WASHINGTON -- The District of Columbia Water and Sewer Authority is planning to issue $300 million of bonds next month, $100 million of which will be green bonds used to help finance a 25-year project to reduce sewerage overflows into D.C. waterways and flooding.
The $300 million issuance, which is scheduled to close on February 23, will include $200 million of Series 2017B public utility senior lien revenue bonds as well as the $100 million of Series 2017A public utility senior lien revenue bonds (green bonds). The bonds will all be tax-exempt.
The green bond proceeds will be used to help finance the D.C. Clean Rivers Project, a 25-year, $2.8 billion infrastructure plan that will reduce and control sewer overflows into the Anacostia and Potomac Rivers, as well as Rock Creek. They will also be used to reduce flooding in certain areas of the district.
Proceeds from this green bond issue will be deposited into a segregated account and invested in accordance with DC Water's investment policy.
More commonly known as DC Water, the authority will make annual green bond issuances to fund the project through its scheduled completion in 2030.
Calling it a "very significant" portion of its total debt, DC Water chief financial officer Mark Kim said the authority will have $3 billion of debt outstanding after this next issue, roughly 20% of which will consist of green bonds.
What makes the DC Water green bond issuance program unique, Kim said, is that its green bonds are specifically targeted toward one program instead of being allocated to various projects.
"All the other green bond issuers have taken a more portfolio approach, "Kim said. "For DC Water, we've gone the other way. All of our green bond proceeds are being used to fund the Clean Rivers Project."
DC Water chose this project in particular not only because of its environmental implications, but also because of its sheer size and tenor, Kim said.
The DC Clean Rivers Project is scheduled to be fully implemented by 2030 or earlier, and is expected to reduce sewer overflows by roughly 96%.
"We consider ourselves a programmatic issuer of green bonds," Kim said. "We expect to come to the market every year with a tranche of bonds until the project is completed in 2030. There's a long runway of bonds. We're committed to the green program."
This year's scheduled issuance marks DC Water's third green bond offering, which will total $550 million issued since July 2014. The authority has already issued $450 million in green bonds since the Clean Rivers Project was first implemented. The first issue was $350 million in 2014, followed by a $100 million issuance in October 2015.
Moody's Investors Service rated the entire $300 million scheduled issuance as AA1 Stable. Moody's spokesman David Jacobson said it is just the second green assessment for public finance that the credit rating agency has completed.
Moody's assigned a GB1 grade, the highest green bond assessment, to the $100 million Series 2017A Public Utility Senior Lien Revenue Bonds tranche of the total $300 million planned issuance.
It is DC Water's first bond sale since it was upgraded to AAA by Standard and Poor's, and to AA1 by Moody's.
Though it is DC Water's third green bond offering, it is the first to feature a Moody's green bond assessment.
"It is the first time that we've worked with Moody's on the green bond side," Kim said. "We're really happy to receive the highest rating."
DC Water, an independent authority, expects to issue roughly $1.6 billion of debt through 2026, according to Moody's.
The green bond issuance, preliminary and subject to change, is planned as a $100 million term bond with a 35-year final maturity, although there will be earlier mandatory redemption dates. The $200 million of traditional bonds are expected to have a final maturity of 30 years, Kim added.
Goldman and Sachs and Ramirez & Co. are serving as lead underwriters in the issue, and Squire Patton Boggs will be lead bond counsel. Public Financial Management is lead financial advisor, Kim said.
Kim said the bonds will be priced on January 31.
In September, DC Water issued the nation's first Environmental Impact Bond, a $25 million issuance used to fund the initial infrastructure plans of the DC Clean Rivers Project.
