PHILADELPHIA – The City of Philadelphia sold $368.7 million of Water and Wastewater Revenue Refunding bonds last week, garnering $54.9 million in net present value savings (17.4 percent of refunded par) for the Philadelphia Water Department (PWD) over the next 25 years. These savings will help PWD continue to make crucial system-wide investments in water and wastewater infrastructure while minimizing debt service costs.
The City took advantage of the low taxable interest rate environment and positive market reception to achieve strong savings for ratepayers. The bonds received orders for over $540 million from 33 institutional investors and several retail investors, allowing the City to further lower interest rates in certain maturities. Spreads to US Treasuries, the industry-accepted benchmark for taxable bonds, were approximately 0.68 percent lower on average than for comparable maturities in the City’s most recent taxable Water and Wastewater Revenue borrowing in 2020.
“The Department is focused on making sound financial decisions that contribute to the long-term stability of our water and wastewater infrastructure. Savings from this refunding will help us as we continue our focus on maintaining a high level of service for PWD’s customers,” stated Water Commissioner Randy E. Hayman, Esq.
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 and 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.
“We took advantage of low taxable rates and were pleased with the strong reception on this transaction,” stated City Treasurer Jacqueline Dunn. “The favorable investor outlook on PWD’s bonds is a reflection of the continued strong financial management of the department’s leadership.”
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 “strong management team continues to meet the fiscal and operational challenges of the pandemic with conservative budgeting and a prudent management of its capital plan.” However, Moody’s did warn that “inability to increase rates commensurate with coverage requirements and in line with the department’s internal standards” could lead to a downgrade.
The 2021 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 June 30, 2021.