The New York City Municipal Water Finance Authority expects to issue $450 million of new bonds Tuesday.
The fixed-rate tax-exempts are second-resolution bonds, payable from and secured by a subordinate lien on the authority’s revenues, which are from water and sewer users.
First-resolution bonds are secured by a first lien on these revenues.
In Monday’s retail order period, bonds in a 2039 split maturity were offered, yielding 4.20% with 4.125% and 5% coupons.
Term bonds maturing in 2044 were not offered to retail investors. The bonds are callable at par in 2021.
“The authorities’ projects tend to have long useful lives, so a lot of the authorities’ borrowing is long,” said Raymond Orlando, the authority’s director of investor relations.
Standard & Poor’s gave the bonds a long-term AA-plus with a stable outlook. Fitch Ratings has also rated them AA-plus. Moody’s Investors Service rates the long-term debt Aa2.
Large mutual funds and insurance companies are the expected buyers of the bonds, Orlando said.
Barclays Capital is book-running senior manager on the transaction.
Jefferies & Co., Morgan Keegan, M.R. Beal & Co., and Ramirez & Co. are co-senior managers.
Lamont Financial Services Corp., Drexel Hamilton LLC, and Acacia Financial Group are financial advisors.
Orrick, Herrington & Sutcliffe LLP is bond counsel.
Each day, the authority provides more than 1 billion gallons of water to 9 million customers, according to the New York Department of Environmental Protection.
Of these customers, 8.2 million are in New York City and the rest are in Westchester, Putnam, Orange, and Ulster counties, according to the authority.
The water is transported up to 125 miles from the New York City Watershed to the city and its suburbs.
The New York City Water Board sets water and sewer rates so that revenues cover the system’s operating and financing costs.
These rates have been going up for a long time. The rates had double-digit percentage increases for four consecutive years up to fiscal 2011, according to Fitch. Rates went up by 7.5% in fiscal 2012.
In this fiscal year, the average owner of a single-family home pays $878 annually for water, said Thomas Paolicelli, executive director of the authority.
This is slightly lower than the average charge for the 30 largest cities in the United States, he said.
The bond proceeds will fund a variety of capital improvements to the water system, he said.
The rating agencies gave similar reasons for their positive rating of the bonds.
Standard & Poor’s pointed to legal and structural protections, including the board’s ability to raise rates and segregation of funds; the systems’ large and diverse credit base, good financial profile, and strong management; and the board’s demonstrated willingness to raise rates when needed.
Fitch said the key factors for its rating were the authority’s “unique legal structure, including its status as a bankruptcy-remote issuer.”
Other factors are: the authority collects revenues to pay debt service on bonds before they are available for operations and maintenance; the authority provides an essential service to a large and diverse area and has a high-quality water supply exempt from expensive filtration requirements; a sophisticated capital planning effort; sole rate-setting authority; high debt levels with needs for substantial additional borrowing over the medium term; and below-average collection rates for bills, though this has improved in recent years.
Moody’s referred to bankruptcy protection and legal separation from the New York City fiscal condition; a long history of rate increases to maintain financial stability; moderate water rates; challenges due to the age and density of the system; the challenge of possible large rate increases in the near future to finance capital spending; and state and federal mandates that may require increased capital spending in the near future.
The authority has $8.8 billion of outstanding first general resolution revenue bonds and $18.2 billion of second general resolution bonds outstanding, according to the authority.
Fitch rates all of this debt AA-plus. In addition, the authority has $800 million of commercial paper outstanding.
