(Kansas City, Mo.) – The City of Kansas City, Mo., Water Services Department (Water Services) recently issued wastewater revenue bonds at a historically low interest rate of 2.86 percent, which will enable Water Services to perform $75 million in improvements associated with sewer rehabilitation, sewage treatment plants, pump stations, disinfection, sewer force mains, interceptor sewers, storm drainage, and green infrastructure improvements in connection with Water Services’ $2.5 billion, 25-year Overflow Control Program. The bonds were issued using $44 million in remaining authority from the August 2005 election, $24 million of the $500 million in bonding authority from Question 2 approved by voters in August 2012, and $7 million in net premium. As a result of the historically low 2.86 percent interest rate, Water Services staff estimates a total savings of approximately $23.7 million over the 25-year life of the bonds as compared to a similar sale at 4.75 percent, an interest rate more similar to Water Services’ historical cost of capital.
“The cost savings achieved would not have been possible without the confidence of the voters in the August election,” said Troy Schulte, the City Manager of Kansas City, Mo. “Water Services was able to take advantage of historically low interest rates to fund much-needed sewer improvement projects, which will serve Kansas Citians for generations to come.”
Simultaneously, Water Services refinanced a total of $11.605 million of outstanding sewer revenue debt, taking advantage of the current low interest rate environment. The refunding portion of the bond sale will help Water Services achieve debt service savings, on a present value basis, totaling over $1.5 million and just under 16 percent of refunding principal. The refunding bonds, with an interest cost of 1.58 percent, replaced bonds that had interest rates averaging near 4.36 percent. The underlying credit ratings on the transaction were AA/Aa2 by Standard & Poor’s and Moody’s Investors Service, respectively. According to Standard & Poor’s, its AA rating reflects a “very strong capacity to meet financial commitments.” According to Moody’s Investors Service, its Aa rating indicates the bonds are “of high quality and are subject to very low credit risk.”
“Water Services is proud of its strong bond rating, which ultimately results in cost savings and improved infrastructure for our customers,” said Water Services Director Terry Leeds. “Thank you to the City Finance Department and Treasury Division staff for their hard work on our behalf.”
The Water Services continue to achieve savings through the acquisition of low interest rates and timely refinancing. On November 4, 2011, $97 million in wastewater bonds were issued at 3.93% for a period of 25 years. On February 7, 2012, $52 million in water bonds were issued at 3.27% for a period of 25 years. And, for this bond issuance, which took place on November 29, wastewater bonds were issued at 2.86% for a period of 25 years.
Water Services used the negotiated method of sale with Wells Fargo Securities serving as senior manager of the underwriting team along with Siebert Brandford Shank & Co., LLC; M.R. Beal & Company; and Valdes & Moreno, Inc. The underwriting syndicate solicited orders targeting both retail and institutional investors and coordinated closely with Water Services and City staff, and the City’s financial advisors to achieve the needed structure of the bond issue.
FirstSouthwest and Moody Reid Financial Advisors served the City on the transaction as co-financial advisers. Gilmore & Bell, P.C. and Martinez Madrigal & Machicao, LLC served as co-bond counsel. Disclosure counsel was handled by King Hershey, PC, Clayborn & Associates, LLC and Jane Hart Law Offices, LLC. The Hardwick Law Firm served as counsel to the underwriters.
For additional financial information, please contact Tammy Queen, City Treasurer in the Finance Department, at 816.513.1024 or tammy.queen@kcmo.org.
For additional Water Services information, please contact Kip Peterson, Communications Manager for Water Services, at 816.513.0280 or kip.peterson@kcmo.org.
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KC Water maintains and operates water treatment and distribution systems, stormwater management systems, and wastewater collection and treatment systems for residential and business customers in Kansas City and for wholesale customers in the Kansas City area. KC Water is primarily funded by fees charged to customers based on their use or impacts on the three utility systems.
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