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Rating Action:

Moody's downgrades to Baa1 Miami-Dade County's (FL) seaport revenue bonds and assigns underlying Baa1 to Series 2014A and B; outlook stable

01 May 2014

Affects $695 million debt outstanding

New York, May 01, 2014 --

Moody's Rating

Issue: Seaport Variable Rate Revenue Bonds Series 2014A; Rating: Baa1; Sale Amount: $185,395,000; Expected Sale Date: 05-09-2014; Rating Description: Revenue: Government Enterprise

Issue: Seaport Variable Rate Revenue Bonds Series 2014B (AMT); Rating: Baa1; Sale Amount: $20,600,000; Expected Sale Date: 05-09-2014; Rating Description: Revenue: Government Enterprise

Opinion

Moody's Investors Service assigns an underlying Baa1 rating to the Miami-Dade County's Series 2014A and B Seaport Variable Rate Demand Revenue Bonds and downgrades the port's outstanding seaport revenue bonds to Baa1 from A3. The outlook is stable.

The Series 2014A and B revenue bonds will be secured by an irrevocable, direct-pay letter of credit (LOC) issued by the Bank of Tokyo-Mitsubishi expected to be rated by Moody's. The LOC will expire in May 2019, unless earlier extended or terminated in accordance with its terms. Upon expiration, replacement or termination of the LOC, the Series 2014 bonds will be subject to mandatory tender.

RATING RATIONALE

The rating downgrade to Baa1 is based on the substantial increase in port leverage to complete a large capital improvement plan (CIP), the on-going transformation of the port's debt profile, the much tighter financial margins and lower all-in debt service coverage ratios (DSCRs) going forward, forecasted revenue shortfalls in 2017 and the reliance on sustained volume and revenue growth to achieve forecasted DSCRs. We note tighter than expected results for FY 2013 caused a rate covenant violation that has been addressed for FY 2014, though margins remain tight.

The Baa1 rating incorporates the strength of the port's market position as the world's largest cruise port and the improvement and expansion of key revenue-generating port facilities that we expect will continue to solidify that market position. After the Series 2014, the port is expected to issue an additional $222 million of debt for its capital program through 2018 and we have factored the debt service for these issues into the rating.

OUTLOOK

The stable outlook is based on the port's competitive position as the world's largest passenger cruise port and its strategic economic importance to trade for south Florida and Miami-Dade County (Aa2, negative). The outlook also assumes the port will use these aspects to the fullest extent in order to achieve revenues that support increasing debt service payments. The port's location near the Caribbean Sea and the Panama Canal, access to several modes of transportation, and extensive and upgraded infrastructure are also key stabilizing features.

USE OF PROCEEDS: The bonds will be used to pay for the costs of improvements to passenger terminals, bulkheads, roadways and bridges, gantry cranes, dredging and other seaport-related capital projects as well as $180 million to repay the county's obligation for the seaport's share cost of the seaport tunnel of $309.5 million.

LEGAL SECURITY: Net revenues of the Port of Miami and balances in the debt service reserve fund (DSRF). Some of the port's bonds ($95.365 million)are also secured by the county's general obligation pledge, but the 2014 bonds are not general obligations of the county.

The plan of finance includes several proposed changes to the bond ordinance. Upon obtaining the consent and approval of 51% of bondholders, amendments would include changing the rate covenant to principal and interest in the current year from the current maximum annual debt service (MADS) and adding a Rate Stabilization Fund (RSF) to be funded at the discretion of management and the county. The RSF could be included in calculations of seaport net revenues and would be used to pay required deposits and payments at the discretion of management. In addition the definition of principal and interest payments for the rate covenant and the additional bonds test would be changed to count only interest on short-term bonds or notes with a 5-year term or less, if long-term bonds to refinance the short-term notes have been authorized prior to the issuance of the short-term notes. Bondholder consent for these amendments is not expected with the Series 2014 issuance.

An amendment not requiring bondholder consent is the addition of the State Comprehensive Enhanced Transportation System (SCETS) Tax to Seaport Revenue. The revenue stream is $8 million commencing in 2017 and $17 million in years 2018 through 2042. These revenues are to be used to pay the obligations of the Miami Tunnel Project for which the 2014 Bonds are funding $180 million. Moody's notes that SCETS revenues are subject to annual state appropriation.

INTEREST RATE DERIVATIVES: None. All of the Series 2014 bonds are variable rate demand obligations and after this issue total variable rate exposure will be about 29%. We note that approximately $92.4 million of the port's indirect debt secured by the county's non-ad valorem pledge (Sunshine State Loans )also are variable rate.

STRENGTHS

*Historically largest cruise passenger port in the world remains positioned to continue to grow in Caribbean and Latin American markets

*Contractual minimum annual guarantees (MAGs) for more than 63% of operating revenues in place through 2019

*Imminent completion of both the Port Tunnel, with direct connections to interstate highways, and the intermodal rail yard is expected make the port more attractive to cargo and shipping lines

*Harbor depth increase to 50 feet from the current 42 feet by September 2015 will make Miami the only East Coast port south of Virginia able to accommodate larger Post-Panamax vessels

*Direct and implicit support from the county, which views the port as a vital economic engine

CHALLENGES

*Substantial capital needs include an additional $222 million in expected debt through 2018 to complete the CIP

*Debt service for county-issued bonds for seaport improvement projects, while not a legal obligation, has been historically paid by the port, and this non-parity debt tightens the port's liquidity and its long-term financial flexibility

*Port financial metrics and DSCRs are narrowing in FY 2015 as debt service begins to ramp up, and will tighten further by FY 2017 when DSCR for direct and indirect is projected to drop below 1.0 times

*Liquidity is below average for similarly rated ports and is expected to remain low

*Competition from neighboring Port Everglades for both cruise passengers and cargo may erode pricing power and future revenues

*Operating revenue concentration, with more than 50% of revenue generated by three cruise operators and volatility related to the dominance of cruise revenues

*Significant costs associated with upgrades to prepare the port for Post-Panamax ships not expected to be offset by equal increase in revenues in the short-term

WHAT COULD CHANGE THE RATING -- UP

The rating is well placed at Baa1 given the higher leverage and tighter financial margins going forward. Better than forecasted financial performance due to stronger than forecasted growth in cruise passengers and cargo that supports stronger DSCRs and contributes to higher liquidity could exert upward rating pressure.

WHAT COULD CHANGE THE RATING -- DOWN

Weaker than forecasted operations and revenues and declines in operating margins and or loss of cruise and cargo operations to competing seaports would place downward pressure on the rating. Direct DSCRs below 1.25 times and 1.00 for debt issued and backed by the county also would pressure the rating down.

The principal methodology used in this rating was Public Port Revenue Bonds published in December 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 rating action on the support provider and in relation to each particular 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.

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

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.

Maria Matesanz
Senior Vice President
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Chee Mee Hu
MD - Project Finance
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's downgrades to Baa1 Miami-Dade County's (FL) seaport revenue bonds and assigns underlying Baa1 to Series 2014A and B; outlook stable
No Related Data.
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