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Fitch Rates Port of Palm Beach Dist, Florida Refunding Bonds at 'A-', Stable Outlook

Posted on: Wednesday, 27 July 2005, 18:00 CDT

Fitch Ratings assigns an 'A-' rating the Port of Palm Beach District's (Palm Beach, or the port) $13 million refunding revenue bonds series 2005. The series 2005 bonds are expected to be sold by First Southwest Company via negotiation on July 28, 2005. Fitch also affirms the 'A-' rating on the port's approximately $52.4 million outstanding revenue bonds. The Rating Outlook for the port is Stable. All bonds are secured by a pledge of gross port operating revenues.

The 'A-' rating reflects the port's consistent operating performance, overall positive cargo and cruise passenger trends, and moderate debt load. Credit concerns include the concentration of tenants and carriers utilizing the port's facilities and Florida's competitive port environment for both cruise passengers and cargo.

The port operates as a landlord-tenant port, entering long-term leases with various shipping and terminal companies for waterfront property and facilities. The port maintains port facilities, including the piers, turning basin, and docks. In addition to the base rent the port receives under these leases, it also levies cargo-based tariffs for ship docking, wharfage, and other port activities. Combined, these sources produce a strong, long-term revenue stream that mitigates against cargo and cruise passenger volatility and results in consistently sound overall financial performance. Port revenue is principally derived from rental income (36%), cargo operations (31%), and ship docking (15%). Tropical Shipping Company, Ltd. (Tropical Shipping), a general cargo shipper, accounted for approximately 33% of 2004 port revenue. Mitigating this concentration is that fact that Tropical Shipping has been in existence at the port since 1962 and has made significant capital investments.

Operating income for 2004 totaled $13.4 million, with $7.5 million in operating expenses. The port's operating margin was 44% in 2004 and has averaged a strong 47% since fiscal 2000. Net operating revenues provided 1.67 times (x), well above the port's 1.25x rate covenant. Debt service coverage is expected to remain around 1.60x. Port management has been successful in recent years in improving its available cash reserves after spending down balances in fiscal 2002 to cash-fund portions of its capital improvement plan. Management applied approximately $650,000 per year in debt service savings from a 2002 bond refunding, in addition to annual operating surpluses, to replenish cash balances to approximately $8 million in fiscal 2004 from $1.3 million in fiscal 2002.

Palm Beach is the 21st largest container port in the U.S. and the fourth largest in Florida. In terms of cargo, 4.1 million tons of general and bulk was transferred through the port during 2004, reflecting 7% average annual growth since 2000. The breakout of cargo shipped through the port has been historically stable and comprises liquid bulk (46%), bulk (28%), and containerized cargo (26%). Fuel oil imports destined for use by Florida Power and Light Company are the largest portion of liquid bulk cargo and have increased 10% on average since 2000, to 1.5 million tons in 2004. Though the five-year trend in fuel oil throughput is positive, there can be significant year-to-year volatility depending on climatic conditions and on the world price of crude oil. Containerized cargo shipping has been stable at approximately 1.1 million tons since fiscal 2000. Principal export markets include the Bahamas, Virgin Islands, and other nations in the Caribbean region. The lack of an advanced manufacturing capacity in many of these nations presents the port with a stable market for export of consumer goods. Cargo shipping at the port is also supported by the presence of railway switching capacity, allowing direct container transfer from railcar to ocean carrier. Palm Beach is the only port in south Florida with this capacity.

The port has also created a niche cruise passenger base comprising, principally, local day tours and the May 2002 completion of a 40,000-foot cruise terminal, which doubled the port's passenger capacity. The port collects $1.50 per-passenger charge, in addition to related income such as parking and concessions. Management has been generally successful in developing its passenger base, with fiscal 2004's 540,344 passengers nearly double the level from 288,215 in 1998, but demand has stalled in recent years due to a combination of the events of Sept. 11, the national economic recession, and significant hurricanes in 2004. Passenger volume declined 20% in fiscal 2001, rebounded 28% in fiscal 2003, but declined 15% from fiscal 2004 as a result of hurricanes that year. Management expects cruise volume to return to prehurricane levels by fiscal 2006. Cruise revenue accounted for approximately 6% of the port's fiscal 2004 operating income.

Management has identified approximately $120 million in long-term capital needs at the port and is currently drafting a multiyear capital improvement program. Federal and state grants are expected to provide a majority of project funding, but management has also indicated a potential need for revenue bond debt in the next two to three years.

Fitch's rating definitions are available on the agency's public web site, www.fitchratings.com. Published ratings, criteria and methodologies, and relevant policies and procedures are also available from this site, at all times. This document will remain on the public site for seven days.

Source: Business Wire

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