The Metropolitan Water District of Southern California
Water Revenue Refunding Bonds, 2021 Series B
June 23, 2021
The Bonds received a Aa1 rating from Moody’s and a AAA rating from S&P with Stable outlooks from both. Proceeds from the 2021 Series B Bonds were used to re-finance the District’s 2011 Series C Bonds , 2014 Series C-3 Bonds, and parity obligations.
The 2021 Series B Bonds were structured to generate uniform debt service savings with principal maturing serially in 2022 to 2026, 2028 to 2033, and 2036, with a 10-year par call. In the week before pricing, the Federal Reserve Open Market Committee unexpectedly announced new plans to increase interest rates twice by 2023, resulting in 4 to 7 bp increases in MMD across the curve.
Given the weaker market tone, SWS recommended a pricing strategy which took into account the market volatility to build and develop the book of orders – maximizing investor participation. After only 30 minutes in the order period, all but the 2022 and 2023 maturities were oversubscribed for. During the order period, SWS’s desk generated over $233 million in institutional orders from 27 different investors, including 7 new investors.
Overall, the transaction was 2.8x oversubscribed with highest subscription levels reaching 3.7x
Each maturity had between 6 to 15 institutional investors. With the strong subscription levels, SWS recommended repricing the bonds maturing in all maturities except 2023 by 2-4 bps lower.
SWS successfully made these over-pricing adjustments despite the municipal bond market (AAA MMD) weakening by 1 to 5 bps throughout the curve on the day of pricing. The bonds were issued with an All-In True Interest Cost of 0.910%. The refunding generated NPV Savings of $21.97 million (17.18%) of refunded par, the repricing added approximately $222,500 of additional NPV Savings.