Capital Financing Plan for
Fiscal Year 2023
-
24 Nikolai J. Sklaroff
Capital Finance Director
Business Services
October 10, 2023
1 • Large outstanding debt portfolio and significant projected future debt issuance and credit needs
• Activities guided by Commission Policy
• Debt Management Policies and Procedures, updated
November 2019
• Capital Financing Policy, adopted March 2017
• Debt Service Coverage Policy, adopted March 2017
• Revenue Bond Oversight Committee (RBOC)
• Annual Capital Financing Plan
• Provides the Commission visibility regarding upcoming capital financing activity
Debt Management Overview
2 3
Outstanding and Anticipated Debt
• SFPUC has $8.5 billion of outstanding borrowing:
• Excludes $3.6 billion undrawn Commercial Paper, WIFIA and SRF borrowing.
• The 10-year (FY 2024/2033) Financial Plan presented to the Commission in February includes $6.338 billion of
additional borrowing ($819 million this current year)
4 Summary of Enterprise Debt
5 ^Updated ratings available from Moody’s Investors Service (www.moody’s.com), S&P Global Ratings (www.spglobal.com) and Fitch Ratings (www.fitchratings.com).
†CleanPowerSF received an A2 issuer rating from Moody’s Investors Service in December 2020, however the CleanPowerSF Program currently does not have any debt outstanding
Summary of Enterprise Credit Ratings
Credit Ratings (Credit Outlook)
Moody's Investors
Service
S&P Global Fitch Ratings
Long‐Term Long‐Term Long‐Term
Water Enterprise Aa2
(Stable)
AA-
(Stable)
*
Wastewater Enterprise Aa2
(Stable)
AA
(Stable)
*
Power Enterprise * AA
(Stable)
AA-
(Stable)
CleanPowerSF† A2
(Stable)
* *
New Money/Credit Needs
• Issue debt to meet ongoing enterprise capital requirements • Regular monitoring/analysis of how much and when funds are needed Administration of Existing Debt Portfolio
• Renew or replace bank credit facilities for Interim Funding Commercial Paper (CP) Programs
• Increase program authorization, when needed
• Provide disclosure training to the Commission
Market Opportunities
• Active monitoring of credit markets
• Execute debt refundings for ratepayer savings
• Limited by tax-exempt advance refunding repeal
Capital Financing Activities
6 Market Conditions
• The Federal Reserve has
significantly raised rates,
but is forecasted to pause
rate hikes for rest of 2023
and decrease in 2024.
• Yield inversion persists in
municipal market.
• Volatility in both the
taxable and tax-exempt
markets remain creating potential for new refunding
opportunities, like the recent tender refunding for the Water Enterprise
7 Source: TM3 Refinitiv, courtesy of Financial Advisor
FY 2023-24 Capital Financing Plan
8 Activity Size ($ Million)
Comm
Action Closing
1. Power- Authorize Revenue Bonds to
refinance outstanding commercial paper and
allow new project encumbrance.
Up to $145 Q1 FY24 Q2 FY24
2. CleanPower SF Credit Agreement- Amend
credit agreement
$20 increase, pending
state requirement Q3 FY24 Q3 FY24
3. Wastewater- Approve Clean Water SRF loan
agreements
Up to $160, subject to
state approval Q4 FY24 Q4 FY24
4. Wastewater and Water- Approve renewal or
replacement of bank credit facilities for
interim funding programs
$200- Wastewater*
150- Wastewater
75- Wastewater
100- Wastewater
100- Water
Q2 FY24
Q3 FY24
Q4 FY24
Q4 FY24
Q4 FY24
Q2 FY24
Q3 FY24
Q1 FY25
Q1 FY25
Q1 FY25
5. Wastewater
– Authorize Revenue Bonds to
refinance outstanding commercial paper and
allow new project encumbrance
Up to $775 Q4 FY24 Q1 FY25
6. Debt Management Policy- Adopt updated
Debt Management Policy - Q4 FY24 -
Note: Dates and amounts are preliminary and subject to change. * Commission authorization pending General Manager approval of extension of existing agreement Other Initiatives
9 • Alternative Water Supply (AWS)
o Review financing options for projects in partnership with the AWS team.
• Managing in a Rising Rate Environment
o Work with municipal advisors to reassess debt program in the midst of a changing rate environment.
• Power Enterprise Financing Needs- CleanPowerSF
o Evaluate potential capital financing needs for energy procurement and prepayment options as well as assess opportunities created by the Inflation Reduction Act (IRA).
• Green Bond Program
o Evaluate enhancements to SFPUC’s Green Bond Program in light of recent market development and regulatory changes.
10 Questions
525 Golden Gate Avenue, 4th Floor
San Francisco, CA 94102
T 415.551.2973
F 415.554.1877
OUR MISSION: To provide our customers with high-quality, efficient and reliable water, power and sewer services in a manner that values environmental and community interests and sustains the resources entrusted to our care.
Page | 1
MEMORANDUM
Date: October 10, 2023
To: Commissioner Newsha K. Ajami, President
Commissioner Sophie Maxwell, Vice President
Commissioner Tim Paulson
Commissioner Anthony Rivera
Commissioner Kate H. Stacy
Through: Dennis Herrera, General Manager
From: Nikolai J. Sklaroff, Capital Finance Director
Subject: Fis
cal Year 2023-24 Capital Financing Plan
BACKGROUND
Each of the San Francisco Public Utilities Commission’s (SFPUC) enterprises – Water, Wastewater and Power – borrows funds in the capital markets to fund a significant portion of its capital projects. By borrowing for these capital projects in the capital markets, the SFPUC can make payments for these long-lived assets over the many years they remain in service. SFPUC typically pays for those assets over 25-35 years, so that the users of these assets , and not just today’s users, share in the burden of these capital costs. In this manner, we manage to keep rates as low as possible and manage equity by ensuring that households today do not need to pick up the full tab for assets that will be used for several generations . While the borrowing has its own interest costs, the borrowing helps us to manage the rate impact of the periodic need to build large facilities by spreading out the payments over time and allows the SFPUC to repay the debt with less valuable future dollars.
The SFPUC maintains a dedicated Capital Finance team under the leadership of the Chief Financial Officer, which works across all three enterprises to manage both the new borrowing activity as well as to manage outst anding obligations. The SFPUC borrows funds from very inexpensive sources. Thanks in part to a City Charter requirement that requires each enterprise to maintain a “high” bond rating, the SFPUC’s bonds are highly attractive to investors and sold at favorable interest rates and on favorable terms.
The SFPUC obtains low -cost borrowing from various advantaged sources including issuing bonds on a tax -exempt basis. When investors don’t have to pay federal or state income tax on interest they earn from tax -exempt bonds, they are willing to accept a lower rate on those bonds. The SFPUC also enters
Memo: Fiscal Year 2023-24 Capital Financing Plan
October 10, 2023
into borrowing agreements with the f ederal government or State of California under special loan programs. T he Capital Finance team actively manages for lower debt costs by only issu ing debt when needed to avoid interest costs on unneeded bond proceeds, using short-term debt to obtain lower interest rates, refinancing debt when opportunities are identified, and finding other innovative financing structures . For example, the SFPUC has attracted additional investors by issuing Green Bonds and has used notes to leverage its federal borrowing. T he Capital Finance team also manages separate commercial paper programs for each enterprise that allow borrowing on an interim basis at very low rates, until there are enough borrowing needs to warrant issuing long- term bonds. This reduces the need to pay interest on unspent proceeds and allows the SFPUC to better leverage economies of scale.
Successful execution of the SFPUC’s Capital Plan requires an effective and efficient approach to the issuance of new financing. This annual Capital Financing Plan memorandum provides the Commission advance notice of planned FY 2023-24 debt transactions, as guided by Commission approved “Debt Management Policies & Procedures” , last updated November 2019 1.
Given current volatility in interest rates, changes in federal and state law, the dependence on financial and intergovernmental partners, and potential changes in SFPUC capital needs and priorities, we note that all information contained in this plan is preliminary and subject to change and based on the most current information available to its Capital Finance team.
As of September 1, 2023, the SFPUC has m ore than $ 8.5 billion of borrowing outstanding across all three enterprises as seen in the following chart 2:
1 https://sfpuc.org/sites/default/files/about-us/policies-reports/DebtManagementPolicy_9819.pdf 2 Note the chart excludes $1.383 billion of undrawn commercial paper The $1.5 billion of commercial paper capacity is used as interim financing that is then refinanced with bonds or other long-term borrowing. The chart also excludes $1.848 billion of undrawn WIFIA commitments and $370 million of undrawn SRF commitment. - 1,000 2,000 3,000 4,000 5,000 6,000
Water
Wastewater
Power
Borrowing by Enterprise
($ millions of September 1, 2023)
Public Market Revenue Bonds and Notes Federal WIFIA Loans (Drawn) State SRF Loans (Drawn) NCREBs and QECB
Certificates of Participation Commercial Paper (Drawn)
Memo: Fiscal Year 2023-24 Capital Financing Plan
October 10, 2023
The following table summarizes the outstanding debt of each enterprise as of September 1, 2023:
SUMMARY OF ENTERPRISE DEBT
($ Million)
As of September 1, 2023
Water Wastewater Power Total
Senior
Revenue Bonds / Notes $4,769 $2,745 $159 $7,673
WIFIA Loans3
Executed - $1,980 - $1,980
Drawn - $122 - $122
SRF Loans4
Executed $429 $401 - $830
Drawn5 $137 $323 - $460
Subordinate
NCREBs and QECB6 - - $4.4 $4.4
COPS7 $92.5 $24.5 $12.6 $129.6
Commercial Paper
Authorized $500 $750 $250 $1,500
Drawn - - $117 $117
The following table summarizes the outstanding credit ratings of each enterprise:
Credit Ratings (and Outlooks)8
Moody's Investors
Service
S&P
Global Ratings
Fitch
Ratings
Water Enterprise Aa2
(Stable)
AA-
(Stable)
-
Wastewater Enterprise Aa2
(Stable)
AA
(Stable)
-
Power Enterprise - AA
(Stable)
AA-
(Stable)
CleanPowerSF9 A2
(Stable)
- -
3 Water Infrastructure Finance and Innovation Act
4 State Revolving Fund
5 Does not include expenses submitted for reimbursement approvals that have not yet been received 6 New Clean Renewable Energy Bonds and Qualified Energy Conservation Bonds 7 Certificates of Participation – 525 Golden Gate Ave
8 Moody’s Investors Service (www.moody’s.com), S&P Global Ratings (www.spglobal.com) and Fitch Ratings (www.fitchratings.com). The highest available rating is Aaa, AAA or AAA by Moody’s, S&P and Fitch respectively. SFPUC’s ratings are deemed “high ratings” and compare very favorably to peer agencies. 9 CleanPowerSF received an A2 issuer rating from Moody’s Investors Service in December 2020 g Memo: Fiscal Year 2023-24 Capital Financing Plan
October 10, 2023
CAPITAL FINANCE PLAN INTRODUCTION
Given the size, number, and complexity of the capital financing transactions, as well as long lead times to generate the required documentation, staff develops and provides this annual capital financing plan to provide visibility to the Commission on planned capital financing activity for the coming year based on the 10-Year Plan adopted by the Commission in February 2023. This plan also serves as a planning tool for staff. Each time staff returns to the Commission for approval of a capital financing transaction, it updates plan progress.
This is the eighth annual Capital Financing Plan being presented to the Commission. Last year’s Plan described seven capital financing transactions , six of which were scheduled to close in FY 2022-23 and one, the 2023 Power Revenue Bonds, to close in FY 2023-24. Four transactions were closed in FY 2022-23, as spending on water was not as fast as projected . The new money water revenue bonds came to the Commission in June 2023 together with an unplanned refinancing opportunity . The anti cipated need for additional credit capacity for CleanPowerSF didn’t materialize in FY 2022-23 and staff continues to evaluate the needed capacity for the upcoming renewal of the CleanPowerSF Credit Agreement. The State is continuing its review of SFPUC applications for SRF Loan Agreements for FY 2023-24. The Power Bonds in the Fiscal 2023-24 are expected to close in October.
The completed transactions were as follows:
Completed FY 2022-23 Capital Financing Plan Transactions
Commission Action Description
Transaction
Size ($ Million)
Commission
Action Closing
1. Wastewater - Approve Water Infrastructure
Finance and Innovation Act (WIFIA) Loan
Agreement - Resilience Projects
$791
Agreement and
$369 Loan
April 2023
April 2023
2. Water - Authorize Clean Water State
Revolving Fund (SRF) execution of amended
Loan Agreement - Westside Recycled Water
Project
$4.9 increase to
$191
November
2022 April 2023
3. Wastewater – Authorize Revenue Bonds to
refinance outstanding commercial paper
and/or provide other new money
$775 New
Money and
$269 Refunding
March 2023 April 2023
4. Water – Authorize Revenue Bonds to
refinance outstanding commercial paper
and/or provide other new money
$432 New
Money and
$515 Refunding
June 2023
July and
August 2023,
respectively
Memo: Fiscal Year 2023-24 Capital Financing Plan
October 10, 2023
Commission Action Description
Transaction
Size ($ Million)
Commission
Action Closing
5. Wastewater & Power - Approve renewal or
replacement of bank credit facilities for interim
funding programs
$125 -
Power February 2023 March 2023
$100 -
Wastewater February 2023 April 2023
Transaction group #5 above is comprised of two credit facility amendments or replacements that support the Interim Funding Programs of the Wastewater Enterprise and Commercial Paper Program of the Power Enterprise. The expiring bank credit facilities were either renewed or replaced with lower cost facilities. A third credit facility that supports the Interim Funding Program of the Wastewater Enterprise was passed by the C ommission in FY2021-22 and closed in July of FY 2022-23. The Commission also approved replacement dealer agreements in support of interim finance programs for all three enterprises during FY2022-23.
The SFPUC, along with its advisory team, also took advantage of market opportunities to generate savings for ratepayers by lowering the interest rate on future debt payments:
• Wastewater Refunding. In April of 2022, the Commission authorized the refunding of Wastewater Bonds which closed in July 2023 ( in FY 2022-23). The sale had a par value of $137 million and generated $ 12 million of savings in today’s dollars (a measurement known as N et Present Value (NPV) savings. These savings are 8% of the bonds refunded; the SFPUC’s policy requires 3% savings to proceed with a refinancing.
• Wastewater Refunding. Add itionally, the Commission authorized Wastewater refunding bonds in March 2023. That sale included two refunding series. The Series B refunding portion of the par amount was $81 million and the Series C refunding par was $166 million. The NPV savings for Series B and C were $7.7 million, or 8.4%, and $15.8 million, or 8. 8%, respectively . The Series C Bonds were issued to refund the outstanding 2018 Series C Bonds. H ad they not been refunded, the bonds would have been subject to a higher interest rate following a mandatory put on October 1, 2023.
• Water Refunding. Finally, to take further advantage of market dynamics, in June 2023 the Commission authorized $1.6 billion of Water Revenue refunding par through a tender process. The gross savings of the tender was $86 million or $58.6 million on an NPV basis and 9.5% savings of refunded bonds. The transaction closed in the following fiscal year in August 2023.
Memo: Fiscal Year 2023-24 Capital Financing Plan
October 10, 2023
In short, in addition to issuing new bonds, the SFPUC issued refinancing (“refunding”) bonds which lowered future debt service costs by a total of $94.1 million in today’s dollars.
FY 2023-24 CAPITAL FINANCING PLAN
The new FY 2023-24 Capital Financing Plan has been developed amid a dramatic change in interest rate dynamics as the Federal Reserve has taken unprecedented actions to curb inflation by instituting a series of 11 rate hikes since March 2022, with hints of further rate increases to come. The Fed Funds Rate - the target interest rate set by the Federal Reserve at which commercial banks borrow and lend their extra reserves to one another overnight - was
0.00% to 0.25% before the rate increases began and stands at 5.25% to 5.50% today
10. The Capital Finance team will work with its advisory team to continue to adapt debt management plans amid this rapidly shifting market to try to achieve optimal ratepayer outcomes.
This Memorandum sets forth the Capital Financing Plan for FY 2023 -24 based on capital needs outlined in the 10-Year Financial Plan presented to the Commission at its February 14, 2023 meeting. Based on further spending and encumbrance needs, the plan calls for the SFPUC to undertake revenue bond transactions for the Power and Wastew ater Enterprise; execute up to three new State Revolving Fund (“ SRF”) loan agreements for the Wastewater Enterprise; and renew , replace, or amend bank credit facilities supporting CleanPowerSF, the Water Enterprise, and the Wastewater Enterprise. The proposed capital financing transactions can be categorized as follows:
A. New Money/Credit Needs – By policy, the SFPUC finances each respective enterprise capital plan through a combination of cash and debt financing, including the issuance of bonds, notes, and loans . New expenditures are typically financed first with interim financing, such as commercial paper. Periodically, the SFPUC enters the debt market to raise funds through the issuance of bonds or notes for “new money” capital needs, or to secure borrowing from State and Federal programs or through bank facilities. Based on the 10-Year Capital Plan, the Power and Wastewater Enterprises are anticipated to require additional new money borrowing in FY 2023-24 (transactions #1 and #5 in the table on page 7), however the Capital Finance team will closely monitor actual project spending and will only proceed with a bond sale when appropriate based on encumbrance and spending needs and borrowing conditions.
B. Administration of Existing Debt Portfolio – Once issued, SFPUC bond transactions require substantial maintenance to ensure the investors, rating agencies and other creditors are receiving timely on- going disclosure, to ensure the SFPUC is complying with covenants in the respective financing documents and to ensure debt service and all
10 Forbes “Federal Funds Rate History 1990 to 2023”, July 26, 2023.
Memo: Fiscal Year 2023-24 Capital Financing Plan
October 10, 2023
associated fees are paid on time. This maintenance includes ongoing disclosure training to the C ommission. The SFPUC’s debt portfolio also includes a very active interim financing program consisting of a combination of commercial paper issuance and revolving lines of credit.
This program requires renewal or replacement of existing bank credit facilities or other forms of interim funding supporting the interim funding programs of the Water , Wastewater and Power Enterprises. Please note that while bonds are typically issued for terms of 25-30 years , interim funding is outstanding for a much shorter period. This results in lower, but more volatile interim financing rates and more administrative burdens. The SFPUC currently has 12 separate credit facilities consisting of Letters of Credit, Liquidity Facilities and Revolving Credit Agreements as part of the Interim Financing Program . The SFPUC is continuously issuing and remarketing commercial paper notes, typically with terms of from 30 to 90 days (although terms of 1 to 270 days are possible), to take advantage of low-cost interim financing.
C. Market Opportunities – Municipal bonds, including the SFPUC’s, are typically issued with serialized maturities. For example, a 30-year bond may be issued with as many as 30 different annual maturities with interest typically slightly higher on each successive maturity. As time passes – even without any changes in general interest rates – bonds can typically be refinanced before matur ity with few original bonds remaining outstanding for the full original term. Additionally, bond interest rate changes may afford the SFPUC even greater opportunities to refund debt to achieve debt service savings. The Capital Finance team, with the assistance of its external legal and financial advisors, and based on ideas presented by investment banks – including those serving in the Controller’s prequalified bond underwriting pool - continues to monitor the SFPUC’s debt portfolio to execute potential refinancing transactions within the constraints established under the existing obligations, prevailing tax law and SFPUC debt policy . These obligations are brought to the Commission for approval to be issued on either a tax exempt or taxable basis to provide the optimal refinancing results. For example, in June 2023, staff presented a previously unplanned refunding opportunity to the Commission for approval in conjunction with the sale of new money bonds, based on a market opportunity that created a refunding opportunity that was not in the original FY 2022-23 Capital Financing Plan. As a result of taking advantage of that opportunity, the SFPUC was able to achieve approximately $86 million of future budgetary savings on those bonds , thereby reducing debt service to be paid by water ratepayers in the future.
Guided by the latest revisions to the Commission-adopted 10-Year Capital and Financial Plans, as well as internal capital financing modeling tools and spending projections provided by each Enterprise, the transactions in the table below include a description of the proposed transaction, approximate size, and the projected timing of Commission action and transaction closing.
It is important to highlight that all amounts and dates are preliminary and subject to change, based on needs of each enterprise and market conditions.
Memo: Fiscal Year 2023-24 Capital Financing Plan
October 10, 2023
Detailed descriptions of the transactions are provided in the following section.
FY 2023-24 Capital Financing Plan11
Commission Action Estimated
Transaction Size
($ Million)
Commission
Action
Closing
1. Power - Authorize Revenue
Bonds to refinance outstanding
commercial paper and allow
new project encumbrance.
Up to $145 Q1 FY23-24
Q2 FY23-24
2. CleanPowerSF Credit
Agreement - Amend credit
agreement
Estimated $20 facility
size increase,
pending state
requirement
Q3 FY23-24 Q3 FY23-24
3. Wastewater - Approve Clean
Water SRF loan agreements
Up to $160, subject to
state approval
Q4 FY23-24 Q4 FY23-24
4. Wastewater and Water -
Approve renewal or
replacement of bank credit
facilities for interim funding
programs
$200 - Wastewater12
None13
Q2 FY23-24
150 - Wastewater
Q3 FY23-24 Q3 FY23-24
75 - Wastewater Q4 FY23-24 Q1 FY24-25
100 - Water Q4 FY23-24 Q1 FY24-25
100 - Water Q4 FY23-24 Q1 FY24-25
5. Wastewater - Authorize
Revenue Bonds to refinance
outstanding commercial paper,
deposit funds into project fund
accounts and allow new project
encumbrance.
Up to $775 Q4 FY23-24 Q1 FY24-25
6. Debt Policy Update - Adopt an
update to the Debt
Management Policy and
Procedures
--
Q4 FY23-24
--
11 Dates and amounts are preliminary and subject to change. 12 After completing a competitive solicitation process, the SFPUC intends to extend the current agreement with State Street Bank for a $200M liquidity facility for the Wastewater Interim Funding Program for one year under the existing Commission authorization from October 2019, Resolution 19-0193, pending approval from the General Manager. 13 Renewal under existing agreement.
Memo: Fiscal Year 2023-24 Capital Financing Plan
October 10, 2023
TRANSACTION DESCRIPTIONS
The following describes the planned capital financing transactions:
1. Authorize Revenue Bonds for Power Enterprise – Q1 FY 2023-24
The Commission will be asked to approve a $145 million Power Revenue bond transaction in the first Quarter of Fiscal Year 2024. The transaction will refund outstanding commercial paper providing interim funding of the Power Enterprise’s capital improvement program and allow new project contract encumbrance. Sa le of the bonds is expected to close the second quarter of Fiscal Year 2024.
2. Amend the CleanPowerSF Credit Agreement – Q3 FY 2023-24 The SFPUC may be negotiating certain amendments to the existing CleanPowerSF $20 million JP Morgan Credit Agreement which expires on March 29, 2024. Among the proposed amendments would be a possible $20 million increase to the Credit Agreement (to $40 million total) to meet anticipated updated financial security requirements to be implemented by the California Public Utilities Commission in 2023 and other possible collateral needs of CleanPowerSF.
3. Approve SRF Loan Agreement for Wastewater Enterprise – Q4 FY 2023-24
It is anticipated that the Commission may be asked to approve up to three Installment Sale Agreements with the State Water Resources Control Board (SWRCB) for a low -cost Clean Water State Revol ving Fund (SRF) loan for the Treasure Island Wastewater Facility, Wawona Street Stormwater Improvement and Folsom Stormwater Improvement projects within the Wastewater Enterprise estimated to total $160 million with final loan amounts subject to review and negotiation with the SWRCB on eligible project costs allowable for SRF funding.
The loans are expected to be 30-year fixed rate loans, with the interest rate set by the SWRCB near the time of loan execution. The loans will be payable from the net revenues of the Wastewater Enterprise and will be secured on a parity lien basis with the Wastewater Enterprise’s outstanding revenue bonds, three existing federal U .S. EPA WIFIA loans and the seven other Clean Water SRF loans that the Wastewater Enterprise has entered into with the SWRCB since 2015.
4. Approve Renewal or Replacement of Bank Credit Facilities for Wastewater and Water Interim Funding Programs
During FY 2024, the Commission will be asked to approve the renewal or replacement of several expiring bank credit facilities for the Water and Wastewater Enterprise Interim Funding Programs.
Memo: Fiscal Year 2023-24 Capital Financing Plan
October 10, 2023
The SFPUC plans to seek proposals through competitive solicitation process es from a pre-qualified pool of bank credit facility providers. The solicitations will be for the renewal or replacement of the expiring credit facilities. The credit facilities may be either letters of credit or liquidity facilities that support a commercial paper program, or direct bank loans (i .e., revolving credit agreements). The table below summarizes the expiring bank credit facilities and when Commission action is anticipated to approve the renewal or replacement of each:
Summary of Expiring Bank Credit Facilities
14 5. Authorize Revenue Bonds for Wastewater Enterprise – Q4 FY2024
The Commission is expected to be asked to approve up to $775 million Wastewater Revenue bond transaction in the fourth Quarter of Fiscal Year 2024. The transaction will refund outstanding commercial paper providing interim funding of the Wastewater Enterprise’s capital improvement program, deposit funds into project fund accounts and allow new project contract encumbrance. Sale of the bonds is expected to close the first quarter of Fiscal Year 2025.
6. D ebt Policy Update
The SFPUC’s Capital Finance Program, including the issuance of new obligations and management of existing obligations, is governed by a comprehensive set of Debt Management Policy and Procedures (available at https://sfpuc.org/about-us/reports/debt-management-and-disclosure-reports ).
14 Preliminary; subject to change.
15 Pending General Manager approval of one year extension of existing agreement prior to October 2023 expiration.
Description Enterprise/
Series
Amount
($ Million) Expiration Commission
Action
Sumitomo Mitsui Bank
Letter of Credit
Wastewater
Series A-1 $150 3/2024 2/2024
US Bank
Revolving Credit
Agreement
Wastewater
Series R-1 $75 7/2024 6/2024
Barclays
Letter of Credit
Water
Series A-3 $100 7/2024 6/2024
US Bank
Revolving Credit
Agreement
Water
Series R-1 $100 7/2024 6/2024
State Street
Liquidity Facility
15 Wastewater
Series A-6 $200 10/2024 6/2024
Memo: Fiscal Year 2023-24 Capital Financing Plan
October 10, 2023
The primary policies are the SFPUC Debt Management Policy and Procedures which was last updated November 2019. In view of significant changes in the market since 2019, significant changes in SFPUC personnel and the SFPUC’s experience with all three enterprises issuing debt in 2023, Capital Finance Staff has been working with its municipal advisors to review and update this Debt Policy for potential Commission approval later in FY2023-24.
OTHER INITIATIVES
In FY 2023-24, the Capital Financing Team also expects to work with its financial advisors and/or legal advisors on the following initiatives , which may produce the need for further Commission review in FY 2023-2024 and beyond:
1. Alternative Water Supply
As the Commission is already aware, the Water Enterprise has been preparing a detailed report for Commission review and approval of specific alternative water supply (AWS) projects. Capital Finance staff and its municipal advisors have been working with the AWS team to review proposed financing options for the Los Vaqueros Dam Exte nsion project and expect to be reviewing options for other approved alternative water supply projects.
Many of these projects may rely on unique financing arrangements involving third parties (such as Joint Powers Authorities) and as such the Capital Finance Team will be working with its municipal advisors to ensure that such arrangements not only deliver financing at the most favorable available rates , but also do so without negatively impacting the SFPUC’s core financing programs or credit ratings. Any proposed financings would be presented to Commission for approval.
2. Managing in a Rising Rate Environment
The Capital Finance team is working with municipal advisors to reassess the management of the debt program in light of the changing rate environment, including re evaluating how to reinvest unexpended bond proceeds, how to manage interim financing, and how to most efficiently support Controller Budget releases for encumbrances. Some of these options may include Debt Policy changes or financing products to be brought to the Commission for approval.
3. Power Enterprise Financing Needs
While the Capital Finance team is working with all of SFPUC enterprises on various funding needs, the Capital Finance team is engaging municipal advisors to assist the Power Enterprise in evaluating potential financing for capital finance needs and potential energy procurement and prepayment options, this includes ways Capital Finance can help Power finance the unmet capital needs that would generate additional sales volumes. These also include assessment of opportunities created based on the newly adopted Memo: Fiscal Year 2023-24 Capital Financing Plan
October 10, 2023
Inflation Reduction Act (IRA) and proposed Treasury guidance for the direct pay provisions of the IRA.
4. Green Bond Program
Since the SFPUC issued its first Green Bond in 2015, market and regulatory changes have prompted an evaluation of how the SFPUC can enhance its Green Bond Program. The Capital Finance team is working to update the program to incorporate external certification for the Power Enterprise, among other possible enhancements. Some of these changes may include policy updates to be brought to the Commission for approval.
CONCLUSION
We hope the Commission finds this summary of proposed financing activities, and the expected schedule for proposed Commission review and approval helpful. We look forward to addressing any questions you may have during the October 10
th Commission meeting.
cc: Nancy L. Hom, Chief Financial Officer and Assistant General Manager, Business Services
Laura Busch, Acting Deputy Chief Financial Officer and Budget Director