Fitch Affirms Tri-City Regional Port District, IL's Port Rev Bonds at 'BBB'; Outlook Stable

Fitch Ratings affirms Tri-City Regional Port District, IL's (Tri-City or the port) $280,000 outstanding series 2003A senior revenue bonds at 'BBB'. The Rating Outlook remains Stable. The port also has $1.5 million of debt obligations subordinate to the series 2003 bonds that are not rated by Fitch.

KEY RATING DRIVERS:

LANDLORD FACILITY WITH NARROW CARGO OPERATIONS: The port district mainly operates as a landlord facility with approximately 80% of operating revenues derived from rental and housing income, which helps limit operational risk and provides a stable financial base. Located along the Mississippi river, the port has excellent accessibility to national rail and highway networks but scale of cargo operations is small (3 million tons in fiscal 2013) and faces strong competition from other ports in the inland waterway system.

Revenue Risk- Volume: Weaker

SOME CONCENTRATION RISK: The port's warehouse is 85% occupied with a mix of short- and long-term contracts and several that are accretive in nature. There is some concentration risk, the top five tenants account for approximately 40% of operating revenues. However, the majority of tenants have a long operating history with the port and the newly signed long-term railroad agreement enhances Tri-City's revenue stream.

Revenue Risk- Price: Midrange

MODEST CAPITAL IMPROVEMENT PLAN (CIP): The port's five-year capital plan totals $11 million and is primarily funded with port revenues with additional improvements funded through federal and state grants. Key port assets are viewed to be in good condition. Further, Tri-City anticipates finishing construction of the South Harbor by late 2014. The project is estimated to cost $35 million and be funded by nearly equal split of grants and additional bond issuance.

Infrastructure Replacement & Renewal: Midrange

FINAL PAYMENT ON RATED DEBT: The port has a level-to-declining debt service (DS) profile. There is one final payment left for the rated series 2003A bonds due in July 2014, but there exists the potential for addition debt issuance within the next nine to 12 months. The lack of senior rate covenant is unusual. However the sum sufficient rate covenant of 1.0 times (x) for all debt obligations provides some cushion for the senior debt.

Debt Structure: Midrange

STRONG COVERAGE AND LIQUIDITY: Senior debt service coverage is strong in 2013 at 11.4x and is 6.2x when including all debt obligations. Additionally, the port has a strong liquidity position with $7.3 million of unrestricted cash and investments equivalent to 529 days cash on hand and 645 days when including the maintenance reserve. The port has low leverage with cash flow available for debt service exceeding net debt.

RATING SENSITIVITIES:

--Depressed revenues resulting from exposure to regional and global business cycles and/or loss of key tenants;

--Additional leverage leading to significantly lower coverage ratios.

SECURITY:

The revenue bonds are secured by net revenues of the port system.

CREDIT UPDATE:

In fiscal 2013, the port's operating revenues increased by 17.9% to $8 million. Throughput revenues were greatly enhanced after renegotiating a contract with a railroad company that adjusted rates for rail cars. The agreement will be a continuing source of increased revenues as it extends through 2056. Other contributing factors to revenue growth in fiscal 2013 included significant improvements to the River's Edge housing occupancy rate which increased to 90% from 70% as a result of remodelling and marketing of the apartments. The port is also currently exploring opportunities to expand its boundaries which may potentially improve revenues in the longer term.

The additional revenues generated in fiscal 2013 provided robust coverage ratios of 11.4x for the senior lien and 6.2x when considering all debt obligations. Fitch projects coverage ratios to remain strong for the final principal and interest payment for the series 2003 bonds in July 2014 (fiscal 2015). Under Fitch's sensitivity analysis, the port would be able to maintain sufficient level of financial flexibility even in the event of a loss of a key tenant. The port's rating is supported by strong coverage ratios, high liquidity, and low leverage.

Fitch notes that there have been significant improvements to the port's operating and financial profile. However, Tri-City's currently strong metrics and financial profile may be diluted as the port issues additional debt to support its growth.

Construction of the South Harbor is estimated to cost $35 million and is scheduled to be completed in late 2014. The port has identified about $18.5 million of grant funding. Tri-City is currently considering issuing additional debt of $16.5 million on the senior lien to fund construction. Excluding construction costs for the South Harbor project, the port's five-year capital plan totals approximately $2.0-$2.4 million per year as the key assets are in generally good condition.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Rating Criteria for Infrastructure and Project Finance' (July 12, 2012);

--'Rating Criteria for Ports' (Oct. 3, 2013).

Applicable Criteria and Related Research:

Rating Criteria for Infrastructure and Project Finance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867

Rating Criteria for Ports

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=719985

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=818451

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Fitch Ratings
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Jeffrey Lack
Associate Director
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Fitch Ratings, Inc.
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Emma Griffith
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