City of Shreveport, Louisiana
$55,975,000 Water and Sewer Revenue Bonds, Series 2017A
$35,840,000 Water and Sewer Revenue Bonds, Junior Lien Series 2017B
SCS senior manages fourth consecutive bond transaction for Shreveport Water and Sewer with a long-term strategic approach
This is the most recent (June 2017) of four consecutive transactions which SCS has senior managed for the City of Shreveport. Consecutively managing these transactions, which have totaled over $350 million since 2014, has allowed SCS to take a very systematic approach to marketing this credit. This approach has helped the City attain not only a familiarity with the municipal bond marketplace, but a ratings upgrade. With critical infrastructure needs due to regulatory requirements, SCS worked diligently with the City’s staff and its municipal advisor to craft a multi-year financing plan. The credit presented a challenge as the firm balanced addressing infrastructure costs with the need to maintain adequate debt metrics as well as financial flexibility. SCS was able to navigate the rating agency and investor outreach process to highlight the significant strides the City has made in its financial position through meticulous and conservative financial forecasting and System operations resulting in a much stronger credit.
The City can point to a myriad of impressive accomplishments over the past several years, including passage of multi-year rate increases, updating its master indenture to modernize covenants, and rating upgrades. Because the consent decree required a multi-year financing plan to fund the required System improvements to ensure compliance, SCS worked closely with the municipal advisor to create an optimization model through the firm’s “What’s Best” model. Recommendations for modernizing the indenture with industry standard covenants allowed the City to tap into issuance on the junior-lien level enabling the City to optimize usage of its senior-lien capacity.
By taking a balanced approach to incorporating the available financial products into the City’s debt mix of senior lien/junior lien bonds, including low cost state revolving fund loans and a fix out of a portion of its variable rate debt, the City obtained an affirmation of its underlying ratings. The Bonds were affirmed at A3/A-/NR and Baa1/BBB+/NR for the senior lien and junior lien bonds, respectively. To potentially increase the universe of investors, SCS solicited bond insurance and surety bids. Assured Guaranty provided the lowest bid and was selected as the provider for the Bonds. The structure of the Bonds was back loaded with a maturity in 2018 and then principal amortization from 2035 through 2041. Both the senior lien and junior lien bonds offered bifurcated 4% and 5% 2041 term bonds.
Just a week prior to pricing, interest rates rallied with MMD decreasing between 2 to 11 basis points. On the week of pricing, the rally continued, but at a slower pace so we were able to use that positive momentum to extract tighter pricing spreads than initial levels. At the end of the order period, there were $504 million in total orders with every maturity at least 2. 43x oversubscribed. With a robust order book due to the strong marketing efforts of the underwriting syndicate and extensive knowledge of the credit, SCS lowered pricing spreads by 6 to 8 basis points for the senior lien bonds and 3 to 5 basis points for the junior lien bonds. This helped reduce the all-in true interest cost by 3. 4 basis points.
The transaction attracted from 56 different institutional investors with SCS’s sales desk submitting $395 million of the total orders (90%).