DALLAS — Irving plans to offer three tranches of debt next week to fund various improvements to city services and possibly refund some water and sewer debt.
The suburb just west of Dallas is offering about $21.2 million of waterworks and sewer system new-lien revenue refunding and improvement bonds Wednesday through a negotiated sale led by RBC Capital Markets. Morgan Keegan & Co., and M.R. Beal & Co. are co-managers. Vinson & Elkins LLP is bond counsel.
The bonds are expected to be insured, according to Chris Janning, senior vice president with First Southwest Co. the city’s financial adviser. The debt, which is structured as serials maturing from 2016 through 2028, is secured by a lien on and pledge of the revenue of the system. About $8.7 million of the debt would be refunding bonds, but Janning said the refunding portion of the sale depends on market conditions.
“It’s authorized and I’d love to get it done, but we may end up dropping the refunding component all together,” he said.
The water and sewer debt comes to market with underlying ratings of Aa2 from Moody’s Investors Service and AA from Standard & Poor’s.
Moody’s said the rating reflect stable financial operations, large reserves, and a “multi-year proactive planning process.” Analysts also said the narrow coverage of debt service balanced by recent actions “taken in light of the unusual weather patterns” that included unusually high levels of rainfall in 2007 are reflected in the rating.
While the city’s population is up about 6% the past five years to 205,600, average daily water usage fell by more than 25% over that period. Nevertheless, changes in the rate structure have increased the total revenue generated by the water system to nearly $21 million last year from $17.5 million in 2003.
Irving used to purchase most of its water from Dallas, but since June 2003 the city has used Lake Chapman as its primary water supply. Irving expects to issue another $13.7 million of new-lien bonds before the end of fiscal 2008.
On Thursday, the city will competitively issue $32.7 million of general obligation bonds and $4 million of combination tax and revenue certificates of obligation. The debt will come to market with triple-A ratings from both Moody’s and Standard & Poor’s, and consequently won’t be insured.
“We spoke to our desk and the CFO [Wednesday] and we expect to have good participation in the sale,” Janning said.
Bond proceeds will finance upgrades to city parks and streets, improvements to a landfill, and expansion of an animal shelter. The majority of funds from the certificates will be used to demolish a hotel that city officials deemed unsafe for habitation.
Standard & Poor’s said the gilt-edged rating reflects the city’s “deep, diversified economic and employment base, conservative and sophisticated financial management policies that include long-range budget and capital plans, strong general fund reserves,” as well as rapid debt amortization and moderate tax rate, which mitigates a high debt burden.
Analysts said the city’s property tax base “has fully recovered from declines in the commercial market from 2001-2003,” and has risen 4.2% to $17.6 billion for fiscal 2008 due to increased multifamily residential and commercial development.
