Charlotte, North Carolina, prices $412.3 million of triple-A rated water and sewer refunding bonds on Thursday.

It's the Queen City's largest deal in three years, according to the lead underwriter.

The proceeds will be used to refund 2008 bonds maturing on or after July 1, 2019, and to prepay a $180 million bond-anticipation note issued in 2015 for various capital projects.

Downtown Charlotte, N.C.
Charlotte, N.C., prices $412.3 million of water and sewer refunding bonds on Thursday.

The bonds are secured by a net pledge of the water and sewer system revenues.

This deal is estimated to save about $2.5 million, and the savings could add new capacity to the system, the City Council was told March 26.

The true interest cost for the bond issue is not to exceed 5%, according to terms of the purchase agreement and the bond resolution.

Fitch Ratings, Moody's Investors Service and S&P Global Ratings assigned triple-A ratings and stable outlooks to the bonds.

Analysts said the ratings reflect the city’s strong management of the water and sewer system, which benefits from its large size and diversity, lack of volatility and regular rate adjustments.

The utility has 280,000 water customers and 256,000 sewer customers in Charlotte and surrounding Mecklenburg County.

“In general, the system remains well positioned to manage current growth through its existing water supply, treatment, and sewer treatment capacity,” said S&P analyst Edward R. McGlade. “Charlotte's combined utility system demonstrates strong financial performance with conservative projections indicating a continuation of such trends.”

At the end of fiscal 2017, S&P said the utility operations yielded “strong” all-in coverage of 1.75 times, excluding the 50% unrestricted fund balance in the surplus fund that is legally available for debt service coverage under the indenture.

Utility officials expect to maintain strong total debt service coverage between 1.66 times and 1.8 times in from fiscal 2018 to 2020, S&P said.

Moody’s said its rating incorporates the system’s ample debt service coverage and liquidity levels of 864 days-cash-on-hand, “as well as a somewhat elevated yet manageable debt ratio” at 40.9%.

The five-year capital improvement plan totals $1.2 billion. Rates are reviewed annually.

DEC Associates Inc. is the financial advisor for the 2018 bonds.

Wells Fargo Securities is the senior underwriter and book-runner. Other firms underwriting the deal are Bank of America Merrill Lynch, J.P. Morgan, and PNC Capital Markets LLC.

Parker Poe Adams & Bernstein LLP is bond counsel.

McGuire Woods LLP is underwriters’ counsel.

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