After delay, Miami-Dade County seaport deal ready to come to market

Miami-Dade County is set to come to market this week with a taxable revenue bond sale for PortMiami that was delayed earlier this summer by rising interest rates.

Stifel is expected to price on Thursday the $455.1 million of Series 2023 taxable senior lien seaport revenue bonds issued by the county on behalf of its Seaport Department.

Proceeds from the deal, along with additional monies, will be used to fund the costs of a Royal Caribbean Cruises Ltd. office campus project as well as a debt service reserve fund.

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The project consists of the development and construction of the campus at the port to serve as the global headquarters for Royal Caribbean Group, including a building and various improvements to parking and other portions of the campus.

"We are looking forward to a successful sale," Hydi Webb, director and CEO of PortMiami, told The Bond Buyer on Wednesday.

The bonds are senior liens of the entire port enterprise.

Fitch Ratings assigned an A rating with stable outlook to the Series 2023 bonds, saying its rating reflects "PortMiami's fundamental operating strengths, including its global leading cruise port market position and its role as one of the largest ports in the state of Florida in terms of cargo volume."

PortMiami is a leading cruise and cargo port of call in the United States and historically has stable revenue streams from various business lines. Port cargo volumes and cruise passengers have grown substantially over the past 10 years, except for fiscal 2020 during the COVID-19 pandemic.

In fiscal 2022, more than 4 million cruise passengers passed through the port and its cargo operations processed 1.2 million TEUs, or twenty-foot equivalent units, which is a unit of measurement used to determine cargo capacity for container ships and terminals.

The port's operating revenues recovered strongly in fiscal 2023. Excluding state comprehensive enhanced transportation system tax payments, revenues increased about 45% to $256.7 million in fiscal 2023 from $177.3 million in fiscal 2022 and were up 55% compared to fiscal 2019.

In its Nov. 15 credit report, Fitch said the port's revenue recovery was supported by a return of cruise activity and a continuation of strong cargo performance. Cargo volumes rose significantly during the pandemic because of consumer demand, but then slowed a bit in 2022 and 2023 amid a global retrenchment.

Cruise activity increased in 2022 and 2023 with many cruise lines operating at 100% occupancy in recent months, according to Fitch. PortMiami recorded a total of 7.3 million passengers in fiscal 2023, compared to 6.8 million passengers in fiscal 2019.

Management expects continued growth in cruise activity and related revenues and anticipates passenger volume to reach more than 7 million in fiscal 2024 and to about 9.4 million by fiscal 2028.

Royal Caribbean Group is one of the biggest cruise companies in the world and has a fleet of 64 ships traveling to around 1,000 destinations. It owns and operates Royal Caribbean International, Celebrity Cruises and Silversea Cruises and is a 50% owner of a joint venture that operates TUI Cruises and Hapag-Lloyd Cruises.

Fitch added the rating is also "supported by the port's substantial, long-term contractual minimum annual guarantees with both cruise and cargo operators, which have historically helped to insulate port revenues from volume and passenger volatility. PortMiami's unrestricted funds remain substantial, providing sufficient liquidity to cover debt service payments and support operations in the near term."

PortMiami benefits from historically stable revenue streams from diversified business lines, according to Fitch.

"The port derives operational benefits from previous and continued capital investments which have increased cargo capacity and cargo flow efficiency," Fitch said.

"Port cargo volumes and cruise passengers have grown positively over the past decade, excluding fiscal 2020, and are resuming growth trajectories post pandemic with the benefit of long-term tenant contracts," Fitch said. "Operations retain exposure to fluctuations in the cruise business and to the competitive port environment in South Florida and the U.S. Southeast."

Moody's Investors Service assigned an A2 rating to the Series 2023 bonds on July 27 and said on Nov. 16 that it was keeping the rating at the same level despite the decrease in the size of the deal.

Co-managers are Loop Capital Markets, Stern Brothers, BofA Securities, Morgan Stanley, PNC Capital Markets, Rice Financial Products Co. and UMB Financial Services.

The financial advisor is HilltopSecurities and the bond counsel are Hogan Lovells and the Law Offices of Steve E. Bullock.

Assured Guaranty Municipal has provided a commitment letter for up to $200 million of the Series 2023 bonds. The county said it will decide whether or not to purchase the policy at the time of pricing.

Earlier this month, Fitch withdrew its previous rating on the deal, citing changes to the transaction it had rated before its summer postponement.

The planned sale of $499.2 million of the Series 2023 bonds, which was expected in late summer, was postponed due to market conditions that raised interest rates. Its size and scope have since been adjusted to accommodate amended agreements between the port and Royal Caribbean.

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"This allows the Miami-Dade County Seaport Department and Royal Caribbean Group to rebalance the agreements related to this transaction," the port said in a statement to The Bond Buyer earlier this month.
 
Last year, PortMiami and Royal Caribbean entered into agreements for construction of the campus as well as for redeveloping Cruise Terminal G and passenger guarantees at Berth 10. These were approved by the Board of County Commissioners.

The campus lease agreement will allow the county to finance construction of improvements for Royal Caribbean, a $600 million project that will be owned by the county.

As part of the amended agreement, the county will finance up to $450 million of the project's costs and Royal Caribbean's annual campus lease payments will increase. The county financing includes a contribution of $15.5 million to the cruise company toward costs of the project, which will be repaid by Royal Caribbean over time.

The amended agreement also includes a county contribution to Royal Caribbean of between $7 million and $10 million starting in fiscal 2027, depending on whether the company hits certain passenger goals.

Additionally, the new Cruise Terminal G agreement was amended to deal with increased costs related to the construction of the terminal and development of Berth 10, which is estimated to cost $425 million.

Royal Caribbean will also use shore power as part of its deal. All the major cruise lines, including Royal Caribbean, agreed in 2021 to bring shore power to cruise ships in PortMiami.

Shore power lets cruise ships hook up to electricity at the port so their engines don't need to operate while the ship is letting passengers off the ship and bringing new ones onboard. This eliminates the air pollution fumes that would have been emitted if the ship's bunker fuel was being used.

With the issuance of the Series 2023 bonds, PortMiami will have outstanding senior and subordinated debt of around $2.3 billion. Since 2012, the county has sold about $2.4 billion of bonds for the port.

The most issuance by the county occurred in 2021 when it offered $1.24 billion of bonds for sale. That sale, which was priced by Wells Fargo Securities, won The Bond Buyer's Deal of the Year award. The financing was the largest port transaction to come to market in the country since the start of the COVID-19 pandemic and the high demand for the bonds highlighted investor confidence in the seaport sector.

In November, voters approved a charter amendment by an almost four-to-one margin which requires voter approval if the County Commissioners want to transfer the ownership or the governing authority of PortMiami, the Miami International Airport or the Miami-Dade Expressway Authority to the state for any reason.