Featured Municipal Bond Issue, Week of November 5, 2018: Stockton Pubic Financing Authority, CA Water Revenue Refunding Bonds, Series 2018 A — $150.1 Million (Green Bonds)
The Stockton Public Finance Authority on behalf of the city of Stockton Water Utility system intends to issue by negotiated sale a total of $150,065,000 Water Revenue Refunding Bonds, Series 2018 A. The Authority has designated that the Bonds being issued are “Green Bonds” since the proceeds of the bonds together with other funds will be applied to refund previous bond issues that were intended to provide “environmental benefits” in the interest of clean water and sustainable water supplies.
The Bonds are being sold by negotiated underwriting led by Citigroup as the senior manager and RBC Capital Markets as the co-senior manager. The sale is expected to occur on November 6, 2018 subject, in part, to market conditions. The Bond issue will be insured by Build America Mutual Insurance, which has an S&P rating of AA. The underlying bonds are rated A- with a positive outlook from S&P and BBB+ with a stable outlook based on its credit standing without the benefit of insurance.
The Bonds will be secured as limited obligations of the Authority payable solely from installment payments to be made by the City of Stockton under a 2018 installment purchase contract. As security for the payment, the City has pledged ” available revenues”(net revenues) derived from the operation of the water system after payment of operations and maintenance costs and payment or setting aside of all payments, transfers and other deposits (including debt service and the replenishment of the debt service reserves with respect to senior obligations) . Any pledge, assignment or lien related to Senior Obligations take priority over the Bonds. The Bonds do not constitute a general obligation of the City or its general fund, nor is the city’s faith and credit or taxing power pledged.
The city’s offering materials project that the City shows an unaudited 2017-18 debt service coverage of 1.79x relative to all of its existing obligations pledged to cover its water revenue debt. Its projected coverage for 2018-19 debt for all obligations is 1.33x, rising to 1.66x the following year, based in part on 3% rate increases in 2019-20.
The City of Stockton’s water utility is one of three utilities managed, operated and maintained by its municipal utilities department. The other two utilities are related to wastewater and stormwater. The water system provides water for 53% of the greater Metropolitan Stockton Area. According to the city, water sources have been diversified in order to mitigate concerns about supply. The City operates two independent water systems (North Water System and South Water System).
In June 2012, the City of Stockton filed for bankruptcy under the Chapter 9 provisions of the bankruptcy code and on February 25, 2015 the City’s approved Bankruptcy Plan of Adjustment was confirmed by the Court. Since the Water Utility bonds were secured and payable from certain pledged “special revenues “(defined under the United States Bankruptcy Code), of the City’s water enterprise fund, debt service related to water bonds continued to be paid and were not diverted or available to fund general fund operations. See the Series 2018 A prospectus to obtain a complete and detailed description of remedies and protections in the event of bankruptcy related to the 2018 Installment Purchase Contract.
Potential investors should review the preliminary official statement offering document in its entirety for complete details and special provisions related to the Security or the 2018A Bonds and the Proposed Amendments to the Master Indenture. Visitors to Munios must register first on MUNIOS.COM website before clicking on the specific reference to the Official Statement. An investor road show slide presentation accompanies the prospectus on the munios.com website.
Interest on the Series 2018A bonds is in the opinion of Bond Counsel tax-exempt for federal income tax purposes and is exempt from State of California personal income taxes.
Details on the purposes, tax-status, security, risks as well as other matters pertaining to these OSF bonds can be found in the preliminary official statement after registering on the munios website and searching for the Stockton Public Finance Authority Water Revenue Refunding Bonds, Series 2018.
The adjacent table (click to expand) is a quick snapshot of financial characteristics of the Power System Enterprise of the Department of Water and Power of the City of Los Angeles as of 06/30/2017, compared with the 2016-2017 medians for other retail electric systems from throughout the nation, courtesy of Merritt Research Services, LLC. Merritt has many of the sector medians publicly available and regularly updated on their Benchmark Central page. (Merritt believes the data to be reliable but does not make any representations as to its accuracy or completeness). In addition to the Merritt information related to the featured bond, more information can be found on our municipal bond calendar, city, state, and county pages, and our employment database.
These facts and numbers are for informational purposes, and should not be considered an official disclosure for potential investors. Investors should consult the official statement. None of the information provided should be construed as a recommendation by MuniNet Guide, MuniNet LLC, Merritt Research Services LLC, or any of their employees. Information and analysis is for informational purposes only.