DALLAS - East Baton Rouge Sewerage Commission will fund the next phase of capital projects to reduce sewer overflows with proceeds from an upcoming $165 million revenue bond issue.

The bonds set for negotiated sale during the week of April 20 are part of $940 million of debt the commission expects to issue by 2015 to finance most of the $1.2 billion capital program.

The Louisiana city-parish government must comply with a 2002 consent decree with the federal Environmental Protection Agency for extensive improvements and capacity additions to its aging sewage system by 2015 or face significant fines.

The bonds are supported by two revenue streams, said Richard Leibowitz of Breazeale, Sachse & Wilson LLC, the parish's bond counsel.

"It's a dual credit," he said. "We have the dedicated 0.5% sales tax and the utility's revenues from user fees."

The sales tax was approved by voters in 1988. The tax generated $39.8 million for sewage projects in fiscal 2008, and is expected to bring in $41.9 million in fiscal 2009.

The bonds have ratings of A1 from Moody's Investors Service and AA-minus from Fitch Ratings. Standard & Poor's raised its rating on the commission's debt to AA-minus from A-plus with this issue.

"We are definitely looking for bond insurance," Leibowitz said.

With the sale, the commission will have $360.2 million of outstanding parity debt, including $50 million of bonds supported solely by the sales tax.

Senior underwriter is Merrill Lynch & Co., with Citi as co-senior manager. The underwriting team also includes Morgan Keegan & Co., Stephens Inc., Siebert Brandford Shank & Co. and Jackson Securities LLC.

Government Consultants of Louisiana Inc. is the financial adviser.

The bonds are being issued as long-term, fixed-rate debt.

The parish has a $200 million, forward-starting interest rate swap with Merrill Lynch Capital Markets that could be used for the bond-funded portion of the sewer system capital improvement program, but Leibowitz said the swap would not be called on for this sale.

Net revenues available for debt service, including sales tax revenues, totaled $60 million in fiscal 2008. Aggregate debt service in fiscal 2008 was $22.5 million.

The Sewerage Commission said it intends to increase the user fee by 4% annually to support future debt needs.

The capital improvements program includes rehabilitation of up to five million feet of pipe, capacity improvements to serve the fast-growing Zachary area, and additional treatment capacity.

In addition to the system rehabilitation and upgrading required under the EPA consent decree, the utility is also expanding to serve additional customers.

The population of East Baton Rouge Parish is estimated at 480,000, up from 413,500 before Hurricane Katrina displaced many residents of New Orleans and the coastal region. The parish, which includes the state capital of Baton Rouge, is approximately 80 miles northwest of New Orleans.

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