CHICAGO — Michigan is touting the strong history and credit quality of its water loan program as it brings $240 million of triple-A rated clean and drinking water revenue bonds to market Tuesday.
The Michigan Finance Authority is selling the debt, which is a mix of new-money and refunding bonds. The state revolving loan fund program loans money to municipalities to finance water and wastewater-related projects.
An investor road show promoting the securities notes that the program has never seen a default since it began in 1987.
“The portfolio has never had a default and the staff does a very diligent job of ensuring timely repayments,” said Joseph Fielek, the MFA’s executive director.
Citi is senior book-running manager on the deal, and Bank of America Merrill Lynch is co-senior. Six additional firms are serving as co-managers.
The transaction is divided into three series, including $130.1 million of new-money clean-water bonds, $91 million of clean-water refunding bonds, and $17 million of drinking-water refunding bonds. The refunding bonds were originally issued in 2002.
The new-money bonds have a final maturity of 2032.
Standard & Poor’s and Fitch Ratings both assign AAA ratings to the debt.
“We view the enterprise risk profile of the program as extremely strong,” Standard & Poor’s said in a rating report on the upcoming transaction. “This is due to a combination of the low industry risk for municipal pools and the program’s market position, which we consider to be extremely strong.”
The clean-water program has $1.5 billion of outstanding bonds and the drinking-water program has $210 million of outstanding debt.
Debt-service coverage ranges from 1.4 times on the clean-water program bonds and 3.5 times on the drinking-water program bonds, according to Standard & Poor’s.
Debt service payments come from loan repayments as well as investment earnings generated in the state program’s reserve funds.
Interest rates on the loans have remained at 2.5% since late 2007, state officials said.
The security on the loans can come from either the borrower’s general obligation pledge, system revenues or property taxes.
Detroit is the top borrower in the clean-water program, which has a total of 166 borrowers. More than 80% of the clean-water loan portfolio is rated A or higher, according to the finance team.
The city of Flint is the top borrower in the drinking-water program, and Detroit is the third-largest borrower in that program.