San Diego County Water Authority priced into a market eager for California paper

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The San Diego County Water Authority’s decision to do a forward delivery on one of two series for a $400 million refunding paid off with the water wholesaler realizing $67.4 million in savings.

The water authority decided to explore what has become a more frequent option used by issuers since tax-exempt advance refundings were eliminated by the 2017 federal tax bill with the aim of realizing greater savings for ratepayers, said Lisa Marie Harris, the water authority’s finance director.

Co-lead managers B of A Securities and Loop Capital Markets priced Wednesday a $283.5 million series and $117.7 million series of water revenue refunding bonds. Orrick Herrington & Sutcliffe LLP is bond counsel. Montague DeRose and Associates LLC and Acacia Financial Group are co-municipal advisors.

“We had a great story and we were able to communicate that to the rating agencies,” said Lisa Harris, finance director for the San Diego County Water Authority.

Harris said she worked closely with disclosure counsel, Lisa Greer Quateman, a Polsinelli senior partner, on the deal, which was more complex than the bond structures typically used by the water authority.

Quateman helped educate the 36-member board about the stucture, including the benefit of using a forward delivery and selling taxables in the current market environment, Harris said.

“We had never done a forward delivery before. We have done plain vanilla, and done advanced refundings,” Harris said. "We have typically done more plain vanilla deals with level debt service, but we were trying to get rate relief for ratepayers amid the pandemic, so they frontloaded the savings into the first three years."

The comparables were showing that the structure could result in savings around $40 million in the weeks before the pricing, Harris said. But a favorable market and robust demand for California paper helped propel the water wholesaler to an additional $27 million in savings.

The authority received affirmed ratings of AA-plus, Aa2 and AAA from Fitch Ratings, Moody's Investors Service and S&P Global Ratings, respectively.

“We had a great story and we were able to communicate that to the rating agencies,” Harris said.

S&P cited the water authority's efforts to increase control over their supply and diversify the source of their supply in affirming the triple-A rating ahead of the sale. SDCWA worked in partnership with Poseidon in 2012 to bring online the largest desalination plant in California.

"Management has also demonstrated an ability to navigate volatile hydrological cycles by adopting rate increases as needed and building prudent financial reserves and storage to mitigate variability," S&P analysts wrote.

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