(The following statement was released by the rating agency)NEW YORK, October 24 (Fitch) Fitch Ratings has assigned an 'A+' rating to $19.3 million of refunding revenue bonds, series 2013 A, issued by the San Diego Unified Port District (the district). In addition, Fitch has affirmed the 'A+' rating on approximately $39.2 million in outstanding revenue bonds, series 2004 A and 2004 B. The Rating Outlook on all bonds is Stable. KEY RATING DRIVERS:Mix of Maritime and Real Estate Assets: The district's assets include real estate holdings in prime tourism/business areas of the city and two niche marine terminals primarily focused on break bulk cargo services. Growth in automobile and specialized equipment handling has been noted. Revenue Risk - Volume:  MidrangeDiverse Sources of Revenue:  The maritime and real estate revenue base is supported by long-term fixed rents and concession revenues. Preliminary results for fiscal 2013 indicate fixed rents totaled 28% of operating revenue while concession revenues accounted for about 40% of operating revenues. Revenue performance declined considerably during the recession, though moderate growth has been seen in recent years and is forecast to continue going forward. Revenue Risk - Price:  MidrangeSound Debt Structure: The district's debt is entirely fixed rate with stable annual debt service requirements. Legal provisions include a 1.25x rate covenant and additional bonds require 1.25x coverage of projected maximum annual debt service. A cash funded debt service reserve fund is maintained. Debt Structure Risk:  StrongLimited Future Capital Needs:  Capital needs in the near term are limited and expected to be funded through excess cash and capital reserves. Management indicates the district's 2014-2018 capital plan will require future cash flows of approximately $3 million thru fiscal 2018. Infrastructure and Renewal:  StrongerStrong Balance Sheet Offsets Overall Constrained Financial Flexibility: Net debt to cash flow available for debt service (CFADS) is cash positive at -2.1x as a result of the strong cash position which also benefits liquidity (346 days cash on hand as of June 2013). Senior debt service coverage levels are sound though all-in debt service coverage is narrower. Operating margins have significantly deteriorated since 2007 as a result of weak economic conditions and cost escalations during the recession, though the district is implementing cost-cutting measures. RATING SENSITIVITIES:--A sustained inability to grow the district's revenue base commensurate with operating cost growth, resulting in reduced debt service coverage levels.--Lower than assumed excess cash to fund a portion of capital improvements that leads to future borrowing and/or an erosion in the district's cash position that materially changes leverage.--Significant deterioration in liquidity, as evidenced by an increasing net debt to CFADS.SECURITY:The bonds are secured by a pledge of net revenues. TRANSACTION SUMMARY:The district intends to issue approximately $19.3 million of series 2013 bonds to refund for debt service savings a portion of the outstanding 2004 series B (Non-AMT) bonds; make a deposit to the 2004/2013 Bond Reserve Fund, if necessary; and finance costs of issuance.  Obligations will be fixed rate with a tenor of 10 years, and will be on parity with the existing 2004 series A and the remaining 2004 series B bonds.  Fiscal 2012 operating revenues declined 0.5% from fiscal 2011 levels, reflecting continued softness in real estate and maritime related revenues. Preliminary fiscal 2013 results indicate that operating revenues grew approximately 4% to $135.9 million primarily due to real estate related concession revenue and storage related maritime revenue.  Fiscal 2012 operating expenses increased approximately 5% from fiscal 2011 primarily due to major maintenance costs and professional services incurred for strategic initiatives. Preliminary fiscal 2013 results indicate that operating expenses grew approximately 2% to $143.5 million.  Declines in real estate and maritime expenses were offset by higher expenses related to the Harbor Police; general and administrative costs; and contracted services with member cities for fire, police, emergency, medical, and life guard services. Preliminary fiscal 2013 net revenues provided senior debt service coverage of 4.9x. Additionally, coverage of senior bonds and the subordinated promissory note with an outstanding balance of $41.3 million to the San Diego County Regional Airport Authority (the authority) totaled 2.4x. Although the promissory note is subordinated, the legal agreement allows the authority to offset debt service from authority lease payments due to the district in the event the district has missed a note payment. Debt service on the promissory note was about $3.7 million in fiscal year 2013 and the related lease payment is approximately $10.9 million. The district is also obligated to make support payments to the city of San Diego of $4.5 million in 2013, and additional city obligations are included in management's forecast. The district's management forecasts a 5% CAGR in pledged revenues and a 2.6% CAGR in expenses for the 2014 - 2018 period.  As a result, debt service coverage of the senior bonds is projected to be 4.7x or higher or 2.1x or higher when the subordinate airport note is included. Under various sensitivity cases, including a scenario where revenue is limited to 2.5% CAGR and expenses increase at 3.2% CAGR, senior coverage remains above 2.7x and 1.3x when including the airport note.  The district's net debt to cash flow available for debt services (CFADS) is cash positive at -2.1x due to the district's considerable liquidity position. However, Fitch notes the presence of additional fixed obligations which are supported through net revenues and may constrain financial flexibility should performance significantly decline.The district's fiscal 2009-2013 capital improvement plan (CIP) was updated in April 2012, with a new fiscal 2014-2018 capital improvement plan being approved in June 2012. As of June 30, 2013, the remaining budget for the two five-year plans above was approximately $66.5 million. Funding will require future cash flows of approximately $3 million through 2018, and the district does not anticipate issuing additional debt for CIP at this time. The district has reserved and designated cash to fund non-grant related capital expenditures in the amount of $44.9 million at the end of June 2013 (vs. $39.4 million last review).  Of this amount, approximately $7.2 million is associated with projects under contract; therefore the District has some flexibility in delaying certain projects.The district was created in 1962 by the California State legislature pursuant to the San Diego Unified Port District Act to manage the San Diego Bay and surrounding waterfront land, operate the airport, and administer the public tidelands through property management. The district's jurisdiction covers the five member cities of San Diego, Chula Vista, Coronado, Imperial Beach and National City. In January 2003, Assembly Bill 93 and Senate Bill 1896 transferred the airport operations to the San Diego County Regional Airport Authority. The district is governed by a seven-member board of commissioners appointed by the city councils of the five member cities. Contact: Primary AnalystZane P. LathamAssociate Director+1-212-908-0621Fitch Ratings, Inc.One State Street PlazaNew York, NY 10004 Secondary AnalystEmma W. GriffithDirector+1-212-908-9124 Committee ChairpersonChad LewisSenior Director+1-212-908-0886 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com.Additional information is available at '
  www.fitchratings.com'.
  Applicable Criteria and Related Research:--'Rating Criteria for Ports' (Oct. 3, 2013).Applicable Criteria and Related Research: Rating Criteria for Ports
  http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=719985
 Additional Disclosure Solicitation Status 
  http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=806038
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