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Moody’s affirms Port of Oakland (CA)’s A2, A3 and Baa1 ratings with a stable outlook

Thursday, 18 February 2016 | 20:00

Moody’s Investors Service has affirmed the A2, A3 and Baa1 ratings on the Port of Oakland, California’s senior, intermediate and subordinate lien obligations, respectively. The outlook is stable. The rating action affects approximately $690 million of senior lien obligations, $390 million of intermediate lien obligations, and the repayment of subordinate lien commercial paper (bank note) obligations, outstanding as of June 30, 2015.

The ratings reflect the strong security pledge of consolidated gross revenues from the port’s three principal business lines; aviation, maritime and commercial real estate. The ratings incorporate our expectation of continued operational stability in the port’s two largest divisions, aviation and maritime, which benefit from stable demand, ample capacity and their roles as integral infrastructure assets to a large and economically robust region. At the same time, the ratings also reflect our expectation of short term revenue volatility in the maritime division, as the port manages the unanticipated loss of its second largest terminal operator and tenant. The port has manageable and improving consolidated leverage metrics, albeit with fairly elevated leverage in maritime still, which combine with satisfactory total debt service coverage ratios (DSCRs) and limited near-term capital needs to provide additional credit stability.

Rating Outlook

The stable outlook reflects our expectation of stability in air passenger traffic and marine cargo volume; ongoing vitality 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 operational transition and potential short term revenue volatility. These factors combine to support our expectation of continued healthy financial performance and satisfactory total DSCRs in aviation and maritime individually, with comparatively stronger financial margins and total DSCRs for the combined enterprise as a whole.

Factors that Could Lead to an Upgrade

Continued enplanement growth coupled with maintenance of competitive cost per enplanement (CPE) and low leverage in aviation division

Favorable resolution to Outer Harbor Terminal, LLC (OHT) departure combined with incremental growth in marine cargo volume and maritime revenues

Intermediate debt service coverage ratios for maritime maintained above 1.5 times for a sustained period

Factors that Could Lead to a Downgrade

Significant cargo diversions and/or declines in maritime revenues beyond preliminary expectations

Significant deterioration in DSCRs and liquidity for the combined enterprise, with total DSCRs below 1.4 times for a sustained period

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

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 and additional bonds test (ABT) for the senior lien bonds is 1.25 times. The reserve fund requirement for senior and intermediate lien bonds is generally equal to average annual debt service.

The intermediate lien rate covenant is 1.10 times coverage of aggregate annual debt service by net revenues. The ABT is equal to 1.10 times coverage of aggregate maximum annual debt service (MADS) using net revenues from any of the preceding 12 consecutive months of the preceding 18 months.

Use of Proceeds

Not applicable.

Obligor Profile

The Port of Oakland is an independent department of the City of Oakland (Aa2 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. The port operates three primary divisions, aviation (48% of operating revenues), maritime (47%) and commercial real estate (5%). The seaport is the third largest seaport in California and the seventh largest seaport in the US as measured by the throughput of twenty-foot equivalent units (TEUs). OAK is a medium-hub O&D airport and is the fourth largest airport in California and the second largest airport in the San Francisco Bay Area.
Source: Moody’s

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