Missoula is poised to borrow up to $135 million to pay back the short-term debt incurred when purchasing the Mountain Water Company in 2017.
The two new bonds will finish paying off the remaining $118 million debt from the $138 million the city-owned water utility borrowed to acquire what’s now known as Missoula Water through the condemnation process. The new bonds also will cover the costs of issuing the debt and possibly a debt service reserve as an added security provision to make debt payments in case of an emergency.
“We’re looking to refinance the short-term bonds … which currently are at a variable rate, with long-term bonds for 25 years with a fixed rate,” Leigh Griffing, the city’s finance director, told the city council Wednesday morning.
The loans will be issued as two bonds, with up to $130 million being borrowed for the 2019A series, and up to $5 million for the 2019B series. Griffing said she thinks they’ll only need to borrow $108 million in the 2019A series, but they want to leave some wiggle room in case of unforeseen circumstances. Interest on the bonds is expected to be between $82 million and $83 million.
Griffing said water revenue from customer accounts will cover the cost of the bonds, not money from the general fund or tax dollars. The bonds will be paid off by 2044 at the latest.
In June 2017, the city wrested ownership from Mountain Water parent company Liberty Utilities and the Carlyle Group through a condemnation action, and has been operating it ever since.
“This is clear evidence the city was in a position to operate this system for the benefit of the public and we’re doing just that,” Mayor John Engen said. “We’re committed to a financial model that holds the rates to the 2011 rates for a good period of time.”
“We’re investing $6 million a year in capital improvements, paying down the debt service, all the while providing clean water to our customers.”
The water utility includes a groundwater supply system of 40 wells, including 25 elevated and ground-level storage tanks with a combined storage capacity of about 10 million gallons. The system carries water through a 337-mile network of transmission and distribution lines across 27 square miles.
The total operating budget for the water system is about $20 million; it currently has 41 city employees.
The public sale of the 2019A bonds will be done through Barclays. As of Wednesday morning, the city was still waiting to learn if its bond rating would be improved from “A” to “AA,” which could affect the amount of interest that would be paid on the financing.
“We asked for the Double A rating; we have only had the system for 18 months but there is a lot of operating history,” said Dale Bickell, the city’s chief administrative officer.
Griffing said they’ll also partner with DA Davidson so they can prioritize the way the bonds are sold with them first offering in $5,000 batches to Missoula customers. The next level will include Montana customers, and after that they’ll be offered to out-of-state and institutional buyers.
“That provides the opportunity for direct investment from a local institution,” Griffing said. “Both A and B will close concurrently on April 1.”
Bickell added that when they went over the sale provisions of the two bonds, “we’re pretty excited about the opportunities for local investors.”
“The summary financial statements are showing we have really healthy revenue and cash positions throughout this model,” Bickell said. “The amount of revenue available to pay the debt service and fund capital improvements is quite healthy; $10 million or more is generated to pay for debt services.”
He added that they expect the water fund to increase over time as new developments come online.
The nine council members at Wednesday’s meeting unanimously endorsed issuing the bonds. Michelle Cares, Stacie Anderson and Jordan Hess were absent.
“I’m fairly critical of some aspects of the Mountain Water takeover, but I’m very supportive of these two motions,” Councilor Jesse Ramos said.
Councilor Heather Harp commended the team that put together the financing package and the overall Mountain Water acquisition.
“They spent a lot of time negotiating this and got the best possible rating that we could,” Harp said. “It speaks to the fact that we all wish we could have done this years ago with a much lower price tag, but the fact is we are where we are.”