Water & Wastewater Capital Program Financing Discussion March 8, 2023
Background
City Council approved WIFIA Loan letter of interest.
City Council authorized staff to proceed with a portion of the Microgrid project.
By 03/31/2023 the city must apply for a WIFIA Loan, which will cover 49% of project costs.
In conjunction with WIFIA, will coordinate with WIFIA to fund the remainder of 51% through loans and grants.
Objectives
Provide advancement of Water and Wastewater capital projects.
Provide resolution to the 18-month gap between federal and state loan financing.
Provide Revenue Stability to “bridge” and leverage financial opportunities Water Infrastructure Finance Innovation Act (WIFIA).
State Revolving Fund (SRF) Loan.
Approved Grant Funding and ITC tax benefits totaling $27 MM.
Financing Options
Borrow from Water and/or Wastewater Unfunded Reserves.
Water, FY 23 projected balance = ~$4 MM.
Wastewater, FY 23 projected balance = ~$10 MM.
Bridge Financing – short-term loan used until permanent financing is received.
RWS qualified through Barclays Bank using the Microgrid & Solids Handling Projects.
Enterprise Funds Coverage Requirements unchanged by current requirements:
Water is 1.17
Wastewater is 1.15
$92.6 MM Immediate Capital Priorities Aimed at Reducing Operating Risk and Perfecting Grant, ITC, and Loan BenefitsRWS and City teams are focused on meeting deadlines for over $27 MM of benefits immediately available to the city
Bridge Loan Strategy & Approach
$92.6 MM for water, wastewater, and special projects.
The immediate bridge need (2023) is in the range of $40 to $60 MM.
Will require Rate Analysis & recommended Rate adjustments in 2023,which enables expanding the bridge (as necessary up to $92.6 MM) to financial close with WIFIA and SRF later in 2024.
Note, it is anticipated that permanent financing with WIFIA and SRF will close before $92,6 MM in capital is deployed.
Bridge Loan Strategy & Approach (cont.)
The water need is $18.9 MM. Current water coverage will not support immediate bridge financing.
Wastewater has some excess coverage capacity (~$10 MM debt capacity) which meets a portion of what’s needed.
Delay the annual $2.0 MM lease payment plus excess over lease payment ($.85, for a total of $2.85 MM) from the concession, sufficient cash would be freed up to meet the coverage need for a ~$40- $60 MM bridge loan for water and wastewater projects. The lease payment would be repaid once permanent financing is in place.
Bridge Loan Strategy & Approach (cont.)
Once the rate increase process is complete the bridge loan can be expanded, if necessary, through the financial close of the WIFIA and SRF loans.
Using the lease payment to get through to permanent financing protects an estimated $40 MM in grants, ITC, loan forgiveness, and reduced interest expense offered by WFIA and SRF.
Proposed Bridge Funding Solution Water, Wastewater and Other Special Projects GMP approval for all projects is dependent on securing sufficient funding to proceed with construction.
Bridge financing is available as long as the utility can show it is meeting coverage.
Barclays is prepared to provide a firm, approved credit commitment (contingent on coverage and agreeable loan documentation) in time for the formal GMP review and approval of:
Microgrid GMP in April
Critical long lead time equipment order for solids handling equipment in June/July time frame Solids Handling GMP in October
Lake Rialto grant matching funds
AMI grant matching funds
Water treatment grant matching funds
Coverage needs in 2023 were met by delaying payment to the city and in 2024 by approved rate increases.
In addition to Barclays, RWS has been in discussions with Ullico and River City Bank regarding bridge funding.