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Rating Action:

Moody's assigns A1 to Port of Oakland, CA's 2020 Series R Senior Lien Bonds and A2 to 2021 Series H Intermediate Lien Bonds; stable outlook

05 Nov 2020

New York, November 05, 2020 -- Moody's Investors Service has assigned A1 to the Port of Oakland, CA's $347 million Senior Lien Refunding Revenue Bonds, 2020 Series R (Federally Taxable) and A2 to the $187.5 million Intermediate Lien Refunding Revenue Bonds, 2021 Series H (AMT) (Forward Delivery). The outlook is stable.

RATINGS RATIONALE

The Port of Oakland's senior and intermediate lien revenue ratings reflect good business diversity between seaport and airport operations; strong liquidity; good debt service coverage; and a conservative financial plan that preserves flexibility and maintains healthy liquidity and coverage metrics.

As a combined enterprise, the port benefits from good balance between seaport and airport operations along with strong cost recovery in each division, supported in part by the strong market position and historically stable demand of the seaport. This diversity has helped stabilize the consolidated enterprise amid significant air traffic declines brought on by COVID, as seaport volumes and revenues have declined less than 5% -- compared to enplanement declines of 60% -- through nine months of 2020. The division, which has historically supported 75% or more of consolidated debt service, will remain a source of stability going forward as roughly 80% of revenues are in the form of minimum annual guarantees, 90% of revenues are from leases in effect through 2030, and capital spending needs are among the lowest of our rated ports.

The port entered the current downturn with liquidity at record strength; healthy senior and total debt service coverage ratios above 4.0x and 2.0x, respectively; increased revenue certainty at the seaport owing to recent lease extensions; and stable debt service and no new borrowing in the five-year capital spending plan. These factors provide strong financial flexibility to navigate the uncertain recovery ahead. In particular, the low level of debt service at the airport, along with the planned offset by CARES Act funds, will allow the port to lower rates and charges from prior-year levels and limit the increase in cost per enplanement (CPE), which is budgeted at $20.70 in fiscal 2021, only modestly higher from $16.75 in fiscal 2020 and $12.20 in fiscal 2019.

The reduction in airport activity will lower net revenue and total debt service coverage to a still satisfactory 1.60x in fiscal 2021, which incorporates the benefit of refunding savings from the current transaction, and we expect total DSCRs will range from 1.5x to 2.0x through the forecast period (fiscal 2021-2025), in line with historical levels. The decline in passenger traffic alleviates immediate capacity pressures and potentially significant growth capital spending for the airport, providing relief in this respect over the next several years. The port's strong liquidity, with over 780 days cash on hand in fiscal 2020 (unaudited), will be drawn down modestly for capital spending over the next several years, but we expect continued healthy liquidity of 400 to 600 days cash on hand through the forecast period.

The credit profile continues to incorporate the port's operation of essential infrastructure assets in the San Francisco Bay Area region and Northern California megaregion, which supports our expectation of higher throughput levels over time as economic conditions normalize. A long-term declining debt burden with a final maturity in 2033 affords substantial medium/long-term debt capacity.

RATING OUTLOOK

The stable outlook reflects our expectation of continued modest recovery in air passenger traffic and continued stability in marine cargo volume; ongoing recovery and supportive demographics in the regional economy; and manageable risk in the maritime division due to the landlord model employed, which will support financial stability through a period of potential revenue volatility. These factors combine to support our expectation of continued healthy financial performance, even with lower passenger levels in aviation, with medium-term DSCRs of 1.40x to 1.84x for the combined enterprise as a whole.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

- Intermediate lien DSCRs maintained above 1.75x for a sustained period

- Continued deleveraging combined with the maintenance of 500 days cash on hand

- Continued enplanement growth, coupled with the prospective maintenance of a competitive cost per enplanement (CPE) and low leverage, in the aviation division

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

- Multi-year trend of enplanement declines and or air service reductions

- Significant deterioration in DSCRs and liquidity for the combined enterprise, with intermediate DSCRs below 1.40x for a sustained period

LEGAL SECURITY

The senior lien bonds, intermediate lien bonds and subordinate lien obligations are secured by a pledge of gross revenues on a senior, intermediate and subordinate basis, respectively. PFCs, CFCs, and certain other amounts are specifically excluded from pledged revenues. The rate covenant for the senior lien bonds is 1.25x aggregate annual senior lien debt service coverage by net revenues, and the additional bonds test (ABT) is 1.25x maximum annual senior lien debt service (MADS) based on net revenues. The senior lien bonds are secured by a common reserve fund, sized at average annual debt service and funded with cash.

The intermediate lien rate covenant is 1.10x coverage of aggregate annual intermediate lien debt service by net revenues. The ABT is equal to 1.10x coverage of aggregate MADS (intermediate) using net revenues from any of the 12 consecutive months out of the 24 consecutive months immediately preceding. The intermediate lien bonds are secured by a common reserve fund, sized at average annual debt service and funded with an investment grade surety.

USE OF PROCEEDS

The 2020 Series R Senior Lien Refunding Revenue Bonds are being issued to refund and defease a portion of the Port of Oakland's outstanding Refunding Revenue Bonds 2012 Series P, to repay in full the remaining approximately $3.3 million of a loan the port received from the California Department of Boating and Waterways, to satisfy the Senior Lien Common Reserve Fund Requirement, and to pay cost of issuance.

The 2021 Series H (AMT) Intermediate Lien Refunding Revenue Bonds are being issued to refund and defease a portion of the Port of Oakland's outstanding Refunding Revenue Bonds 2011 Series O, to satisfy the Intermediate Lien Common Reserve Fund Requirement, and to pay cost of issuance.

PROFILE

The Port of Oakland is an independent department of the City of Oakland (Aa1 stable), per the city charter. Exclusive control and management of port facilities were delegated to the board in 1927 by an amendment to the city charter.

Port facilities include Oakland International Airport (OAK; Airport); marine terminals, rail facilities for intermodal and bulk cargo handling and areas for truck staging, container storage and maritime support services (collectively, the Seaport); commercial, industrial, recreational, and other land under lease or available for lease or sale; undeveloped land; and water area.

The seaport is the third largest in California and the 8th largest in the US by container volume, and the airport is the 5th largest in California and the third largest in the San Francisco Bay Area by passenger volume.

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.

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.

Moses Kopmar
Lead Analyst
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Kurt Krummenacker
Additional Contact
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Client Service: 1 212 553 1653

Releasing Office:
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JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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