CHICAGO – The Metropolitan St. Louis Sewer District heads into the market with a $150 million mostly new money issue that taps a $945 million voter-approved bond authorization from 2012.

Morgan Stanley is senior manager and Barclays is co-senior on the wastewater revenue bond sale, planned for Thursday. Public Financial Management Inc. and Independent Public Advisors LLC are advising the district.

Proceeds will fund a portion of the district's capital plan, MSD treasurer Tim Snoke said in an investor presentation.

More than 100 projects will receive funding from the upcoming issue. They are part of the district's ongoing $1.5 billion capital program through 2020 and a broader $4.7 billion consent decree reached with the U.S. Environmental Protection Agency in 2010.

The district's ratings were affirmed ahead of the sale. Fitch Ratings rates the bonds AA-plus, Moody's Investors Service Aa1, and S&P Global Ratings AAA. All assign a stable outlook. The district has $860 million of outstanding debt on parity with the upcoming issue and $344 million of subordinate state revolving fund debt.

"The Aa1 rating reflects the district's stable financial performance, the result of annual rate increases, prudent management practices and conservative budgeting," Moody's said. "The rating also reflects management's ability to successfully manage through the initial stages of a $4.7 billion consent decree."

The projects are aimed at reducing sanitary sewer overflows.

The rating also reflects the district's large and diverse service area that covers St. Louis and St. Louis County.

The bonds are payable from net revenues of the district's sanitary sewer system. No debt service reserve is being funded with the issue.

Fitch said the system benefits from healthy margins and solid total debt service coverage of 2.1 times in fiscals 2015 and 2016. Coverage is expected to weaken slightly to around 1.8 times through 2020 but that level is still healthy for the rating level, Fitch said.

Debt is projected to nearly double over the next five years due to meet regulatory requirements. The district's capital program from fiscal 2017 through 2020 totals $1.5 billion. About 72% of the plan is expected to be funded from existing and planned debt. MSD's capital plan relies on borrowing, service charges, grants, and state revolving fund support. Rate hikes were approved as part of the program.

The district requires voter approval for borrowing but strong authorization levels experienced to date should provide ongoing support for rate increases related to future debt, according to Fitch. "Moderate rates should provide rate flexibility," Fitch wrote.

The district won voter approval in April for an additional $900 million of borrowing although the upcoming issue is being issued under the 2012 $945 million authorization. The $900 million will be tapped beginning in 2018.

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