WASTEWATER SYSTEM
INTERIM FINANCING
PROGRAM CREDIT
AGREEMENTS AMENDMENTS
Rick Bruneau, Director of Finance
Qianyu Sun, Deputy Director of Finance –
Debt & Treasury Management
JOINT COUNCIL/CSJFA AGENDA: JUNE 20, 2023
ITEM: 1
FILE: 23-939
SAN JOSÉ WASTEWATER SYSTEM
• The Wastewater System includes the sanitary sewer collection system and treatment system
• City has the ability through the City of San José Financing Authority (CSJFA) to issue debt for capital projects for both the collection and treatment systems
• Source of funds for the Wastewater System is primarily the City sewer service and use charges, of which approximately 95% is collected on the annual property tax bill
• The Wastewater System has a planned 10-Year, $1.5 billion Capital Improvement Program (CIP) to modernize the Wastewater System and its processes
2 INTERIM FINANCING PROGRAM
• Credit Agreement with Wells Fargo Bank for $300 million was established in 2017
• Bridges short-term funding gap(s) for Wastewater CIP projects through CSJFA Revolving Subordinate Wastewater Revenue Notes
• Interest accrues only when funds are borrowed
• Joint City Council/CSJFA Board have approved three amendments to the Credit Agreement and Fee Letter Agreement (Agreements) June 2018, September 2020 and March 2022
• Current Agreements expire on October 18, 2023
• Repayment security: Net System Revenues (System Revenues less maintenance and operation costs for RWF and sewer collection system) 3 CONSIDERATION FOR EXTENSION
• Revolving Subordinate Wastewater Revenue Notes, Series A ($300 million) were paid off in March 2023 with Wastewater Revenue Bonds, Series 2022B proceeds. There are no outstanding notes • The Wastewater System CIP will need approximately $200 million over the next three years
• Rising interest rates and an unstable banking sector raised City solicitation concerns for expiring Agreements
• Wells Fargo Bank responded to the City inquiries for extension with moderate changes to the Agreements, adjustments to fees and interest rates
4 5
FOURTH AMENDMENT PROPOSED AMENDMENTS
• Reduces the Credit Facility from $300 million to $200 million, when executed
• Extends the Agreements for an additional three years through October 2026 • Waives Amendment fees ($2,500) and legal fees up to $10,000 Current Agreements 2023 Amendments
Facility Amount $300,000,000 $200,000,000
T erm 3 Y ears (expiring 10/18/2023) 3 Y ears (expiring 10/16/2026) Commitment Fee
(Undrawn) 0.21% 0.19%
Applicable Spread N/A N/A
T axable Draw Fee SOFR* + 0.45% SOFR* + 0.52%
Ta x-Exempt Draw Fee 80% of SOFR + 0.37% 80% of SOFR + 0.42% *SOFR: U.S. Secured Overnight Financing Rate (SOFR) Benchmark Index
PRICING CHART
• Pricing is pegged to credit ratings of Wastewater Revenue Bonds, Series 2022B, rated “AAA” by three major rating agencies, S&P Global Ratings, Fitch and KBRA. This places the proposed fees into the lowest fee category, Level 1.
6 Level
Ratings on Long-Term Wastewater
Revenue Bonds, Series 2022B
(Moody’s/S&P/Fitch/KBRA)
Commitment Fee
(Undrawn Amount)
Applicable Spread
(Drawn Amount)
[Taxable /
Tax-Exempt]
Level 1 Equal to Aa2/AA/AA/AA 0.190% 0.520% | 0.420%
Level 2 Equal to Aa3/AA-/AA-/AA- 0.215% 0.595% | 0.495% Level 3 Equal to Al/A+/A+/A+ 0.265% 0.745% | 0.645%
Level 4 Equal to A2/A/A/A 0.305% 0.895% | 0.795%
Level 5 Equal to A3/A-/A-/A- 0.355% 1.045% | 0.945%
JOINT CITY COUNCIL/CSJFA FINANCING
AUTHORITY BOARD RECOMMENDATION (ITEM 1)
a) Adopt a resolution of the City of San José approving and authorizing the execution and delivery of a Fourth Amendment to Credit Agreement and a Fourth Amended and Restated Fee Letter Agreement with Wells Fargo Bank, National Association, related to the issuance by the City of San José Financing Authority of its Subordinate Wastewater Revenue Notes for a term through October 16, 2026, in an aggregate principal amount outstanding at any time not to exceed $300,000,000 until the effective date of the Fourth Amendment to Credit Agreement and up to $200,000,000 thereafter, for the purpose of financing or refinancing Wastewater System Projects and authorizing other related actions in connection therewith. b) Adopt a resolution of the City of San José Financing Authority approving and authorizing the execution and delivery of a Fourth Amendment to Credit Agreement and a Fourth Amended and Restated Fee Letter Agreement with Wells Fargo Bank, National Association related to the issuance by the City of San José Financing Authority of its Subordinate Wastewater Revenue Notes for a term through October 16, 2026, in an aggregate principal amount outstanding at any time not to exceed $300,000,000 until the effective date of the Fourth Amendment to Credit Agreement and up to $200,000,000 thereafter, for the purpose of financing or refinancing Wastewater System Projects and authorizing other related actions in connection therewith. 7 WASTEWATER SYSTEM
INTERIM FINANCING
PROGRAM CREDIT
AGREEMENTS AMENDMENTS
Rick Bruneau, Director of Finance
Qianyu Sun, Deputy Director of Finance –
Debt & Treasury Management
JOINT COUNCIL/CSJFA AGENDA: JUNE 20, 2023
ITEM: 1
FILE: 23-939