The New York City Municipal Water Finance Authority plans to market $500 million of taxable Build America Bonds on its subordinate lien on Tuesday.
The authority has not yet released a structure, but if recent history is any guide, they will be term bonds with one or two long maturities. All of the MFWA’s $2.2 billion of new-money bonds sold in 2010 have been BABs with term maturities of 31 to 33 years, according to Thomson Reuters and information on the Municipal Securities Rulemaking Board’s EMMA system.
The agency has sold $10.3 billion of new-money bonds and $9.75 billion of refunding bonds since 2001, according to Thomson Reuters. This year is already its highest in the past 10 years for new-money issuance.
Samuel A. Ramirez & Co. will be book-running senior manager. Lamont Financial Services Inc. and MFR Securities Inc. are financial advisers on the deals, and Orrick Herrington & Sutcliffe LLP is bond counsel.
Issuer officials could not reached yesterday due to government offices being shut down for Election Day.
The authority’s most recent new-money deal priced in September as $750 million of BABs with term maturities in 2041 and 2043. The bonds yielded 5.79% and 5.44%, 190 and 155 basis points over the comparable Treasury yield. The bonds maturing in 2041 were callable at par in 2020 while the 2043 maturity contain a make-whole call at Treasuries plus 40 basis points.
The MWFA finances the city’s water and sewer capital program, including projects mandated by New York State and the federal government. The program is projected to total $11.25 billion from fiscal 2011 through fiscal 2019. On average, officials expect to sell $1.8 billion of new-money bonds annually through fiscal 2014, according to the September BABs’ official statement.
The system supplies about one million gallons of water a day to more than nine million people in New York City and four counties north of the city. Water usage fees, which back the bonds, are established by the city’s water board, which is separate from the authority’s board.
The water board has imposed double-digit rate hikes in each of the past four years that have been the target of political criticism. Next year’s increase is expected to be smaller, 9.8% compared to 12.9% in fiscal 2011, according to the OS.
“We do view rate-setting authority as positive,” said Standard & Poor’s analyst John Sugden-Castillo. “What we’re concerned with is that they pass the rates that they need and that they meet the capital expenditure needs that they have.”
In a September rating report, Standard & Poor’s said that year-to-date consumption was 8.7% higher in the fiscal year that began on July 1 compared to the same period last year, even though it was down 2% for the calendar year.
“Over the past couple of months water consumption has picked up,” Sugden-Castillo said. Water utilities across the country saw usage decrease during the recession that officially ended last year, he said.
“Typically, that happens anywhere,” he said. “As the economy slows down, consumption slows down as well.”
Rate increases and conservative budgeting have helped offset lower usage. Revenues available for debt service were forecast to increase from $2.4 billion in fiscal 2009 to a projected $2.61 billion in fiscal 2010 and $2.94 in fiscal 2011, the official statement said.
“Even if their revenues are lower than they had budgeted, they had some room to do some expenditure control because their budget is conservative,” Sugden-Castillo said.
Standard & Poor’s and Fitch Ratings rate the outstanding subordinate-lien debt AA-plus. Moody’s Investors Service rates it Aa2. All three agencies assign a stable outlook.
The MWFA has $10.4 billion of first-lien and $13.6 billion of subordinate-lien debt outstanding.