Metropolitan Water District of Southern California
Water Revenue and Refunding Bonds, 2023 Series A
June 6, 2023
This transaction represented SWS’ 6th senior managed transaction for Metropolitan.
The Bonds were rated Aa1 from Moody’s and AAA from S&P with Stable outlooks
Proceeds from the 2023 Series A Bonds were used to fund capital improvements and repay certain short-term parity obligations. Metropolitan plans to defease a liquidity facility that will be drawn to refund the Subordinate Lien Series 2017C Bonds’ 8/1/2023 maturity (Metropolitan’s indenture does not allow for Senior Lien bonds to directly refund Subordinate Lien bonds).
Stalled political negotiations in Washington, DC led to significant concern that Congress would not raise the federal debt ceiling, resulting in a default in federal debt. This crisis dominated news cycles and was not resolved until the Saturday before pricing. Numerous high-grade bond transactions were priced with significant unsold bond balances during this period.
Given the volatility, SWS recommended preparing to accelerate pricing to take advantage of potentially favorable bond supply and investor demand dynamics. An hour and a half after releasing the pre-marketing wire the morning of Tuesday, June 6, SWS recommended accelerating pricing instead of waiting until the next day as originally planned.
During the order period, SWS’s desk generated over $874 million in institutional orders from 49 different investors, including 13 potential new investors. Overall, the transaction was 3.3x oversubscribed with no balances.
With the strong subscription levels, SWS recommended lowering the yields at repricing for all but three maturities by 2-9 basis points. Metropolitan’s transaction priced 8-12 basis points lower than a Sacramento Municipal Utility District (NR/AA/AA) transaction which priced on the same day.
The District’s transaction priced 15-29 basis points lower than an LADWP (Aa2/AA+/AA) transaction which priced two weeks prior; this was the most recent California water transaction to price before Metropolitan’s bond sale. The bonds were issued with an All-In True Interest Cost of 3.88%.