CHICAGO — The Northeast Ohio Regional Sewer District is coming to market Tuesday with $412 million of mostly new-money bonds to finance upgrades as part of a $3 billion capital plan.

The district, which serves the city of Cleveland and 61 suburbs across four counties, covers 350 square miles in northeast Ohio. It has nearly $1.1 billion of outstanding debt and, like many aging Midwest sewer districts, faces costly capital upgrades tied to federal mandates.

The $412 million issue includes $343 million in new money tax-exempt bonds and $69 million of bonds that will advance refund a 2007 issue. Rated Aa1 by Moody's Investors Service, the bonds will mature through 2049. The debt is secured by the district's net revenues. There is no debt service reserve fund.

In an Internet road show ahead of the deal, the finance team touted the district's new management team, its diverse customer base, and the board's exclusive authority to set rates and issue debt. The board has also made a covenant to maintain 1.15 times annual debt-service coverage on senior bonds and 1 times on subordinate bonds.

"The board has exclusive authority to set the rates," said chief financial officer Jennifer Demmerle in the road show. "The proposed rates are designed to meet pricing objections, including revenue sufficiency, affordability for disadvantaged customers and rate stability."

Under a 2010 deal with federal and state officials, the district agreed to spend $3 billion over 25 years for a long-term plan to address its combined sewer overflow.

The district has already spent $850 million on the plan, officials said.

The district's 10-year capital plan totals $2.3 billion. Of that, $1.5 billion is tied to the combined sewer overflow. The district plans to use revenue bonds, state loans and internal funds to finance the plan, according to Demmerle.

"The majority of the program for next 10 years will be funded through revenue bonds," Demmerle said.

Moody's analysts said the district's strengths include its structure as a monopoly providing an essential service, history of solid financial operations and rate increases approved through 2016. Challenges include future capital costs related to the sewer overflow project and other upgrades, as well as projects that indicate weaker debt service coverage in the future as debt rises.

"The stable outlook is based on the district's strong historical performance which is expected to continue over the near to medium term, with future rate increases expected to support projected escalation of debt service tied to future debt issuances," the ratings firm said in its report.

Bank of America-Merrill Lynch is the senior manager on the deal, leading a team of six underwriting firms. Squire Patton Boggs LLP and Forbes, Fields & Associates Co. LPA are co-bond counsel. Prism Municipal Advisors LLC is financial advisor.

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