DALLAS - Tarrant Regional Water District, Texas, will take bids on $323.7 million of top-rated revenue bonds for a major pipeline project on Thursday after a strong response from the market on a $202 million deal Tuesday.
Sandra Newby, chief financial officer for the district based in Fort Worth, said Tuesday's winning bid from Bank of America Merrill Lynch provided a true-interest cost of 3.997559%. Yields on 4.25% coupons maturing in 2044 came in at 4.28%, according to Municipal Market Data.
"These are great numbers for a 30-year bond," she said. "There's a good appetite for triple-A paper."
While Tuesday's deal drew six bidders, five had already signed up for the Thursday offer as of Wednesday, Newby said.
The bonds will be used to finance construction of a $2.3 billion pipeline that will carry water from reservoirs in East Texas to Dallas and Fort Worth in North Central Texas.
While Dallas Water Utilities will have capacity in the so-called Integrated Pipeline, TRWD is the debt issuer. Tuesday's issue was for the Dallas share of the pipeline, backed by the city's utility revenues.
By sharing resources, the two utilities estimate they will save about $500 million in capital expenses and reap potentially $1 billion in energy savings over the life of the project.
Upon completion at the end of 2020, the pipeline will extend 150 miles from Lake Palestine to Lake Benbrook with connections to Cedar Creek and Richland-Chambers Reservoirs in North Texas.
The pipeline is expected to deliver 350 million gallons per day of raw water to the systems, which serve more than 5 million people.
TRWD's first $295 million for the project's planning and design came in February 2012.
The district expects to issue $626 million in 2016 with $393 million dedicated for phase two construction of the pipeline.
In conferring its triple-A rating on Tuesday's issue and the bonds coming Thursday, Standard & Poor's noted "weak" debt-service coverage ratios in the bond covenant but added that a debt-service reserve fund equal to a year's coverage boosted liquidity.
"We believe the district will remain highly leveraged," wrote S&P analyst Scott Sagen. "TRWD projections have annual debt service increasing rapidly to $100 million in fiscal 2017 from $66 million in fiscal 2014 due to the aggressive debt issuance every other year."
The ratings agency provided a stable outlook, due to the strong credit characteristics of TRWD's customers.
Moody's Investors Service rated Tuesday's issue Aa1 based on the pledge from City of Dallas Waterworks and Sewer System revenues. The outlook is stable.
