Water Authority Executes $94.5 Million Senior Lien Bond Sale

Short Title
Water Authority Executes $94.5 Million Senior Lien Bond Sale
Refunding sale saves $5.2 million, reducing financing costs for water reliability projects

The San Diego County Water Authority this week completed a $94.5 million bond sale that will help reduce the cost of financing vital water supply reliability projects by $5.2 million on a present-value basis over the life of the bonds. 

 The sale is the latest in a series of actions taken to manage risk and reduce the cost of the Water Authority’s debt portfolio for its Capital Improvement Program. In total, the Water Authority’s refunding bond sales since July are expected to reduce financing costs by $18.7 million on a present-value basis over the life of the bonds.

“The savings from these sales is good news for ratepayers, because it reduces the upward pressure on future water rates,” Water Authority Deputy General Manager Sandra Kerl said. 

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.  Payments on debt used 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.

This week’s sale, Water Revenue Refunding Bonds Series 2011B, refunded $98.4 million in long-term, fixed-rate bonds from the Water Authority’s 2002A and 2004A series.  Strong credit ratings, successful ongoing investor outreach and prudent, nimble management efforts helped the Authority achieve a successful sale under volatile market conditions.

The Water Authority originally planned to sell this series of refunding bonds in late August, but deteriorating municipal market conditions at the time eroded the expected amount of savings.  Management delayed the sale and monitored the market daily for a more favorable environment in which the Water Authority could meet or exceed its savings target.  Those conditions emerged this week, and the sale was concluded Wednesday.

In July, the Water Authority successfully completed an $86.63 million subordinate lien bond sale to help restructure its variable-rate debt portfolio to take advantage of favorable market conditions.  It also completed a $139.9 million senior lien bond sale to help reduce financing costs.   

 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.