005. The port lost a significant contract that year as an automobile shipping line opted to use another port. In order to mitigate similar future declines, the authority has implemented longer-term contracts with minimum annual guarantees. While a contracted shipper may still opt to route autos through the port, and reduce the amount of volume-related revenue, the long-term nature of the contract ensures a certain minimum annual guaranteed amount in each year.

The port's stable cargo revenue base and conservative management have produced consistent financial results, with the 27% operating margin for fiscal 2005 comparable to ratios generated since fiscal 2002. The authority's revenue profile is aided by annual appropriation from the city's excise tax (telecommunications tax) after payment of debt service on city bonds issued for port projects. Funds received by the port are subordinate to and contingent on debt service payments due on the city's bonds. The authority received approximately $3 million in fiscal 2005, an amount expected to remain level over the near- to medium-term. Fiscal 2005's net revenues generated 1.90 times (x) debt service coverage and would cover maximum annual debt service of $7.7 million (fiscal 2019) 1.57x. Current forecasts calling for a 6% average annual growth in containers and autos, as well as 30% operating margins, are expected to provide about 2.00x coverage over the next five years.

The authority maintains both near-term and multi-year capital improvement programs (CIPs). The current two-year CIP (fiscals 2006-2007) calls for approximately $43 million in projects which will address general maintenance and modernization. The authority expects to receive $7 million in state or federal grants, with the remaining $36 million to be funded through the issuance of about $50 million in revenue bonds in 2007.

The multi-year (fiscals 2007-2011) CIP contains a rolling list of projects and totals $562 million. It has been management's practice to prioritize large capital expansion projects (such as a new cruise terminal currently in the long-term plan) only after external city, state or third-party grants, matching funds, or contributions are identified. For example, the new cruise terminal currently budgeted at $49 million in fiscal 2008 would only be developed if management secured significant funding from Carnival or other cruise lines looking to significantly expand operations and establish long-term contracts at the port. While additional debt is expected beyond 2007 to fund projects identified on the five-year list, Fitch's rating expects operating margins will be maintained at current levels, that debt service coverage will at a minimum be in the 1.60x to 1.70x range, and that management will continue to build the port's unrestricted fund balance. The port maintained approximately $10 million in unrestricted cash and investments as of fiscal 2005, but the level of unrestricted and unencumbered funds has been closer to $4 million since fiscal 2002.

The authority was created by special acts of the State of Florida between 1963 and 1968 to develop and maintain the cities port and airports. Its current management structure came into being on Oct. 1, 2001 when management and operations where split into maritime and aviation divisions.

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