The Rhode Island Infrastructure Bank closed on $100 million of bond financing for a sewer overflow project in the state's largest body of water.
The deal utilized the state's Clean Water Revolving Fund and funds from the Infrastructure Investment and Jobs Act in a transaction on behalf of the Narragansett Bay Commission.
"The Bay Commission and the bank have worked together for over 30 years," said William Fazioli, executive director of the infrastructure bank. "This recent financing that we closed in late June brings our total financing with the Bay Commission to about a billion dollars to help them deal with clean water issues in Rhode Island."
The latest deal had two series: $70 million, which was sold on the open market. The second was a direct loan.
The deal also resulted in $7 million of principal forgiveness from the IIJA.
The first series was rated AAA by Fitch Ratings and S&P Global Ratings. The bonds carried a green designation.
RBC was the deal's lead manager, with Academy Securities, Cabrera Capital Markets, Jefferies and J.P. Morgan as co-managers. HilltopSecurities was the municipal advisor and Hinckley Allen was counsel.
The week of the deal, Fazioli said, there was "an extraordinary amount of volume in Rhode Island."
"Fortunately, the underwriting team was able to deliver very solid results for the bank," Fazioli said. "We were able to lower yields after the order period. So the underwriting team did a great job to pre-sale, market and execute the sale."
The Narragansett Bay Commission has issued bonds on its own before — it has a AA-minus rating from S&P and a AA from KBRA — but Kevin McDonald, the commission's CFO, estimated going that route would have resulted in interest rates around 4.5% for this deal. The infrastructure bank is charging the commission 3.14% interest.
"It's a lower interest rate, obviously, than we could ever get in any sort of traditional financing," said Narragansett Bay Commission Executive Director Laurie Horridge.
The project, known as the Combined Sewer Overflow project, has been underway since 2003. It's currently in its third and final phase.
"Phase III of the Combined Sewer Overflow project, currently under construction, is a 2.2-mile long, 30-foot diameter tunnel running underneath Pawtucket and Central Falls that is expected to reduce overflow volumes by 98 percent and treat stormwater before it flows into Narragansett Bay," the press release from the infrastructure bank said.
The CSO project is one of the largest infrastructure projects in Rhode Island's history, Horridge said, and the infrastructure bank has been involved in the financing for each phase.
The commission plans to issue bonds for several other projects, Horridge said. One will address disposal of the bio-solids that remain after its plants process sewage. The commission may also issue bonds for facility resiliency upgrades.
The infrastructure bank is a revolving loan fund that primarily deals with clean water and drinking water projects for which they receive funding from the EPA, Fazioli said. In the last few years, the bank has expanded its lending programs to other infrastructure projects, such as roads, bridges, and clean energy.
Last June, the state government gave the infrastructure bank the authority to launch a resilient infrastructure fund, which will lend to communities for projects to prepare for floods. The state dedicated $10 million of a green bond to help the fund finance additional resiliency projects.
So far, the fund has made one $2.5 million loan. Fazioli said the bank plans to issue a call for project funding requests in the fall.
The demand for the infrastructure bank's loans is strong, Fazioli said. The bank has seen increased demand to finance projects related to
"Every year we establish project priority lists for drinking water and clean water, and combined, they'll come close to about $2 billion in demand," Fazioli said.
"Rhode Island, although being a small state, has a very strong revolving loan fund program," Fazioli said. "We're looking to expand that model to meet other financing needs of our borrowers. And it really is, I think, an exceptional way to finance long-term capital projects."
