DALLAS — The Arizona Water Infrastructure Finance Authority plans to issue $138 million of revenue bonds next week, but executive director Judy Navarette says that amount could change if conditions become opportune for a refunding component.
The authority will decide on Monday when to issue the bonds and will base its refunding decision on how the market looks, according to Navarette.
“It always depends on the market,” she said.
WIFA issues bonds when it has accumulated enough loans to local utilities, and this will be the authority’s third annual issue, Navarette said.
Morgan Stanley is book-runner on the deal. JPMorgan, Stone & Youngberg, RBC Capital Markets and Ramirez & Co. are co-managers. Piper Jaffray & Co. is WIFA’s financial adviser.
The fixed-rate bonds carry triple-A ratings from all three major credit agencies, boosting their appeal to institutional buyers and the risk averse. Retail buyers in Arizona are expected to find the double tax-exemption attractive.
Bond proceeds will be used to reimburse the authority for funds previously loaned to various entities throughout Arizona for water and sewer infrastructure projects.
The bonds are backed by loan repayments of $992 million to 68 borrowers and by debt-service reserve funds. As additional security, WIFA has pledged to deposit its debt management fees into the loan servicing account if bond account deficiencies arise.
Fitch Ratings considers 63% of all the outstanding and projected pledged loans as investment-grade credits.
“The top 10 borrowers account for approximately 67% of the portfolio loan principal,” noted Fitch analyst Adrienne Booker. “While the concentration levels among the top 10 borrowers are high, individual concentration is relatively moderate for a state revolving fund.”
The largest borrowers are the cities of Lake Havasu with 19% of aggregate pledged loans, Peoria with 11%, and Yuma with 7%. The top five borrowers comprise 49.18% of the aggregate pledged loans outstanding.
Moody’s Investors Service rates the credit strength of the loan pool in the A range. WIFA holds aside loans that, though not pledged, could be used to provide bondholder payments. Loan repayments are made at least 90 days before the debt-service payment date and are held at the treasurer’s office.
“Moody’s expects the program to continue to grow, while maintaining the overall credit quality of the loan pool,” wrote analyst Cristin Wagner.
WIFA enjoys a stable outlook from all three agencies.
“The stable outlook reflects Standard & Poor’s expectation that cash flow generated from the loan portfolio and the reserve fund should sufficiently meet minimal program requirements for a AAA rating,” wrote analyst Lisa Schroeer. “In addition, the stable outlook reflects our expectation of continued strong program management and the stable credit outlook of many of the borrowers.”
