PHILADELPHIA – The City of Philadelphia announced today that it achieved historically low interest rates in a Water and Wastewater Revenue and Revenue Refunding Bond issue priced in late July. Through these low rates, the City was able to refinance existing debt to achieve $24.3 million in net present value savings (19.6% of refunded par) for the Water Department over the next 23 years, including savings of approximately $4.7 million in the next two years. In addition, the Revenue bonds will provide $200 million for crucial system-wide investments in water and wastewater infrastructure in accordance with the Philadelphia Water Department’s (PWD) capital program at a low cost to taxpayers.
Rates for the $201.5 million tax-exempt Series A Bonds were 0.51% lower than rates on the City’s most recent tax-exempt Water Wastewater Revenue borrowing in 2019, as the City took advantage of an extremely low interest rate environment and positive market reception. The exceptional demand for Philadelphia bonds, with total orders from 68 retail and institutional investors exceeding $1.9 billion (9.6 times oversubscribed), led to a further lowering of interest rates, reducing debt service on this series by almost $2.2 million from pre-pricing estimates.
For the $94.9 million taxable Series B Bonds, the City achieved interest rates 1.80% lower, on average, then for comparable maturities on the last taxable Water Wastewater Revenue borrowing. As with the tax-exempt bonds, strong demand helped drive these exceptionally low rates; 52 investors placed orders for over ten times the amount of bonds issued, allowing the City to further lower interest rates and increase net present value savings by $2.4 million compared to pre-pricing estimates.
“It is imperative that we, as a department, do everything that we can to seize cost-saving opportunities like this – especially during turbulent economic times. We continue to focus on strategic, long-term planning that will help the Philadelphia Water Department maintain a strong financial position. Additional savings from refundings provide the Department the financial flexibility to invest in necessary infrastructure upgrades and other operational measures that directly benefit our customers,” says Water Commissioner Randy E. Hayman, Esq.
“Strong investor demand for Philadelphia Water Department bonds translates into savings at a crucial time,” stated City Treasurer Christian Dunbar. “Favorable investor outlook on PWD’s bonds is also a reflection of the strong financial management of the department’s leadership.”
In advance of the sale, the City received confirmation of its existing bond ratings from each of the three rating agencies. Moody’s Investors Service affirmed its ‘A1’ rating on the City of Philadelphia’s Water & Wastewater Revenue Bonds. Fitch Ratings and S&P Global Ratings also maintained their stable outlooks and ‘A+’ ratings. Water and Wastewater Revenue is the City’s highest rated credit.
All three agencies cited the PWD’s strong financial and operational management, broad and diverse service base, and robust system capacity, while cautioning that PWD has significant long-term capital needs and must continue to withstand short-term pressures resulting from the COVID-19 crisis. Moody’s noted PWD’s “consistent historical results and our expectation that management will continue to act to maintain structural operating balance and meet coverage covenants despite near-term revenue pressures.”
The 2020 bonds were sold by an underwriting syndicate led by Citigroup, with Loop Capital Markets serving as co-senior manager. Acacia Financial Group, Inc and PFM Financial Advisors LLC served as financial advisors on the transaction. The sale closed on August 6, 2020.