North Carolina commission approves $226M revenue bonds

The North Carolina Local Government Commission approved $226 million in water revenue bonds for three municipalities in the Research Triangle Region at its meeting Tuesday.

The commission approved a $76 million bond and an $88.4 million state revolving fund loan for Sanford, a $75 million bond and a $54 million SRF loan for Fuquay-Varina, and a $75 million bond for Holly Springs.

The towns have a construction management agreement to expand the Sanford Water Treatment Facility, which they manage jointly. The towns plan to increase the facility's treatment capacity to 30 million gallons a day from 12 million gallons a day, with eight million of the additional capacity being funded by Sanford, six million by Fuquay-Varina and four million by Holly Springs.

The funds will also be used to extend and replace water lines.

The municipalities said the expansion was needed to meet growth in the area. Holly Springs is five miles from Fuquay-Varina, which is 39 miles from Sanford.

The Sanford bond will be underwritten by Wells Fargo Securities, with First Tryon Advisors as municipal advisor. It will have level debt service maturing in 2049.

The Fuquay-Varina bond will be underwritten by R.W. Baird, with Davenport & Company LLC as municipal advisor. It will have level debt service maturing in 2049.

The Holly Springs bond will be underwritten by PNC Capital Markets with DEC Associates as municipal advisor. It will have level debt service maturing in 2054.

The Sanford bond is rated Aa3 by Moody's Ratings and AA-minus by Fitch Ratings. Current projections provided by Sanford show total debt service coverage through 2029 of at least 1.93 times. Sanford water rates are expected to increase by 6% in fiscal 2025 and 4% each year thereafter through the forecast period ending in fiscal 2029.

The Fuquay-Varina bond is rated AA by S&P Global Ratings. Current projections provided by Fuquay-Varina show total debt service coverage through 2029 of at least 1.46 times.  Fuquay-Varina water rates are expected to increase by 15% in each fiscal year 2025-2028 and 5% in 2029.

The Holly Springs bond is rated Aa2 by Moody's. Current projections provided by Holly Springs show total debt service coverage through 2029 of at least 1.50 times.  Holly Springs water rates are expected to increase by 15% in fiscal 2025, 15% in fiscal 2026, 9.5% in fiscal 2027, 9.5% in fiscal 2028, and 9.5% in fiscal 2029.

Observers say the country has tremendous needs for water infrastructure spending even as water infrastructure bond issuance has declined in recent years.