(Kansas City, Mo.) – This week the City of Kansas City, Mo., Water Services Department (Water Services) issued water revenue bonds at a low interest rate of 3.14 percent, which will enable Water Services to perform $58.7 million in vital water infrastructure improvements throughout Kansas City.
These bonds will be used to fund: 19 miles of critical water main replacements throughout Kansas City, enhancing service reliability for customers; water treatment plant and pump station improvements; and it will contribute to local economic development through the water main relocation and replacement work associated with the installation of the KC Streetcar. In addition, according to the U.S. Department of Commerce’s Bureau of Economic Analysis, the $58.7 million will result in the creation of approximately 1,100 direct and indirect jobs.
“I’m pleased Water Services was able to take advantage of low interest rates to fund important water infrastructure improvement projects. This bond sale achieves cost savings, creates jobs, boosts economic development, and improves the system for customers,” said Mayor Sly James. “I’m proud of the work Water Services is doing to invest in the City’s infrastructure, which will serve Kansas Citians for generations to come.”
The bonds were issued using $54 million in remaining authority from the August 2005 election and $4.7 million in net premium. As a result of the low 3.14 percent interest rate, Water Services staff estimates a total savings of approximately $9.4 million over the 25-year life of the bonds, as compared to a similar sale at 4.0 percent, an interest rate more similar to Water Services’ historical cost of capital for water bonds.
“Water Services is proud of its strong bond rating, which ultimately results in lower borrowing costs and more dollars for improving our water infrastructure,” said Water Services Director Terry Leeds. “Thank you to the City Finance Department and Treasury Division staff for their hard work on our behalf.”
Water Services’ 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 Aa2 rating indicates the bonds are “of high quality and are subject to very low credit risk.”
Water Services continues 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 percent for a period of 25 years. On February 7, 2012, $52 million in water bonds were issued at 3.27 percent for a period of 25 years. On November 29, 2012, wastewater bonds were issued at 2.86 percent for a period of 25 years. And, for this bond sale, which took place on February 27, water bonds were issued at 3.14 percent for a period of 25 years.
A negotiated method of sale was used, with Barclays serving as senior manager of the underwriting team along with Loop Capital Markets, UMB Bank, 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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