Moody's Investors Service said it has downgraded the Port of Seattle's outstanding intermediate and subordinate revenue bonds.
The downgrade includes the intermediate lien revenue refunding bonds downgraded to A1 from Aa3, and the subordinate lien revenue bonds downgraded to A2 from A1. At this time Moody's also affirmed the Aa2 rating on the first lien revenue bonds and the A1 rating on the passenger facility charge (PFC) revenue refunding bonds and assigned an A1 rating on the port's $139.03 million intermediate lien revenue refunding bonds, Series 2013. The rating outlook for all liens is stable.
The downgrade is based on increasing debt service requirements and the port's weakened market position. Changes in the commercial aviation and global container shipping industry, the port's two primary business lines, have reduced the port's ability to generate the same high margins.
The port's financial margins, measured primarily by debt service coverage, narrowed substantially after the economic downturn; however, Moody's expected margins to recover quickly given the port's strong market position.
Margins have improved but not fully recovered and we believe developments at both the airport and seaport, as well as the expectation of significant additional debt to support capital expenditures, will keep margins at levels more commensurate with the current rating categories.
The first lien rating is affirmed at Aa2 because as the senior lien it benefits directly from tax levy revenues that are residual after the port pays debt service on its general obligation bonds (rated Aa1) and is expected to account for nearly 50% of future first lien debt service.
