BRADENTON, Fla. — The Gwinnett County Water and Sewerage Authority in Georgia today plans to competitively sell $271.8 million of rare gilt-edged water and sewer bonds that are enhanced by a double-barreled pledge of system revenues and the county’s full faith and credit.
The transaction is expected to be structured in two series: $247.8 million of Series 2009A tax-exempt new and refunding bonds and $24 million of Series 2009B bonds that may be sold as taxable recovery zone economic development revenue bonds eligible for a 45% federal subsidy.
Bids for the 2009A bonds, maturing between 2010 and 2028, will be received at 11 a.m. Eastern Daylight Time on Ipreo LLC’s Parity bidding platform.
Bids for the 2009B bonds, maturing in 2028 and 2029, will be received at 11:30 a.m. Bids can be structured as recovery zone bonds, tax-exempt bonds, or a combination of both. The authority will select the structure with the lowest true interest cost. If sold as recovery zone bonds, the debt will be subject to extraordinary optional redemption at any time if the federal government reduces or ends the subsidy.
The deal is structured largely to provide level debt service, according to Gwinnett County chief financial officer Aaron Bovos.
“We’ve never had a [water and sewer bond] issue where we had to use the taxing power of the county to pay debt service,” said Bovos said, adding that while the county’s bond covenants require a 1.1 times coverage ratio, Gwinnett maintains a self-imposed minimum ratio of 1.5 times or higher.
“We’re hoping on some great pricing and the structure is one that is well timed for us with a 42-week low in the bond market last week,” Bovos said.
Gwinnett County is about 25 miles northeast of Atlanta.
Proceeds from the fixed-rate 2009A bonds will fund new projects and refund approximately $120 million of Series 2004A and B variable-rate revenue bonds in early November at which time an associated swap with Merrill Lynch Capital Services Inc. will expire.
The 2009B bond proceeds will complete three reclamation projects, including one that will treat sewage to the required standards so that up to 40 million gallons a day can be discharged back into Lake Lanier, from which the county receives all of its water.
The lake is a federal reservoir and a major source of drinking water for the metropolitan Atlanta area as well as an important tributary for fisheries and other users in Georgia, Florida, and Alabama. The three states have been in litigation for years over how the lake should be used.
Bovos said he was unaware of any other reclamation project that would benefit Lake Lanier, and it’s a point that officials recently included in an appeal of a federal judge’s decision in the tri-state water war, which ruled that Gwinnett must stop drawing water from the lake in t three years.
All three major rating agencies rate the water and sewer bonds triple-A and noted that the highest rating is based on the county’s full faith and credit pledge.
“These bonds are expected to be fully supported by net revenues of the enterprise system, which is consistent with historical financial performance,” said Moody’s Investors Service analyst Alicia Stephens. “Our rating is based ultimately on the full faith and credit of the county.”
Fitch Ratings and Standard & Poor’s placed a stable outlook on the authority’s debt, which is based largely on good financial performance. Fitch also said it remained concerned about the dispute over Lake Lanier.
“The ruling gives the county, as well as other interested parties, three years to resolve the matter. As such, Fitch will closely monitor the county’s progress in addressing the court ruling and continue to evaluate the impact on the authority’s and the county’s overall credit profile,” Fitch said.
Public Financial Management Inc. is the financial adviser for today’s offering. King & Spalding LLP is bond counsel and disclosure counsel is Sutherland Asbill & Brennan LLP.
