BRADENTON, Fla. - Kentucky's award-winning Louisville Water Co. plans to competitively price $127 million of new money water system revenue bonds to finance capital needs.
The utility, overseen by the Board of Water Works of Louisville-Jefferson County Metropolitan Government, will take bids on the bonds via the Parity electronic bidding system on Wednesday.
The 20-year bonds are rated triple-A by Moody's Investors Service and Standard & Poor's.
For investors interested in high-grade credits, it may be 2018 before the utility returns to the market for new financing, according to Lynn Pearson, treasurer and vice president of finance.
"We think we will have a lot of investment banks bidding on it," Pearson said. "I think our history and the fact that we have maintained the triple-A ratings is really attractive to investors."
The deal is expected to be structured with serial bonds maturing between 2016 and 2035.
Bidders can designate two or more consecutive maturities as term bonds.
Proceeds will be used for a variety of work on the system, which provides retail water service to more than 850,000 people in Jefferson County and parts of Oldham and Bullitt counties, and wholesale service to utilities in Spencer, Nelson, Bullitt, and Shelby counties.
Pearson said bond proceeds will be used to fund key initiatives such as improving transmission lines and treatment facilities, technology-related upgrades, and rehabilitation and replacement work.
Some work is also geared toward infrastructure improvements related to the utility's regionalization initiative to develop new revenue through wholesale partnerships in neighboring counties.
"This is really a critical strategy," Pearson said. "We have to combat loss from lower residential water usage and maintain affordability."
Louisville Water was last in the bond market for new money in 2009. Proceeds from that auction helped renovate the 180-million-gallon-per-day Crescent treatment plant, which is the largest in the state.
The Crescent plant and the 60-million-gallon-per-day B.E. Payne Treatment Plant are ranked among the top 14 safe water facilities in North America by the Partnership for Safe Water.
The company has also received awards in recent years from the American Water Works Association and the Association of Metropolitan Water Agencies.
In addition to assigning triple-A ratings on the 2015 bonds, Moody's and S&P affirmed the ratings on $208 million in outstanding senior lien parity debt. The outlook is stable.
Analysts said that the company is supported by a large and diverse service area economy. The utility is well managed with a history of consistent rate increases, and has a manageable debt profile, they said.
According to Moody's, pro forma projections indicate improved total debt service coverage in fiscal 2016 of 4.23 times net of payments-in-lieu-of-taxes to Louisville Metro and depreciation.
Louisville Water closed fiscal 2014 with $57.1 million of unrestricted cash, which is equivalent to a "very strong" 300 days of operating and maintenance expenses, according to Moody's analyst Nathan Phelps.
For the 2016 to 2025 planning horizon, S&P said the company anticipates about $1 billion in capital needs with half of that funded with bonds. The borrowings would be spread out across that timeframe.
"Given the company's low 20% debt-to-plant ratio, coupled with steadily declining debt service costs for current debt, we believe layering in this added debt should be sustainable without significantly altering financial operations or the rate structure," said S&P analyst Scott Garrigan.
Raymond James & Associates Inc. is the utility's financial advisor. Stites & Harbison PLLC is bond and disclosure counsel.