Fitch Upgr Canaveral Port Auth, Florida's Rev Bonds To 'A' From 'A-'.

Business Editors

CHICAGO--(BUSINESS WIRE)--Aug. 29, 2002

Fitch Ratings upgrades its rating on Canaveral Port Authority, Florida's $61 million of outstanding debt to 'A' from 'A-' and assigns the 'A' rating to the authority's $35 million revenue bonds scheduled for negotiated sale on or about September 16, 2002 through a syndicate led by Salomon Smith Barney. The issue consists of approximately $30 million Port Revenue Refunding Bonds, Series 2002A and $4,240,000 Port Improvement Revenue Bonds, Series 2002B. Proceeds of the 2002A bonds will refinance all or a portion of the authority's outstanding Series 1992 and Series 1996B bonds. Proceeds of the 2002B bonds will finance the construction of additional parking spaces, an immigration facility, and a baggage conveyor system at cruise terminal 10, as well as a dredging project to increase the depth of the port's west turning basin. The bonds are secured by the gross revenues derived from the operation of the port. The authority plans to insure the bonds through FGIC, whose claims paying ability Fitch rates 'AAA'.

The upgrade reflects the growth of the cruise industry at Port Canaveral (the port), which 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 United States. The Rating Outlook for the Authority is Stable, reflecting the anticipated addition of two new ships to the port's cruise fleet, as well as the port's modest capital program and strong management team.

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. 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', Rating Watch Negative, by Fitch) and one ship operated by Royal Caribbean International. All three lines sail year-round, offering 3, 4 or 7-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.

Since 1997, the number of cruise passengers passing through the port increased 25.9% annually. The addition of the two casinos, which commenced operations in 1999, generated most of the increase as the number of day-cruise passengers increased 56% annually during this period. Multiple-day cruise traffic grew at a 12.3% annual rate since 1997, reflecting Royal Caribbean's arrival at the port in May 2000, while Carnival increased the size of its ships sailing from Canaveral. The growth trend in passenger levels should continue for the foreseeable future as two additional ships are scheduled to sail from the port during the 2002 - 2003 season. Port Canaveral ranked as the state's second busiest cruise port in terms of total passengers during 2001, behind the Port of Miami and just ahead of Broward County's Port Everglades.

The growing cruise industry contributed to the port's 11.1% annual increase in operating revenues since fiscal 1997. Cruise operations represented the port's largest revenue source in fiscal 2001, at 68.3% of total port revenues, and increased 16.7% annually since 1997. Cargo-related revenue represented 17.7% of port operating revenues in fiscal 2001, and grew at a 3.1% rate during the period. Operating expenses increased 13.5% annually as the port acted to meet the State of Florida's increased security requirements. The port's strong financial performance led to debt service coverage provided from net revenues increasing to 2.3 times (x) in fiscal 2001, from 1.8x in 1997.

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. Mitigating this concern is the ability of the authority to levy an ad valorem tax of up to 3 mills on property within its boundaries, an option it has not exercised since 1986. Also, the port faces strong competition for both cruise passengers and cargo from ports throughout the southeastern United States, especially Florida ports in nearby Miami, Fort Lauderdale (Port Everglades), Jacksonville, and Tampa.