CHICAGO - The Iowa Finance Authority Wednesday prices $323 million of new-money and refunding state revolving fund bonds that will carry a "green" designation.
The Iowa Finance Authority, which manages borrowing for the state revolving fund, will refund about $200 million in existing debt with the remainder of the transaction raising new money, said Lori Beary, the authority's SRF program coordinator.
JPMorgan is running the books on the sale with three other underwriters on the deal. Public Financial Management Inc. is advising the authority. Dorsey & Whitney LLP is bond counsel.
The program provides low-cost loans to municipalities to upgrade drinking water and wastewater infrastructure. The program has served more than 500 local municipalities through $2.4 billion in financing.
"The bonds will be designated as 'Green Bonds' based on the fact that the proceeds of the bonds will be used to finance projects that adhere to the federal Clean Water Act and Safe Drinking Water Act," the authority said in a statement.
The authority's past revolving fund issuance qualified under the "green" criteria, but the authority is hoping the growing popularity of the designation and the marketing of the bonds as such will help generate more demand and increase the paper's universe of buyers.
As part of the green designation, the authority is "explaining in more detail the actual projects being funded with the loans," Beary said. That new information is in addition to details provided on the borrower.
The bonds are secured by loan principal and interest amounts pledged under bond documents, account investment earnings, and money in a pledged equity fund. Ahead of the sale, rating agencies affirmed the program's triple-A marks. The ratings impact about $877 million of debt.
"The Aaa rating reflects the program's high default tolerance and the credit quality of the underlying borrowers, Moody's Investors Service said.
Fitch Ratings said its cash flow modeling "demonstrates that the SRF program can continue to pay bond debt service even if there were loan defaults in excess" of its top-rated liability default hurdle.
More than 60% of the program's 445 participants are assumed to be small and are not rated by Fitch, but loan provisions are strong with virtually all loan principal secured by senior lien water, sewer, or general obligation pledges, or some combination of the three.
The program is strengthened by cross-collateralization features that allow for the use of excess funds from the clean water SRF to cover deficiencies in the drinking water SRF and vice versa, reducing the chances of defaults. The programs are aide by federal grants captured through state matching funds.
The two programs currently have $1.46 billion in loans outstanding and no defaults have occurred under either program, Standard & Poor's said. The figure includes about $1.1 billion of loans under the clean water program and $415 million under the drinking water program.
The SRF programs' scheduled loan repayments are projected to provide minimum debt service
coverage of 1.2 times, which does not include approximately $250 million in pledged and available money in the equity fund.
The IFA manages the review, processing, underwriting, and approval of program-eligible loans that meet the minimum coverage requirements while the Iowa Department of Natural Resources administers and monitors program operations, project progress, and provided technical support to participants.
Standard & Poor's said the program's stable outlook reflects its "expectation that the district's strong management of the loan portfolio will continue, and that collateralization levels will continue to enable coverage of a very high level of potential defaults and delinquencies."
