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Miami-Dade (County of) FL Port Facility -- Moody's affirms Miami-Dade (County of) FL Port Facility's A3 senior port revenue bond rating, outlook negative

·16 mins read

Rating Action: Moody's affirms Miami-Dade (County of) FL Port Facility's A3 senior port revenue bond rating, outlook negative

Global Credit Research - 28 Aug 2020

New York, August 28, 2020 -- Moody's Investors Service, ("Moody's") has affirmed the A3 rating assigned to Miami-Dade (County of) FL Port Facility's ("PortMiami") senior seaport revenue bonds. The rating outlook remains negative.

RATINGS RATIONALE

PortMiami's A3 rating continues to benefit from the port's competitive position as the largest cruise port in the world, the diversity of revenue across cargo and cruise, the presence of minimum annual revenue guarantees, an adequate liquidity profile (around $110 million of unrestricted reserves expected by September 30, 2020), as well as initiated measures to reduce operating expenditures and capital expenditures to correspond to the lower level of operating revenue.

However, PortMiami will face difficult decisions to initiate additional cost reductions and postpone discretionary capital expenditures beyond fiscal 2020 if cruise revenue falls short of minimum annual revenue guarantees for an extended period of time.

The affirmation also considers the high risk between now and when US cruise operations will eventually resume, the continued deterioration in the credit quality of major rated cruise lines Carnival Corporation (B1 negative), Royal Caribbean Cruises Ltd. (B1 negative), and NCL Corporation Ltd. (B2 negative), as well as the risk that cruise operating revenue will fall short of minimum annual revenue guarantees in fiscal year 2020 and 2021 and that terms of minimum annual revenue guarantees may be renegotiated with cruise lines.

This could lead to total DSCR remaining below or close to 1.0x through fiscal year 2021 and senior DSCR not recovering to 2.0x before fiscal year 2022 or 2023. Liquidity reserves are, however, sufficient to cover operating expenditures and total debt service on senior and subordinated county-supported debt. The county recently approved for the port issuance of additional subordinated capital acquisition bonds of $335 million as well as additional commercial paper notes under the county-supported commercial paper program.

In the short run, PortMiami's credit profile will be dominated by the length of time that cruise operations continue to be highly disrupted and the resulting impacts on its operating revenue and its liquidity profile. However over the long run, the value proposition of a cruise vacation as well as a group of loyal cruise customers supports a base level of demand once health safety concerns have been effectively addressed.

Moody's base assumptions include a resumption of US cruising in the first half of 2021 with capacity days reaching at least 65% of their 2019 levels and occupancy reaching at least 70% by the second quarter with continued improvement from there. As a result, passenger volumes in fiscal year 2021 (ending September 30, 2021) may still be at or below fiscal year 2020 levels.

The rapid spread of the coronavirus outbreak, deteriorating global economic outlook, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The cruise sector, including cruise ports, has been one of the sectors most significantly affected by the shock given its sensitivity to consumer demand and sentiment. More specifically, the weaknesses in PortMiami's credit profile, including its exposure to the deteriorating credit quality of its cruise line customers as well as continued halt of cruise operations in the US, make it vulnerable to the outbreak continuing to spread. Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.

RATING OUTLOOK

The negative outlook reflects the uncertainty around the return of cruise operations in the US, the rapid deterioration in the credit quality of cruise lines as well as a high risk that minimum annual revenue guarantee contracts may be renegotiated.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

- Improved financial performance supporting a return to senior DSCR (Moody's net revenue calculation) of around 2.0x

- Total DSCR (direct and indirect debt) comfortably above 1.5x

- Sustained improvements in the port's liquidity profile with days cash on hand materially above 450 days and cash to debt above 15% for a sustained period of time

- Visibility that leverage will not increase further

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

- Direct senior DSCR (existing GO and senior revenue bonds) below 2.0x, senior and subordinated DSCR below 1.3x

- Total direct and indirect DSCR (including debt issued and backed by the county) falls to 1.0x

- Weakening competitive position resulting in lower than expected operating revenue or loss of minimum annual revenue guarantee contracts

- Weakening liquidity profile with days cash on hand falling significantly below 365 days cash on hand for a sustained period of time

LEGAL SECURITY

The port's outstanding debt of around $1.4 billion consists of a combination of seaport revenue bonds, seaport GO bonds, Sunshine State Loans, Capital Asset Obligation Acquisition bonds, and commercial paper notes. Senior debt (revenue bonds and GO bonds) amounts to around $0.6 billion.

The seaport revenue bonds are payable solely from the revenue of the seaport and are not general obligations of the County. The general obligation (GO) bonds are payable primarily from the revenue of the seaport, and, to the extent that the revenue of the seaport is insufficient, are payable from ad valorem taxes levied on property in Miami-Dade County without limit as to rate or amount. Debt service on GO bonds ranks pari passu to revenue bonds.

Sunshine State loans and capital asset special obligation acquisition bonds are not legal debt of the port, but the port has historically reimbursed the county for debt service paid from available seaport revenues. Both Sunshine State loans and capital asset special obligation acquisition bonds are subordinated to the seaport revenue bonds and the seaport GO bonds. The Miami-Dade (County of) FL, Seaport Commercial Paper Notes, Series A-1 (AMT) and Series A-2 (rated P-1, based on letter of credit from Bank of America, N.A.) are also subordinated to the seaport revenue bonds and GO bonds and are backed by the County.

PROFILE

PortMiami is a landlord port located in Biscayne Bay, on an island a half-mile from the City of Miami. The port is the largest multi-day homeport for cruise vessels in the world. The port handled a record 6.8 million passengers in fiscal year 2019. The port also has significant cargo operations and handled more than 1 million TEUs in 2019.

The port is operated as an enterprise of Miami-Dade County, and has benefited from the county's implicit and direct support.

METHODOLOGY

The principal methodology used in these ratings was Publicly Managed Ports Methodology published in June 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1161994. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Kathrin Heitmann Lead Analyst Project Finance Moody's Investors Service, Inc. 7 World Trade Center 250 Greenwich Street New York 10007 US JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Kurt Krummenacker Additional Contact Project Finance JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653

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