BRADENTON, Fla. — Atlanta today expects to price $433.4 million of fixed-rate water and sewer revenue refunding bonds in one of the larger deals of its kind in this holiday-shortened week.
Proceeds of the time-sensitive sale led by Goldman, Sachs & Co. will be used to take out Series 2001B and C variable-rate demand obligations now being held as bank bonds and subject to an accelerated payment schedule starting Nov. 1. The 2001B and C debt became bank bonds earlier this year when the liquidity facility was not extended.
Most of the $433.4 million of Series 2009B bonds selling today are expected to be structured as term bonds maturing in 2029, 2034, and 2039 in amounts totaling approximately $357.8 million. The remainder of the debt is expected to be sold as serial bonds maturing between 2010 and 2024, according to the preliminary official statement.
Atlanta has two swaps with UBS AG associated with the 2001 VRDOs. However, they are not being terminated at this time. According to rating agency analysts reviewing today’s deal, terminating the swaps would be cost-prohibitive with the city owing between $80 million and $100 million in termination fees to UBS. Analysts said the city plans to associate a portion of the swaps with currently unhedged Series 2008 bonds and leave the remainder outstanding until they can be terminated in 2010.
Carmen Pigler, the city’s chief of debt and investments, could not be reached for comment.
The 2009B bonds will be insured by Financial Security Assurance Inc., which also insured the bonds being refunded.
Underlying ratings for the 2009 bonds are BBB-plus by Fitch Ratings, Baa1 by Moody’s Investors Service, and A by Standard & Poor’s. Fitch and Moody’s have stable outlooks on their ratings, while Standard & Poor’s outlook is negative outlook.
“The negative outlook reflects Standard & Poor’s view of potential pressures associated with a weak economy and lower consumption, as well as reduced financial flexibility associated with rates that are already high and likely to increase,” analyst John Sugden-Castillo said, noting that the outlook also reflects increased risk associated with the system’s debt profile.
Castillo said coverage and liquidity levels are strong at 1.72 times and 194 unrestricted days’ cash on hand, but the city’s system faces significant operational and capital pressures that are expected to increase in the next three years as the impact of a recent federal court ruling becomes clearer regarding the city’s use of Lake Lanier as a source of drinking water.
Lake Lanier is a federal reservoir and a judge ruled recently that Atlanta, and others that draw water from the lake, must stop using the lake in three years or get permission from Congress to use it as a source of water.
This week’s sale is part of the $4 billion, 12-year Clean Water Atlanta initiative begun in 2003 primarily to comply with two federal consent decrees and two state consent orders to improve water quality throughout the metro Atlanta area.
In September, the city revised the five-year CIP in light of declining revenues and water use, and to mitigate high water and wastewater rates. Originally, the CIP for 2009-2014 was $1.7 billion with $1.2 billion coming from the sale of revenue bonds.
The revised CIP is just over $1 billion and represents a reduction of $613 million, according to the city’s engineering report. The city contemplates issuing approximately $580 million of additional revenue bonds between fiscal 2011 and 2015 to support the CIP.
While Atlanta has some of the highest water and sewer rates among comparable metro areas, the City Council approved a 27.5% rate increase in fiscal 2009 as well as rate increases of 12.5% for 2010, 12.5% in 2011, and 12% in 2012.
Co-financial advisers for the city are First Southwest Co. and Grant & Associates LLC. Others in the syndicate pricing bonds today are Jackson Securities, Morgan Keegan & Co., Raymond James & Associates Inc., Siebert Brandford Shank & Co., SunTrust Robinson Humphrey, Terminus Securities LLC, and Wells Fargo Securities.
McKenna Long & Aldridge LLP and Howell & Associates LLC are co-bond counsel. Greenburg Traurig LLP and Riddle & Schwartz LLC are co-disclosure counsel. Schiff Hardin LLP is underwriters’ counsel.