Within a week, Fitch Ratings has downgraded the ratings of two ports in Florida.
Fitch on Tuesday downgraded the Canaveral Port Authority’s $89.4 million of outstanding revenue bonds to A-minus from A.
The rating agency maintained a stable outlook on the credit, but said the downgrade reflected the increasing pressure on the authority’s operating income and margins the past several years driven by significant declines in cargo and cruise passenger volumes, along with material increases in operating expenses, according to a report by analyst Robert Botschka.
While the authority’s historic debt-service coverage levels have remained well above two times, Botschka anticipated that coverage levels could fall below two times over the near term because of continued declines in cruise passenger volumes, higher operating expenses, and debt service requirements associated with the issuance of $32 million of privately placed port improvement bonds in fiscal 2008.
Port Canaveral is adjacent to the Kennedy Space Center and 56 miles east of Orlando. Canaveral ranked as the second largest U.S. port by cruise embarkations in 2007, behind the Port of Miami and ahead of Port Everglades near Fort Lauderdale.
Some 145 miles south of Port Canaveral is the Port of Palm Beach. On Friday, Fitch downgraded the port’s $46 million of outstanding revenue bonds to BBB-minus from A-minus, and placed a negative rating watch on all of the port’s debt.
“The downgrade reflects the weakening revenue trends at the port, which are mainly attributable to the significant losses in cruise income, cargo volumes, and other passenger-associated income tied to the regional economy,” said a report by analyst Vanessa Roy.
“The port’s narrower operating base is under significant financial pressure as demonstrated by the port’s inability to meet its 1.10 times rate covenant in fiscal 2008,” the report said. “Based on revised forecasts that include both revenue initiatives and cost-containment strategies, the rate covenant may also not be met in fiscal 2009.”
The negative watch reflects the port’s ongoing near-term uncertainty with future cash flows and the likelihood that key operating segments of the port, such as cargo and cruise revenue streams, may continue to trend downward or remain flat.
