Revenue bond rating raised based on tariff increase history, coverage, and liquidity
HONOLULU — The Hawaii Department of Transportation (HDOT) Harbors Division received notification that S&P Global Ratings raised its long-term rating and underlying rating (SPUR) to ‘AA-‘ from ‘A+’ on Hawaii’s harbor system revenue bonds issued for Hawaii Harbor Division. According to S&P Global Ratings credit analyst Paul Dyson, “The rating action reflects our view of the harbor division’s historical willingness to make ample tariff increases to support rising operating costs, debt service, and capital needs, and the division’s maintenance of very strong coverage and exceptional liquidity in recent years.”
“This upgraded rating means that the state is able to get more buying power from our dollars through lower interest rates, and I commend Transportation Director Ford Fuchigami, our Harbors Deputy Director Darrell Young and their staff for having the determination to see this through,” stated Gov. David Ige.
HDOT Harbors Division’s upgraded ‘AA-‘ credit rating is the result of strategic financial decisions by HDOT Harbors Division, including the raising of wharfage fees and refinancing $91,235,000 through Bank of America and its affiliates in December, thus lowering debt costs by almost $2 million a year for outstanding revenue bond debt for series 2004, 2006 and a portion of series 2007 bonds.
Standard & Poor’s (S&P) attached a “stable” outlook to the SPUR upgrade, indicating secure future economic and financial trends for harbor system revenue. The stable outlook reflects anticipation that upcoming port expansions and maintenance requirements will be prioritized and undertaken as funds become available and through adoption of policy management will maintain a cash balance reflecting 1,000 days of operating expenses.
The upgraded rating also reflects a positive view of HDOT Harbors Division’s actions, including:
• Recent and frequent tariff increases that have allowed for consistently strong debt service coverage given rising costs, with incremental revenue providing key funding support to fund the harbor division’s capital improvement program (CIP) through a combination of cash and debt. The recently approved larger tariff increases of 15% to 17% for fiscal years 2017 to 2019 supports the financing strategy of funding needed improvements while minimizing debt service requirements;
• Exceptional liquidity position in unrestricted cash, equal to almost five years of operating expenses, as of audited fiscal 2016; and
• Strong all-in DSC in audited fiscal 2016 of 2.42x that includes both revenue bond debt and the system’s share of state-issued general obligation (GO) bonds, projected at a range of 2.2x to 2.8x for fiscal years 2017 to 2020.
“Achievements like these are a result of solid planning, hard work and decisive leadership,” explained Ford Fuchigami, Hawaii Department of Transportation Director. “Governor Ige has been the biggest supporter in helping us serve the people of Hawaii. S&P’s announcement will give our staff the additional tools to continue important projects like the Kapalama Container Terminal which is vital to Hawaii’s economy and our way of life.”
The Kapalama Container Terminal (KCT) is the centerpiece of the Harbor Modernization Plan resulting from the approval of Act 200 (2008) and is necessary to maintain the vital, just-in-time shipping logistics necessary to sustain our island State. More than 80 percent of all goods consumed by Hawaii residents and its visitors are imported to the islands, and of that, more than 98.6 percent flows through the Port Hawaii commercial harbor system.
“I would like to commend Governor Ige and Director Fuchigami for their efforts in ensuring the future success of our state by supporting vital infrastructure projects like the Kapalama Container Terminal,” said Gary North, Executive Director of the Hawaii Harbors Users Group. “We have been supporting this project since 2006, we backed the legislation and got it signed into law in 2008 but it took the leadership of Governor Ige, Director Fuchigami and Deputy Director Young to make it happen.”
The Harbor Modernization Plan initiative has been championed by the Hawaii Harbors Users Group and supported by the Legislature since 2008. It identified key improvements designed to expand harbor system capacity, address advancements in containerized cargo handling, alleviate congestion issues and the lack of available operational space and to develop more adaptable and resilient port facilities.
“It has been through innovative ideas like the Road No. 2 Freight Bypass Road, safety improvements and energy savings initiatives through high mast lighting projects statewide that have created energy enhancement opportunities and operational efficiencies that have been the hallmark of this administration,” stated Glenn Hong, President of the Hawaii Harbors Users Group. “We are very appreciative of the efforts of Governor Ige, Director Fuchigami and Deputy Director Young in bringing these projects to fruition.”
The HDOT Harbors Division has also created greater operational efficiencies including:
• Construction of internal roadways at Harbors.
• Guaranteed energy savings of $1.6 million through high mast lighting projects and other initiatives.
• Re-financing $91,235,000 in debt through Bank of America and its affiliates in early December, which resulted in $2 million in annual savings for its outstanding revenue bond debt for series 2004, 2006 and a portion of series 2007 bonds.
• Phase I construction bid released for KCT.
• Dedicated newly constructed piers and upgraded facilities at Piers 12 and 15 that relocated the Clean Islands Council (CIC) and Marine Spill Response Corporation (MSRC) vessels.
• Blessing and key ceremony to formally convey the newly renovated Pier 35 facility to the UH School of Ocean and Earth Science and Technology (UH SOEST) on March 30, 2016.
• Celebrated the Pier 4 Project at Hilo Harbor with a groundbreaking and dedication/blessing ceremony. The project consists of multiple phases: dredging and construction of the Pier 4 Inter-Island Cargo Terminal, construction of the Inter-Island Cargo Terminal Facility–Container Yard, and Kumau Street Entrance Improvements. HDOT will begin work on the final phase of the project, the Pier 4 Inter-Island Cargo Terminal. This phase involves the creation of a 602 linear foot reinforced concrete pier with associated site work that will be located to the west of the existing Pier 3.
• Web-based vessel scheduling system Hawaii.PortCall.com that went live on January 1, 2016.
• Completion of the Kawaihae Harbor Pier 2 Terminal Improvements Project. The new improvements resurfaced 3.1 acres of cargo yard area at Pier 2, relocated the Harbors Division Office/Maintenance Facility and comfort station structures and made infrastructure improvements to lighting, fire-protection and drainage at an approximate construction cost of $7 million in state funds.
In addition to last week’s upgraded HDOT Harbors Division bond rating, HDOT Airports Division experienced significant upgrades in 2016. Airports Division’s bond ratings were upgraded by Moody’s Investors Service (A2 to A1 with a stable outlook) and by S&P (A to A+ with a stable outlook). Fitch Ratings maintained the Division’s A rating and improved the bond outlook from stable to positive in November 2015.
HDOT Highways Division recently sold $204.485 million in Highway Revenue Bonds at the lowest interest rate in the history of the State’s Highway Revenue Bond Program at under 2.24 percent. Highways Division bonds are currently rated AA, Aa2 and AA+ by Fitch, Moody’s and S&P respectively.
HDOT will continue to pursue operational efficiencies across all divisions in order to maximize investment in the State’s infrastructure as directed by Governor Ige.
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