A thumbs-up from Standard & Poor’s on its water revenue bonds overall validates the Lehigh County Authority’s concession agreement with Allentown, Pa., according to the agency’s executive director says.
“We’re very pleased with the way it turned out,” Aurel Arndt said in an interview. Standard & Poor’s last week affirmed its AA rating and stable outlook for the authority’s non-city system operations. S&P cited the authority’s history of affordable water rates, strong financial position and debt-service coverage.
Last month, the authority issued $308 million in bonds to finance the water and sewer system lease agreement with county seat Allentown, which will use the money to eliminate an unfunded pension liability that Mayor Ed Pawlowski called “a 500-pound gorilla.”
The deal has generated widespread attention among municipalities and the capital markets.
Shortly after Lehigh closed the deal, S&P called the agency saying it would evaluate the bond portfolio. “The authority maintains a solid financial profile,” analysts Paula Costa and Corey Friedman wrote. According to S&P, the water system’s current capital improvement plan runs through 2022, with total project costs of about $21.3 million.
“Certainly this was unprecedented and we undertook a significant financing of over $300 million related to that,” said Arndt, whose Allentown-based public utility was top bidder over several private companies through a request-for-proposals process that included a “best-and-final-offer” round.
While the rating only reflected the financial stability of Lehigh’s water system operations outside the city, officials call the S&P report a validation of its lease deal with Allentown. Throughout the RFP process, the agency maintained the deal would not hurt existing customers financially, nor would non-city revenues be pledged to cover bond costs for the Allentown lease deal.
The Lehigh County Board of Commissioners held a five-hour executive session before approving the agency’s involvement. Allentown’s City Council voted for the deal in late April after a tumultuous five-hour meeting that ended just before midnight.
Arndt has also fielded inquiries about the deal from throughout the state and as far away as Texas, and invitations to speak to professional groups. “We’ve gotten calls from several areas of Pennsylvania with city issues in at least three circumstances,” he said without identifying the communities.
He called the Allentown transition “relatively smooth,” saying 85% of city employees accepted job offers to work with the county.
“That certainly provides some continuity,” Arndt said. “We’re dealing with first-time events such as bills and payroll schedules, the kinds of things you wring your hands over.”