The Downriver Utility Wastewater Authority – a consortium of 13 communities in Wayne County, Michigan -- is slated to price its first ever bond transaction on Thursday.
DUWA plans to offer $57 million of tax-exempt, sewer system revenue bonds that will be used to finance the purchase of the sewage disposal system from Wayne County and assume $2.6 million of sewage disposal system revenue bonds issued by the county in 2007.
The system had been operated and managed by Wayne County's Department of Public Services. Wayne County, which recently exited state oversight, plans to use the proceeds to support retiree healthcare, pensions and other unfunded obligations.
S&P Global Ratings assigned a rating of BBB-plus to the bonds.
JPMorgan is the senior manager. PFM Financial Advisors LLC is advising the authority and Dykema Gossett PLLC is bond counsel.
The bonds are secured by net revenues of the system. Payments are further secured by bond provisions that require DUWA set rates sufficient to cover debt service.
DUWA can replenish revenue shortfalls from its communities when establishing its revenue-requirement rates to ensure that sufficient revenues are generated until other collection mechanisms generate sufficient amounts to cure the shortfalls.
“These other mechanisms include the Wayne County treasurer's or other official's ability to withhold any state sales taxes due to the communities and a formal dispute-resolution process, both of which are described in the service agreement.” S&P said.
The authority's 11 cities and two charter townships have a population of roughly 350,000.
In May 2016, Wayne County and the DUWA entered into a letter of intent under which the authority would acquire any and all interest the county has in the assets of the systems for $57 million. In 2015 County Executive Warren Evans announced that the county wanted to get out of providing service for wastewater transport and treatment, and suggested that the Downriver System be sold.
“Selling the system to DUWA was an important goal in our Recovery Plan to stabilize county finances and streamline operations,” Evans said in a statement in July. “It also ensures the communities serviced by the Downriver Sewage system have complete control over it, which is something they told us they wanted.”
The county exited state oversight on October 2016. It entered the consent agreement in August 2015 as it struggled with growing red ink.
“The DUWA communities have been working toward this goal of ownership and control for years to ensure that the needs of the 13 downriver communities for wastewater treatment can be met in the most cost-effective manner,” DUWA Chairman and Taylor Mayor Rick Sollars said in a statement. “The transfer is appropriate recognizing the investment of more than $300 million by the downriver communities in recent years to upgrade this critical infrastructure component.”
A federal consent judgment issued in the late 1980’s led to $300 million in new capital improvements that were financed by the 13 downriver communities. All of the new facilities were completed by 2006, at which time the consent judgment was terminated.
DUWA has budgeted for $5 million in capital improvements from system revenues for the first five years of system ownership after which it plans to issue additional bonds to finance e further costs of the plan.
