BRADENTON, Fla. - For the first time in many years, the Sewerage and Water Board of New Orleans returned to the bond market to issue $262.5 million of combined refunding and revenue bonds using proceeds to fully fund the capital program for the coming year.
Closing on the two-part offering of $103.5 million in water system revenue bonds and $158.9 million in sewer system bonds was expected on July 2. The deals priced June 17.
The refinancing of previous debt achieved one-time savings of more than $2.4 million for the water system and $9 million for the sewer system. In total, the water system received $77 million for its capital program, while the sewer system received $47.3 million.
"These bond proceeds represent the first occasion when the board's capital programs have been fully funded for a plan year in more than 25 years," said Joseph Becker, general superintendent of the board.
Pricing of the bonds followed the approval of water and sewer rate increases though 2020. The increases have been used to boost cash reserves, pay down certain liabilities, and improve debt service coverage in advance of the issuance.
The bonds were sold by the Board of Liquidation through negotiation. Bank of America Merrill Lynch led the syndicate on the sewer bonds while Goldman Sachs & Co. was the book-runner for the water bonds.
Co-financial advisors were Public Financial Management and CLB Porter.
The water bonds received an average interest rate of 4.47%, and were rated BBB by Fitch Ratings and BBB-plus by Standard & Poor's. The sewer bonds received 3.91%, and were rated BBB by Fitch and A by S&P.
In May, S&P raised the senior-lien sewer revenue bonds to A from A-minus.
"The upgrade is based on what we believe is a well-detailed and comprehensive operational and financial plan to address the myriad of system needs," said Standard & Poor's analyst Theodore Chapman.
S&P also raised the senior-lien water bond rating two notches to BBB-plus from BBB-minus, and said the outlook is positive for all its ratings.
Over the next 10 years, the estimated capital costs for the water system total about $836 million, while sewer system costs total $601 million, according to Fitch. During the 2013 Louisiana legislative session, lawmakers passed a measure allowing the governance of the Sewerage and Water Board to be reformed to require members with professional qualifications, to reduce the number of board members to 11 from 13, and to reduce terms of service to four years from nine with a limit of two consecutive terms.
A city charter amendment consisting of the reform measures was approved by Orleans Parish voters in October 2013. A new board was seated in May.
"The Sewerage and Water Board's mission is to ensure we have safe drinking water and protect our homes and businesses from flooding, but for too long politics delayed adequately funding infrastructure improvements that have left us with antiquated system we are working with today," Mayor Mitch Landrieu said. "We have committed to strengthening this important public utility by reforming its governance, increasing its accountability and transparency, and improving its operations and performance."