7c Supp 1
Item No. 7c_supp_1 Date: October 28, 2014 2015-2019 Draft Plan of Finance October 28, 2014 Topics Background and Assumptions 2015-2019 Capital Funding Forecasted Debt Service Coverage Finance Activity for 2015 2 Draft Plan of Finance 2015-2019 Each year at the end of the budget process, staff provides a summary five-year Port-wide capital funding plan (The Draft Plan of Finance). The 2015-2019 Plan is based on: CDD & Corporate Division capital improvement plans (CIPs) and operating budgets discussed with the Commission on September 30, 2014. Aviation Division capital improvement plans (CIPs) and operating budget discussed with the Commission on October 7, 2014. Seaport & Real Estate Division capital improvement plans (CIPs) and operating budgets discussed with the Commission on October 14, 2014. 2015 operating budgets are the basis of the 5-yr forecast of operating cash flow available for capital funding. 3 Financial Policies The Plan is developed to adhere to the Port's financial management policies for prudent cash reserves and leverage Operating funds maintain a minimum of 9 months O&M: 6 months operating and maintenance (O&M) expenses in the general fund 10 months O&M expenses in the airport development fund Maximum 75% of tax levy used to pay General Obligation bonds debt service Net income provides Revenue bonds coverage: 1.50x debt service for Seaport debt 1.25x debt service for Airport debt Tax levy is sufficient to fund levy planned levy uses These policies have been in place for 10 years 4 Funding Sources Port capital funding is primarily derived from cash flow generated by business operations Cash flow can pay costs directly or pay debt service for bond funded assets The Draft Plan of Finance includes funding from: Net operating income (after payment of revenue bond debt service) Operating fund balances (above minimum requirement) Existing and future revenue bond proceeds Passenger Facility Charges Grants Tax levy 5 Aviation Capital Funding 2015-2019 The Airport is a self-funding operation 2015-2019 Aviation Funding Sources ($million) Net income 206.4 Operating funds (1) Tax levy 4.5 Grants 171.8 Passenger Facility Charge 183.4 Customer Facility Charge - Existing revenue bond proceeds - Future bond proceeds 1,153.3 TOTAL 1,719.4 Total Aviation CIP 1,719.4 (1) Highline Schools noise insulation 6 Seaport Funding Shortfall Seaport funding shortfall over 5 year period is ~$110 million. Funding shortfall is the result of the competitive pressures in the container terminal business. Specific changes: Reduction of container revenues as a result of the terminal leases amendments effective in 2013 (Most Favored Nations). Reduction of Terminal 5 revenues as a result of its planned shutdown. Increased capital spending forecast associated with the redevelopment of Terminal 5 to accommodate large ships, e.g. EEE class. 7 Seaport Capital Funding 2015-2019 Seaport can fund much of its capital program, but a funding shortfall is forecast 2015-2019 ($million) Seaport Funding Sources Net income 97.9 Operating funds 118.0 Grants 20.6 (1) Tax levy 1.0 Existing revenue bond proceeds 3.7 Future revenue bond proceeds 14.2 TOTAL 255.4 Total Seaport CIP 365.1 Funding Shortfall (109.7) (1) Argo Yard Roadway capital spending (excludes public expense spending by tax levy) 8 Real Estate Capital Funding 2015-2019 Real Estate forecast assumes funding from net income and general fund balance for certain self-sustaining businesses including recreational marinas 2015-2019 ($million) Real Estate Funding Sources Tax levy 47.0 (1) Net Income and General Fund Balance 17.1 (1) ADF Fund Balance 1.5 Existing revenue bond proceeds 0.6 TOTAL 66.2 Total Real Estate CIP 66.2 (1) Includes funding from Seaport & Aviation division operating funds for allocated Pier 69 capital spending 9 Corporate Capital Funding 2015-2019 Primarily technology investments and small capital. Spending is allocated to the operating divisions and cash funded. 2015-2019 ($million) Corporate Funding Sources Airport 33.7 Seaport 7.8 Real Estate 2.2 TOTAL 43.7 Total Corporate CIP 43.7 10 Revenue Bond Debt Service Coverage 2015-2019 Port-Wide Forecast Revenue Bond Debt Service Coverage 7.0 5.90 Income Available/revenue debt service 6.0 5.45 5.10 5.0 4.65 4.15 4.0 3.0 1.54 1.43 1.45 1.42 1.39 2.0 1.0 0.0 2015 2016 2017 2018 2019 First Lien All Revenue Bond Debt 11 Current Bond Ratings Rating Agency A solid capital funding Fitch Moody's S&P plan is critical to the General obligation bonds AAA Aa1 AAA Port's investors, rating First lien revenue bonds AA Aa2 AA- agencies and credit Intermediate lien revenue bonds A+ A1 A+ providers Subordinate lien revenue bonds A A2 A Passenger Facility Charge revenue bonds A A1 A+ Fuel Hydrant Special Facility bonds A2 A- Noted Credit Strengths: Diverse asset and revenue base Airport's market position and enplanement levels Solid coverage and liquidity levels Conservative debt structure Pro-active Port Commission and deep and experienced staff Vibrant and resilient area economy 12 2015 Planned Finance Activity G.O. bonds to fund $120 million of the Port's contribution to the SR99 project due May 1, 2015 Airport bond issue to fund project spending $400 - $500 million First new money issuance since 2010 Monitor existing debt for refunding opportunities 2005 Intermediate Lien Revenue bonds Funded Airport projects Callable in March 2015 and currently show savings Evaluate options for extending and/or replacing letters of credit (LOCs) expiring in 2015/2016 LOCs provide credit and liquidity enhancement for the Port's variable rate debt, resulting in lower cost of capital 13 Appendix: Revenue Bond Coverage Calculation Calculation of coverage on all $ million 2015 Forecast revenue bonds Net Operating Income 220.1 Management tool Adjustments for non-pledged revenues and non-ops (7.6) Not a legal requirement Pledged net revenues 212.5 Operating divisions meet their management coverage Tax Levy available to off-set operating expenses 40.1 Available for debt service 252.6 targets Tax levy after G.O. debt First Lien 60.9 service can legally be used to Intermediate Lien 134.6 pay operating expenses Subordinate Lien 22.5 Total Revenue Bond Debt Service 218.0 regardless of how the levy is actually used PFC & CFC applied to pay debt service (54.1) PFCs and CFCs are used to Net Revenue Bond Debt Service 163.9 pay revenue bond debt Total Revenue Bond Coverage 1.54 service reducing the debt service paid from revenue 14
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