BRADENTON, Fla. — Miami-Dade County is pricing $487.5 million of water and sewer revenue bonds this week as the first deal supporting a multi-billion dollar initiative to finance improvements.
Final pricing of $339 million of new-money bonds and $148.4 million of refunding bonds is Thursday, after a retail order period on Wednesday, a spokesperson said. The 2013A new bonds will be structured with serial and term maturities ending in 2042. Principal payments on the bonds will be back loaded with most of it paid between 2040 and 2042.
Proceeds will provide $300 million to pay the costs of improvements under the water and sewer system's multi-year capital program as well as fund a debt service reserve, and capitalized interest for 18 months. The county's Water and Sewer Department operates as an enterprise system, meaning it doesn't typically receive money from the general fund or taxation.
The department needs to finance a recently adopted $12.6 billion capital improvement program through 2027 to improve aging water and sewer systems, and support a consent decree between the county, the Department of Justice, and the Florida Department of Environmental Protection for violations of the Clean Water Act. Other non-consent improvements include repair, replacement, and expansion projects.
"Depending on the market environment, and also depending on how the deal is priced, I think that [the transaction] should get a good reception," a trader familiar with the Miami-Dade's offering said on Tuesday. "Right now, the market feels quite firm."
The refunding bonds will have serial maturities in 2027, 2028, and 2029. The county requires a minimum of 5% present value savings for the refunding to be offered.
The bonds are secured by net revenues of the combined water and wastewater system.
The bonds could look attractive to investors pricing 75 basis points to 80 basis points over the Municipal Market Data's triple-A scale assuming they are offered with 5% coupons, the trader said.
As part of the finance plan for the water and sewer improvement program, county commissioners increased the rate covenant to 1.25 times from 1.1 times to improve the credit quality of the Water and Sewer Department's bonds.
Even with the higher covenant, Moody's Investors Service downgraded its rating to Aa3 from Aa2 for this week's sale and on $1.8 billion in outstanding senior-lien water and sewer revenue bonds citing projections for narrower debt service coverage and the county's "moderate" level of debt.
Moody's rating still remains one notch above the A-plus assigned to this week's bond sale by Fitch Ratings and Standard & Poor's.
"Fitch views the county's action to increase the rate covenant for bondholders to 1.25 times from 1.1 times as a positive credit development and an indication of intended future financial performance," said agency analyst Kathy Masterson.
"Rating stability will be predicated on the timeliness and sufficiency of future rate increases to absorb the rapid pace of additional debt issuance projected by the department," Masterson said.
Moody's said its Aa3 rating incorporated a new federal consent decree and a "very significant $9.2 billion and aggressive capital borrowing program through 2027" against the system's low rates and substantial customer base, which provides some support for upcoming borrowing, according to analyst John Incorvaia.
"The system's credit quality will ultimately be dictated by the ability to fund substantial capital needs while maintaining adequate reserves and coverage levels, and by the county's demonstrated willingness to implement timely and sufficient rate increases to support this sizable program," Incorvaia said.
Moody's has a stable outlook on the county's water and sewer debt, which reflects low system rates, a very large population base served by the utility, and adequate system water supply and water and sewer treatment capacity, Incorvaia said.
The county has covenanted to raise rates as necessary to support the debt.
In conjunction with approving the current bond issue, commissioners increased rates by 8% to support the new debt.
In the 15-year, $12.6 billion CIP, $1.6 billion in projects are associated with the federal consent decree. A total of $9.6 billion of revenue and general obligation bonds as well as commercial paper will be sold to support the capital program.
S&P analyst James Breeding said the agency's rating reflected the county's revenue stability derived from a large, regional economy and sizable retail customer base as well as recent strong debt service coverage levels, good liquidity with about 90 days' cash on hand, and competitive monthly water and sewer rates.
"Given the strong debt service coverage and liquidity, the rating may appear low," Breeding said. "However, in our opinion, these strengths are partially offset by the sizable capital improvement program that will require significant additional bonding and likely rate increases."
Morgan Stanley & Co. is the book-runner for this week's offering. Other underwriters include Barclays Capital Inc., Goldman, Sachs & Co., M.R. Beal & Co., Rice Securities LLC, Blaylock Robert Van LLC., Cabrera Capital Markets LLC, Estrada Hinojosa & Co., Jefferies, Ramirez & Co., RBC Capital Markets LLC, Siebert Brandford Shank & Co., Southwest Securities and Wells Fargo Securities LLC.
Public Resource Advisory Group is financial advisor.
Squire Sanders LLP and D. Seaton and Associates are bond counsel. Nabors, Giblin & Nickerson PA and Liebler, Gonzalez & Portuondo PA are disclosure counsel. Underwriters' counsel is GrayRobinson PA.
Early next month, Miami-Dade will be back in the bond market to sell about $794.3 million of aviation revenue refunding bonds and $53.325 million of new money bonds for Miami International Airport.
The aviation bonds are expected to price Aug. 6 and 7. The bonds have been rated A by Fitch and S&P, and A2 by Moody's. The agencies affirmed the ratings on $5.82 billion of parity aviation revenue bonds, and said the rating outlook is stable.
The Miami-Dade County School District last week competitively priced $190 million of general obligation bonds as the first tranche of a $1.2 billion general obligation bond authorization approved by voters in November.
The School District has the same boundaries as the county but it is a separate entity and credit.
The district sold $190 million of Series 2013 bonds with serial maturities from 2015 to 2039, and a $44.5 million term bonds due in March 2043.
Seven banks submitted bids for the bonds. JPMorgan was the winning bidder. Closing is scheduled for July 24.
The bonds are rated Aa3 by Moody's Investors Service and A-plus by Standard & Poor's.
The serial bonds priced to yield 0.62% with a 4% coupon in 2015, 4.2% with a 5% coupon in 2029, and 4.6% with a 5% coupon in 2039. They sold with spreads of 10, 66, and 65 basis points over MMD's triple-A scale.
The term bond sold with a yield of 4.7% with a 5% coupon in 2043, and a spread of 65 basis points over MMD.
The district also priced a $93 million negotiated transaction with Citi last week as a forward delivery issue. Closing will be in early 2014. Pricing information was not immediately available.
Public Financial Management is the School District's financial advisor.
Greenberg Traurig PA and Edwards & Associates PA are bond counsel. Nabors, Giblin & Nickerson PA is disclosure counsel.
The Miami-Dade County School District in south Florida is the nation's fourth-largest public education system.
District officials marketed last year's GO bond referendum, in part, telling voters that state budget cuts and reduced property values since the current economic downturn had left little or no funds for new capital.
Nearly half of the district's 392 schools are more than 40 years old, meaning that they need renovations or replacement as well as technology upgrades, they argued in pitches to voters.