BRADENTON, Fla. – For the first time in nearly two decades, booming Orange County, Fla., plans to seek financing for its debt-free water and sewer utility system.
The county will competitively price $84 million of revenue bonds on Wednesday.
The deal affords investors a rare chance to pick up a credit for a system regarded by analysts as well managed, according to county and finance officials.
"Since there has not been a new offering for a long time, and the prior bonds have been paid off, this will give investors and funds focusing on highly rated Florida credits an opportunity to put a name into their portfolios that's currently not available in the market," said financial advisor, David Moore, a managing director at Public Financial Management Inc.
The transaction is expected to be structured with serial maturities between 2018 and 2036, and eight-year call provisions.
Proceeds will largely reimburse the county for prior expenditures, boosting cash reserves for a $685 million, growth-driven capital improvement plan.
The bonds are payable from a first-lien pledge of net revenues of the water and sewer system, excluding connection fees.
Orange County's covenants include the maintenance of rates and fees that will produce net revenues at a minimum of 120% of annual debt service.
The utility primarily serves unincorporated areas, and does not include the county seat of Orlando or Walt Disney World.
However, Orange County's growth – fueled by its stature as the world's top tourist destination and diversifying economy – has reached the point that the water and sewer system needs to expand in existing areas and beyond, said Fred Winterkamp, manager of fiscal and business services.
"We have about 200,000 customer accounts, and it's pretty remarkable for a utility of that size to actually be free of long-term bonded debt," he said. "Because of growth and improvements in the economy of Orange County, we need to do some expansion and renovation."
Although there are outstanding state revolving loans, Winterkamp also said the utility's low debt profile coupled with careful capital planning are strengths that contributed to the system obtaining triple-A ratings.
"This has been a multi-year process to track and draw down reserves while ramping up the capital plan and figuring out how much to borrow," he said, adding that the current offering also enables the county to modernize bond resolutions.
The county has seen rapid growth driven by tourism and professional and business services such as health care and biotechnology. Employment has outpaced the state and nation for nearly six years, according to Fitch Ratings.
The utility's system's prior bonds were paid off in fiscal 2014.
The system has $95 million in outstanding loans from Florida's Clean Water State Revolving Fund, which have a subordinate lien to this week's issue, Fitch said while assigning its AAA rating to this week's deal.
Even though the capital improvement plan is a significant increase over prior years, projects will be funded over the next five years with about $100 million of new debt, after the current sale, in addition to revenues and state loans, according to S&P Global Services, which also assigned its AAA rating.
"According the management, projected debt service coverage will remain extremely strong estimated at roughly 10.3 times and 6.4 times for 2016 and 2017, respectively, even with the added debt, said S&P analyst Scott Garrigan.
Both rating agencies assign stable outlooks.
Nabors, Giblin & Nickerson PA and Ruye H. Hawkins PA are co-bond counsel for Wednesday's borrowing.
Greenburg Traurig PA and Debi V. Rumph are co-disclosure counsel.
