Fitch Downgrades VPA Revenue Bonds

The decline in container volume brought on by the global recession is taking its toll on the credit rating of the Virginia Port Authority, but the revenue drop has not discouraged potential bidders from expressing their interest in bidding on the VPA’s terminal leases.

Fitch Ratings on Thursday downgraded the Virginia Port Authority's $217.4 million outstanding revenue bonds to 'A' from 'A+'. The immediate impact of the Fitch downgrade is likely to make it more expensive for the VPA to issue new revenues bonds. But Fitch said the rating outlook on all of the VPA's outstanding revenue bonds is stable.

The decline in volumes has not had a negative impact on potential bidders for the VPA's container terminals.

CenterPoint Properties Trust made an unsolicited offer on March 30 to buy all of the terminals operated by Virginia International Terminals, the VPA's terminal-operating subsidiary, for $3.5 billion.

Following that offer several other terminal operators have approached the VPA to express their interest in acquiring the operating rights of the state-owned port terminals in Hampton Roads, the port's top official confirmed Thursday.

Jerry A. Bridges, the VPA's executive director, told the local Daily Press that at least five U.S.-based companies have expressed at least a passing interest in submitting proposals to rival CenterPoint’s bid to lease the terminal operations.

CenterPoint’s proposal covers three deep-water general marine cargo terminals, the Virginia Inland Port and the proposed Craney Island Marine Terminal. All of those facilities are now owned or proposed to be owned by the VPA.

CenterPoint offered $2.2 billion to operate the existing facilities in partnership with VPA and another $1.3 billion investment in Craney Island when it is ready.

Fitch said the downgrade to 'A' reflects VPA's weakened financial profile as a result of significant throughput declines in the authority's container volume during year-to-date fiscal 2009 as a result of a worsening global recession.

It said the action also reflects the loss of customers and container volumes driven by increased competition from the new two million TEU capacity terminal opened by A.P. Moller-Maersk in August 2007. The APM facility is adjacent to VPA's Portsmouth Marine Terminal Facility on the Elizabeth River in Portsmouth, Va.

Fitch said that while VPA has been able to secure 10-year contracts with 95 percent of its existing customers (as of April 2009), the new APM terminal substantially increases competition at the Port of Virginia, while reducing VPA's pricing power for future contracts with the shipping lines that call on the port.

Throughput volume in fiscal year 2009 to date has worsened significantly at the Port of Virginia generally, and VIT in particular, as TEUs declined by approximately 10 percent year-on-year at the port and approximately 18 percent at VIT.

The larger throughput reduction at VIT primarily reflects VIT's loss of existing customers, including Maersk Line and Evergreen, to the new APM terminal.

Fitch said that VIT's year-to-date fiscal 2009 revenue is approximately 15 percent below budget as a result. However, VPA has partially mitigated the overall impact of the revenue decline on VIT's operating income by reducing VIT's overall YTD fiscal 2009 operating expenses to approximately 10 percent below budget. Overall, VIT's YTD fiscal 2009 operating income was approximately 29 percent below budget.

Contact Peter T. Leach at pleach@joc.com.