D.C.-Area Sewer System Deals to Modernize

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WASHINGTON — The Washington Suburban Sanitary District of Maryland expects Tuesday to competitively price $240 million of public improvement bonds to modernize its aging sewer system for 1.8 million customers in Montgomery and Prince George’s counties.

The bonds will be issued in two series of $120 million each. The Series A bonds will mature in one to 10 years and will be priced as tax-exempt bonds. The Series B bonds will mature in 11 to 20 years, and underwriters can submit pricing bids for tax-exempt or Build America Bonds. The issuer will take the less expensive bid.

Venable LLP and McKenzie & Associates are co-bond counsel. Public Advisory Consultants Inc. is the financial adviser.

The bonds are rated AAA by Fitch Ratings. Moody’s Investors Service and Standard & Poor’s had not released their ratings for the bonds at press time Friday. The WSSD’s service area covers a wealthy customer base with unemployment rates lower than the state and national figures, Fitch said in a rating report.

The WSSD, which started in 1918, is undergoing a $2.1 billion capital improvement plan for new construction and renovations.

“We have a large infrastructure out there and it’s aging,” said Thomas C. Traber, chief financial officer for the sewer utility. “We’re seeing the number of breaks increase.”

Water pipe breaks periodically have left customers without water, or have required customers to boil their tap water. But one incident thrust the need for repairs onto the national stage.

Two days before Christmas in 2008, a major water pipe burst under a busy road, subjecting morning rush-hour commuters to tsunami-like conditions. Nine people were rescued by helicopter from below-freezing temperatures in a day-long drama captured live by local news and cable stations.

Now, the WSSD has precautions in place to prevent another torrent. Pipes have been fitted with acoustic, fiber-optic cables that listen for breaks. If sounds of cracking foreshadow a break, the district can preemptively close the pipe. These improvements have been funded with bond proceeds, Traber said.

The housing bust and resulting economic recession have caused financial woes to leach into underground plumbing. Fees collected by the district for sewer connections to new housing construction have been down, Traber said. Additionally, the utility has set aside $6.9 million as a cushion against customers’ delinquencies in paying their water and sewer bills.

However, the WSSD ended fiscal 2010 a $31.6 million increase in operating revenues. Water and sewer pumping volume had increased for the year, and Montgomery and Prince George’s counties approved rate increases, Traber said.

At the end of fiscal 2010, the agency had $1.39 billion of bonds outstanding. This $240 million deal will satisfy the district’s new-money issuance for fiscal 2010, Traber said. He expects the district to issue about $250 million of bonds in fiscal 2012.

The WSSD last issued new-money bonds in September 2009 at a true interest cost of 2.04% to Wachovia NA, now part of Wells Fargo NA. The deal included district’s first issuance of BABs.

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