OREANDA-NEWS. Fitch Ratings has affirmed the 'A' rating on Miami-Dade County (the county), Florida's $577 million of outstanding seaport revenue bonds. The revenue bonds are secured by net revenues from the PortMiami (the port). The Rating Outlook on all bonds is Stable.

KEY RATING DRIVERS

The 'A' rating reflects PortMiami's leading market position evidenced by its ranking as the largest cruise port in the world and among the largest ports in the state of Florida in terms of cargo volume. The rating also reflects the port's sizeable minimum annual guaranteed revenues (MAGs) serve to mitigate potential revenue volatility from competition and economic cycles coupled with healthy total coverage ratios. However, these strengths are moderated by the port's higher than average leverage compared to peers and the potential for sizable future borrowings. Fitch views other Florida ports as suitable peers for PortMiami, including Broward County (Port Everglades) and Canaveral Port Authority (FL).

Revenue Risk - Volume: Midrange

Stable Revenues: The port benefits from stable revenue streams derived from diversified business lines (cruise operations roughly 50% of revenues, cargo 40%). Port volumes do have some exposure to fluctuations in the cruise business and to the competitive port environment in South Florida and the south eastern seaboard.

Revenue Risk - Price: Stronger

Concentration Mitigated by Contracts: The port benefits from long-term guaranteed contracts with key cruise customers and long-term leases with cargo operators, with minimum guarantees covering approximately 74% of fiscal 2015 operating revenues. Minimum guarantees are expected to cover a substantial 70% to 80% of operating revenues in the medium term, which help to insulate revenues and financial metrics from the port's exposure to volume fluctuations.

Infrastructure and Renewal Risk: Midrange

Manageable Capital Program: The port completed its sizable $1 billion capital improvement plan (CIP) in 2015. A primary focus of the CIP was completion of the deep drat shipping channel to allow larger, post-Panamax ships access to the port, which opened for operation in September 2015. The port's current CIP through fiscal 2020 (year-end Sept. 30) is budgeted at a more manageable $394.7 million, including $103 million from the prior CIP that is already funded. Approximately 60% of the forward CIP is expected to be debt funded and the remainder to come from grants and tenant contributions.

Debt Structure: Midrange

Variable Rate Exposure, Strong Covenants: Approximately 30% of the port's parity senior debt is unhedged variable rate debt, supported by direct-pay letters of credit, which could lead to debt interest exposure over time. Final senior bond debt maturity is in 2051 with debt service expected to escalate through 2019 (total debt service escalates through 2026). Favorably, the maximum annual debt service (MADS) based rate covenant and additional bonds test (ABT) are quite stringent when compared with peers. The port is also responsible for payments on the county's seaport general obligation (GO) bonds, which are on parity with the revenue bonds, and the subordinate sunshine state loan payable and capital asset acquisition bonds. While all debt is expected to be repaid by the port's net revenues, all debt besides the seaport revenue bonds are issued through the county and are non-recourse to the port.

Financial Metrics

Moderate Financial Profile: The port's financial profile has historically generated robust coverage levels above 3.0x for revenue bonds and 1.6x or higher for revenue and GO bonds combined. However, given the port's escalating debt service profile, coverage levels have softened somewhat in fiscal 2015, but still remain supportive of the rating category, with a revenue bond debt service coverage ratio (DSCR) of 2.34x and combined revenue bond and GO DSCR of 1.76x. Following the 2013 and 2014 bond issuances, leverage is somewhat high at 8.2x for revenue and GO bonds, though these levels are expected to moderate to the 5x range over the next five years, not taking into account anticipated debt issuances.

Peers: Comparable ports include other Florida ports such as Port Everglades (rated 'A') and Canaveral Port Authority (rated 'A'), which serve similar markets and compete with Miami for cargo and cruise business. While PortMiami's leverage is relatively high compared to peers, leverage is expected to migrate towards levels seen at other Florida ports within five years.

RATING SENSITIVITIES

Negative: Inability to deliver projected revenue growth, either through contracted revenues or increasing volumes, which leads to DSCRs declining below Fitch's rating case.

Negative: Should additional borrowings increase leverage significantly without corresponding increases to net revenues, the rating may be pressured.

Positive: Should the capital plan be successfully executed and leverage levels decrease as new revenue streams come online, upward rating migration is possible.

SUMMARY OF CREDIT

PortMiami's operating revenues continued to grow in fiscal 2015, increasing by 7.9%, the third year of growth. The increase was attributable to tariff and contract rate increases for cruise ships and increased cargo activity. Container volume grew 14.9% in fiscal 2015, reaching over 1 million TEUs for the first time since fiscal 2005. The main driver for cargo growth was the port's recently completed capital plan, which has allowed an increased vessel size into the port, thereby adding more volume. Container volume for year-to-date 2016 has continued to grow but at a slower rate, showing a 6% increase through March 2016 as compared to the same period prior.

Cruise passenger volume remained relatively flat for fiscal 2015, decreasing by a minimal 0.5%, but year-to-date March 2016 shows a 6.2% decrease. While a decrease of approximately 1% was expected for fiscal 2016, the larger decline was driven by a decline in Resort World Bimini SuperFast Ferry (Bimini) passengers, a casino ferry service. Ferry service for Bimini has been suspended until the company purchases a new ferry ship. Service is expected to resume in fiscal 2017. Bimini continues to pay its MAGs payments to PortMiami, so the loss of ferry passengers has not affected revenues to the same degree as passenger volume.

Contractual guarantees continue to provide a solid anchor for performance at the port, with fiscal 2015's guarantees of $101 million equalling roughly 74% of the year's operating revenues. Cruise agreements provide PortMiami with annual guaranteed passenger volumes and revenues while providing the cruise lines with incentives for meeting guaranteed levels. PortMiami is guaranteed between $59 million and $81 million in cruise revenues per year through fiscal 2020, with 3% escalation built into the contracts. While 15 cruise brands operate out of PortMiami, three major cruise companies (Carnival, Norwegian Cruise Line and Royal Caribbean) provide roughly 83% of cruise revenues.

Cargo revenues are also protected through minimum guarantees. PortMiami is a landlord port, with containerized cargo activity handled by three individual terminal operators that occupy approximately 240 acres: Seaboard Marine (Seaboard), South Florida Container Terminal/Terminal Link (SFCT) and the Port of Miami Terminal Operating Company (POMTOC). Together, Seaboard Marine and SFCT guarantee approximately $32 million per year in wharfage/dockage and land rent payments. POMTOC's agreement was renewed in fiscal 2015 for an additional 15 years (plus two five-year optional extensions). This brings total cargo MAGs to $47 million for fiscal 2015, which will rise steadily to $58 million in fiscal 2020.

The port is also aided by the pledge of certain State Comprehensive Enhanced Transportation System Tax (SCETS) revenues, which will begin to be appropriated from the Florida Department of Transportation in fiscal 2017 at approximately $4 million-$8 million, increasing to $17 million by fiscal 2019 and remaining at this level through fiscal 2042. These funds provide for cost recovery related to the port's tunnel related investments.

PortMiami's rate covenant test is conservative, based on MADS at 1.25x on revenue bonds and 1.10x on GO bonds. Historically, the port's DSCR has been strong with levels above 3.0x for revenue bonds and 1.6x or higher for revenue and GO bonds combined.

Given the port's escalating debt service profile, coverage levels have softened somewhat in fiscal 2015, but still remain supportive of the rating category, with a revenue bond DSCR of 2.34x and combined revenue bond and GO DSCR of 1.76x. As debt service requirements step up again in fiscal 2016, DSCRs are expected to be 2.0x and 1.6x for revenue bonds and combined revenue and GO bonds, respectively, under a base case scenario. This scenario is based on the port's revised budgeted financials for fiscal 2016 and assumes average revenue growth of 7.5% per annum, based on contracted minimum annual guarantees, and assumes average total operating expense growth of 3.7% per annum starting in fiscal 2017 (budgeted amount used for fiscal 2016). Coverage remains well above rate covenant requirements and DSCRs average 2.62x, not including anticipated debt issuances (2.33x including anticipated debt).

Under Fitch's rating case, which contemplates lower cruise and cargo results, coverages are more pressured at 2.09x for revenue bonds and 1.63x for revenue bonds and GO obligations. Lower coverage levels are in part mitigated by the port's liquidity position and relatively secure agreements with many of the port's tenants. The county indicates that the port's unrestricted cash and investment position is $48.7 million as of Sept. 30, 2015, representing 266 days cash on hand.

The port completed its large-scale $1 billion CIP, the Miami Harbor Project, in fiscal 2015. The project focused on deepening and widening the harbour, bringing the entrance channel depth to 52 feet and widening the outermost portion of the entrance channel to 800 feet. The deep draft shipping channel was open for operation on Sept. 18, 2015. The port is now capable of handling post-panamax ships. Total port-responsible project costs were on time and on budget. The port's forward CIP for the period Oct. 1, 2015 through Sept. 30, 2020 is more modest, budgeted at $394.7 million, including $103 million from the prior CIP that is already funded. Approximately 60% of the forward CIP is anticipated to be debt funded, with the remainder to be funded by state grants and tenant financing.