The East Bay Municipal Utility District will price $675 million in water system revenue bonds next week in a market that has been shaken by the war against Iran and in a sector that has experienced a heady supply of bond issuance this year.
Lead manager Morgan Stanley and J.P. Morgan, co-senior manager, will price the bonds in two tranches: a $329 million Series 2026A green revenue bond series and a $365 million 2026B revenue refunding bond series. A retail order period on Tuesday will be followed by institutional pricing on Wednesday.
The structure includes maturities from 2027 through 2046 on the serial bonds and term bonds with maturities of 2051 and 2056, subject to market conditions, according to an online investor presentation.
The 103-year old water agency operates water and wastewater systems for 1.4 million residents in San Francisco's East Bay, who have a median household income of $128,000, about $20,000 more than the state average, according to the presentation.
Moody's Ratings assigned its Aaa rating and S&P Global Ratings its AAA rating to the bonds. Moody's also affirmed the Aaa rating on parity revenue debt. Both assigned stable outlooks.
"The Aaa ratings on EBMUD's water system revenue bonds reflects a history of sound financial operations supported by timely rate increases resulting in ample liquidity above 450 days and health debt service coverage above 2 times that consistently exceeded budget projections," Moody's said. "EBMUD has a history of resilience during periods of drought and continues to make progress toward diversifying water supplies and maintains ample storage."
The market experienced a
"The throes of taxable volatility have not been as impactful to munis, but the tax-exempt class has become more of a follower than a leader this month," Kim Olsan, senior fixed income portfolio manager at NewSquare Capital, said in her weekly investor newsletter. "A generic muni index is tracking the losses of the UST and U.S. Aggregate indices, all down 1.3% to 1.5%.
"Short-date munis have been less volatile as the range remains well supported, but bonds due between 2034 and 2043 have been softer (off 1.7%)," she said.
Within the revenue space, water and sewer supply is up an impressive 40%, Olsan said, owing in part to deferred maintenance projects being funded. But the sector's market-tracking 0.7 gain "proves out steady buyer demand that hasn't necessitated concessions," she said.
The district's water supplies are strong with its storage levels at 81% of capacity, according to the presentation, which also said rainfall through March 1 was at 100% of the average.
Its capital improvement program spending through 2030 is roughly $2.9 billion and is dedicated to system improvements, reconstruction and replacement of existing assets to further the district's goals of sustainability and resiliency, according to the presentation. Capital improvement program cash spending from fiscal 2026 through 2030 "represents a 15% increase over the prior five-year CIP."
Water sales revenue increased by $83.7 million up 12.6% in fiscal year 2025 due to a 6.9% increase in billed water consumption and adopted rate increases and system capacity charge revenues increased by $10.6 million, according to the preliminary offering documents. This was balanced by operating expenses rising by $27.1 million in fiscal year 2025, driven by higher raw water, treatment and distribution costs.
Post issuance, EBMUD's water system will have roughly $2.8 billion in total debt outstanding, Moody's said.
