Lubbock Sets $66.9M CO Deal for Treatment Plant

DALLAS — Lubbock will price $66.9 million of certificates of obligation for its wastewater system Jan. 16 in a negotiated deal led by Morgan Keegan & Co. The West Texas city has earned AA ratings from Fitch Ratings and Standard & Poor’s. Moody’s Investors Service has not issued its report yet, but conferred Aa3 on similar debt in 2007.RBC Capital Markets acts as the city’s financial adviser. Vinson & Elkins is bond counsel on the deal.The CO proceeds will be used for renovation of the city’s Southeast Water Reclamation Plant. Through advanced technology, the city’s treatment facility will be able to convert wastewater to stream-quality, said Jeffrey Yates, chief financial officer of the city.“It’s a multi-year project,” Yates said. “You can’t take the whole thing down at once.” However, no further debt issuance is expected for the project, he said.For a drought-prone city in an arid part of the state, water treatment and conservation are vital issues, according to Yates. The region is dependent on the Ogallala Aquifer for much of its water, in addition to stream flows and reservoirs. The plant is designed to meet Lubbock’s needs for the next 20 years and currently treats about 21 million gallons per day. Lubbock is also in the process of negotiating a deal with the Brazos River Authority to reuse the treated water, Yates said.The Lubbock City Council has already received bids for the construction of the wastewater treatment plant and wants to lock in the price of construction as soon as possible. Construction inflation is a chronic concern in Texas.“That’s the reason we’re selling now,” Yates said. “We’ve got bids in and we want to get ’07 prices.”While the debt carries the backing of the city’s property tax revenues, revenues from the city’s wastewater system are expected to cover debt service.This month’s deal follows an $11 million taxable issue of certificates of obligation in December for the city’s convention hotel project.With a population of 212,169, Lubbock is known as the “Hub City” of the South Plains, considered the largest cotton growing region in the world. In addition to providing health care and other services for much of West Texas, the city is home to Texas Tech University.The city maintains a moderately low direct debt position at $820 per capita and 1.6% of taxable assessed value, according to Fitch. When debt from overlapping municipal entities is included, the debt burden rises but remains moderate at just over $2,200 per capita and 4.4% of taxable value.Fitch analysts also noted the city’s relationship with its electric utility, Lubbock Power and Light, whose financial posture has improved. Fitch rates the electric utility’s revenue bonds BBB-plus with a stable outlook.“Two of Lubbock’s major economic indicators, its unemployment rate and taxable assessed valuation, are performing well,” Fitch analysts wrote. The latest available unemployment rate was a low 3% for October 2007, well below the Texas (3.9%) and national (4.4%) averages for the same month.“I think the city’s in a strong financial position,” Yates said. “We’re taking care of our core infrastructure while keeping up with growth.”