Dallas Seeks Savings With Water/Sewer Refunding

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DALLAS – Dallas will carry strong ratings on $579 million of water and sewer refunding bonds that are expected to provide net present value savings of about 7% for the nation’s ninth-largest city.

The $126 million of taxable Series B bonds with final maturity in 2044 will price March 9, while the $453 million of tax-exempt Series A maturing in 2035 will price March 10.

Standard & Poor’s gives the bonds its top rating of AAA, a notch higher than the city’s general obligation rating of AA-plus. Moody’s Investors Service rates the water and sewer bonds Aa1, with a stable outlook.

“While the city is executing a large capital improvement plan, annual rate increases are expected to support additional debt issuance and maintain coverage,” Moody’s analyst Denise Rappmund wrote in a Feb. 27 report.

The negotiated deal is led by book-runner Cabrera Capital Markets with eight co-managers, including co-seniors Morgan Stanley and RBC Capital Markets. Cabrera managing director Ricardo Villasenor is lead banker.

First Southwest Co. and Estrada Hinojosa & Co. are financial advisors.

The law firms of McCall, Parkhurst & Horton and Escamilla & Poneck serve as co-bond counsel.

Dallas Water Utilities serves 292,000 water accounts and provides water on a wholesale basis to 23 local governments in the metro area. Water supply is available from six reservoirs and the Elm Fork of the Trinity River.

With an average daily demand of 369 million gallons, the system is capable of supplying 432 million gallons, according to Moody’s.

“The city's current water supply is estimated to be adequate until about the year 2027,” Rappmund wrote.

To meet growing demand, Dallas is collaborating with the Tarrant Regional Water District on the $2.3 billion pipeline project that will draw water from Lake Palestine in East Texas to the Dallas-Fort Worth area 149 miles away.

Completion of the pipeline is expected to provide adequate supplies for Dallas customers through 2045, according to Moody’s.

The Dallas system also includes wastewater collection and treatment that provides treatment services to 11 local governments in the area. Wastewater infrastructure includes over 4,000 miles of pipe and two treatment plants.

The city is advancing a $350 million capital improvement program designed to reduce the replacement cycle for its pipes and infrastructure from a recent measure of 130 years to 70 years.

Citywide, taxable values have shown three years of improvement, following three years of contraction. During the recession, values declined by almost 10%. Since then, recovery and new construction have driven growth, with taxable values of $93.1 billion in fiscal year 2015.

The city expects to issue about $225 million of bonds in 2016 and $125 million in 2017 for general infrastructure improvements if the tax base grows enough to support the debt. If issued, the new bonds would boost net direct debt to roughly 179% of total governmental revenue, according to Standard & Poor's.

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