BRADENTON, Fla. — The Birmingham, Ala., Water Works Board on Monday will take orders from retail investors for $133.9 million of senior revenue bonds.
Book-runner Morgan Keegan & Co. will complete the sale of the 30-year bonds Tuesday with institutional investors.
The offering is expected to be structured with serial and term bonds. It is being brought to market a bit earlier than originally planned due to fears that Jefferson County’s financial crisis could force it to file for bankruptcy at some point in the future. Birmingham is the county seat.
The proceeds from the sale will be used to fund the Water Works Board’s capital improvement plan and make a cash deposit into the debt-service reserve fund, according to Matt Adams at Morgan Keegan.
One thing different about this sale is that underwriters are devoting a full day to retail investors as opposed to holding a priority order period during a single-day sale, he said.
“We just really want to provide plenty of opportunity for retail investors to take a look at the board’s bonds,” Adams said. “We will have maturities all across the yield curve so we feel that bodes well for retail investment. Some [investors] will want to go long and pick up more yield and some will still want to stay short.”
Adams said he expects to have a “robust” response from retail investors and “strong institutional demand,” which he attributed partly to recent rating upgrades.
Moody’s Investors Service boosted the board’s senior-lien revenue bonds to Aa2 from Aa3 while Standard & Poor’s assigned a AA-minus rating.
Moody’s also upgraded the subordinate bonds to Aa3 from A1. The board has $792.23 million of outstanding senior-lien revenue bonds and $393.88 million of subordinate bonds.
The upgrade was good news for a community battered by recent devastating tornadoes, and living with constant reminders about Jefferson County’s financial problems, said Matthew Arrington, assistant vice president with Sterne Agee & Leach Inc., the board’s financial adviser.
“It was good to read the paper and see something good for a change,” he said. “The upgrades will save ratepayers millions of dollars, and they show how well the system is run.”
Water system revenues exceeded the budget by an estimated $7 million and expenditures were under budget by around $5 million, according to unaudited results for the fiscal year ended Dec. 31, Moody’s said.
Net income is projected to be $7.58 million due primarily to a 12% increase in water sales over 2009.
Unaudited maximum-annual debt service on senior-lien bonds was 2.16 times in fiscal 2010 and 1.22 times on both senior- and subordinate-lien bonds. The system’s reserves improved by an estimated $15.19 million, or 70.22%.
“Annual rate increases, including a 13.2% increase in 2009, 6.9% increase in 2010, and a 6.9% increase in 2011, have allowed the board to improve its financial position,” Moody’s said.
The Birmingham water system serves 600,000 people in Jefferson, Shelby, Blount, St. Clair, and Walker counties and covers 759 square miles. No sewer service is provided. The board only collects revenues for Jefferson County’s sewer system, which is in default on billions of dollars in debt.
A lengthy discussion about Jefferson County is included in bond documents for this week’s sale, as it has been for several years, Adams said.
The information was included after rating agency analysts raised questions about how Jefferson County’s fiscal circumstances might affect the board or its customers. It also is included to explain the situation to potential investors, and to stress that the board is a completely different entity from the county, Arrington said.
Other underwriters selling the bonds this week are Gardnyr Michael Capital Inc., Raymond James & Associates Inc., and Terminus Securities LLC. Waldrep, Stewart & Kendrick LLC is bond counsel.
