DALLAS — A statewide revolving loan program to upgrade and improve municipal water and sewer systems in Kansas will be financed with proceeds from this week’s negotiated sale of $231.2 million of revenue bonds.

The bonds, which are the first tranches issued under a new financing agreement, will be issued by the Kansas Development ­Finance Authority on behalf of the water pollution control loan program overseen by the Kansas Department of Health and ­Environment.

The department operates separate programs for local drinking water and sewage treatment projects that provide loans from bond proceeds. The bonds are being issued for pollution control efforts, with a $60 million sale set for spring to provide funds for drinking water projects.

Debt issued for the loan programs is secured by outstanding loans and supported through repayments of loan principal and interest by the borrowing ­entities.

Bonds issued for the Kansas revolving water fund loan program for municipalities, counties, and districts have unenhanced ­triple-A ratings from Fitch ­Ratings and Standard & Poor’s. Moody’s Investors Service does not rate the authority’s revolving water loan program debt.

The bonds will price this week, with a retail period today and institutional pricing Wednesday.

The sale will consist of $163.3 million of tax-exempt revenue refunding bonds, $59.4 million of taxable Build America Bonds, and $8.5 million of taxable ­refunding bonds.

With the refunding, there will be a significant amount of loans in place to secure a smaller amount of outstanding debt. The loans securing the outstanding debt are not changing. Excess revenue will flow to accounts supporting the new bonds.

JPMorgan and Jefferies & Co. are senior managers. Bank of America Merrill Lynch, Morgan Stanley, Piper Jaffray & Co., and Wells Fargo Securities are managers.

Public Financial Management Inc. is financial adviser. Gilmore & Bell PC is bond counsel.

James MacMurray, vice president of finance at the authority, said he expects strong investor interest in the triple-A bonds despite recent fluctuations in interest rates.

“It would have been better if we had priced these bonds a couple of weeks ago, but we think this debt will be a very attractive credit,” MacMurray said.

He said the current refunding portion has been reduced by $30 million from the level anticipated before interest rates spiked in mid-November.

The loan programs are cross collateralized. That means interest earnings and loan repayments in excess of debt service for one program are available to support bonds issued by the other.

This week’s bonds are the first to be ­issued under a new master financing ­indenture. The new agreement will effectively combine the financing functions of the two programs.

Cash-flow projections for the new bonds show excess funds from the existing program flowing to the new indenture.

Eventually, the new agreement will supplant the existing separate clean water and drinking water bond resolutions, under which the outstanding bonds were issued.

All future bonds will be issued under the new indenture, which is primarily structured as a cash-flow program. The amended resolutions also redirect the flow of each program’s recycled loan accounts — which captures excess loan repayments, interest earnings, and de-allocated reserves — to the new master financing indenture, if the funds are not needed for debt service.

MacMurray said the new indenture will provide greater efficiency and flexibility for the administration of the two loan programs, though bond proceed recipients should notice little difference in the loan process.

“For all practical purposes, there are still two loan programs with separate criteria,” he said. “The two programs will operate side by side, with the new indenture affecting only the bond side.”

MacMurray said the state expects the refunding component to provide $7.5 million of net present-value savings. However, the refunding is not being accomplished primarily for the available savings.

“Of course we had a threshold of savings that we were looking for, but we’re trying to bring as many of the outstanding bonds into the new financing agreement as possible,” he said. “We’re anticipating significant increases in flexibility and efficiencies with the new indenture.”

The sale will provide $65 million of new money for clean water projects, including $60 million of leveraged loans supported by loan repayments and $5 million of bonds to provide the state match for federal grants and loans to the municipalities involved in the program.

The leveraged bonds are supported from repayments on the loan principal. State match bonds are supported by interest payments on the loans.

The authority has $360.8 million of outstanding clean water bonds secured by loans totaling $594.9 million, and $276.5 million of outstanding drinking water bonds secured by $317.6 million of loans.

With the sale, there will be $248.6 million of outstanding clean water bonds, $186.1 million of outstanding drinking water bonds, and $307.1 million of bonds under the new combined financial ­indenture.

The new-money tranche being issued this week will be secured by 13 borrowers seeking a total of $87 million in loans.

Each loan’s interest rate is equivalent to 60% of the three-month average of The Bond Buyer’s 20 Bond Index immediately before the loan’s issuance.

With the refunding, there will be a significant amount of loans in place to secure a smaller amount of outstanding debt because the loans securing the outstanding debt are not changing. Excess revenues will flow to accounts that will support the new bonds.

The outstanding clean water bonds are secured by loans to 262 borrowers, of which the top five account for almost a third of the loans due. The loans range from less than $10,000 to more than $45 million. Topeka is the largest single borrower, holding about 13% of the total.

The outstanding drinking water bonds are secured by loans to 182 borrowers, ranging from less than $20,000 to almost $20 million. The top five borrowers ­account for 30% of the due loans.

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