ALAMEDA, Calif. — The San Francisco Public Utilities Commission this week will bring its wastewater credit to the market for the first time in seven years.
The deal will include the PUC’s first Build America Bond issue, and the commission plans to sell the BABs the same way it sells most of its new-money debt — competitively.
The agency will price $192.4 million of BABs and $48.3 million of tax-exempt bonds in separate auctions Wednesday.
The PUC sold $824 million of water revenue bonds in 2009, with more water deals coming this summer, but it is the commission’s first sewer revenue bond sale since a refunding deal in 2003.
“The wastewater enterprise is a little behind the water,” said Gary Kitahata, whose firm Kitahata & Co. is a financial adviser to the PUC, along with Montague DeRose and Associates.
The water division is already well advanced in its $4.6 billion overhaul of the system that carries water 240 miles from the Hetch Hetchy reservoir in Yosemite National Park to the San Francisco Bay area.
A similarly massive upgrade is in the works for the San Francisco sewer system. The commission is in the process of developing a sewer system improvement plan designed to tackle its needs for the next 30 years.
“It’s a huge system internally and a lot of it is pretty old,” Kitahata said. “It’ll be a billion-dollar-plus when they finalize the amount.”
This week’s sales will finance the PUC’s ongoing, and more modest, capital improvement plan.
There is plenty of deferred maintenance to tackle. The wastewater enterprise currently operates on a 200-year replacement cycle for its sewer pipes, according to the official statement for the bond sale.
“Aging sewers, if left unaddressed, would result in increasing sinkholes in the street, reduced system reliability, and possibly public health and safety risks,” the preliminary official statement says. “Extensive efforts are being made to increase the replacement rate significantly and to address the aging infrastructure, with the objective of ultimately achieving a 110-year replacement cycle.”
The bonds will carry AA-minus ratings after Standard & Poor’s upgraded the PUC’s wastewater credit from A-plus on May 6.
“The raised ratings reflect our view of the SFPUC’s rate responsiveness and maintenance of good, consistent financial performance,” according to Standard & Poor’s.
The agency cited “an aging sewer infrastructure,” and the amount of debt that will be needed to upgrade the system, as a credit weakness.
Moody’s Investors Service assigns a Aa3, following its April recalibration to a global scale from its previous A2 municipal rating.
The 2010A tax-exempt series will have maturities from 2016 to 2021. The 2010B taxable BABs run from 2022 to 2040.
The commission’s debt policy strongly favors competitive sales.
In 2009, San Francisco issued certificates of participation as BABs to finance an office building the PUC will occupy. But this week’s deal marks the first BABs issued directly by the commission.