OREANDA-NEWS. Fitch Ratings has affirmed the 'AA-' rating on the following Port of Beaumont Navigation District, TX's (the district) general obligation (GO) bonds:

--\$5.4 million GO refunding bonds, series 2009.

The Rating Outlook is Stable.

SECURITY
The bonds are payable from an unlimited ad valorem tax pledge levied against all taxable property within the district.

KEY RATING DRIVERS
STABLE BUT CONCENTRATED TAX BASE: The district's tax base is heavily concentrated in the petrochemical industry. The potential impact of oil price swings on the tax base is mitigated to a degree by industry diversification in both production and end users. Taxable assessed value (TAV) continues to expand modestly.

DIVERSE REVENUE BASE: The port receives both maritime-based revenues and district ad-valorem property taxes. Maritime revenues are diverse and are anchored by long-term contracts with three of its major tenants. Property tax receipts are stable and the district has ample tax-raising margin.

SATISFACTORY LIQUIDITY: Consistently positive bottom-line results after considering property tax revenues have allowed the port to use cash-on-hand to support capital initiatives. Cash levels remain satisfactory and are still above management's working target but are relatively low for the rating category.

TONNAGE VOLUME REBOUNDING: Port tonnage levels are subject to commodity price swings given the predominance of bulk grains and aggregates. Recent port improvements diversified the district's cargo types with liquid bulk (including oil).

ABOVE-AVERAGE DEBT: Overall tax-supported debt levels are above average; however, the district's large capital plans do not currently rely on additional debt and the payout of GO debt is rapid.

RATING SENSITIVITIES
PORT OPERATIONS: A material shift in maritime operations due to a loss of key port stakeholders and tenants could affect the district's unlimited tax GO (ULTGO) rating.

ADDITIONAL DEBT: Large unforeseen GO debt issuance, without accompanied tax base growth, could result in negative rating pressure.

TAX-BASE STABILITY: Continued stability in the concentrated tax base is also a key credit focus.

CREDIT PROFILE
The taxing district supporting the port encompasses the city of Beaumont and outlying area. The port is located in southeast Texas at the terminus of the Sabine-Neches Waterway, approximately 43 miles from the Gulf of Mexico.

Port facilities include more than 7,300 linear feet of harbor front with nine ship berths, a combination of warehouse and open storage space, and a grain elevator. A constant minimum water depth of 35 to 40 feet accommodates supertankers and large freighters. The port is served by three rail lines and is adjacent to Interstate Highway 10, the combination of which affords excellent access to cities and markets across the U.S.

ECONOMY HEAVILY CONCENTRATED IN PETROCHEMICALS

The area economy is concentrated in the petrochemical and oil and gas sectors, complemented by retail, government, healthcare, and education employment. Area wealth levels are generally below state and national averages. Employment trends have been somewhat erratic since the last economic downturn although the unemployment rate for March 2015 declined to a moderate 5.6% from 7.9% the year prior, on par with the national average but above the state average (4.2%). Fitch expects the district economy to remain concentrated with elevated economic cyclicality over the long term.

After registering a moderate 6% dip in fiscal 2010, TAV grew by a modest compound annual average of 2.4% through fiscal 2015. Officials expect similarly modest TAV growth over the next few years. Commercial and industrial values comprise about 58% of total TAV. Almost all energy-sector related taxable values are in equipment as actual oil and gas values make up less than 1% of total TAV. Residential TAV comprises only 37% of TAV. Per Zillow, Beaumont's median home values have remained flat at \$118,000 for the 12 months ending April 2015.

Expansion by the district's largest taxpayer (an ExxonMobil refinery) has been the primary contributor to increased tax base concentration, which may grow further in the near term. The company reportedly has plans for a multi-billion dollar expansion that could make the facility the largest in the United States. Top 10 taxpayers contributed 35.7% of TAV in fiscal 2015, led by the refinery at 24%.

Fitch believes TAV may realize some modest economic softening in the near to intermediate term given the interconnectedness of the energy sector and the resulting effects from subdued exploration activity due to sustained, low oil prices. However, it is also Fitch's opinion that the state's various petrochemical centers should benefit from lower energy prices, which may serve as a partial offset to any economic softening. (see Fitch press release, 'Oil Price Decline Likely to Have Targeted Effect on Local Texas Economies & Revenues', dated Jan. 13, 2015).

SATISFACTORY LIQUIDITY; OPERATING MARGINS REBOUNDING

The port has maintained a satisfactory balance sheet in recent years while winding down its spending on a substantial capital improvement program. The district's cash balance remains above management's informal minimum target of \$5 million (almost six months of cash on hand), which Fitch believes is prudent given the nature of commodity fluctuations and the high tax-base concentration. However, the port's cash levels are on the low end compared to Fitch's 'A' category ports.

Port operating revenue consists of wharf and dock charges, grain elevator lease income, and rental of other facilities. The top four tenants and operators at the port - the U.S. Army (military transportation headquarters for the Gulf), Louis Dreyfus, Jefferson Refinery, and Kinder Morgan - generate an estimated 55% of operating revenues, and while concentrated, have provided general stability in the port's revenue stream. Kinder Morgan and Louis Dreyfus are long-term tenants and have made considerable investment in their areas of the port. Eighty to ninety percent of cargo is shipped out of the immediate region. The port benefits from good highway access and service by three class 1 rail carriers.

Non-operating revenues are led by property tax receipts, which totaled \$6.3 million in fiscal 2014 or 29% of total revenues. About 37% of the property tax levy is used for port operations and capital expenditures and the remainder is dedicated to paying ULTGO debt service. At \$0.048, the district currently levies less than half if its \$0.10 limit for operations and the annual levy increase is limited to a relatively liberal 8%.

Port operations continue to generate positive EBITDA margins and more considerable net income after the inclusion of property tax revenues. However, the port's EBITDA margin narrowed to 5% and 1% in fiscal years 2012 and 2013, respectively, from its historical average of 15% due to lower tonnage and volume-based revenues from a weakened grain market. The EBITDA margin rebounded in fiscal 2014 to 9.4%, aided by gains in aggregates, liquid bulk, and forest products.

The port's fiscal 2015 operating budget is based on a 6.2% increase in operating revenues over the prior year's budget. Year-to-date results (for the first six months) are positive and point to a 23% increase in operating revenues, while total revenues are up 17%. Year-to-date total expenses are 5% ahead of projected and 6% ahead of the same period last year due to increased administrative and operations expenses. Management plans to continue appropriating annual cash-flow for capital and maintenance projects.

CARGO TONNAGE RECOVERING

Overall cargo tonnage at the port increased by 10.5% to 3.4 million tons in fiscal 2014, the second year of gains recorded after declining sharply to 2.4 million tons in fiscal 2012, a 41% decline from the year prior. Fiscal 2014 cargo tonnage gains reflect increases in aggregates, liquid bulk, and forest products.

Liquid bulk cargo emerged as a new cargo type in 2014 due to a large public/private investment in a petroleum terminal that allows oil and other liquid bulk cargo to be loaded and unloaded onto train cars. Potash cargo declined to zero in fiscal 2014, completing a rapid negative trajectory evident since fiscal 2010. However, net revenue losses were mitigated by lease requirements that establish large minimum cargo amounts as the basis for lease payments, regardless of actual cargo throughput.

Total year-to-date tonnage in fiscal 2015 is 26% higher than the same period last year, with improvement in liquid bulk and military partially offset by declines in metal articles. Commodities shipped through the port include bulk grain, liquid bulk, aggregate, forest products, iron and steel, military equipment, and bagged goods. Exports dominate cargo movement, representing 61% of all cargo in 2014.

ABOVE-AVERAGE TAX-SUPPORTED DEBT RATIOS; NO DEBT EXPECTED FOR MASTER PLAN

Fitch considers the district's overall tax-supported debt levels to be above average at \$4,732 per capita and 5.2% of market value. The elevated debt ratios are primarily a result of the large debt issuance by Beaumont ISD (rated 'BBB+' with a Negative Outlook by Fitch). GO debt service is level and all GO bonds are retired by 2018. The district also has \$17.4 million in outstanding revenue debt that benefits from ample debt service coverage equal to 4.5 times (x) in fiscal 2014.

The port's 2014 master plan calls for \$211 million of improvements over the next five years and another \$319 million over the following five years. No additional GO or revenue borrowings are anticipated as the port will rely on pay-go outlays, grants, and private funding. A separate project, the deepening of the channel to 48 feet to accommodate Panama Canal traffic, is awaiting federal appropriations. The Sabine-Neches Navigation District is the sponsor of the \$1.1 billion deepening project. Management estimates the port will cash-fund its maintenance projects at about \$3 million-\$4 million annually.

MODEST POST-RETIREMENT FUNDING REQUIREMENTS

The district contributes to the Texas County and District Retirement System (TCDRS) pension plan, an agent multiple-employer plan, and provides retiree health coverage as an other post-employment benefit (OPEB). Fitch considers the district's pension funded position solid at 89.5% or an estimated 80.6% using a more conservative 7% investment return. The district fully funds its actuarially-determined annual required contribution (ARC) while pay-go funding its OPEB charges. The combined pension ARC and OPEB pay-go costs equaled \$376,000 in fiscal 2014 or a low 2.1% of operating expenditures. Including debt service, total carrying costs equaled 24.9% of spending, at the high end of what Fitch considers moderate. However, this concern is lessened by the very rapid amortization (all GO debt matures by 2018).