Fitch Affirms Jacksonville Port Authority, FL's Rev Bonds at 'A'; Outlook Stable.
KEY RATING DRIVERS
The rating reflects JaxPort's historically stable performance anchored by growing automobile activity and sizable contractually guaranteed revenues from existing long-term tenants that limit the port's exposure to operational risk. The port's diverse revenue base and desirable location in the Southeast Atlantic further support the rating and provides greater access to cargo and cruise activities as well as Latin American and Caribbean markets. The port's financial metrics remain healthy under Fitch's rating case scenario, which includes an assumed $70 million in additional borrowing, with senior lien debt service coverage ratio (DSCR) expected to average 2.2x over the next five years and senior leverage (excluding interlocal revenues) to average 6.0x, consistent with the criteria's indicative rating ranges.
Strategically Located Southeastern Port - Revenue Risk (Volume): Midrange
The port benefits from a desirable location with improving intermodal connectivity and infrastructure that helps maintain its niche importance in the international automobile trade. Nevertheless, JaxPort operates in the highly competitive Southeast Atlantic region for cargo and cruise activities, with moderate trade exposure to Latin America and Caribbean markets.
Diverse Revenue Base with Contracted Tenants - Revenue Risk (Price): Midrange
The port's increasingly diverse revenue base has grown at an average rate of 2.3% for the past five years. JaxPort serves as a landlord port with more than half of its operating revenues derived from long-term leases with minimum annual guaranty (MAGs) terms from a diverse group of tenants, including automobile, break-bulk, bulk, and cruise. New services and extended agreements with previous tenants provide revenue protection for the port, though some renewed contracts are shorter, between one to five years.
Adequate Facilities with Future Needs - Infrastructure Development and Renewal: Midrange
The port's five-year capital improvement plan (CIP) includes $484.0 million for a dredging project to make the port accessible to post-Panamax ships. Much of the project's funding will be provided by federal, state, and local grants, as well as port operating cash flow. The port anticipates the need for roughly $70 million in additional debt to fund the remainder of the project cost and other terminal improvement projects in mid-2018, and is currently determining the best financing structure. Fitch has included this potential issuance in its analysis. Maintaining the current rating is a top priority for management. Excluding the harbor deepening project, the total capital improvement plan (CIP) is manageable at $178 million, with the option to defer projects to later dates.
Strong Debt Structure - Debt Structure: Stronger
Senior lien debt is 90% fixed-rate and fully amortizing, with the other 10% consisting of 2009 variable-rate taxable and tax-exempt revenue notes. The variable-rate portion is synthetically fixed, serving to mitigate interest rate and basis risks. The debt service reserve fund (DSRF) is 100% cash-funded and the overall debt service profile is flat to declining.
The port has seen growing revenues in recent years, leading to senior DSCRs above 2.0x in the last five years, and is expected to average 2.2x under Fitch's rating case scenario. Liquidity is healthy and has remained over 200 days cash on hand (DCOH) over the last five years. Senior leverage (excluding interlocal revenues) is moderately high compared to peers and could potentially peak above 6.0x with additional borrowings, but is expected to remain within indicative rating ranges and evolve down in future years. The port also benefits from MAGs in excess of senior debt service requirements and pledged intergovernmental revenue transfers from the city of Jacksonville. Coverage could potentially increase in three to four years when city debt drops off, increasing the residual interlocal revenues.
JaxPort's peers include other 'A' rated Florida ports, including Broward County (Port Everglades) (A/Positive) and Hillsborough County Port District (Tampa Port Authority) (A/Stable). Tampa has diverse business operations with contracted revenues similar to JaxPort, while Port Everglades is more reliant on cruise revenues. Port Everglades' aggregate coverage is comparable to that of JaxPort and is expected to average 1.8x, while Tampa's coverage is lower averaging 1.7x. Both peers have materially lower leverage and higher liquidity than JaxPort.
Future Developments That May, Individually or Collectively, Lead to Negative Rating Action:
--Substantial additional borrowings or a rising expense profile which result in coverage below 1.6x or leverage above 6.0x for a sustained period could lead to negative rating action.
Future Developments That May, Individually or Collectively, Lead to Positive Rating Action:
--Positive rating migration is unlikely in the near term given the port's potentially sizeable CIP with likelihood of additional debt borrowings.
Container trade (45% of annual revenue) and automobile imports/exports (29% of annual revenue) drive the port's cargo trade. Container throughput as measured in 20-foot equivalent units (TEUs) was 1,033,068 in 2017, up 6.7% from the prior year. Auto shipments handled at JaxPort increased 9% in 2017, to a record 693,248 units. Total imports and exports were up 10.1% and 3.1%, respectively (by tonnage). JaxPort continues to diversify its trade lanes, with 39% of container volumes attributable to Asian business, up from 35% in 2016 (up from just 24% in 2013). The port has engaged in new business opportunities and has renewed a number of its contracts with long-standing tenants.
Total operating revenues for 2017 were down just 0.7%, compared to 2016. Container revenues were down 0.6% in 2017, impacted by a planned shifting of tenants and cargo between terminal locations, designed to positively benefit total cargo volumes in future periods. Total Auto revenues were up 2%. Other cargo revenues were up year over year, including Breakbulk up 4%, and Dry Bulk up 8%. Cruise operations were negatively impacted by a one-month dry dock (out of service) event in 2017, however the cruise business is strong with average occupancy per cruise rate of 120% in 2017. four-month YTD 2018 operating revenues before city revenue sharing are up 16%. Operating expenses grew 4.3% primarily due to increases in salaries and benefits, as well as services and supplies related to a new railyard terminal operation. YTD 2018 expenses are up 34% due to increased maintenance dredging as a result of Hurricane Irma. The port has historically shown prudent cost management.
FY 2017 metrics remained strong and exceeded previous base case expectations, with senior DSCR at 2.3x and consolidated DSCR at 1.5x. Leverage on the senior lien continued to devolve, down to 4.1x without the use of interlocal revenues.
JaxPort's five year preliminary CIP totals $178.1 million, excluding the harbor deepening project, and is largely funded by state & federal grants, operating cash flow, and tenant contributions. A number of projects are tentative; the port will only initiate projects if adequate funding is available. The harbor deepening project alone is sizeable at an estimated $484.0 million, and management will attain the majority of funding through local, state and federal grants, tenant contributions, and may potentially issue up to $70 million in new debt if deemed necessary. Fitch has included this estimate in its analysis, though amounts are tentative.
The port has also acknowledged the effects of pending trade agreements and potential steel and aluminium tariffs. In management's view, tariffs would have little impact, if any, on port operations, as steel imports comprise only a small portion of total imports. Trade negotiations may also have some effect on the port's auto import business, impacting automobiles from Mexico. However, the port does not believe operations would be materially affected, as the majority of JaxPort's autos are imported from Asia and Germany. Overall, the port continues to monitor international trade negotiations for potential impacts.
Fitch's base case assumed the sponsor's fiscal 2018 budget, followed by revenues growing at five-year historical compound annual growth rates (CAGR) from 2018 onward, with slightly less growth forecast for automobile revenues to reflect capacity constraints. Expenses grow at 3.0% per year, and estimated borrowings for the harbor deepening project were incorporated. This scenario produced a senior DSCR averaging 2.5x (2.1x all-in). Senior leverage (excluding interlocal revenues) averages 4.9x, and reaches 3.6x by 2022.
Fitch's rating case was similar to the base case, but stressed automobile and container revenues in 2018 and 2019 by a cumulative 10% decline. All other revenues are held flat. Expenses are elevated and grow 3.5% in 2018 and 2019, escalating to 4.0% growth thereafter. This scenario produced a senior DSCR averaging 2.2x (1.8x all-in). Senior leverage (excluding interlocal revenues) is averages about 6.0x, and reaches 5.4x by 2022.
The authority was created in 1963 by a special act of the Florida Legislature to develop, maintain, and market Jacksonville's seaport facilities. The authority owns and operates three public marine terminals and one passenger cruise terminal in Jacksonville: the Blount Island Marine Terminal; the Talleyrand Marine Terminal; and the Dames Point Marine Terminal, which includes the authority's cruise terminal. JaxPort is a landlord port and generates revenues primarily through user fees and charges to its tenants and customers. The authority's three ports have a diverse mix of cargo including containers, automobiles, bulk, and cruise operations. Approximately two-thirds of revenues are generated by containers and autos. The remaining lines of businesses include breakbulk, drybulk, liquid cargo, and cruise.
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|Publication:||Daily the Pak Banker (Lahore, Pakistan)|
|Date:||Jun 25, 2018|
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