Jul 11, 2014

DC Water Announces Sale of $350 Million Green Century Bonds

The 100-year final maturity marks first U.S. municipal century bond issued by a water/wastewater utility

DC Water Green Century Bonds Blue Plaines Tunnel Clean Rivers Project

DC Water issued $350 million in taxable, green century bonds, marking several firsts for the authority and the municipal sector. The 100-year final maturity represents the first municipal century bond issued by a water/wastewater utility in the U.S. It also represents DC Water's inaugural green bond issue and the first "certified" green bond in the U.S debt capital markets with an independent second party sustainability opinion.

The Blue Plains Tunnel is part of DC Water's Clean Rivers Project, a massive tunnel system that will significantly reduce water pollution in the region's waterways.

Proceeds from the century bonds will finance a portion of the DC Clean Rivers Project, a $2.6 billion effort to construct a deep tunnel system that will transport combined storm water and sewage to DC Water's Blue Plains Advanced Wastewater Treatment Plant, significantly reducing combined sewer overflows (CSOs) to area waterways. The issuance achieved its green certification based upon the project's environmental benefits, which include improving water quality by remediating CSOs, promoting climate resilience through flood mitigation and improving quality of life through promotion of biodiversity and waterfront restoration.

DC Water has typically issued 30 to 35-year tax-exempt municipal bonds to fund its capital improvement projects, reflecting the anticipated useful life of the assets. In the case of the Clean Rivers Project, DC Water is financing a portion of the construction costs with a century bond to better match the useful life of the tunnel systems - expected to perform for at least 100 years.

The key reasons DC Water chose to issue century bonds included:

  • Asset-Liability Matching: century bonds permit the Authority to match its long-lived assets and liabilities on its balance sheet.
  • Intergenerational Equity and Fairness: century bonds spread the costs of the project more affordably and fairly to those who will benefit over the next 100 years.
  • Committed, Long-Term, Low-Cost Capital: century bonds allow DC Water to take advantage of historically low interest rates and to lock-in funding costs for a very long-lived asset.

The $350 million taxable, senior lien, fixed rate century bonds were sold via negotiated sale, led by joint book-running senior managers Goldman, Sachs & Co. and Barclays. Public Financial Management Inc. served as DC Water's financial advisor for this transaction. Favorable market conditions and strong investor demand enabled DC Water to upsize the transaction by $50 million from an initial offering size of $300 million. The century bonds were offered at an interest rate of 4.814% with a final maturity of 2114.

DC Water also intends to price $100 million of tax-exempt, subordinate lien, variable-rate demand bonds during the week of July 21, 2014, bringing the total sale to $450 million.

The credit ratings for DC Water's senior lien bonds are Aa2/AA+/AA from Moody's Investors Service, Standard & Poor's and Fitch Ratings, respectively. 

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