The San Diego County Water Authority on Tuesday secured nearly $18 million in savings on future debt payments for the region’s water ratepayers by refinancing bonds used to build a major pipeline connected to the Claude “Bud” Lewis Carlsbad Desalination Plant.
Savings achieved this week topped earlier projections of $13.6 million through June 2046 on a net present-value basis due to strong demand for the $185 million issuance. Forty-five investors made orders for the bonds that totaled nearly $2 billion. The Water Authority benefitted from having one of the only deals of its kind on the market this week – after waiting for more than a year for market conditions to improve – and ongoing investor interest in the Carlsbad project.
“Not only does the desalination project continue to provide the San Diego region with reliable, high-quality water supplies, but our strong public-private partnership with Poseidon Water is paying off for ratepayers,” said Water Authority Board Chair Jim Madaffer. “High demand for our bonds indicates widespread confidence in the desal project partners and the project’s financial foundation.”
Despite recent market volatility, investors were reassured by the Water Authority’s strong credit, its financial expertise, and its history of successful planning and project execution to provide water supply reliability. The refunding team includes J.P. Morgan Securities LLC as senior manager, RBC Capital Markets as co-senior manager, and Goldman Sachs and Loop Capital as co-managers.
When completed, the sale of California Pollution Control Financing Authority Water Furnishing Revenue Bonds, Series 2019, will refund $185 million in long-term, fixed-rate bonds originally issued in 2012. During the refunding process, project credit ratings were reaffirmed at Baa3 and BBB- by Moody’s Investor Services and Fitch Ratings, respectively.
“Over the past several years, we have strategically reduced expenses to continue providing safe and reliable water supplies at a reasonable cost,” said Maureen Stapleton, general manager of the Water Authority. “By maintaining strong credit ratings, veteran leadership and sound financial practices, we have saved ratepayers tens of millions of dollars in recent years through bond refundings that will reduce the impact of future water rate increases.”
The Carlsbad plant started commercial operations in December 2015, producing more than 40 billion gallons of drinking water during its first three years of operations. The Water Authority is committed to purchasing at least 48,000 acre-feet of water annually from the plant over the 30-year term of the Water Purchase Agreement.
As part of the project, the Water Authority was also responsible for completing a 10-mile pipeline to carry water from the Carlsbad plant to the regional aqueduct system, along with improvements to accept the desalinated water into the aqueduct. The bonds refinanced this week were used to build the pipeline.
The Water Authority is nearing completion of one of the largest capital improvement programs among California urban water agencies, with a $2.45 billion budget and a two-year appropriation of $119 million for fiscal years 2018 and 2019. Payments on debt to finance these capital projects – vital infrastructure such as dams, large-diameter pipelines, a treatment plant and hydropower facilities – also are a significant cost. The Water Authority estimates debt service costs represent $281 million, or 18 percent of its total budget, for fiscal years 2018 and 2019.