AAPA Seaports Advisory

Finance: Hawaii

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Hawaii: S&P Global Ratings Upgrades Harbor System Revenue Bonds

S&P Global Ratings recently raised its long-term rating and underlying rating to 'AA-' from 'A+' with "stable" outlook on revenue bonds issued for the Harbors Division of the Hawaii Department of Transportation. Both agencies are AAPA members.

S&P said its 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."  

Furthermore, it continued: "We also note the division recent formalized its liquidity policy, which requires it to maintain no less than 1,000 days (2.74 years) of operating cash. Despite a large capital plan, management projects that recent and pending approved tariff increases will continue to support very strong debt service coverage (DSC)."

S&P took specific note of the harbor division's:

  • Monopolistic position as Hawaii's sole provider of maritime facilities and services;
  • Dominant business position and importance to Hawaii's economy, as approximately 80 percent of the total volume of goods consumed in Hawaii is imported and roughly 98 percent is processed through the system
  • Recent and frequent tariff increases that have allowed for consistently strong debt service coverage given rising costs, with incremental revenue providing key funding support for the harbor division's capital improvement program (CIP), and recently approved larger tariff increases of 15% to 17% for fiscal years 2017 to 2019 that will also support growing debt service requirements
  • Exceptional liquidity position, with $236 million in unrestricted cash, equal to almost five years of operating expenses, as of audited fiscal 2016
  • 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.

The division oversees a system of 10 harbors on six islands and is a landlord port operator with terminal operators directly hiring stevedoring firms. According to S&P, containers accounted for about 54 percent of cargo tonnage systemwide and 70 percent of the division’s operating revenue. The largest port, Honolulu, supports the economy of the most populous island, Oahu, and functions as a transshipment hub for cargo bound to and from the other islands. In 2015, Honolulu ranked 10th among U.S. container ports with a TEU count of 1.2 million.


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