OREANDA-NEWS. Fitch Ratings has affirmed the 'A' rating on Miami-Dade County (the County), Florida's outstanding seaport revenue bonds. The revenue bonds are secured by net revenues from PortMiami (the Port). The Rating Outlook on all bonds is Stable.

KEY RATING DRIVERS

The affirmation reflects PortMiami's leading market position evidenced by its ranking as the largest port for cruise in the world and is also among the largest cargo ports in the state of Florida. The rating also reflects the Port's sizeable minimum annual guaranteed (MAGs) revenues that serve to mitigate potential volatility of cruise and cargo revenues from competition and economic cycles offset by the Port's higher-than average leverage compared to peers and the sizeable capital program, which anticipates significant future borrowing.

Revenue Risk - Volume: Midrange
Stable Revenues: The Port benefits from stable revenue streams through diversified business lines (cruise operations roughly 50% of revenues, cargo 40%). The Port does have some exposure to fluctuations in the cruise business and to the general competitive port environment in South Florida and the south eastern seaboard.

Revenue Risk - Price: Stronger
Concentration Mitigated by Contracts: The Port has some exposure to fluctuations in the discretionary cruise business, though this is partially mitigated by the existence of long-term guaranteed contracts with key cruise customers and long term leases with cargo operators, with minimum guarantees for 2015 covering approximately 84% of 2014 operating revenues. Minimum guarantees are expected to cover 70% to 80% of operating revenues over the next 3 to 5 years.

Infrastructure and Renewal Risk: Midrange
Manageable Capital Program: The Port is nearing completion on its \$1 billion capital improvement plan (CIP), with the Miami Harbor Project set for completion in 2015. Both project delivery and cost management both appear to be satisfactorily managed even with complex elements to enhance capacity and infrastructure covered under the CIP. Going forward the Port's CIP through 2019 is budgeted at \$271 million, with \$249 million expected to be funded with debt, and the remainder to come from grants and tenant contributions.

Debt Structure: Midrange
Moderate Debt Structure: The 2013 revenue bonds and parity double-barrel, general obligation bonds are fixed rate. The 2014 revenue bonds are variable rate with a five-year direct pay LOC, representing 30% of parity senior debt. Final maturity is in 2051, with existing and future debt service payable from port revenues expected to escalate through 2022. The MADS-based rate covenant and additional bonds test (ABT) are quite stringent when compared with peers.

Financial Metrics
Moderate Financial Profile: The Port's financial profile has historically generated robust coverage levels above 3.4x for revenue bonds, and 1.6x or higher for revenue and GO bonds combined. Liquidity is moderate at 202 days cash on hand. Following the 2013 and 2014 bond issuances leverage is initially high at 9x for revenue and GO bonds, though these levels are expected to fall to the 5x range over the next five years.

Peers: Comparable ports include other Florida ports such as Port Everglades (rated A) and Canaveral (rated A), which serve similar markets and compete with Miami for cargo and cruise business. While PortMiami's current leverage is relatively high compared to peers, leverage is expected to migrate towards levels seen at other Florida ports within 5 years.

RATING SENSITIVITIES

Negative: Maintenance of the rating will depend upon management's ability to deliver projected revenue growth in light of increased annual debt service requirements and CIP commitments.

Negative: Future borrowings resulting in higher leverage without the support of corresponding increases to net revenues may pressure the rating.

Negative: While not expected based on analysis of financial projections, further rate covenant violations would likely result in negative rating action.

Positive: Should the capital plan be successfully executed and leverage levels decrease as new revenue streams come online, upward rating migration is possible.

SUMMARY OF CREDIT

PortMiami's operating revenues for FY2014 were approximately \$126.1 million, 15.5% higher than 2013. The increase was due to increases in tariff rates, higher cruise passenger numbers (cruise passengers were up 21% to 4.9 million), and increases in related revenues such as parking. The increase in cargo revenues is mostly attributed to increases in tariff rates, offsetting a decrease in cargo activity (TEUs were down 2.7% to 0.877 million, and tonnage was down 3.5% to 7.7 million tons). For the first seven months of FY2015 through April, PortMiami container volumes are up 13.5%. Cruise numbers are also up year to date, and the port is on track to handle over 5 million passengers for FY2017.

Contractual guarantees continue to provide a solid anchor for performance at the Port, with 2015's guarantees of \$89 million equalling roughly 70% of the year's operating revenues. Cruise agreements provide PortMiami with annual guaranteed passenger volumes and revenues while providing the cruise lines with incentives for meeting guaranteed levels. PortMiami is guaranteed between \$59 million and \$65 million in cruise revenues per year through 2019, with 3% escalation built into the contracts. A new cruise operator terminal agreement with Carnival Cruise Line guarantees the equivalent of 1.5 million passenger movements and a gross guarantee ranging from \$24 million in FY2015 to \$37 million in FY2028. While 15 cruise brands operate out of PortMiami, three major cruise companies (Royal Caribbean, Carnival, and Norwegian Cruise Line) provide roughly 90% of revenues.

Cargo revenues are also protected through minimum guarantees. PortMiami is a landlord port, with containerized cargo activity being handled by three individual terminal operators occupying approximately 240 acres: Seaboard Marine (Seaboard), South Florida Container Terminal/Terminal Link (SFCT) and the Port of Miami Terminal Operating Company (POMTOC). Together, Seaboard Marine and SFCT guarantee approximately \$32 million per year in wharfage/dockage and land rent payments. POMTOC's agreement was recently renewed for 15 years (plus two 5-year optional extensions), going into effect in October 2014. The agreement guarantees an additional \$31 million in land rental revenue over the previous agreement, and will generate \$13 million in land rent and throughput guarantees for fiscal 2015. This brings total cargo MAGs to \$47 million for fiscal 2015, and cargo MAGs rise to \$56 million by FY2019.

The Port is also aided by the pledge of certain State Comprehensive Enhanced Transportation System Tax (SCETS) revenues which begin to flow from the Florida Department of Transportation (FDOT) in 2017 at an estimated \$8 million, growing to \$17 million in 2018 and thereafter.

Operating expenses for FY2014 were \$64.3 million and decreased approximately 2.5% from 2013. The major decrease in the general and administration category is mostly attributed to a one-time \$1.3 million marketing incentive payment incurred in FY2013. Costs related to cruise operations, utilities and security rose due to the sizable increase in cruise activity. Operating income in FY2014 exceeded the prior year's forecast by \$7.5 million (13.7%), with revenue exceeding forecast by almost \$4.2 million, and expenses \$3.3 million better than forecast. FY2015 is also on track to outperform the forecasts considered at the time of the 2014 bond issuance. Operating margins at the Port have been relatively stable historically, ranging between 30% and 40% in recent years, and improving to 49% for FY2014.

The port's rate covenant test is conservative, based on maximum annual debt service (MADS) (1.25x MADS on revenue bonds and 1.10x on GO bonds). While this stringent test provides extra protection for bondholders, it provides a challenge in the near term as revenues related to ongoing capital improvements come online. Historically coverage has been strong (3.4x or higher for revenue bonds, 1.6x or higher for revenue bonds plus parity GO debt), and 2014 saw steady coverage at 3.4x for revenue bonds and 2.2x for revenue and GO bonds. However, parity Seaport debt service requirements are expected to step up in coming years, with DSCRs expected to be 2.0x and 1.5x for revenue bonds and combined revenue and GO bonds respectively under a base case scenario. This scenario contemplates cargo and cruise revenue growth based on contracted minimum annual guarantees and modest operating expense growth of 4.5% through 2019. Coverage remains well above rate covenant requirements.

Under Fitch's rating case, which contemplates lower cruise and cargo results coupled with higher expense growth, coverages are more pressured at 1.7x for revenue bonds and 1.4x for parity obligations. Lower coverage levels are in part mitigated by the Port's liquidity position and relatively secure agreements with many of the Port's tenants. The County indicates that the Port's unrestricted cash position is \$36 million as of September 2014, representing 202 days cash on hand based on 2014 operating expenses.

The Port is nearing completion on the \$1 billion Miami Harbor Project, and the forward capital plan through 2019 is more modest at \$271 million. Approximately \$249 million is expected to be funded with additional bond issuance in 2018, with the remainder to be funded with federal and state grants and private funds.