Minnesota Plans $291M Water Deal, Wisconsin Sets $164M

CHICAGO — Minnesota will competitively sell $291 million of water-related state revolving fund bonds Tuesday, followed closely by a $164 million clean water issue from neighboring Wisconsin, as both seek to tap the Build America Bond program ahead of its expiration this year.

Wisconsin plans to follow its clean water  fund sale, which could happen later this week, with two additional sales in the next month featuring BAB pieces. They include $200 million of transportation revenue bonds and $400 million of general obligation bonds. Both offerings would be sold competitively, according to capital finance director Frank Hoadley.

The Minnesota Public Facilities Authority’s sale includes a $200 million series of tax-exempt bonds with maturities through 2026 and a $91 million series of taxable BABs picking up with maturities on the longer end in 2027 and continuing through 2031.

The agency was limited to up to $100 million of BABs under the borrowing authorization approved by its board. It has increased the overall sale by $50 million in recent weeks due to the favorable interest rate environment and its cash flow needs, said executive director Terry Kuhlman.

Public Financial Management Inc. and Springsted Inc. are financial advisers. Briggs and Morgan is bond counsel.

Fitch Ratings, Moody’s Investors Service, and Standard & Poor’s affirmed the revolving fund’s top marks ahead of the sale.

The authority has $445.7 million of senior-lien outstanding clean water revenue bonds, $134.2 million of senior-lien drinking water revenue bonds, and $134.21 million of subordinate SRF bonds. Tuesday’s issue is being sold under the subordinate indenture established this year. The authority will use the proceeds to purchase clean water and drinking water loans.

Debt issued under the subordinate bond indenture established in March is secured by loan repayments and reserves after senior-lien debt service is paid. Under the new indenture, the authority issues bonds for its clean water and drinking water programs under one master resolution. Previously, it issued them under separate resolutions. The new resolution also allows for the issuance of bond anticipation notes. “The indentures were outdated and so we modernized them,” Kuhlman said.

The rating benefits from an over-collateralization due to excess cash flow and reserves and the high credit quality of its loan recipients, which include more than 300 borrowers. The Twin Cities’ Metropolitan Council is the largest.

On Monday, Wisconsin was looking to enter the market with its clean water revenue bonds this week or next. “The deal is ready to go,” Hoadley said, but the state was still awaiting ratings updates and reviewing pricing conditions.

Fitch affirmed its AA-plus rating on the new sale and $854 million of outstanding bonds. Standard & Poor’s rates the bonds AA-plus and Moody’s rates them Aa1, although neither had released new reports. JPMorgan and Ramirez & Co. are the senior managers. PFM is financial adviser and Foley & Lardner LLP is bond counsel.

The deal includes a $53.5 million series of tax-exempt bonds with maturities through 2019 and a $111.8 million BAB series with maturities between 2019 and 2031. That division could shift due to interest rates and where on the yield curve the use of BABs is most economical.

The bonds are payable solely from loan repayments, amounts in the loan funds, and reserves. The Milwaukee Metropolitan Sewerage District and the state are expected to be the sources of approximately 26% and 19%, respectively, of the funds applied to pay debt service on the outstanding bonds.

Proceeds will finance loans to municipalities primarily for construction or improvement of their wastewater treatment facilities, to fund a reserve, and to refund some outstanding debt.

In a report earlier this year, Moody’s wrote the rating reflects the strong credit quality, the size and diversity of the loan pool, and the default tolerance the loan portfolio can withstand.

For reprint and licensing requests for this article, click here.
Wisconsin Minnesota
MORE FROM BOND BUYER