Florida Water Services Corp. and its parent company, Allete Inc., arepaying for "virtually everything" related to the sale of the water and sewer company, atab that has exceeded $5 million including more than $425,000 for the buyer's expensesso far, according to the executive director of the authority seeking to purchase theutility's assets.
The Florida Water Services Authority plans to issue approximately $510 million ofrevenue bonds to help finance the $420 million purchase of the 156 water and wastewatersystems that Florida Water Services owns in 26 counties, says Ed Gray, the authority'sexecutive director.
However, the proposed deal must first pass the test of a Leon County circuit judge, whowill hear arguments today from the state Public Service Commission about why it isseeking a permanent injunction prohibiting the sale until the PSC can determine if thesale is in the public interest. If the injunction is granted, the PSC plans to holdpublic hearings in July. If the injunction is denied, Gray said final preparations wouldbegin for a sale based on a contract that safeguards the authority.
Gray believes the sale will finally move forward after today.
And if it does, several market experts believe the bonds - which are rated Baa3 byMoody's Investors Service and BBB by Standard & Poor's - will have plenty of takers.
As the former mayor of Gulf Breeze and a commercial banker, Gray has worked on many bondtransactions after helping the panhandle city create separate bond-issuing entities -Gulf Breeze Financial Services in 1985 and Capital Trust Agency in 1999.
Gulf Breeze and nearby Milton created the Florida Water Services Authority last fall tobuy Florida Water Services, the state's largest water and sewer company. The two citieswill share an estimated $2 million a year in fees for their participation in the deal.
"The corporation is paying for virtually everything," Gray said. "When the authority wasset up it had no assets, so part of the deal was to pay for the expenses of doing whatwe have to do."
As of Feb. 5, the authority had spent $425,000 on items including due diligence studies,lawyers to defend it against lawsuits, travel and meeting expenses, and the $1,000 amonth plus expenses in fees that the three authority board members receive.
When a December closing date for the sale had to be postponed, Gray said he renegotiatedportions of the purchase agreement, including a line of credit from the seller, sostart-up costs would not be financed in the bond sale.
The line of credit will be repaid with a floating interest rate based on the prime rateminus 0.5%, he said.
"It's a document I'm quite proud of," Gray said, referring to the current purchaseagreement. "I won't say it leans toward the authority, but it has a lot of safeguards."
For its assets, Florida Water Services Corp. anticipates receiving approximately $420million from bond proceeds at closing, an additional $36.5 million three years afterclosing, and up to $36 million of future customer hookup fees to be paid over the nextsix years.
The authority expects to sell $510 million of revenue bonds. Of that, $420 million wouldgo toward the purchase price, $36.5 million would be for a debt service reserve account,$51 million would go for capital improvements, and a flat $2.5 million would go towardthe authority's share of issuance costs.
Florida Water Services would pay for all other costs of issuance, which Gray estimateswill be at least $10 million.
Salomon Smith Barney Inc. and Morgan Keegan & Co. are the underwriters on the deal. J.P.Morgan Securities Inc. is the financial adviser.
Because the offering will not be insured due to a number of pending lawsuits, FloridaWater Services will place $36.5 million in escrow for the debt service reserve, Grayexplained. When the transaction can be refinanced with insurance or with a surety bond,the money in escrow will be paid to the seller.
Gray said there are a number of areas in the contract in which the authority can makeclaims against the escrow account and the future customer hookup fees.
The authority has also pledged not to increase utility rates for three years, based on aguarantee of revenues provided by Florida Water Services, Gray said.
