BRADENTON, Fla. — DeKalb County, Ga., next week plans to price $380 million of water and sewer revenue bonds in the first of several deals that will finance portions of its $1.34 billion, five-year capital improvement program.
Bond proceeds will fund typical infrastructure improvement and replacement projects as well as those aimed at satisfying a consent decree related to a Clean Water Act settlement with the Environmental Protection Agency.
Next week's new-money deal is expected to have serial and term bonds with final maturity in 30 years. Market conditions will dictate the exact structure, according to Joel Gottlieb, the county's chief financial officer.
The deal will have interest-only payments in the first two years, while the overall structure is designed to produce a level debt service starting in 2014, he said.
The bonds are secured by a junior lien on net revenues of the county's water and sewer enterprise.
Siebert Brandford Shank & Co. is the book-runner of an eight-member syndicate that will price all the bonds on Monday.
The offering could include a refunding component up to $75 million.
The refunding was not in the money as of Wednesday because it did not meet the county's present-value savings target of 3%, Gottlieb said. Any refunding bonds would be sold to achieve debt service savings.
Since pre-sale marketing efforts began for the upcoming transaction, "investor interest has been positive and at a healthy level," he said.
Moody's Investors Service and Standard & Poor's have assigned ratings of Aa3 and A-plus to the junior-lien bonds.
Moody's also downgraded the rating on $567 million of outstanding senior-lien bonds to Aa2 from Aa1 reflecting the system's limited, though adequate, debt service coverage ratio and declining liquidity largely due to future issuances for the CIP, the agency said.
Standard & Poor's rates the senior-lien bonds AA-minus.
In evaluating next week's sale, Standard & Poor's reinstated the county's water and sewer enterprise credit rating, which was withdrawn along with other county ratings earlier this year out of concern for some county financial procedures.
In a report last week, Standard & Poor's said the county rectified various practices and resolved those concerns. County officials said they plan to seek reinstatement of Standard & Poor's other ratings in concert with future offerings.
The agency placed a stable outlook on the water and sewer system ratings.
"The stable outlook reflects our expectation that the system will maintain solid operations and preserve its healthy financial position aided by the county's timely implementation of rate increase as it addresses its significant CIP," said analyst Paula Costa. "The absence of timely and appropriate rate adjustments may place pressure on the system's financial metrics and prompt Standard & Poor's to consider a lower rating."
County commissioners have implemented annual 16% rate increases since 2008. They have already approved 11% annual increases from 2012 through 2014 to fund the debt service on the current and future bond issues, said Moody's analyst Lauren Von Bargen.
The rate increases are "an important factor in the system's current rating level," she added.
Analysts from both agencies said DeKalb's water and sewer enterprise is supported by a large and diverse service area with good income levels, and ample capacity.
"Moody's views the system's financial position as satisfactory, as large rate increases implemented over the last four years and already-approved increases for the next three years are anticipated to maintain debt service coverage ratios at adequate levels," Von Bargen said.
Commissioners have "indicated their commitment to the water and sewerage CIP program to meet the requirements of the consent decree, to improve the system's financial position, and to maintain the operational efficiency of the water and sewer system," Gottlieb said.
DeKalb is part of the Atlanta metropolitan area and has 700,000 residents. It operates one of the largest water and sewer systems in the Southeast with 692,000 customers, and more than 20,000 businesses.
The system has more than 2,600 miles of water lines and more than 2,400 miles of sewer lines.
After more than a year of negotiation, a settlement resulting in the consent decree was reached in December 2010.
Sewer collection system improvements aimed at resolving spills and repairing the county's aging system represent about half of the $1.345 billion CIP, according to Gottlieb.
About $1.04 billion of the CIP will be funded through bond issues currently planned to be sold in the fourth quarters of 2012, 2013, and 2014, he said. The remainder of the CIP will be funded on a pay-as-you-go basis.
Public Financial Management Inc. is the county's financial adviser.
In addition to Siebert, the syndicate consists of Citi, Goldman, Sachs & Co., Jackson Securities, JPMorgan, Loop Capital Markets LLC, Raymond James & Associates Inc., and Wells Fargo Securities.
McKenna Long & Aldridge LLP and the Sparks Firm LLC are co-bond counsel. Greenberg Traurig LLP and Haley & McKee LLC are co-underwriters' counsel.
