West Harris County Water Agency Sells $64M to Comply With State Mandate

DALLAS — The West Harris County Regional Water Authority completed the sale of $63.7 million of water system revenue bonds yesterday to fund acquisition of surface water from Houston and extensions to transmission lines, pumping, storage, and water-well facilities.

Morgan Keegan & Co. led the negotiated sale. The underwriting syndicate included Southwest Securities Inc., Citi, the GMS Group LLC, Coastal Securities Inc., and Wells Fargo Brokerage Services LLC.

Yields on the bonds ranged from 1.90% with a 4% coupon in 2012 to 4.84% with a 5% coupon in 2035. The bonds are callable at par in 2019.

RBC Capital Markets and First Southwest Co. are co-financial advisers to the issuer. Allen Boone Humphries Robinson LLP is bond counsel.

Standard & Poor’s rated the bonds A and Fitch Ratings assigned an A-minus.

Moody’s Investors Service assigned its A3 rating and affirmed the rating on $306 million of outstanding parity debt, including this issue.

Moody’s said the rating reflects the authority’s “importance within a large and growing service area, adequate legal requirements, and satisfactory debt service coverage.”

Standard & Poor’s cited a “sufficient financial and operating history, buoyed by management’s willingness to adjust rates as necessary.” The authority has adjusted rates each year since the authority’s inception with continued annual adjustments planned for at least the next five years, according to analysts.

Formed in 2001, the authority oversees a 226-square-mile area that provides surface water to more than 100 retail water systems, mostly small utility districts and the rapidly growing suburb of Katy. The service area’s current population is more than 300,000 and projections show a population of nearly 350,000 by next year. The population of Katy, which is 30 miles west of downtown Houston, is about 17,500, representing a nearly 50% increase from 2000.

The authority was formed to help the water utilities in the area meet a mandate from the Harris Galveston Subsidence District that calls for reductions in the percentage of groundwater production by the water providers.

The requirement forces utilities to convert to surface water sources through a reduction in groundwater production of 30% by next year, 70% by 2020, and 80% by 2030. If the mandate isn’t met, the entity would be fined $3.50 per 1,000 gallons of water used, according to analysts.

Moody’s analysts said officials anticipate meeting the 2010 conversion deadline in the next few months. The authority has $700 million in capital needs to meet the 2020 mandate and plans to begin issuing more debt in 2015 to fund those needs, according to analysts.

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