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Fitch Rates Jacksonville Port Auth, Florida's $90MM Revs 'A'; Stable Outlook

Posted on: Thursday, 29 November 2007, 18:00 CST

Fitch Ratings assigns an 'A' rating to Jacksonville Port Authority, Florida's (the authority) $90 million port revenue refunding bonds, series 2007 (subject to the federal alternative minimum tax [AMT]), scheduled for negotiated sale on or about Dec. 18 through a syndicate led by Morgan Stanley. The bonds are secured by the net revenues of the port and revenue received through an intergovernmental agreement with the city of Jacksonville. Proceeds will finance various improvements at port properties, including the construction of a new container terminal for Mitsui OSK Lines (MOL). Fitch also affirms its 'A' rating on the authority's $53.3 million of outstanding series 2006 revenue bonds. The Rating Outlook on the authority's revenue bonds is Stable.

The 'A' rating reflects the port's stable cargo trends, its sound and conservative financial profile and the historical support afforded by the City of Jacksonville (the city) and the State of Florida (the state) for both operations and capital project funding. Credit risks center on the extremely competitive nature of cargo trade in the southeast U.S., relatively light levels of liquidity, as well as the port's historical reliance on trade with Latin America and the Caribbean. The Stable Outlook is based on recent revisions to an intergovernmental agreement with the city that clarifies the payment of certain revenues by the city to the authority, their inclusion in the revenue pledge of the authority backing the senior lien bonds, the development of a new container terminal by MOL which should help diversify and strengthen the port's revenue base, and the potential development of a second container terminal by Hanjin Shipping of Korea which signed a memorandum of understanding to negotiate a long-term agreement with the authority in October 2007.

Container and automobile imports and exports drive the port's cargo trade. The port ranks as the nation's 18th largest port in terms of container trade volume and as the third largest in the state of Florida. The port is also the nation's second largest for the import and export of automobiles behind the Port Authority or New York and New Jersey. Container trade represented 42% of the port's revenue in fiscal 2006, while automobiles represented 25.6%.

While the port's container trade has grown steadily over the past 10 years, it trails that of the U.S. Atlantic trade growth as a whole. The competitive and discretionary nature of the container trade, where shipping lines have significant flexibility to redirect cargo to other ports, combined with the port's close proximity to competitors that have more expansive container trade lines or deeper harbors, led to the port's lower rates of growth. Additionally, imports from high-growth areas in Asia have driven recent trends in the U.S. container trade, and the port's shipping lines have historically focused on Latin America and the Caribbean, regions with economies that have experienced slower growth or volatility in the past decade. While the port has completed work on a dredging project to deepen its channel, and has had recent success in attracting Asian-based shippers to its facilities, Fitch believes expansion projects at the ports of Virginia (Norfolk), Charleston, S.C., and Savannah, GA, are likely to generate additional competitive forces along the eastern seaboard.

The authority's recently executed 30-year contract with MOL is expected to make that carrier the largest tenant at the port and spur additional cargo growth by opening new Asia trade lines. The new terminal is scheduled to be completed by the end of 2008, with operations in the first several years forecasted to generate an additional 300,000 to 400,000 TEUs annually (39% of current traffic) for the port, eventually growing to 800,000 TEUs. Funding for the terminal consists of a mix of special facility debt backed by Mitsui, a state infrastructure bank loan, and proceeds of this issue.

The port's stable cargo revenue base, long-term contracts with minimum annual guarantees, and conservative management have produced consistent financial results. The port consistently generated an operating margin of approximately 27% over the past five fiscal years, bolstered by gains in container, break bulk, and dry bulk revenues. Overall, revenues grew at an 8.6% annual rate for the period, slightly outpacing the 8.2% annual increase in expenses. Expenditure growth was fueled by dredging activity, which the port believes it has addressed through a new contract, security expense, and marketing initiatives. Net revenues in fiscal 2006 provided 1.8 times (x) coverage of revenue bond debt service. However, the port finished fiscal 2006 with just 77 days cash on hand, which Fitch views as below average compared to similar facilities.

The port's fiscal 2008-2012 CIP contains a list of projects totaling $1.1 billion. However, reflecting the landlord status of the port, timing of projects is highly discretionary, with major projects only implemented upon a signed contract with a tenant or other third-party, city, state, federal or other matching funds or contributions in place to limit reliance on the port's own funds. Of the current CIP, in excess of $700 million is expected to be financed with third-party funds, while the port may issue up to approximately $200 million in additional revenue bonds during the period. The port's feasibility forecast indicates coverage, including the now pledged intergovernmental revenues, should remain above 2.1x though 2014.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Source: Business Wire

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