DALLAS - Phoenix will combine new money and refunding in a $610 million water bond issue expected to price Dec. 3.
Series A bonds of $155.2 million will take out commercial paper used for water projects, while the $454.8 million Series B will refund outstanding debt.
The refunding of all of the callable series 2003 and 2005 bonds is expected to produce present-value savings of more than $60 million, according to Kathleen Gitkin, acting city treasurer.
"We have traditionally had strong bond holder support for these bonds, and anticipate the same as we head into this sale," Gitkin said. "We price on Dec. 3, but can issue sooner if appropriate."
The deal comes to market in a particularly heavy week as issuers try to lock down low interest rates before the year ends. Issued in the name of the Phoenix Civic Improvement Corp., the bonds carry triple-A ratings from Standard & Poor's and Aa2 ratings from Moody's Investors Service. Outlooks are stable.
Bank of America Merrill Lynch is book runner on the deal, with managing director Jeffrey Bower as lead banker. JPMorgan is co-senior manager.
Kenneth Cushine, principal at Frasca & Associates, is financial advisor. Greenberg Traurig is bond counsel.
With Arizona still in the grips of a 15-year drought, ratings analysts focused much of their attention on reliability of Phoenix's water supply. Phoenix is largely reliant on a canal from the Colorado River.
"While the drought affecting the Colorado River basin has not yet materially weakened the system's credit profile, future rating reviews will remain focused on the system's ability to maintain fiscal stability and manage water availability stress in the event the drought persists and water supply is curtailed," Moody's analyst Dan Steed wrote. "Still, Moody's believes that in the event of a shortage declaration on the Colorado that the city will continue in its ability to meet its customers' demands for many years to come."
The Phoenix water utility provides retail water service to about 1.5 million people with a service area that includes accounts primarily within the city of Phoenix.
Although the city has pledged a junior lien on this issue, the bonds are effectively senior-lien debt as long as the city continues its plan to not issue any senior-lien bonds,
according to Standard & Poor's analyst James Breeding.
While Arizona's recovery from the recession has proven challenging, analysts continue to see positive trends in the nation's sixth-largest city.
"In our view, the breadth and diversity of Phoenix's economy are a key credit strength," Breeding said.
