The San Diego County Water Authority today successfully completed bond sales of $86.63 million as part of its strategy to diversify its debt portfolio and reduce the rate volatility and cost of financing vital water supply reliability projects.
The sale, Subordinate Lien Water Revenue Refunding Bonds Series 2011S-1, refinanced $100 million of outstanding variable rate debt with five-year, fixed-rate bonds. The bonds locked in an interest rate of 1.48 percent.
The Water Authority originally planned to price the bonds last week, but moved the sale to today to further market the bonds and take advantage of improving market conditions. More than 30 retail and institutional investors ultimately submitted orders totaling nearly $130 million, meaning demand for the bonds exceeded the available supply by about 50 percent.
“As a result of the investor demand and improved market conditions, we believe the interest rate we secured with today’s sale is 0.10 percent to 0.15 percent lower than what we could have secured last week,” Water Authority Director of Finance Eric Sandler said. “That difference means significant savings for our ratepayers from reduced financing costs for our Capital Improvement Program.”
The Water Authority has one of the largest capital improvement programs among California urban water agencies, with a $3.5 billion budget and a two-year appropriation of $321 million for fiscal years 2012 and 2013. Debt service to finance these capital projects – vital water infrastructure projects such as dams, large-diameter pipelines, a treatment plant, hydropower facilities and more – also is a significant cost. The Water Authority estimates debt service costs represent $280 million, or 20 percent of its total budget, for fiscal years 2012 and 2013.
The Water Authority is restructuring its variable-rate debt portfolio to take advantage of favorable market conditions. In addition, the Water Authority Board of Directors has approved refunding part of its long-term, fixed-rate debt to further reduce debt service costs. The Water Authority plans to issue these long-term refunding bonds late this month.
“The success of today’s sale affirms the Water Authority’s strong credit ratings and the prudent financial management policies put in place by our Board,” Sandler said. “We are confident we can achieve further savings for our ratepayers with our upcoming long-term refunding bond sale.”
The Water Authority holds long-term senior lien credit ratings of AA+, AA+ and Aa2 from Standard and Poor’s, Fitch and Moody’s, respectively. The Water Authority also holds subordinate lien credit ratings from those agencies of AA, AA and Aa3, respectively. (Subordinate lien credit ratings are typically at least one level below senior lien credit ratings.) The Water Authority’s current credit ratings are considered high quality by all standards and are held by only a few select water agencies in California.
The Water Authority is recognized nationally for its sound financial management practices. It has received the Certificate of Achievement for Excellence in Financial Reporting from the Government Finance Officers Association of the United States and Canada for 11 consecutive years. It also received the 2010 Excellence in Budgeting Award from the California Society of Municipal Finance Officers.