St. Louis Sewer District Borrowing for Capital Program

CHICAGO -- The Metropolitan St. Louis Sewer District will price $150 million of revenue bonds Thursday in its second draw on a $945 million borrowing authorized by voters last year.

JPMorgan is the senior manager with six other firms serving as co-managers. The agency held a retail order period on Wednesday and will price for institutional buyers the remaining bonds on Thursday.

The district first began tapping the new bonding authorization with a $225 million issue in August 2012. The ballot measure was approved in June 2012. The authority is expected to see the district through fiscal 2016.

Projects in line for funding with the new sale were included in the district’s $4.7 billion consent decree with federal environmental authorities that was reached in April 2012.

Projects slated for the bond funding through June 2016 include infrastructure improvements to reduce combined sewer overflows, reduce sanitary sewer overflows, improvements at a wastewater treatment plant, collection systems improvements, and planning and maintenance work, said district spokesman Lance LeComb.

Ahead of the sale, Fitch Ratings affirmed the district’s AA-plus rating, Moody’s Investors Service affirmed its Aa1 rating, and Standard & Poor’s affirmed its AAA rating. The district will have $744 million of senior lien revenue bonds secured by the system’s net revenues after the sale. All three assign a stable outlook to the credit.

“The rating reflects our assessment of the district’s strong and diverse service area economy, covering the City of St. Louis and St. Louis County, and large, diversified customer base,” said Standard & Poor’s analyst Corey Friedman.

MSD’s net wastewater operating revenues, excluding property tax revenues and stormwater service charges, secure the bonds.

Moody’s said its rating reflects the system’s large and diverse service area, its demonstrated willingness and ability to raise rates at regular intervals; declining but still sound debt service coverage, and debt levels that will significantly increase to fund extensive capital improvements.

The district is challenged by debt levels that are expected to double over the next two decades due to planned capital improvements under the consent decree and other regulatory requirements. The substantial rate increase put in place to support the current $1 billion capital program into 2016 “could impair voter support of future needed borrowing requests,” Moody’s warned.

Fitch said total debt coverage of 1.9 times in fiscal 2013 was lower than expected but still adequate to support its rating. Coverage is expected to hover around 1.7 times through 2016.

The district will launch a new rate setting cycle that begins with a commission review in 2015. The commission is charged with reporting back to the district’s board on a recommendation on rates and a new bond referendum.

Approval last year of the consent decree by a federal judge brought to a close a nearly five-year-old lawsuit over clean-water violations. The settlement resolved claims brought against the sewer district in 2007 by federal and state authorities and others, including the Justice Department, the Environmental Protection Agency and environmental groups.

The claims alleged violations of federal clean-water laws for allowing untreated sewage to seep into area waterways and the ground. The litigation resembled action taken by the EPA against other major cities alleging violations of federal clean-water laws.

The Metropolitan St. Louis Sewer District, which began operations in 1956, is the fourth-largest wastewater treatment system in the nation.

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