Peer Review of U.S. Ports

Transcription

1 Peer Review of U.S. Ports Attribute Assessments, Metrics and Ratings June 2017

2 Analysts Emma Griffith Seth Lehman Stacey Mawson Inside Page Overview... 2 Performance Highlights... 3 Conclusion... 4 Appendix A: Global Rating Rationale for Ports... 5 Appendix B: Definitions... 6 Appendix C: Median Charts... 7 Appendix D: Port Attribute Assessments... 8 Appendix E: Port Statistics... 9 Click on the FACT XLS icon below for the full 2017 Fitch Analytical Comparative Tool. Editorial Advisers Executive Paul Taylor Chief Executive Officer Editorial Carrie A. Peinado, Associate Director Carolyn Quaid, Desktop Publishing Specialist Publisher John Forde, Managing Director Related Research Fitch: Grant Cuts May Raise US Port Leverage, Delay Capex (April 2017) U.S. Transportation Trends (Spring 2017) (April 2017) U.S. Ports 2017 Sector Briefing (February 2017) 2017 Outlook: U.S. Transportation Infrastructure (Potential Uncertainties) (December 2016) Fitch: US Ports Exposed to Shippers Via Terminal Operators (October 2016) Related Criteria Rating Criteria for Ports (October 2016) Peer Review of U.S. Ports June 28, 2017

3 Summary This report highlights the operating and financial performance of Fitch-rated U.S. ports. These benchmarks are used for determining attribute assessments. The report utilizes seven statistics and ratios that are calculated from the most recent annual audited financial statements or from supplemental data received directly from the ports, as well as select forward-looking metrics reflecting Fitch s base and rating case analysis. A port s financial metrics, relative to Fitch-designated peer groups, constitute an important component of Fitch Ratings credit analysis. The report focuses primarily on U.S. ports with a stand-alone pledge of port revenues. Consolidated entities with primary business lines other than port activity (including airport and/or toll facility operation) are not included in this comparative analysis. A list of publically Fitch-rated consolidated ports is included in Appendix D. Certain facilities whose debt is primarily covered by tax revenues are assigned Issuer Default Ratings (IDR), and may include a variation from the Rating Criteria for Infrastructure and Project Finance. In these cases, enhanced analysis under the variation relates to the evaluation of the strength of the tax revenue framework available to support operations. Such evaluations are supported by Fitch s revised U.S. Public Finance Tax-Supported Rating Criteria dated May 31, Overview The Peer Review of U.S. Ports is an annual, point-in-time assessment of Fitch-rated ports. Ratios for each issuer are determined using audited information or additional information received from the issuer, as well as circumstances unique to the credit. Fitch seeks to highlight these metrics in the reports and press releases published during the rating process for the benefit of the reader. Key Rating Drivers: Fitch s rating criteria for ports identifies five key rating drivers implicit in all port ratings: the characteristics of cargo volume (volume), as well as local and transit markets served by the port; contract or tariff mechanisms that allow a port to maintain its revenue base irrespective of throughput levels (price); the port s approach to infrastructure renewal and development; the financial risk associated with the port s debt structure; and the level of financial flexibility (debt service). For the first four rating drivers, Fitch assesses attributes as being stronger, midrange or weaker. Qualitative assessments are informed by quantitative metrics that are examined based on both their historical and projected evolutions, not simply a standalone calculation. The fifth key rating driver, debt service, considers metrics for liquidity, debt service coverage and leverage in the context of the overall risk profile determined by review of the other key rating drivers. Metrics are considered both by rating category and across the sector (see Appendix E). Comparability of Ratings: Attribute assessments help frame port credit ratings and provide a standard way of comparing U.S. ports, as well as with other infrastructure assets, both domestically and across the globe. This report seeks to highlight changes in ratings and attribute assessments over the past 12 months. The distribution of key rating driver assessments for stand-alone U.S. ports covered by Fitch is included in Appendix D. The chart below shows the distribution of Fitch s stand-alone U.S. port ratings. Please refer to Appendix D for a full listing of the ratings and attribute assessments as of June 27, Fitch U.S. Port Ratings (No. of Ratings) AAA AA AA A+ A A BBB+ BBB BBB BB+ BB BB Note: Includes all publically rated liens. Peer Review of U.S. Ports 2 June 28, 2017

4 Performance Highlights Rating Activity Since the 2016 publication of the Peer Review of U.S. Ports, Fitch assigned two new IDRs to port credits. These rating actions reflect application of Fitch s Criteria for Infrastructure and Project Finance and Rating Criteria for Ports for tax-supported transportation infrastructure enterprises. Under Fitch s U.S. Public Finance Tax-Supported Rating Criteria, the agency caps property tax-supported bonds at the IDR unless there is a reasonable basis to consider the pledged revenues to be special revenues under Section 902(2)(E) of the U.S. Bankruptcy Code. o o o Port of Houston s AA IDR reflects its position as a major maritime gateway, its long-term positive growth trends and historically stable cargo revenues through economic cycles. The port currently has no revenue-backed debt, with its capital improvements thus far being funded via ad valorem taxes and excess cash flows from operations. The forward capital program is expected to total slightly under $1 billion and may require future borrowing. While the expectation is that additional unlimited tax bonds would be the primary source for borrowing, the IDR reflects the port s expected ability to service anticipated future debt under various sensitivity scenarios at strong coverage levels and low leverage levels that are commensurate with a AA rating. The GO bonds remain at the AAA level. Port of Beaumont s (Texas) AA IDR reflects its overall financial and operational profile, taking into account its strong tax revenue base; welldiversified and stable economy; and sound financial profile, which substantially offsets the operational risks associated with the port's enterprise. The GO bonds are also rated AA. Concurrent with the assignment of the IDR, Beaumont s revenue bonds were upgraded to AA, reflecting the enhancement in revenue generation and coverage to the extent the port can utilize its maximum levy capacity. Debt service coverage ratios (DSCRs) at 2016 levels, including tax revenues, result in over 4x coverage, and implementing the maximum levy would take coverage above 7x. These levels are well above those provided by operating cash flow alone, and elevate the credit to the AA category. Fitch also made three revisions to Rating Outlooks: Hawaii Department of Transportation s harbor system revenue bonds (A+) saw its Outlook revised to Positive, as did Broward County s Port Everglades (Florida, rated A). Hillsborough County Port District (A) in Tampa, FL, Outlook returned to Stable. In addition, the Positive Outlook assigned to North Carolina State Ports Authority (BBB+) and the Negative Outlook assigned to Alabama State Port Authority (A ) during the prior review cycle were both maintained. No other rating actions were made during the year. o Hawaii s Positive Outlook reflects the expectation of continued improvements in financial metrics due to positive operational activities and enacted tariff adjustments, with leverage trending to below 1.0x and coverage above 3x. o o Port Everglades Positive Outlook reflects expectations that strong financial performance will continue, supported by maintenance of diverse maritime operations and increasing revenue growth. Finalization of capital improvement plans (CIP) and funding in line with port forecasts will likely result in upward rating migration. Tampa s Outlook revision to Stable reflects continued favorable credit metrics, coupled with some uncertainty regarding the timing and magnitude of additional debt requirements under the port district's master plan. The A category remains the most common rating level for stand-alone U.S. ports, reflecting the sector s relatively low credit risk and the resilience of cash flow despite volume fluctuations during economic downturns. Highest rated ports are typically those with a strong underlying market or franchise driving demand, overall stability of cash flow through contractual agreements, or tariff policy and healthy financial metrics. In Beaumont s case, the rating also takes into account the support of the tax revenue base. Weakest rated ports include those serving weaker markets with competition for cargo, less contractual protection for revenues or thinner financial metrics. There is some potential for rating adjustment in the next review cycle, given that three port sector ratings maintain Positive Outlooks and one maintains a Negative Outlook. However, approximately 75% of port sector ratings maintain Stable Outlooks, and Fitch expects stable rating trends in the near to immediate future. Peer Review of U.S. Ports June 28,

5 Attribute Scores There were no revisions to attribute scores since the last peer review was published. Fitch believes it is unlikely to see significant attribute scoring adjustments in the near term. Conclusion The port rating criteria provides a structured, analytical approach with a focus on key rating drivers. Fitch conducted a detailed portfolio review of its rated U.S. stand-alone ports to determine attribute assessments for each category. Reviews of all rated ports are conducted at least once annually. The assessments were predominantly stronger or midrange, consistent with the generally strong credit characteristics and investment-grade rating levels seen for port credits in the U.S. Fitch will assign attribute assessments for each new port rating and will similarly monitor existing attribute assessments as part of its ongoing rating surveillance. Attribute assessments are published in Fitch s rating action commentary for each port. To the extent an adjustment to an existing assessment is determined to be appropriate, Fitch likewise publishes the change as part of its rating action commentary. In some cases, attribute assessment adjustments may lead to rating actions, depending on the underlying reasons for the change and the relative significance of the attribute being adjusted. For a detailed description of the attribute drivers, see Appendix A; for attribute assessments by port, see Appendix D; and for key statistics by port, see Appendix E. Medians Are Not Targets While this peer study includes median calculations for financial ratios by rating category, these should not be construed as targets for specific ratios or ratings. As mentioned, Fitch does monitor projected evolution of certain metrics and CIP development, but the medians shown in Appendix C and Appendix E reflect a single point in time. Rating changes of individual ports may affect medians based on rating categories. Peer Review of U.S. Ports 4 June 28, 2017

6 Appendix A: Global Rating Rationale for Ports Description Stronger Midrange Weaker Relevant Benchmarks Revenue Risk: Volume Revenue Risk: Price Infrastructure Development/Renewal Debt Structure Characteristics of local and transit markets and port location. Characteristics of cargo handled at the port. Primary port of call. Stable demand from local market, strong competitive position in supply chain, with relatively low volatility. Diversity of business lines, cargo types and/or customers. High value cargo. Low price elasticity. Good ingress/egress with efficient access and multimodal capability. Secondary port of call. Higher exposure/greater competition for transit cargo and relatively moderate volatility. Some reliance on particular business lines, cargo types or customers. More exposure to volatile commodities or cargo types. Price elasticity of demand to tariff increase is low to moderate. Fair ingress/egress with some access limitations and/or some limits to multimodal capability. Smaller port of call. Highly concentrated business lines, cargo types or customers, resulting in relatively high volatility. Elevated exposure to competition for cargo or extremely specialized cargo types. More limited market access. Untested or high price elasticity of demand. Ingress/egress limitations, some inadequate infrastructure. Cargo breakdown (%). Share of cargo destined for local consumption versus transit cargo. Concentration of tenants. Price elasticity. Ability to maintain revenues either through contractual measures or tariff flexibility. Strong ability to modify tariffs, or presence of take-or-pay contracts, long-term leases or minimum guarantees. Moderate ability to modify tariffs, or more limited contracts, shorter leases and/or more limited guarantees. Limited ability to modify tariffs, weak contracts, short or month-to-month leases, or a lack of minimum guarantees in place. Tenant lease terms. Concession terms. MAG as percentage of total revenues. Approach to capital program, including planning, Fixed-/variable-rate debt maturity profile. funding sources, management. Amortization profile, refinance risk. Flow of funds, distribution test and reserves. Strong mechanisms for capital improvement planning (CIP) and funding, experienced counterparties managing process, good dialogue with shippers, railroads, and community. Significant investments by high-quality tenants. Access to high levels of excess cash flow or external funding to maintain assets. Port capacity well above medium-term throughput forecasts. Senior debt. No material exposure to refinance risk (e.g. fully amortizing debt) No material exposure to variable interest rates. No imbalance from swaps/derivatives. Strong structural features and reserves (e.g. 12- month DSRA, robust lock-up requirements). Progressive deleveraging, with sweep of significant portion of excess cash flow to repay debt Moderate mechanisms for planning, uncertainty Junior debt with limited subordination. regarding needed level of investments or involvement Limited exposure to refinancing risk (e.g. moderate of existing lessees. Some [speculative] use of bullet maturities or larger issuer with enhancements at port expense. established market access and active management Less meaningful investment by tenants/operators, or of several bullet maturities) investment that is easily replaceable. Some exposure to floating interest rates. Access to moderate levels of excess cash flow or Some imbalance from swaps/derivatives. external funding to maintain assets. Adequate structural features and liquidity reserves. Port capacity requires some expansion or (e.g. six-month DSRA). refurbishment to accommodate medium-term Stable leverage or moderate deleveraging. throughput forecasts. Weak planning mechanisms, history of deferred Deeply subordinated debt exposed to, or negatively maintenance and/or cost overruns. affected by, protective features of the senior debt. Low to no investment from tenants/operators. Limited Material refinance risk exists (e.g. significant use of access to excess cash flow or external funding to bullet or back-loaded maturity structure). maintain assets. Significant exposure to floating interest rates. Significant speculative investment planned or undertaken. Use of derivatives resulting in imbalanced exposure. Port capacity requires large expansion or Loose covenant package and liquidity reserves (e.g. refurbishment to accommodate medium-term < six-month DSRA). throughput forecasts. Increasing leverage. CIP size and dependence on future growth. Mix of funding sources (private, grants, bonds). Relationship with owners. Minimum contracted returns or reasonable forecasts. Percentage of fixed-/variable-rate debt. Amortizing debt or bullets. Percentage subject to refinance risk. Rate covenant. Leverage limitation. Cash lock-up provisions. FMV of derivative position. Level of reserves/reserve provisions. Distribution test. Debt Service This Key Rating Driver considers metrics for liquidity, debt service coverage and leverage in the context of the overall risk profile determined by review of the other Key Rating Drivers. A port with primarily midrange characteristics could be rated in the BBB category with debt service coverage ratios of between 1.20x 1.40x in the rating case, and below investment grade with coverage ratios below 1.20x. Moreover, a project s rating may be constrained by a weaker assessment on a Key Rating Driver notwithstanding coverage ratios of 1.20x and higher Completion Risk Relative Importance of KRDs For greenfield projects, this key risk factor is assessed using the analytical framework described in the Appendix of the master criteria report, Rating Criteria for Infrastructure and Project Finance, dated July 8, The framework is used to derive the maximum possible rating during the completion phase, based on complexity and scale, contractors and implementation plan, ability to replace contractor and core contractual terms, as well as liquidity available to support a project in case of contractor default. Revenue Risk (Volume and Price) generally has the most direct influence on operating port ratings. Changes in volume performance, or price-setting framework, have a significant impact on cash flow generation, directly affecting ability to service debt. Infrastructure Development/Renewal attributes often have a relatively lower importance to the rating analysis as a project s maintenance and expansionary investments are usually regularly overseen and controlled. Debt Structure can have a relative higher influence on rating analysis as covenants, security and other protective features embedded in the debt structure enhance creditors protection. MAG Minimum annual guarantee. DSRA Debt service reserve account. FMV Fair market value. KRD Key rating driver. Peer Review of U.S. Ports June 28,

7 Appendix B: Definitions Senior/Subordinate Lien Debt Service Coverage Ratio (DSCR): Total operating revenues minus total operating expenses net of depreciation, divided by senior/subordinate lien debt service. Available revenues may include non-operating revenues such as funds legally available to provide extra coverage under the bond/loan documents. Financing documents may require maintenance of minimum DSCR levels, either as rate covenants or as limitations on additional borrowing. Fitch views higher coverage as being stronger, demonstrating that port cash flows are more than sufficient to meet minimum requirements and providing creditors better protection. EBITDA or CFADS: Earnings before interest, taxes depreciation and amortization or cash flow available for debt service (i.e. pledged net revenues). Considered on an absolute and margin basis. Days Cash on Hand: Unrestricted cash and investments divided by daily cash operating expenses. This metric is a useful measure of unrestricted liquidity levels, illustrating how long a port could continue meeting its operating costs using only available liquidity. It is more relevant for U.S. public finance credits where cash is maintained within the enterprise fund, as corporate-style structures may pay out excess cash as dividends. Net Debt/CFADS: Gross debt less unrestricted cash balances and debt reserve funds divided by CFADS. This metric allows for a comparison of leverage levels between ports of various sizes, focusing on the level of debt outstanding relative to the port s cash flow generation. Evolution of this metric over time allows analysis of how quickly a port will deleverage, or how its profile might evolve as capital projects are undertaken with additional borrowing. MAGs: Minimum annual guaranteed revenues to be paid by a port user, even if usage is less than anticipated. The MAG is typically established under a long-term arrangement, for example, a lease or a take-or-pay contract. High levels of MAGs or contracted revenues can provide a view on stability of cash flows that should be unaffected by market volatility, assuming contract provisions are honored through a downturn. Peer Review of U.S. Ports 6 June 28, 2017

8 Appendix C: Historical Medians by Rating Category Total Coverage (Median Total DSCR by Rating Category) (x) (x) DSCR Debt service coverage ratio. Total Leverage (Median Net Debt/CFADS by Rating Category) CFADS Cash flow available for debt service. AA A BBB BIG AA A BBB BIG Please refer to 2017 Fitch Analytical Comparative Tool U.S. Ports for the underlying data behind the historical median charts (see FACT link under Related Research on page 1). TEUs (Median TEUs by Rating Category) (000) AA A BBB 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, TEUs 20-foot equivalent unit. Cargo Bulk Tonnage (Median Cargo by Rating Category) (000 Tons) 30,000 25,000 20,000 15,000 10,000 5,000 0 (000) 1,200 1, AA A BBB BIG Passengers (Median Cruise Passengers by Rating Category) AA A BBB BIG Peer Review of U.S. Ports June 28,

9 Appendix D: Port Ratings and Attributes Port Rating Outlook Revenue Risk: Volume Revenue Risk: Price Infrastructure Dev./Renewal Debt Structure AA Category Harbor Department of Los Angeles AA Stable Stronger Stronger Stronger Stronger Port of Houston a AAA/AA Stable Stronger Stronger Stronger Stronger Port of Long Beach b AA/AA Stable Stronger Stronger Midrange Stronger/Midrange Port of Beaumont Navigation District c AA /AA /AA Stable Midrange Midrange Midrange Stronger A Category San Diego Unified Port District A+ Stable Midrange Midrange Stronger Stronger State of Hawaii (Dept. of Transportation) A+ Positive Stronger Midrange Midrange Stronger Broward County-Port Everglades A Positive Midrange Midrange Stronger Stronger Canaveral Port Authority A Stable Midrange Midrange Midrange Stronger Hillsborough County Port District (Tampa Port Authority) A Stable Midrange Midrange Stronger Midrange Jacksonville Port Authority A Stable Midrange Midrange Midrange Stronger Port Miami A Stable Midrange Stronger Midrange Midrange San Francisco Port Commission A Stable Midrange Midrange Weaker Stronger Alabama State Port Authority A Negative Midrange Midrange Midrange Stronger BBB Category North Carolina State Ports Authority BBB+ Positive Weaker Midrange Midrange Midrange Below Investment Grade Commonwealth Port Authority BB Stable Weaker Weaker Midrange Stronger a Port of Houston reflects GO and new Issuer Default Rating, respectively. Port of Houston has no revenue bonds outstanding at present. b Port of Long Beach reflects senior and subordinate lien ratings, respectively. c Port of Beaumont reflects new Issuer Default Rating, tax-backed rating and revenue bond rating, respectively. This report focuses primarily on U.S. ports with a stand-alone pledge of port revenues. The report also includes certain facilities whose debt is primarily covered by tax revenues, and which are assigned IDRs. These credits may include a variation from the Rating Criteria for Infrastructure and Project Finance. In these cases, enhanced analysis under the variation relates to the evaluation of the strength of the tax revenue framework available to support operations. Such evaluations are supported by Fitch s revised U.S. Public Finance Tax-Supported Rating Criteria. Examples of ports whose obligations are primarily covered through tax revenues include the Port of Houston Authority (IDR and Outlook: AA/Stable, unlimited GO bonds AAA/Stable) and Port of Beaumont (IDR, GO bonds, and revenue bonds: AA /Stable). While not included in the report, Fitch also rates several consolidated entities with primary business lines other than port activity (including airport and/or toll facility operation). Consolidated entities include the Port Authority of New York and New Jersey (consolidated bonds: AA /Stable and CP notes: F1+); the Port of Oakland (senior lien revenue bonds: A+/Stable and intermediate lien revenue bonds: A/Stable); the Port of Seattle (IDR: AA, first-lien revenue bonds: AA/Stable, intermediate lien revenue bonds: AA /Stable and subordinate lien revenue bonds: AA /Stable); and the Massachusetts Port Authority (revenue bonds: AA/Stable). Peer Review of U.S. Ports 8 June 28, 2017

10 Appendix E: Rated Ports Selected Metrics (Data as of June 2017) Port Rating Outlook AA Category Cargo (000 TEU) Cargo (000 Tons) Passengers (000) DCOH (Days) Leverage Net Debt/ CFADS (x) Total DSCR (x) e MAG % of Operating Revenues Five-Year Fwd. Total Leverage (Base) Five-Year Fwd. Total Leverage (Rating) Harbor Department of Los Angeles AA Stable 8,391 18, Port of Houston a AAA/AA Stable 2,183 44,839 N.A. 648 Port of Long Beach b AA/AA Stable 6,946 38,308 N.A Port of Beaumont Navigation District c AA /AA /AA Stable N.A. 3,136 N.A Median 6,946 28, A Category San Diego Unified Port District A+ Stable 134 2, CP CP CP State of Hawaii (Dept. of Transportation) A+ Positive 1,511 4,589 1,006 1, Broward County-Port Everglades A Positive 1,037 6,693 3,826 1,106 (0.83) Canaveral Port Authority A Stable N.A. 5,497 4, Hillsborough County Port District (Tampa Port Authority) A Stable 50 14, Jacksonville Port Authority A Stable 968 8, Port Miami d A Stable 1,028 N.A. 4, San Francisco Port Commission A Stable N.A. 1, CP CP CP Alabama State Port Authority A Negative ,645 N.A Median 968 6, BBB Category North Carolina State Ports Authority BBB+ Positive 285 3,835 N.A Median 285 3,835 N.A Below Investment Grade Commonwealth Port Authority BB Stable N.A. 581 N.A CP CP Median 581 N.A. 2, N.A. CP CP Overall Median 1,028 6, a Port of Houston reflects GO and new Issuer Default Rating, respectively. Port of Houston has no revenue bonds outstanding at present. b Port of Long Beach reflects senior and subordinate lien ratings, respectively. c Port of Beaumont reflect new Issuer Default Rating, tax backed rating, and revenue bond rating, respectively. Beaumont metrics reflects tax support. d Port Miami all-in coverage reflects revenue and parity GO debt. Does not reflect subordinate county /state obligations. e DSCR per Fitch calculation. TEU 20-foot equivalent unit. DCOH Days cash on hand. CFADS Cash flow available for debt service. DSCR Debt service coverage ratio. MAGs Minimum annual guarantees. N.A. Not applicable. CP Cash positive. Peer Review of U.S. Ports June 28,

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Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no ) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act Peer Review of U.S. Ports 10 June 28, 2017

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