Austin, Texas, issued $454.2 million in bonds to finance improvements to its water and sewer system and refund previously issued securities.
The bonds mature between 2025 and 2053, yielding between 3.08% and 4.11%. They pay interest at 5%. The securities received a rating of AA- from Fitch Ratings, Aa2 from Moody’s Investors Service, and AA from S&P Global Ratings.
“The rating reflects our opinion that despite extremely strong Austin Water’s enterprise profile and market position assessment, it has below average water availability and pro forma financial metrics compared to those of its similarly rated peers,” S&P analyst Chloe Weil said in a press release.
The issuance comes as the city prepares for periods of unprecedented stress to its water system driven by extreme heat. Last summer offered a glimpse of the threat posed by a warming climate, when Austin registered 40 days with temperatures over 105°F and less than 1.5 inches of rain. The bond documents describe last summer as a period of “extraordinary drought.” The city is now making several upgrades to its infrastructure to ensure it is equipped to deal with such weather.
Austin will use the bond proceeds to fund capital improvements, including some that are aimed at increasing water conservation. The city will also use the issuance proceeds to refund outstanding commercial paper notes.
The bonds are special obligations of the city of Austin, payable by net revenue from its water and wastewater system. The system recorded $327.1 million in net revenue last fiscal year.
Ramirez & Co, Inc served as lead underwriter on the issuance, purchasing the bonds for $500.6 million. The price reflected a premium of $47.9 million and a discount of $1.5 million. PFM Financial Advisors LLC acted as municipal advisor.