CHICAGO - The Metropolitan St. Louis Sewer District will seek board approval tomorrow to place a $275 million bond referendum on the August ballot, which officials are promoting as a means to help keep down rate increases needed to fund a multibillion-dollar capital program.
If approved as expected, the district finance team as soon as next month would launch a competitive selection process for underwriters on upcoming financings, according to district treasurer Karl Tyminski.
Underwriters chosen through the request for proposals process would manage a roughly $90 million revenue bond sale planned if voters approve the new bonding authority. Proceeds would go to fund the second phase of projects under a long-term $3.7 billion capital improvement program to expand and rehabilitate the utility's entire wastewater collection and treatment capabilities. The plan calls for upgrades to treatment plants, the construction of new plants, repairs, and new sewer line construction.
If a simple majority of voters approve the referendum on Aug. 5, Tyminski wants to have a team in place and a deal crafted to bring before the board later in August in order to enter the market with the $90 million offering as soon as October. Officials hope to sell voters on the borrowing as the best method for financing ongoing capital projects because it would require significantly lower rate increases than under a pay-as-you-go financing scheme.
The balance of the $275 million would not be sold until after July 2009.
The sewer district also is considering a note transaction ahead of its planned use of Missouri's state revolving fund to issue the $40 million of remaining authority from its last ballot question in 2002 that granted $500 million of borrowing.
The SRF issues in April and October, but the district has a more urgent need for bond proceeds to fund a state-approved plant expansion and renovation project, so Tyminski is looking at a bridge financing as soon as July or August.
"The real issue is timing. We are trying to keep our construction on target," he said. Once the authority is exhausted, the district will have sold nearly half of the $500 million authorization on its own and the other half through the state's revolving fund which subsidizes debt service costs on approved projects.
"We believe the $40 million and the $90 million would see us through fiscal 2009," Tyminski said. The district's fiscal year runs from July 1 through June 30.
The utility has an ongoing contract with Public Financial Management Inc. as its financing adviser but would launch a request for proposals process for bond counsel. The district also may sell about $10 million of leasehold notes to finance a contract it plans to enter into this summer for a new, integrated computer system.
The proposed $90 million deal's structure is not set, but Tyminski envisions that it would mirror the district's previous revenue bond sales that relied on a fixed-rate structure with senior and subordinate pledges. The district has received strong retail participation on its past revenue bonds sales. It has no variable-rate or auction-rate exposure, having issued all of its past debt in a fixed-rate mode.
The commission has proposed a series of rate increases into fiscal 2012 that would result in a 64% increase for residential and business users to finance about $660 million in spending over the next few years. In January, one rate hike took effect but future increases could be cut by more than a half if the bond measure is approved.
The 2004 bond referendum marked the first use of revenue-backed borrowing and launched the district's $3.7 billion capital program. The revenue bonds are secured by a senior lien on its net operating revenues from ratepayers. The bonds have a required coverage ratio of 1.25 times that must be met for future senior-lien issuance.
The debt carries ratings in the double-A category from all three rating agencies. While the coverage ratios are solid, analysts have said the district's challenges include the size of its capital needs and managing such a large program.
The sewer district, established in 1954, serves a customer account base of more than 400,000, with Anheuser-Busch Cos. as its largest user. Eight years ago the district won voter approval for a series of charter changes that paved the way for long-term revenue bond issuance.
The utility had previously sold just a small amount of debt that carried a general obligation security based on taxing capabilities but it has retired all of itsGOs and doesn't plan to use property taxes to secure future debt. With the charter changes in hand, the district went to voters for bonding authority in 2002, but only after a board shake-up that followed an ethics scandal related to the awarding of contracts.
The district has proposed a fiscal 2009 budget for nearly $388 million. It represents a 7% increase in spending over the current budget that runs through June 30. It relies on a rate increase and on voter approval of the bond referendum.