The Ohio Water Development Authority will sell $400 million of high-grade paper to fund loans to Ohio municipalities for water quality improvements

DALLAS – The Ohio Water Development Authority will sell $400 million of high-grade paper Tuesday to fund a loan program.

Proceeds will finance loans to Ohio municipalities for eligible water quality improvements under the state revolving fund program.

The fixed-rate, tax-exempt bonds are secured by loan repayments made from the authority's Water Pollution Control Loan Fund. Also pledged is principal and interest on both existing and future WPCLF loans, any available debt service reserve funds, special unencumbered funds from deposits of state revolving fund grants, and a surplus fund where all excess revenues are deposited before flowing out to other project funds that can be used for any SRF purpose.

The bonds are rated Aaa by Moody's Investors Service and AAA by S&P Global Ratings. They are scheduled to price on Tuesday. "The Aaa ratings reflect the strong security provided by the size, diversity and credit quality of the combined loan pool, the pledge of substantial funds and reserves that result in a very high default tolerance, the Authority's established track record of successful management of this and other programs," Moody's said.

RBC Capital Markets is the senior manager with Stifel Nicolaus & Co. as co-senior. Squire Patton Boggs LLP is bond counsel and Public Financial Management Inc. is municipal advisor.

"OWDA has provided water and wastewater loans to communities in Ohio for 47 years," said Steve Grossman, executive director of OWDA during an investor presentation. The Authority's Water Pollution Control Fund was created in 1989 and has made over $6.3 billion in loans. It uses federal capitalization grants, state match funds and bond proceeds to finance the lending.

In order to receive a federal capitalization grant Ohio must provide a state matching totaling 20 % of the total federal grant. "The WPCLF has received over $2.1 billion of federal capitalization grants which have been matched with over $426 million of state matching funds," Grossman said.

Grossman said that the WPCLF portfolio currently includes over $4.6 billion of outstanding pledged loans to 339 different borrowers for 1,078 projects. "The WPCLF interest rates are below market rates, which provide a strong incentive for extensive participation by communities throughout Ohio," said Scott Campbell, Chief Financial Officer and assistant executive director at OWDA.

Columbus, Northeast Ohio Regional Sewer District, and Akron are the top three borrowers in the program which make up $2.8 billion of outstanding borrowing. The top 10 borrowers make up 73% of loan portfolio as of Dec. 31, 2016.

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