Fitch reaffirms ‘BB-’ rating for CPA

The Commonwealth Ports Authority’s rating on approximately $30.4 million of outstanding revenue bonds is stable, according to a global rating agency that recently affirmed the agency’s “BB-”rating status this year.
Fitch Rating reaffirmed Monday the rating for CPA’s senior series 1998A and 2005A seaport revenue bonds. The rating outlook is marked as stable.

The seaport bonds are secured solely by gross seaport revenues and certain accounts established pursuant to the bond indenture.

CPA executive director MaryAnn Lizama has yet to comment on the issue at press time.

Fitch enumerated several key areas in determining the CPA rating. Among the notables is the rating agency’s belief that following fiscal year 2013, CPA cash flows should continue to be sufficient to cover debt service through its five-year forecast period and takes comfort in the CPA’s strong liquidity and fixed rate, flat debt service profile.

Other key rating drivers included the projected volume stability in the cargo base that comes in to the island.

“The seaports remain essential for the import of goods to an island economy; however, there is potential for stagnant operational trends due to CNMI’s exposure to macroeconomic factors and its elevated dependence on a limited tourist base. Volume stability is expected given that food and fuel related cargos account for approximately 70 percent of import dependent revenue tonnage,” according to Fitch release. For the agency, these two are concentrated but vital cargo base for the CPA.

Fitch also noted that CPA, instead of implementing increase rates on seaport fees, it had focused instead on effective containment of operating expenses. CPA last increased seaport rates in 2009.
CPA’s capital improvement plan is also noted as manageable in scope and is predominantly grant funded. The remaining dollars are expected to come from internally generated funds with no future debt issuances.

Also cited is the conservative capital structure of the agency where it maintains 100 percent fixed-rate, fully amortizing debt. Fitch rated the ports authority debt structure as stronger.
CPA, according to Fitch’s discovery, currently maintains favorable leverage and liquidity metrics offset by modest coverage ratios. In maintaining a balance sheet with cash and reserves available for operating expenses equating to over 2,000 days cash on hand provides CPA with some degree of flexibility to meet financial commitments in weak performing periods.

Fitch noted that the CNMI ports’ revenue tonnage is now nearly 100 percent from imports and concentrated in two main commodities (fuel and food), following the loss of the garment industry. Collectively, fuel and food represent nearly 70 percent of all revenue tonnage, possibly indicating that a shift in the operational profile may be nearing completion and demonstrating the essentiality of the ports to the islands’ survival.

“Due to a decrease in imports, total tonnage fell off by 13.1 percent to 355,572 metric tons. This figure is comparable to tonnage in 2011, which was 378,800 metric tons, and Fitch believes this will be near to the new baseline for CNMI,” according to the release.

In fiscal year 2013, CPA’s unaudited operating revenues were down 2.9 percent as a result of lower seaport fees and concession-based receipts. Operating expenses decreased by 11.6 percent due to a decrease in contractual services and employee benefits. Together, this resulted in an estimated 2013 debt service coverage of 1.33, which was flat compared to last year’s 1.32 coverage. Debt service coverage has stayed largely stable in the 1.3 to 1.4 range since fiscal 2009’s rate increase.

CPA also maintains fund balances of over $13 million related to the bond indenture and has increased daily cash on hand (including reserves available for operating expenses) to 2,264 days. This liquidity provides some degree of financial flexibility. Further, management does not anticipate any future debt issuances at this time.

The authority’s capital improvement plan is also seen as modest and primarily grant funded with a 25-percent match required from the CPA. Fitch notes that a more forward-looking capital plan would be helpful in monitoring new projects and ensuring that any necessary maintenance and/or projects are not being deferred.