The city of Philadelphia is expected to sell $71 million of water and wastewater revenue refunding bonds on Wednesday.
Siebert Brandford Shank & Co. LLC is lead underwriter. Ballard Spahr LLP and The Smyler Firm are co-bond counsel.
Proceeds will be used to refund a portion of the city’s outstanding water and wastewater revenue Series 2001 bonds for a net present value savings of around 14%.
The bonds are secured by a pledge of net revenues of the water and sewer system, which include rates and charges of the system, transfers from a rate stabilization fund, and interest earnings.
The water and sewer systems provide “an essential service to a large and diverse service area,” according to Fitch Ratings, which assigned an A-plus rating to the new bonds.
The systems provide service to about 1.7 million and 2.2 million customers, respectively, in the city and suburbs. It obtains about 57% of its water from the Delaware River and the balance from the Schuylkill River.
Credit analysts note that despite the diverse service area covered, the city’s wealth indicators are relatively low.
“The service base’s weak demographic profile reflects below-average incomes, as well as an unemployment rate that is consistently above state and national averages,” Standard & Poor’s analysts said in a report, adding that income indicators are just adequate.
In 2010, unemployment averaged 10.8% and has mostly remained in double digits since 2009.
The rating agency gave the new bonds an A rating, also citing the system’s affordable rates, stable financial performance, and sizable capital improvement plan.
Moody’s Investors Service assigned an A1 rating, citing the system’s high debt load and low coverage ratios, but flexibility in setting rates.
All three agencies assigned a stable outlook to the bonds.
“The outlook reflects our anticipation of continued good operating and financial management, including maintenance of healthy (though possibly reduced) balances in the rate stabilization and residual funds and/or satisfactory coverage,” Moody’s analysts said in a report.
Wednesday’s bonds will have maturities in 2013 and 2014, and 2025 through 2028, with optional early redemption.
