BRADENTON, Fla. — Miami-Dade County is preparing to launch the first round of funding for a $1 billion capital improvement program at PortMiami in the race to be ready for opening of the expanded Panama Canal in 2015.
Underwriters say that they plan to begin pricing $390 million of seaport revenue bonds to retail investors on Sept. 9 followed by institutional sales the next day.
Of the offering, $360 million will be new-money bonds financing projects that are part of a $977 million capital program through 2018.
As the closest U.S port to Panama, Miami-Dade plans to use $162 million of bond proceeds to pay for a portion of the "Deep Dredge Project" to increase the depth of the port channel to 50 feet from 40 feet.
Deep Dredge is expected to be done in time for PortMiami to receive the new generation of larger container cargo vessels that will be able pass through the Panama Canal after its $5.3 billion expansion is completed, creating larger locks to allow passage of supertankers and larger, modern container ships that require up to 50-foot channel depths.
The new Panama locks will accommodate ships 160% larger than the largest "Panamax" ships that can fit in today's canal.
Miami-Dade bond proceeds will also be spent on terminal and infrastructure improvements, rehabilitation of rail service to the port, buying additional super-gantry cranes to service the ships, and an underwater tunnel to provide shipping and cruise traffic with a direct connection between the port and Interstates.
Another $29.36 million of refunding bonds also are expected to be sold.
If the current pricing plan stays on schedule, a rare Monday sale could be a good strategy for getting the attention of investors, a trader said.
"I think getting your deal off at the beginning of the week before the deluge is a good plan," the trader said. "I think that if the deal is priced attractively, and the market is stable, it will be well received.
"People are looking for yield, and this should definitely be 'yieldier.'"
The fixed-rate, tax-exempt deal is expected to be structured as $250 million of new seaport revenue bonds and $110 million of bonds subject to the alternative minimum tax with maturities up to 40 years.
Depending on market conditions, $11.76 million of refunding bonds and $17.6 million of refunding bonds subject to the AMT also will be sold with existing maturities. The county anticipates net present value savings in excess of 5%.
A portion of the refunding savings will be used to pay the cost associated with a settlement with the Internal Revenue Service related to Series 1996 seaport revenue bonds, which are being refunded in the upcoming sale.
According to the preliminary official statement, the county entered the IRS's Voluntary Closing Agreement Program in March to determine if a contract with Carnival Cruise Lines in 1998 could affect the status of the 1996 bonds, which were sold as $29.3 million of tax-exempt governmental bonds.
The potential problem was discovered during due diligence by Squire Sanders LLP, bond counsel for the 2013 bonds.
Carnival was using terminals improved with 1996 bond proceeds but had no obligation to pay the county other than dock and wharf fees.
However, a 1998 contract obligated Carnival to make a payment to the county if the number of its cruise passengers fell below a certain level in exchange for a reduced wharfage and dockage fee, according to county documents about the issue prepared in November.
Though Carnival never made a payment to the county, the cruise line's payment guarantee and use of the cruise terminals could "result in a reclassification of the Series 1996 bonds from governmental bonds to private activity bonds," the documents said.
The IRS has acknowledged receiving the county's submission, though "no further substantive discussion has yet taken place between the county and the IRS regarding the VCAP submission," according to the POS.
County officials did not respond to requests for comment about the IRS issue or the transaction.
Ahead of the deal, Moody's Investors Service downgraded the bonds to A3 from A2.
"The downgrade of the port's rating is based the substantial increase in leverage, and the transformation of its debt profile and much tighter financial margins resulting from the current offering," said Moody's analyst Myra Shankin. "After the Series 2013 [bond sale], the port is expected issue an additional $400 million of debt through 2017 and the bulk is expected next year."
Fitch Ratings affirmed its A rating. Both rating agencies said the outlook is stable.
Moody's said its stable outlook is based on PortMiami's "strong competitive position" as one of the world's largest passenger cruise ports, and its "key economic importance to trade for south Florida."
Its location near the Caribbean Sea and the Panama Canal, access to several modes of transportation, and extensive and growing infrastructure are also key stabilizing features, said Moody's.
The port benefits from the stable revenue streams of various business lines with 50% of revenues coming from cruise operations and 40% from container shipping, according to Fitch.
The "sizable" $977 million capital program though 2018 is expected to be funded with various revenues, including 68% from bonds, 16% from federal and state grants, and 16% from funds provided by the county, Fitch said.
The Miami-Dade County Commission has authorized the issuance of up to $885 million of additional seaport revenue bonds through 2018 toward the capital program, which is designed to modernize the port, improve its rail and road traffic connections, and prepare for incoming post-Panamax shipping.
PortMiami also is implementing a 25-year master plan that proposes $2 billion of capital improvements.
Many Atlantic and Gulf coast ports are racing to implement their own improvement plans to attract the larger post-Panamax ships, believing shippers will want to sail them directly to East Coast markets instead off-loading the vessels on the West Coast and shipping containers east by train or truck.
But Miami plans to be one of the first to have harbors and dockside facilities ready to accommodate the bigger vessels.
Miami is one of few ports that has all federal and state approvals for the necessary dredging, though federal funding was held up until October when Miami-Dade County said it would finance its half of the estimated $180 million cost for the Deep Dredge, as well as the federal government's half, if need be.
Public Resources Advisory Group is the county's financial advisor.
Raymond James & Associates is the book-runner for the upcoming sale.
Other underwriters are Goldman, Sachs & Co., M.R. Beal & Co., Morgan Stanley & Co., Rice Financial Products Co., Barclays Capital, Robert Van Blaylock, Cabrera Capital Markets, Estrada Hinojosa, Siebert Brandford Shank, Southwest Securities, and Wells Fargo Securities LLC.
Squire Sanders LLP and D. Seaton and Associates are co-bond counsel.
Hunton and Williams LLP and Law Offices of Thomas H. Williams Jr. PL are co-disclosure counsel.
Weiss Serota Helfman Pastoriza Cole & Boniske PL is underwriters' counsel.
