Corpus Christi Gets Upgrade Ahead of Utility Deal

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DALLAS - Corpus Christi, Texas, will price $141 million of fixed and variable-rate bonds for its Mary Rhodes Pipeline project with the benefit of a one-notch upgrade from Standard & Poor's.

The junior-lien utility revenue bonds Corpus Christi is pricing were upgraded to A-plus; Standard & Poor's also boosted its priority-lien utility revenue bonds to AA-minus while also boosting the ratings of other agencies involved in the water pipeline project. The LaVaca-Navidad River Authority saw its ratings rise one notch to AA-minus, while Nueces River Authority earned a similar upgrade.

"We raised the ratings on Corpus Christi's debt based on our expectation that the city's financial capacity is strong enough to support additional debt -- mainly to address anticipated regulatory mandates," said Standard & Poor's credit analyst Theodore Chapman.

"We are very pleased at the upgrade from S&P and appreciate their recognition of our efforts to secure a diversified water supply for the citizens of Corpus Christi while maintaining a strong financial position," said the city's financial director, Constance Sanchez. "We currently have a 10-year capital improvement plan that we plan on implementing utilizing both bond issuances and cash funding, and so the upgrade from S&P will allow us to do so with lower borrowing costs."

The upcoming deal includes $92.5 million of Series A fixed-rate bonds and $48.1 million of short-term variable-rate put bonds, Sanchez said.

Morgan Stanley is senior manager with Coastal Securities Inc., FTN Financial Capital Markets, Siebert Brandford Shank & Co., Inc., Raymond James, and Stephens Inc. as co-managers.

"We are planning on pricing on Wednesday, March 25," Sanchez said. "But this is subject to change because I have been called to federal jury duty on Monday, March 23. The pricing will depend on whether I get selected to be on jury or not."

M.E. Allison & Co., the city's financial advisor for 60 years, is advising on this deal, but the firm could be replaced in future sales as the city is conducting a search.

"They have provided the city with excellent service through the years but since we had never gone through a procurement process for financial advisor, city management decided to do so," Sanchez said. "We should have someone selected by April."

M.E. Allison remains on a list of four finalists led by Estrada Hinojosa & Co. First Southwest Co. also made the list, along with RBC Capital Markets.

Currently, the city has $289.3 million in priority-lien debt and $610.7 million in junior-lien debt, which includes an expected additional issuance later in 2015.

"The city's water supply investments have resulted in a high debt burden," according to Fitch Ratings analyst Kathy Masterson, which rates the upcoming bonds A-plus with a stable outlook after affirming its ratings, including the AA-minus priority lien rating

"The projected use of 100% debt financing to fund capital will further increase leverage," Masterson said.

Proceeds of the bonds will finance Phase 2 of the Mary Rhodes Pipeline, which transports water 42 miles from Lake Texana to customers in the Coastal Bend region of Texas.

The Mary Rhodes Phase 1 Pipeline has been in operation since 1998. Phase 2 has been in planning since 2010 and is expected to be completed this year.

Once the Mary Rhodes Pipeline Phase II is complete, Corpus Christi will have a firm water supply of 240,000 acre-feet, which is over double the average system demand, Sanchez said.

Corpus Christi has made long-term water supply planning and acquisition a priority for decades, Sanchez said.

"As a result, we will be one of very few cities throughout the nation that has secured long-term water rights for our citizens into the future." she said.

Moody's Investors Service affirmed its A1 rating on the junior lien bonds ahead of the deal, as well as its Aa3 priority lien rating.

The ratings incorporate the fact that the city is negotiating with the Environmental Protection Agency on a resolution of deficiencies in its sanitary sewer overflow program, according to Moody's analyst John Grayson Nichols.

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