Fitch Affirms Port of Seattle, WA's $312MM LTGOs at 'AAA'

Jan 14, 2013

SAN FRANCISCO — Fitch Ratings takes the following rating action on the Port of Seattle (the port), WA's limited tax general obligation (LTGO) bonds:

--$312 million LTGOs affirmed at 'AAA'.

The Rating Outlook is Stable.

SECURITY

The LTGO bonds are secured by the port's full faith, credit and resources supported by a covenant to levy ad valorem taxes in the port district (King County) as permitted without a vote. The ad valorem tax pledge securing the LTGO bonds is constrained by property tax levy growth of 1% per year, plus new construction.

KEY RATING DRIVERS

RESILIENT ECONOMY: The port is coterminous with King County (ULTGOs rated 'AAA' by Fitch), whose sound economic base is due to its role as a regional employment and economic center, above-average income levels, and steady population growth. Unemployment remains above pre-recession levels, but below the state and national averages.

TAX BASE CONTRACTION: Taxable assessed value (AV) has declined significantly since fiscal 2010, although the rate of decline is projected to slow to a modest 0.9% in fiscal 2013. The tax base remains diverse.

AMPLE TAX LEVY CAPACITY: The port maintains ample capacity to meet its payment obligations (despite the 1% tax levy growth limitation) due to significant 'banked' levy capacity and policies that have limited leveraging.

FAVORABLE DEBT PROFILE: Overall debt ratios are projected to remain low to moderate after including additional debt issuances to finance the port's share of Seattle's Alaska Viaduct replacement project.

HEALTHY FINANCIAL PROFILE: Port finances have historically been healthy and are projected to remain satisfactory through the forecast period ending in 2016.

COMPETITIVE PRESSURES: The port is one of the nation's largest container ports, operating in the extremely competitive West Coast port environment, with shippers continually making adjustments between the various ports and all-water service to the gulf and east coasts.

CREDIT PROFILE

TAX BASE CONTRACTION; AMPLE LEVY CAPACITY

The port's tax base contracted by a cumulative 19.5% from fiscal 2009 through fiscal 2012, and management has budgeted for a modest 0.9% decline in AV in fiscal 2013. Despite the downward tax base pressure, AV per capita remains high and taxpayer concentration is low with the top 10 taxpayers comprising 3.5% of AV in fiscal 2011.

The port's levy (for general purposes and debt service) may be increased by 1% per year plus new construction, and is only limited as to rate for the general portion; this component is well under the limit. The port retains some banked capacity (about $18.5 million) from previous years when it did not raise the levy by the full permitted amount.

Additional financial cushion is provided by management's relatively conservative use of the tax levy and LTGO issuance, maintaining a policy of leveraging no more than 75% of the levy for debt service. For fiscal 2013, the budgeted GO bond debt service is equal to about 55% of the budgeted levy. The remainder is budgeted, as is typical, for non-revenue generating seaport and real estate infrastructure, environmental mitigation, and the regional freight mobility initiative.

Future leveraging is expected, as the port is a partner in Seattle's Alaskan Way Viaduct replacement project and has committed to providing up to an additional $281 million for the project. Most of the cost is expected to be bond funded after the series 2011 (taxable) bonds are repaid in 2015.

RESILIENT ECONOMY

King County benefits from a diverse economy and tax base that encompasses almost 29% of the state's population. The county includes the Pacific Northwest's largest city, Seattle, and serves as a regional economic center. Wealth and income levels are well above national averages, and TAV is high at $161,000 per capita.

King County performed better than many regions nationally in the recent downturn, but its economy continues to face challenges. Employment levels were stagnant during much of 2011, although modest but steady gains in the past year offer encouragement that a recovery is taking hold. The county's unemployment rate of 6.5% (October 2012) compared favorably to state (7.2%) and national (7.5%) averages. Stabilization in home values will likely take much longer, though the county has seen recent improvements in median home prices and home sales.

FAVORABLE DEBT PROFILE

Direct debt levels are modest at a low 0.1% of market value and projected to remain low following the port's anticipated issuance of up to $275 million LTGO bonds in fiscal 2016 for the Alaskan Way Viaduct project. Overall debt is stable at 1.7% of market value and $3,351 per capita.

The port has consistently made its full annually required pension contribution, which was a manageable 2.4% of spending in fiscal 2011 (excluding depreciation).

HEALTHY FINANCIAL PROFILE

The port's overall fiscal strength is evident in its diverse operating revenue stream, which for 2011 was led by the airport ($351 million, or 73%), seaport ($99 million, or 21%) and real estate ($32 million, or 7%) divisions. Management expects to end fiscal 2012 modestly above budget based on unaudited results through the third quarter.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors.

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