Fitch Ratings has affirmed the ratings for Port of Oakland, CA's (the port) approximately $667 million of outstanding senior lien revenue bonds at 'A+'. Fitch also upgraded the port's intermediate lien revenue bonds to 'A' from 'A-'. The Rating Outlook for both liens is Stable. RATING RATIONALE The ratings reflect diverse revenues from the port's aviation, maritime, and commercial real estate operations. The ratings are further supported by Oakland International Airport's (the airport) largely origin & destination (O&D) traffic base, cost-center residual airline and rate-making methodology and status as a medium-to-large hub in a competitive market space, coupled with long-term seaport contracts which provide stability for the port's revenue profile and debt service coverage ratio(DSCR). The port's capital improvement plan (CIP) is manageable with no need for additional long-term debt issuance in the next few years. Financial metrics are strong for the senior lien with a 2015 DSCR of 3.28x, and low leverage of 2.61x. The port's peers include the Massachusetts Port Authority (Massport) and the Port of Seattle, which are both consolidated port entities with senior liens rated 'AA'/Stable Outlook. The upgrade of the intermediate bonds reflects the port's progressive deleveraging and historical debt service coverage that has exceeded Fitch's base case expectations. The intermediate bonds' lower rating compared to the senior bond rating reflects the lower coverage, higher leverage, and weaker covenant protections on the intermediate lien. KEY RATING DRIVERS Revenue Risk- Volume: Midrange O&D Traffic Base Exposed to Competition: The port benefits from its sizeable enplanement base and maritime cargo operations within the large, economically diverse, and wealthy San Francisco Bay Area. These strengths are somewhat offset by high dependence on the Pacific Rim for maritime trade, significant competition from nearby airports, and the airport's high concentration in Southwest Airlines. Concentration concerns are somewhat mitigated by the airport's primarily O&D traffic profile. Revenue Risk- Price: Stronger Diverse, Stable Revenue Base: The port benefits from its diverse revenue base, with revenues split fairly evenly between its maritime and aviation divisions. Fitch views positively the revenue stability inherent to the airport's cost-center residual airline and rate-making methodology. Costs per enplanement (CPE) are roughly average for an airport of Oakland's size. Long-term contracts with robust minimum annual guarantees (MAGs) account for a substantial portion of maritime operating revenues, providing downside revenue protection. Debt Structure: Stronger (senior); Midrange (intermediate) Conservative Debt Structure: Both senior- and intermediate-lien port revenue bonds are fixed rate, fully amortizing with no refinancing risk; there is roughly $90 million of commercial paper outstanding, which Fitch does not consider to be a negative for the ratings. All bond reserves are cash funded, except for approximately $36 million funded with a surety policy. Infrastructure Development/Renewal: Midrange Manageable Capital Plan with Possible Future Borrowing: The port's five-year (2017-2021) $498 million CIP is manageable, with over 75% dedicated to aviation-related projects and about 24% for maritime division projects. Approximately $68.6 million is currently expected to be funded in future years with passenger facility charge (PFC)-backed debt, with the remainder funded by a combination of grants, pay-as-you-go PFCs, customer facility charges CFCs, and excess cash flow.  Stronger Senior Financial Metrics: The port's liquidity is solid with fiscal 2015 unrestricted cash of $199 million or 408 days cash on hand (DCOH), low senior leverage at 2.61x, and a robust senior DSCR of 3.28x. The all-in financial metrics are less robust, with leverage at a moderate to high 5.48x, and a materially lower DSCR of 1.63x. Peers: The port's credit profile is weaker than its consolidated peers such as Massport ('AA'/Outlook Stable) and the Port of Seattle ('AA'/Outlook Stable). Massport's higher rating reflects its superior franchise strength as a very large international gateway. The Port of Seattle's higher rating reflects its much larger size and its strong competitive position within the Pacific Northwest, but has higher all-in leverage. RATING SENSITIVITIES Negative- Significant increases in the port's cost profile leading to a demonstrable loss of competitiveness, or notable and sustained declines in ongoing maritime and/or aviation sector revenues, affecting overall financial metrics and causing coverage to consistently fall well below 1.40x.. Positive- Fitch views the rating as unlikely to migrate higher due to the competitive nature of the service area and the expectation that operational and performance metrics are unlikely to improve materially. SUMMARY OF CREDIT The port consists of three business divisions: Aviation, Maritime and Commercial Real Estate (CRE). On the aviation side, enplanements saw strong growth, increasing 8.6% in 2015, and again by 8.1% in fiscal 2016. Management expects fiscal 2017 enplanement growth of 5.3%. Fitch believes that continued regional economic growth will drive enplanement growth at moderate levels moving forward. CPE decreased in fiscal 2015 to $10.48 from $11.22 a year prior due predominantly to higher enplanements. The Port expects CPE to remain in the $11 range, going forward. Fitch views the current CPE level as midrange for the airport's size and traffic profile. Concentration risk remains a concern, with Southwest accounting for nearly 70% of enplanements in fiscal 2015 and 2016, though this risk is partially offset by the high share of O&D traffic (approximately 92% in 2015) using the airport. Fitch views the airport's cost-center residual airline and rate-making methodology positively, as it provides the airport with a strong cost recovery framework. The seaport's cargo traffic, as measured by loaded 20-foot equivalent units (TEUs), fell 6.5% in fiscal 2015. The declines reflect expanding economic activity offset by labor unrest at the start of 2015. Additionally, the seaport lost a major tenant (Outer Harbor Terminal LLC) in early 2016, and expects seaport revenues to further decline 6.2% for fiscal 2016. Although the cargo declines will negatively impact total revenues, long-term contracts with MAGs make up a substantial 80% of maritime revenues, and over 99% of Outer Harbor's cargo was non-discretionary with cargo destined for local Northern California locations, thus providing a material financial mitigant. Management expects to fully recover by 2018. Based on the region's strong and expanding economy, Fitch views the projection as reasonable though susceptible to shifts in the seaport's competitive position among west coast ports, especially for discretionary cargo. The port's consolidated financial performance was steady in fiscal 2015, with the all-in DSCR rising to 1.63x (3.28x for senior lien bonds) from 1.62x the year prior. Net revenues grew somewhat, with revenue growth of 4.2% outpacing expenditure growth of 5.5% (net of depreciation). Unaudited actual financial performance for fiscal 2016 showed deterioration in net revenues, mainly due to maritime revenue losses, and all-in DSCR is expected to fall to 1.54x (3.29x for senior lien bonds). The port expects to issue an aggregate of $68.7 million in short-term, PFC-backed commercial paper for its five-year $498 million capital improvement program. Fitch views the size of the projected issuance as modest and does not anticipate a material effect on the port's credit quality.  Fitch's base case scenario through fiscal 2021 is based on budgetary information and projections provided by the port, which Fitch views as reasonable if slightly conservative. Under these assumptions, total revenues and expenditures grow at modest rates compared to their multi-year averages. Under this scenario the average all-in DSCR is 1.50x (senior coverage 3.18x), CPE remains in the $10 range, and all-in leverage peaks at 5.46x and declines thereafter. Fitch's rating case assumes a hypothetical recessionary scenario with an enplanement decline of 7% in fiscal years 2017, followed by 2% annual recovery thereafter. The scenario also assumes slower revenue growth than the base case scenario and accelerated expenditure growth. Under these assumptions the all-in DSCR falls to an average of 1.36x through 2021, but is balanced by a midrange all-in leverage which peaks at 5.54x in fiscal 2017 and declines thereafter due to principal amortization. CPE jumps to $12.12 in 2019, but falls thereafter. Fitch views the coverage and leverage levels produced under the rating case as consistent with the current rating level.