Florida Wastewater Deal Pitched as Southeast's First Green Bond

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BRADENTON, Fla. — The East Central Regional Wastewater Facilities Operation in Palm Beach County, Fla., plans to bring what could be the Southeast's first "green" offering to market on Tuesday.

The ECR will price $88 million of wastewater treatment facility revenue bonds in its first public offering.

RBC Capital Markets is the book-runner.

Bond proceeds will fund capital projects to upgrade the ECR's facilities that treat biosolids, the nutrient-rich organic materials from the treatment of sewage sludge.

The projects will improve the quality of the biosolids, reduce the volume produced, reduce energy consumption, and generate renewable gases that can generate energy - all benefits that qualify the securities to be issued as green bonds, according to ECR engineers and officials.

"RBC Capital Markets believes that informing potential investors on the environmental sustainability of the ECR's project is beneficial to the ECR and to the development of the green bond market for municipalities as a whole," said RBC director Julie Santamaria.

"To date, most of the investor interest in municipal green bonds has been from individual investors who seek to align their investment choices with their personal values," she said.

In recent years, a number of municipal issuers in northern, western and north-central regions of the country have issued green bonds, but Palm Beach County's ECR is the first in the Southeast to join the movement, according to Santamaria, who said RBC has a designated "Green Bond group" that tracks all such financings.

The ECR's reclamation facility serves a population of 400,000 people, and treats up to 70 million gallons of secondary wastewater daily for residents, businesses and industries in the cities of West Palm Beach, Lake Worth, and Riviera Beach, the town of Palm Beach, and Palm Beach County.

Fitch Ratings and Standard & Poor's both assigned AA-plus ratings. The bonds are secured by ECR's net revenues after operating and maintenance expenses are paid.

The facility's revenues include wastewater flow charges paid by the five members as well as revenues received for deposit into the renewal and replacement fund.

The five members signed an interlocal agreement in 1991 to consolidate operations with the ECR. The agreement expires in 2052, which is after final maturity of the bonds in 2044.

S&P said a factor in its rating is the ability of the ECR board to recalculate budget costs and change the wastewater flow charges among the members, if one member is unable pay its costs.

"We consider this an unlimited step-up, and a positive credit factor," said S&P analyst Scott Garrigan. "Without the step-up, the rating would likely use a weak-link approach to arrive at the rating on ECR's bonds."

Both agencies said their ratings reflect the credit quality of the members, including Palm Beach County, whose utility bonds are rated triple-A by Fitch and S&P. West Palm Beach is the facility's operator.

The ECR has $25 million in outstanding parity debt through loans with JPMorgan.

"ECR policies have resulted in strong cash reserves and a historically limited debt profile," said Fitch analyst Eva Rippeteau. "Net revenues are expected to provide solid ongoing debt service coverage and ample liquidity, enhancing bondholder protection over other wholesale structures that have generally thinner financial margins."

Citi and Raymond James will also be underwriting Tuesday's deal.

Public Financial Management is financial advisor. Greenberg Traurig LLP is bond and disclosure counsel.

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