The California Infrastructure and Economic Development Bank issued $273 million in bonds to fund projects aimed at ensuring California has clean water.
The bonds mature between 2024 and 2048, yielding between 2.21% and 3.72%. They received a rating of AAA from S&P Global Ratings, Aaa from Moody’s Investors Service, and AAA from Fitch Ratings.
The bond proceeds will finance the state revolving fund (SRF), a pool of loans to local agencies tasked with running water infrastructure.
Credit analysts wrote that the bond rating reflects the high default tolerance within the state revolving fund. More than half of scheduled loan repayments could default with “no interruption” to bond debt service, according to Moody’s. “The SRF’s adequate structural features, including the cross-collateralization between the clean water SRF and drinking water SRF, remain an integral part of the credit quality,” Moody’s analysts wrote.
Efforts to increase access to clean water have recently accelerated in California, where an estimated one million people still do not have access to safe drinking water. In 2019, Governor Gavin Newsom signed a bill allocating $1.3 billion toward clean water initiatives, which were bolstered by federal infrastructure legislation in 2021.
But many California communities remain beleaguered by a contaminated water supply. Of the more than 3,000 water districts in California, 363 are failing, 600 are at risk, and 429 are potentially at risk, according to state data. Barely more than half were deemed “not at risk.”
The bonds are special limited obligations of the California Infrastructure and Economic Development Bank, payable by federal disbursements to the bank.
Morgan Stanley & Co LLC served as underwriter on the issuance, purchasing the bonds for $300.8 million. The price reflected a premium of $28.6 million and a discount of $800,000. Hilltop Securities, Inc acted as municipal advisor.