By TEDRA DESUE
LOUISVILLE, Ky., Aug. 30, 2000 (American Banker) -- Although an infrequent debt issuer, Louisville, Ky.'s water system will go to market today to sell $78.5 million of revenue bonds that received a high-grade rating, which is rare among water and sewer issuers.
Moody's Investors Service gave the bonds issued by the Louisville Water Works Board an underlying rating of AA1 with a stable outlook. The bonds were to be competitively Thursday. A.G. Edwards & Sons Inc. is the financial adviser, and Harper, Ferguson & Davis is bond counsel.
The bonds will be insured by Financial Security Assurance. Standard & Poor's did not assign the issue an underlying rating, but rated them AAA based on the insurance.
Tom O'Donnell, a vice president at Moody's, said Louisville joins only a handful of issuers to have an AA1 or above rating.
"There are only 15 entities with this rating or higher that are water and sewer or just water entities, so that puts Louisville in a pretty high class," he said.
In rating the bonds, O'Donnell said Moody's took into account the fact that the system has displayed a long-term trend of well-managed financial operations, including strong debt service coverage while also maintaining a strong balance sheet. In addition, the system has kept rates competitive and managed its debt well.
Bob Miller, vice president and treasurer of the Louisville Water Works Board, said the agency has kept its debt levels low by funding capital projects on a pay-as-you-go basis. Most of the bond proceeds from this issue will be used to construct new facilities for the system, he said. The bonds are secured by a first lien on gross revenues of the water system, which provides water to approximately 765,500 people, or 99.4% of the population of Jefferson County.
"We believe the best time to be in the market was last year, of course, but our financing needs occurred in this year," Miller said. "Although interest rates have increased, the current levels are just below what they averaged in previous years. We see that the market has been stable over the last few weeks, so it is an acceptable time to issue the bonds."
The board last issued debt in August 1999 when it sold $10 million of bond anticipation notes, which will be paid off with some of the proceeds from today's sale. Before that, the water system sold $15 million of bonds in 1992 for a refunding, Miller said.
On the whole, Moody's has found that water and sewer revenue bonds have a positive credit outlook. Its 1999 median ratings for water, sewer, and combined water and sewer revenue bonds were A2, A2, and A3, respectively. According to a report released by the agency in February, water and sewer systems represent the largest number of revenue bond ratings by far within public finance.
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