PortMiami gets ‘A’ bond rating, with some financial caveats
Fitch Ratings has affirmed the ‘A’ rating for Miami-Dade County’s $573.4 million in outstanding seaport revenue bonds, a positive review that nonetheless presented investors with several caveats about PortMiami’s financial future.
Fitch noted, for example, “the port’s potential exposure to debt interest exposure over time with approximately 30% of outstanding senior lien debt unhedged variable rate bonds and the port’s potential sizable debt issuance to support its capital plan.”
Fitch did not spell it out, but as the Federal Reserve ratchets up interest rates, higher rates would have an impact on the present variable rate bonds. Also, any newly issued bonds for the port’s capital plan would have to pay higher interest rates based to an extent on what the Federal Reserve does with rates in the future.
The Fitch report also showed the impact of the 2016 failure of a casino cruise service to Bimini by a subsidiary of global casinos giant Genting. Resort World Bimini SuperFast had been running service from PortMiami to its casino on Bimini, Bahamas. That service had been making minimum annual guaranteed payments to PortMiami of about $7 million per year, which Fitch said was “10% of cruise revenues and 5% of total operating revenues of the port.”
While that loss will have long-term impact, it had a one-year upside in 2017, because termination of the service required Resort World to pay the seaport $20 million as a one-time termination fee.
That $20 million fee accounted for the vast majority of the seaport’s 16% total revenue increase in 2017 of $23 million, from about $144 million to $167 million, the port’s fifth consecutive year of revenue growth. The current year’s growth will have to fill in the gap of that $20 million one-time payment in order to extend the years of gains.
The remainder of that revenue increase, Fitch said, was attributable to tariff and contract rate increases for cruise ships and an increase in cruise passengers.
Minimum annual guarantees from port users like the $7 million from Resort World have been one of the strengths of the port’s revenues, the Fitch report highlights. Those guarantees covered about 62% of the port’s 2017 operating revenues and are expected to cover 60% to 70% of them each year in the medium term, Fitch said, and they “help to insulate revenues and financial metrics from the port’s exposure to volume fluctuations.”
The ports revenues include 53% from cruise operations and 19% from cargo, Fitch said.
PortMiami is guaranteed $66 million to $94 million in cruise revenues per year through fiscal 2022, Fitch said, with a 3% escalation figure built into contracts. Carnival, Norwegian Cruise Line and Royal Caribbean Cruise Line combined provide about 94% of the cruise revenue.
Cruise income clearly is the port’s priority. Fitch notes that the seaport reduced minimum annual guarantees for cargo operators in order to take back land devoted to cargo for use in building “additional, higher margin, cruise terminals.” While the port is not talking of taking back more cargo space now, Fitch said, “future cruise terminal development may result in additional acreage being needed.”