CHICAGO — CWA Authority Inc., the nonprofit utility that purchased Indianapolis’ water and sewer systems last year, is coming to market Thursday with $188 million of new-money wastewater revenue bonds.

Proceeds will be used for capital projects required as part of a consent decree between Indianapolis and the Environmental Protection Agency to deal with the city’s combined sewer overflow problem.

CWA, a division of Citizens Energy Group, agreed to take over the $1.7 billion, 15-year EPA plan as part of last year’s privatization.

Citizens does not have the ability to set rates, which is a power reserved for the Indiana Utility Regulatory Commission. But as part of the takeover deal, Citizens won approval to recover the costs of the EPA capital plan through automatic rate increases. The agreement is called the Environmental Compliance Plan Recovery Mechanism, and features automatic rate increases to cover rising debt-service costs starting in 2014.

“We’ll now have two avenues for rate increases — both the normal, general rate increase, then the ECPRM to increase rates if we’re issuing debt between regular rate increases,” said Donald Lukes, Citizens’ treasury director.

Under the agreement, the utility can raise rates to cover the incremental debt-service increase the first month after it issues the bonds.

For Moody’s Investors Service, which rates the bonds A1, the recovery rate plan is key to Citizens’ credit strength.

“We view the approved ECPRM as a credit positive and timely rate increases in sufficient amounts keeping pace with debt service and projections could put upward pressure on overall credit quality,” analyst Jeffery Yorg wrote in a rating report.

Standard & Poor’s rates the debt AA.

The Indiana Finance Authority is the conduit issuer.

The transaction comes almost exactly a year after Citizens sold more than $1 billion of bonds to finance the high-profile, $1.9 billion purchase, the largest privatization of water and sewer systems to date.

Morgan Stanley, Citizens’ financial advisor during sale negotiations with the city and senior manager on the last year’s $1 billion borrowing, is senior underwriter on this week’s borrowing.

Like last year, City Securities Corp. and JPMorgan are also on the team. New this year is Wells Fargo Securities.

Ice Miller LLP is bond counsel.

Proceeds will also be used to pay off a $30 million line of credit from Wells Fargo.

The bonds are fixed-rate and feature 30-year maturities.

“We’re going to be in the market regularly at least every year,” Lukes said.

The utility opted to head to market this week in part to take advantage of low rates, he added. “We think the timing will provide a result that will be very beneficial for the Indiana rate payers,” he said.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.