OREANDA-NEWS. Fitch Ratings has affirmed the 'A' rating on the Hillsborough County Port District's (the district) approximately $81.5 million in outstanding senior bank loans. The Rating Outlook is Positive.

The authority also has approximately $15.4 million in unrated parity senior bank loans and $12 million insubordinate state infrastructure bank (SIB) loans outstanding.

RATIONAL

The rating reflects continued strong and growing throughput and revenue performance from diverse business operations, supported by contracted revenues which bolster revenue stability. The port's $304 million five-year capital plan is supported by a favorable balance of ad valorem taxing power, grants, and port revenues. The current plan does not include any additional borrowing; however, port projects related to the Port Tampa Bay Channel District Vision Plan could result in additional debt issuances in the medium term. The port's diverse operations and healthy financial metrics compare favorably with Florida port peers such as Jacksonville Port Authority and Broward County.

The Positive Outlook reflects a continued favorable direction in the port district's operating and financial profiles through diversification of its maritime business lines, and an expectation that the port will maintain its historically strong financial profile. To the extent the port can maintain both sound liquidity and limited borrowings under its capital program while increasing operating revenues and coverage metrics, upward rating migration is possible.

KEY RATING DRIVERS

Revenue Risk: Volume-Midrange
Strategic Location: The port's proximity to downtown Tampa, with access to over 8 million people within 100 miles of the city, and its competitive position as the deepest port in Florida support its cargo and cruise businesses; both have shown modest resilience during periods of economic downturn. The port's moderate exposure to the emerging economies of Mexico and Brazil, the volatile nature of revenue related to the commodity-based cargo business, and potential fluctuations in the region's construction sector give the port a somewhat volatile demand profile.

Revenue Risk: Price-Midrange
Diversified Revenue Base: No single maritime business line generates more than 23% of total operating revenues. The port's status as a landlord port limits its operational risk, and nearly 60% of operating revenues are derived from long-term lease agreements.

Infrastructure Development & Renewal: Stronger
Manageable Capital Plan: The port's current five-year capital program through 2019 totals $304 million, and includes several improvement and expansion projects that seek to increase intermodal connectivity and enhancing the district's current revenue base. The five-year CIP is largely funded with port revenues, grants and taxes, with only 4% coming from debt in the form of the already issued 2014 SIB loan. However, Fitch notes that the publically funded portion of Tampa's Channel District Vision Plan, not included in the current five-year CIP, is estimated at roughly $200 million, some of which will be funded by the port, and may potentially include additional borrowings. The port's credit is further enhanced by the district's ability to levy an ad valorem tax used to fund capital projects, reducing the dependency on the port's operations for funding.

Debt Structure: Midrange
Moderate Variable-Rate Debt Component: The port's debt is largely fixed rate, with 32% synthetically fixed and hedged via two interest rate swaps. The current capital structure reflects a rapid amortization profile over the next eight years, though potential additional borrowing for future projects may extend the amortization profile. The absence of a cash-funded debt service reserve fund is somewhat mitigated by a very strong cash position, with 864 days of unrestricted cash on hand, though balances could diminish as the authority executes its capital program under a scenario of limited grant funding availability.

Stable Financial Profile: The port's healthy financial performance is evidenced by stable debt service coverage ratios (DSCR) remaining at or above 1.5x since 2005 (1.71x in FY 2015). Net debt-to-cash flow available for debt service (CFADS) was modest at 1.38x in fiscal 2015, and is expected to rise to 3x-4x in Fitch's base case forecast.

Peers: Peers include Jacksonville ('A'/Stable) and Port Everglades ('A'/Stable), with diverse cargo profiles and similar revenue bases. All benefit from minimum annual guarantees (MAGs) covering roughly 2/3 of operating revenues, and Port Everglades and Port Tampa Bay have similar leverage and coverage metrics. CIP size is comparable to Everglades, though Port Tampa Bay's upcoming master plan may include additional projects not in the current CIP.

RATING SENSITIVITIES
Positive: Continued growth in operating revenues resulting in coverage levels at or above the 1.6x to 1.7x range, while maintaining sound liquidity and low overall leverage may result in an upward rating action.

Negative: Leverage above the 5.0x level or meaningful reductions in currently strong liquidity levels could pressure the rating;

Negative: Substantial declines in cargo activity and cruise passengers processed at the port and supporting revenues could also pressure the rating.

SUMMARY OF CREDIT
Fiscal 2015 operating revenues increased to $51.32 million (up 5.9% over 2014), maintaining strong financial margins produced over the last decade. Among major revenue categories, cruise revenue increased slightly (1%) while general cargo saw a strong increase (5.6%) and bulk saw a significant rise of 16.5%. The total operating revenue increase was primarily due to higher petroleum shipments through the recently completed Petroleum Terminal Facilities and a rise in limestone throughput. For fiscal 2016 year-to-date through March, operating revenues are down 4.4%, and are performing 0.4% below budget. The majority of this decline is due to a decrease in cruise activity in combination with a new parking agreement where the port recognizes 75% of parking revenue going forward (while also eliminating the port's responsibility for corresponding expenses).

Revenues are supported by long-term lease revenues and MAGs. The port has derived approximately 60% of its revenues the last three years on average from lease revenues and tonnage-based throughput guarantees. For 2016-2020, the port will receive a total of $93.9 million in tonnage-based MAGs and $54.6 million in future lease revenue through 2020. Beyond 2020, an additional $318 million in Future Lease Revenue is guaranteed by lease contracts. MAGs going forward through 2020 are sufficient to cover debt service obligations on average at 2.0x (gross coverage), providing stability to the rating.

Although cargo types served at the port have increasingly diversified, bulk cargo remains an important part of the port's business, representing approximately 23% of revenues in fiscal 2015. Bulk cargo tonnage was up 11.6% in fiscal 2015. Historical cargo declines were attributable in part to lower demand for cement, limestone, and granite used in commercial and residential construction industries, which were affected by the housing market in Tampa during the downturn. However, dry bulk has been consistently recovering, with tonnage up 10.6% in fiscal 2015. Limestone, which now represents 15% of total cargo volume, has increased significantly year over year with a compounded annual growth rate (CAGR) of 35% since fiscal 2012. Petroleum is the largest contributor towards overall cargo volume at the port, currently representing 48%. The new petroleum facility, which has contributed to higher petroleum throughput in fiscal 2015, began operations in November 2013 with a 25-year user agreement.

While bulk cargo remains an important element of the port's operations, cruise activity, container shipments, and parking fees are increasingly significant in the overall revenue mix. Cruise revenues (excluding cruise parking) represented 15% of total operating revenues in fiscal 2015, down from 15.8% a year prior. New agreements are in place with Carnival Cruise Lines, Royal Caribbean and Norwegian Cruise Lines, growing revenues. While sailings were down in 2015, management indicates sailings will return to historical levels for 2016, with increased services from Carnival, Royal Caribbean, Norwegian, and Holland America.

Container operations have also seen an increase, with volumes up 17.4% in fiscal 2015. Management expects continued growth in the container business under its agreement with Zim Integrated Shipping Services and Mediterranean Shipping Company. Management also notes potential for growth with the expansion of the Panama Canal this summer and the trend towards new/expanded shipping alliances, leading carriers to revisit established networks and itineraries. While uncertain at this time, to the extent these opportunities are realized, the port would see positive revenue generation.

Fiscal 2015 debt service coverage increased to 1.71x from 1.68x in 2014 as a result of higher revenues and minimal expense increases. Management's budget anticipates coverage may fall to 1.58x in fiscal 2016 due to conservative budget assumptions. This profile anticipates revenue growth of 12% in 2018 based on realization of positive operating trends, coupled with modest 2.2% average expense growth and steady debt service requirements around $15 million annually.

Fitch's base case assumes revenue growth rates in line with management's projections for 2016 and 2017, followed by more moderate growth assumptions for revenue in 2018 (7% revenue growth versus management forecast of 12%) followed by 3.5% growth, coupled with expense growth around 4.0% from 2018 onwards. In this scenario, senior debt service coverage averages 1.69x and remains above 1.58x while total coverage averages 1.63x and remains above 1.53x. Through the forecast period, debt service requirements slightly rise through MADS in 2020. Reflecting the rapid amortization of the debt profile in the near term, all-in leverage rises to the 3x-4x range, though this reflects the full effect of $142 million in cash contributions to the port's capital program.

Fitch's rating case maintains management forecasts for 2016, but assumes more tepid revenue growth coupled with higher operating expenses through the forecast period. In this case, senior debt service coverage averages 1.51x with a minimum of 1.43x, while all-in coverage averages 1.46x with a minimum of 1.31x. Under this scenario, all in leverage is slightly higher in the 4x-4.5x range. Fitch notes the port's flexibility throughout the forecast period despite drawing down significantly on cash balances to complete the full scope of the capital improvement program.

Security

The district's outstanding revenue bonds and senior bank loans are secured by a parity lien on net revenues derived from port operations. Under the indenture, property tax receipts are excluded from the definition of pledged gross revenues.