CHICAGO — The Missouri Environmental Improvement and Energy Resources Authority will enter the market this week with $220 million of advance-refunding state revolving fund bonds as federal stimulus funds have at least temporarily put off the need for new-money borrowing.
The authority will take retail orders on Wednesday and open the sale to institutional buyers on Thursday, said deputy director Karen Massey.
Bank of America Merrill Lynch is the senior manager and Lamont Financial Services Corp. is financial adviser. Ahead of the sale, Fitch Ratings affirmed the authority’s AAA SRF rating and Moody’s Investors Service affirmed its Aaa. Missouri has another $1 billion of outstanding water pollution control and drinking water revenue bonds.
The agency’s top credit marks are due to an over-collateralization from reserves and excess cash flow that are sufficient to cover debt service on a timely basis even if the loan portfolio is stressed. The program’s invested reserves of $889 million provide coverage of 75% of outstanding debt, allowing the combined programs to withstand borrower defaults of 37.9% over the next four years, Fitch analysts wrote.
The program also is strengthened by solid underwriting practices and a cross-collateralization feature of the separate clean water and drinking water programs that allow reserves from one program to be available for use by the other. The state revolving funds serve more than 180 borrowers. Its largest borrower is the Metropolitan St. Louis Sewer District with $232 million in clean water loans.
The state authority provides a generous subsidy to local borrowers through earnings on its sizeable reserves in the form of a credit. The reserves are funded with state and federal capitalization grants. The agency establishes a dedicated reserve for each of its borrowers set at 70% of the loan principal, although in some cases the reserve is set at a lower rate.
The authority may sell new money later in the year, but $146 million in federal stimulus funds available for direct loans to borrowers through the state Department of Natural Resources has offset near-term needs for bond funds, Massey said.