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The Metropolitan Water District of Southern California



Water Revenue Refunding Bonds, 2022 Series B

July 20, 2022


Image by Sam Mgrdichian

SWS successfully priced an innovative and complex refinancing transaction (Switchover Optimization) that was the culmination of over five months of collaboration between the Metropolitan Water District of Southern California (“MWD”), its municipal advisor, and SWS.

The Switchover Optimization refinancing structure is another work around of the elimination of tax-exempt advance refundings which requires the leveraging of outstanding tax-exempt VRDBs (and/or Put bonds with an upcoming mandatory tender).  The Switchover Optimization generates much higher savings than a taxable advance refunding given that it mimics a tax-exempt advance refunding.  Savings are effectuated by replacing outstanding high-coupon fixed-rate debt with lower-interest rate fixed-rate debt.  Mechanically, this strategy also leverages existing variable rate debt in three steps that we describe on page 4 of the attached.

As book running senior manager for the Switchover Optimization, SWS’ sales desk generated $1.14 billion in total priority orders from 56 different investors (and 23 potentially new investors), with every maturity oversubscribed for. When compared to MWD’s Series 2022A transaction priced in June 2022, the Series 2022B transaction senior managed by SWS, was priced 2 to 8 bps lower in the comparable 5% coupon bond maturities (2031 – 2036). With these pricing adjustments, the Switchover Optimization refinancing structure generated PV savings of $22.14 million (8.28%).

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