Texas port bonds to price in wake of hurricane

Bonds

Hurricane Beryl’s battering of parts of Texas is not deterring next week’s bond pricing for Galveston Wharves.

The port said the $160 million revenue bond sale will proceed on Tuesday despite an operational interruption caused by the once-Category 5 storm that ravaged the Caribbean and made landfall Monday 100 miles south of Galveston in Matagorda as a Category 1 hurricane.

The number of cruise passengers at Port of Galveston, which fell from 1.09 million in 2019 to just 225,643 in 2020 due to the COVID-19 pandemic, reached a record 1.49 million in 2023.

Galveston Wharves/Robert Mihovil

“It shows how strong and resilient our port is that a day after the Category 1 hurricane buffeted the region, a Royal Caribbean cruise ship sailed from Galveston,” Rodger Rees, Galveston Wharves port director and CEO, said in a statement.

North America’s fourth-largest cruise ship passenger port experienced relatively minor damage and some power outages, according to Rees. Galveston Wharves expects other cruise and cargo activities to resume by Thursday, pending hydrographic surveys confirming adequate channel and berth depths.

Ahead of the sale by the city of Galveston, S&P Global Ratings upgraded the rating on the wharves and terminal first lien revenue bonds to A from A-minus with a stable outlook.

“The upgrade reflects our view of the increasing revenues from cruise activity and associated parking revenues from investments made at the port, which we expect will sustain improved financial metrics,” S&P analyst Ken Biddison said in a statement.

Fitch Ratings revised the outlook on its A-minus rating to positive from stable, citing “significant revenue growth, aided by contractual terms with leading cruise lines, following the full resumption of cruise activity in 2023.”

The number of cruise passengers at the Port of Galveston, which fell from 1.09 million in 2019 to just 225,643 in 2020 due to the COVID-19 pandemic, reached a record 1.49 million in 2023. The deep-water port serves five cruise lines, with a sixth — MSC Cruises — scheduled to come on board in November 2025. 

The bonds are secured by the port’s net revenue raised from its cruise, commercial, and cargo operations, which totaled $29.8 million in 2023. Cruise-related activity, including parking and other fees and charges, accounted for 72.1% of the port’s $67.54 million operating revenue last year. At the end of fiscal 2023, the port had about $69.5 million of outstanding debt, according to S&P.

Proceeds from the bond issue, led by Piper Sandler and Hilltop Securities, will finance a cruise complex at Pier 16, including a terminal, parking garage and other improvements.

The deal’s $111.52 million of Series A bonds, subject to the alternative minimum tax, and $48.47 million of Series B non-AMT bonds are structured with serial maturities between 2026 and 2044, according to the preliminary official statement.

Co-managers in the deal are Robert W. Baird & Co, Raymond James, and Siebert Williams Shank & Co. Bracewell is the bond counsel and Huntington Capital Markets and RBC Capital Markets are co-municipal advisors.   

Hurricane Beryl’s strong winds and rain led to widespread power outages and flooding in the Houston area. President Joe Biden on Tuesday granted the state’s request for a major disaster declaration, which allows reimbursement for up to 75% of costs associated with expenses for debris management and emergency protective measures, according to Gov. Greg Abbott. 

The storm “underlines the area’s susceptibility to economic repercussions from hurricane-related surge, flooding, and wind damage,” according to Moody’s Ratings analyst Nick Samuels. 

“Over a third of Texas’s GDP is at high risk from hurricane damage, with Harris County (22% of state GDP) being particularly vulnerable,” he said in a statement.

An updated 2024 seasonal forecast released Tuesday by Colorado State University’s Tropical Weather and Climate Research Group showed 25 named storms in the Atlantic basin, up from 23 in an April forecast, and increased the number of hurricanes to 12 from 11, with six categorized as major. 

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