City utility offered another bond deal

Wednesday, September 23, 2009

With repeated acknowledgments of Lewisburg's bad experience with sewer bonds, two financial advisers last week offered the city's Water and Wastewater Board another opportunity to borrow money.

In May, the City Council voted to refinance $7 million in bonds secured by American Municipal Bond Assurance Corp. Its sub-prime mortgages forced an investors' service to downgrade the bonds. That increased city costs, so the variable-rate debt was repaid with new bonds.

On Thursday, a fixed-rate, 3.7 percent, $5-million, 20-year deal was described by two financiers associated with the Tennessee Association of Utility Districts (TAUD) who explained water utility bonds are popular with investors who want security in a volatile market.

Water bonds are popular "because people will continue to drink water," according to T. Keener Billups Jr., managing director of the Capital Markets Group at Wiley Bros.-Aintree Capital LLC, Nashville.

Billups came to the utility board with John Hall of the Murfreesboro-based Flexible Finance Program for the TAUD, and Larry Jones, the recently-retired superintendent of Lewisburg's water utilities, who said he was on TAUD's board when a one-page application form was adopted by the association for its members' financial needs.

A multi-million dollar sewage treatment plant expansion project here is awaiting approval from the Tennessee Department of Environment and Conservation. TDEC has also taken steps to restrict expansion of the city's sewerage system to prevent more pollution because of sewer leaks.

The solution, utility Superintendent Kenneth Carr says, is expansion of the treatment plant, a project that will be financed with bonds.

Meanwhile, the utility has awarded a sewer repair contract that received bids that were so low, the project was extended.

That's one of the factors Billups and Hall pointed to when offering financial services to the city.

Labor costs might also be down, but contractors have been squeezing profits to keep their crews together by keeping them employmed, according to engineers commenting after recent public works bid openings in Marshall County.

"Plus," Billup told the utility board on Thursday, "project costs are low now and pipe prices are really low."

Reporting on other utilities he's consulted, Billups said, "Some are buying pipe now and are putting it in the warehouse."

The bonds he's advocating can be used only for capital projects, so some utilities have been replacing old computers and others are adding to their SCADA systems. System Control And Data Acquisition systems are used by power utilities to shift electric loads when, for example, rain cools one part of town and air conditions stop running, while other areas need more power.

"You ought to have a good (bond) rating," Billups told the utility board, noting its growth with the Cornersville system and Interstate 65 connections, apparently seen as offering opportunities for growth.

Then in a reference to the system's financial stability and reliable customer base, Carr added, "Our cut-offs haven't increased."

Billups emphasized buyers of income-tax-free municipal bonds know there's no substitute for water, so loaning money to a water utility is recognized as having the greatest security.

No decision to borrow money was made during the water board meeting on Thursday, but utility officials were told that the next step toward selling bonds through the TAUD program is to have an ordinance drafted so the city may declare its intention to issue the securities. That might be accomplished with assistance from the Nashville-based law firm if Bass Berry & Sims, according to discussion at the utility offices at the corner of Water Street and First Avenue North.

Bonds could be sold 45 days after the application date, Carr said.