CHICAGO - Hamilton County, Ohio, is expected to enter the market today with a $161 million sewer revenue bond deal that includes $115 million of taxable Build America Bonds.

Proceeds from the issue will replenish money the county has already spent on a number of capital projects and fund a reserve account, according to the offering documents.

The sewer district is expected to spend heavily on capital improvements over the next several years as it complies with a consent decree with the U.S. Environmental Protection Agency to update its system to meet federal standards.

Citi is the senior manager on today's transaction, with RBC Capital Markets, Fifth Third Securities Inc., Loop Capital Markets LLC, and PNC Capital Markets LLC also on the team. Peck, Shaffer & Williams LLP is bond counsel, and Public Financial Management Inc. is financial adviser.

The $45.9 million of tax-exempt revenue bonds mature serially through 2019. The $115.4 million of taxable BABs mature from 2020 through 2024, according to bond documents. The county will apply for the federal government's direct-pay 35% interest subsidy on the BABs.

Ahead of the sale, Standard & Poor's upgraded the sewer district's debt to AA-plus from AA, citing strong finances and expectation of future rate increases to finance capital projects. Moody's Investors Service rates the debt Aa3. Both agencies maintain a stable outlook on the debt, which will total $775 million after today's sale. All the district's debt is fixed rate.

The sewer system, operated by the Greater Cincinnati Metropolitan Sewer District, covers just under 300 square miles over four counties in southwestern Ohio.

Its balance sheet has been bolstered over the years by regular rate hikes that are expected to continue, credit analysts said. The Hamilton County Board of Commissioners has already approved 12% rate increases through 2011.

The sewer district is about to embark on a five-year, $921 million capital plan that will include roughly $587 million in new-money revenue bonds. The system is expected to issue $110 million in new revenue bonds next year and $125 million in 2011, according to Moody's.

Many of the projects will address system overflows as required under a consent decree with the EPA.

Like many sewer systems in older cities across the Midwest, the Greater Cincinnati MSD contains both combined sewers - which convey sanitary wastewater and storm water - and sanitary sewers, which carry only sanitary wastewater. Most municipalities with combined sewers are developing long-term overflow plans to comply with a 1994 EPA order to eliminate combined sewer overflow.

About 40% of the MSD's collection system is combined sewers, according to bond documents. The cost of updating the system is estimated at around $3.4 billion and will be tackled by the district in two phases. The first phase is expected to cost $1.4 billion through 2018. The second, estimated to cost $2 billion, currently has no deadline.

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