DALLAS—The Great Lakes Water Authority achieved $309 million in net cash flow savings on the refunding piece of in its inaugural $1.33 billion deal, the agency said Friday.
The authority, which assumed Detroit's existing water and sewer debt when it opened its doors Jan. 1, originally had projected a more modest level of $151 million in savings when the bond issue was initially planned.
"These savings improve the financial outlook for our region's water and wastewater systems over the remaining life of the outstanding bonds – up to 20 years," GLWA's chief financial officer Nicolette Bateson said in a statement.
GLWA offered nearly $1.1 billion of refunding bonds with the remainder raising new money for capital projects. The bonds are secured by a pledge of system revenues as well as a statutory lien on the pledged accounts. Citi ran the books with Goldman Sachs serving as co-senior manager.
The 10-year maturity in a senior tranche of the deal offered a 5% coupon with a 2.38% yield, 71 basis points over the Municipal Market Data's top benchmark. The spread on a 2031 senior lien maturity landed at an 81 basis point spread.
The authority credited recent ratings upgrades and its extensive investor outreach for helping bolster interest in the deal.
The savings will help the authority manage its budget and bolster reserve funds and liquidity as it seeks to fund some projects on a pay-as-you-go basis. Bateson said the bond sale is part of a comprehensive plan being to create long-term financial sustainability and reduce its dependence on debt finance capital for it water and sewer systems.
The savings also could help ease pressure to raise rates when the authority loses customers Flint and Genesee County and their $25 million of revenue at the end of fiscal 2017 when they switch over to a new pipeline.
Ahead of the sale, Moody's Investors Service upgraded the senior lien to A3 from Baa1 and the second lien to Baa1 from Baa2. Fitch Ratings upgraded the senior lien bonds by three levels to A from BBB and the second lien to A-minus from BBB-minus. Both rating agencies assign a stable outlook.
S&P affirmed its A-minus rating on the senior lien bonds and the BBB-plus rating on the second lien bonds. The outlook is positive.
GLWA opened its doors Jan 1, assuming Detroit's $5.5 billion water and sewer debt portfolio and taking charge of regional water management.
The water system serves nearly 40% of Michigan's population with 75% of revenue coming from wealthier suburbs, and the sewer system serves 30% of Michigan's population with more than 50% of operating revenues coming from suburban customers. The system treats water from Lake Huron, Lake St. Clair and the Detroit River and distributes it to a service area population of about 3.8 million. The sewer system treats and disposes of wastewater produced by a service area population of approximately 2.8 million.
