Fitch Affirms Port of Beaumont (TX) Revenue Bonds at 'A'; Outlook Stable
Fitch Ratings has affirmed the Port of Beaumont (POB) Navigation District of Jefferson County, Texas' approximately $17.03 million outstanding revenue bonds series 2007 and 2008 at 'A'. The Rating Outlook is Stable.
Fitch also rates the district's general obligation (GO) bonds, last reviewed on June 18, 2015. The GO bonds are rated 'AA-' with a Stable Outlook. For more information on the GO bonds please see Fitch's press release dated June 18, 2015.
The rating affirmation reflects the cargo and military focused port with an established operating history, flat overall revenue since the recession from cargo alongside strong cost management and a minimal capital program with no material borrowing anticipated. The conservative debt structure, modest leverage, and strong coverage metrics would likely remain resilient under more volatile conditions, which Fitch views as credit strengths. While not pledged to revenue bonds, additional tax revenues provide overall revenue stability to the port.
KEY RATING DRIVERS
Revenue Risk: Volume - Midrange
ESTABLISHED NICHE PORT IN COMPETITIVE REGION: The Port of Beaumont (the port) provides one of the Gulf's only bulk and break-bulk maritime services as well as hosts the U.S. Army's Military Surface Deployment and Distribution Command headquarters. The port relies heavily on volatile bulk commodity products, including grain, aggregates, and petroleum which can affect throughput levels and associated revenues.
Revenue Risk: Price - Midrange
DIVERSE REVENUE BASE WITH CONTRACTED TENANTS: A dual cash flow of district ad-valorem property taxes and diverse maritime revenues fund port operations. Property taxes, though unpledged, provide overall revenue stability to counteract maritime revenue volatility, and long-term contracts from established tenants anchor maritime revenues. The top five tenants accounted for approximately 55% of fiscal 2015 operating revenues.
Infrastructure Development/Renewal - Midrange
MINIMAL CAPITAL DEVELOPMENT NEEDS: Approximately $70.25 million worth of projects are currently in progress. Projects on hold will proceed with public/private partnership(s) at little to no cost to POB. New money bonds will not be needed as the remainder of funding will come from grants and internal capital. POB has already paid the local match portion of the $11 million Orange County Overpass and is expecting approximately $6.8 million from the Federal Highway Administration to complete the project. The port is expecting remaining port costs to be minor engineering change orders.
Debt Structure- Stronger
CONSERVATIVE DEBT STRUCTURE: The district's debt is 100% fixed rate, and revenue bonds have level annual debt service payments of approximately $1.8 million.
Fiscal 2015 Financial Metrics
MODERATE LEVERAGE AND LIGHT LIQUIDITY: Net debt-to-cash flow available for revenue bond debt service (CFADS) remained stable in FY2015 and increased slightly to 2.10x from 1.80x in fiscal 2014, remaining in line with peer port credits. Fitch-calculated debt service coverage ratio (DSCR) with tax revenues dropped to 3.98x at fiscal year-end 2015 from 4.80x at FYE2014. Fitch-calculated DSCR with all pledged revenues but excluding tax revenues dropped to 1.56x at fiscal year-end 2015 from 2.62x at FYE2014 due to increased operations costs. Fitch-calculated base case coverage including tax revenues should remain above 4.0x through the five-year forecast. Liquidity remains relatively low with only $4.7 million in unrestricted cash, equivalent to 137 days cash on hand (DCOH) at FYE2015.
The Port of Beaumont's metrics remain at the higher end of the 'A' rating category, and like peer (Hillsborough County Port Authority, 'A'/Positive Outlook), the POB benefits from city tax revenues that support port activities along with port revenues. The Alabama State Port Authority ('A-'/Stable Outlook) has mixed bulk cargo similar to POB but handles more tonnage over the past five years.
Negative: Downward shift in maritime operations due to a loss of key port stakeholders and tenants;
Negative: Material changes in the tax revenue support, or an increase in GO debt that has a higher ranking claim on tax revenues than the rated revenue bonds;
Negative: Unforeseen capital spending that adds to the debt burden may affect credit quality.
Positive: Positive rating actions are considered unlikely in the near term based on the port's size and volume profile.
SUMMARY OF CREDIT
Overall tonnage at the port remains volatile, with fiscal 2015 tonnage increasing 14.8% and only 2.6% below the peak fiscal 2011 level. Tonnage has grown at a 4.2% CAGR over the past 10 years but is flat year-to-date through January (fiscal 2016) in comparison to the same months last year as increases have cancelled out decreases. The port's top five tenants and operators generated roughly 55% of operating revenues in fiscal 2015, and the U.S. Army continues to provide diversity and stability as the largest tenant, accounting for 30% of operating revenues.
Fiscal 2015 operating revenues increased 20.6% mostly from wharf and dockage. Operating revenues made up 76% of total revenues, with the balance largely made up of tax collection revenues which are important to the port's credit profile. Fiscal 2016 year-to-date operating revenues are 22% higher than last year, while total revenues are up 13%. Fiscal 2015 OpEx increased 16.6% from increased maintenance and operating expenses following use of the wharf and dock facilities but still have only grown at a 0.5% 5 year CAGR 2010 - 2015. Fiscal 2016 year-to-date total expenses are 17% ahead of the same months last year due to increased admin and operations expenses.
The port uses tax revenues for OpEx as well as general obligation debt service payments, which allows for stable coverage levels during downturns and supports the 'A' rating. While 11% more tax revenues counted for fiscal 2015 debt service, Fitch-calculated coverage slightly dropped from 4.80x to 3.98x during fiscal 2015. Fitch notes that revenue bond coverage should increase further once GO bonds mature in fiscal 2018 as management does not plan to issue additional GO bonds in the near term. Fitch continues to monitor the tax levy and collection trends as key rating drivers.
Revenue bond net-debt-to-CFADS (leverage) is still relatively strong for the rating category and increased only slightly to 2.01x during fiscal 2015 (1.70x in fiscal 2014). Leverage is also expected to remain below 2x going forward even in the Fitch rating case given the relatively level revenue bond debt service.
Fitch's base case assumes total operating revenues and expenses to both grow at around a 1% five-year CAGR. Under this scenario but holding tax revenues available for debt service flat, DSCR is expected to remain above 4x, with leverage starting at 1.89x before dropping down to 1.33x as debt is paid off. Fitch's rating case assumes -1.0% five-year CAGR in total operating revenues with expenses growing at a 1.4% five-year CAGR due to revenue shocks mid-forecast. Under this scenario and with tax revenues available for debt service held flat, DSCR is expected to remain above 3x, with leverage still dropping down to 1.70x as debt is paid off.
The port has not seen any significant impact resulting from fluctuating oil prices. Oil companies are the port's largest tenant and keep expanding. Oil as a commodity provides a push-pull effect. When oil is high, revenues are generated from new wells; when oil is low, revenues are generated from refineries (the port has four refineries as well as the new crude-by-rail terminal). The port's tax revenues have also not fluctuated with oil prices. Tax revenues may drop when the GO bonds mature in 2018, but have been mainly constant historically.
The port revenue bonds are secured by a first lien pledge on port operating revenues. Port general obligation debt is secured by a parity pledged of port operating revenues as well as property taxes levied within the port district.
Additional information is available at: www.fitchratings.com
Rating Criteria for Infrastructure and Project Finance (pub. 28 Sep 2015)
Rating Criteria for Ports (pub. 20 Oct 2015)
Dodd-Frank Rating Information Disclosure Form
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
Elizabeth Fogerty, +1 212-908-0526