Bonds

New York City Water back in market with $450 million deal

The New York City Municipal Water Finance Authority is returning to the municipal bond market for its second issuance this year. 

The authority is scheduled to price $450 million of fixed-rate second resolution bonds, with a retail order period Monday followed by institutional pricing Tuesday, according to an online investor presentation. $400 million will fund system improvements and $50 million is on the docket for refunding.

“The new money portion of the transaction will reimburse prior spending that has occurred on various water and wastewater projects. The authority is currently monitoring market conditions to make a determination as to which bonds, if any, will be refunded,” Andrew Rothbaum, who handles investor relations for the authority, said in an email Friday.

Croton Lake Gatehouse at the Croton Falls reservoir, part of New York City’s massive water supply system.

New York City Department of Environmental Protection

Barclays is senior manager and Siebert Williams Shank is joint senior manager. Nixon Peabody and Hardwick are bond counsel. Lamont Financial Services is municipal advisor.

The New York City Municipal Water Authority has $33 billion of outstanding debt, according to the investor presentation. The authority issued $1.4 billion in March

In that issuance, The Bond Buyer reported, the authority “saw yields fall three to six basis points from the retail order period and ranged from 2.52% with a 5% coupon in 2028 to 3.69% with a 5.25% maturing in 2047.”

The authority’s ratings were affirmed ahead of the new deal, at AA-plus from S&P Global Ratings, Aa1 from Moody’s Ratings and AA-plus from Fitch Ratings. All assign stable outlooks.

“The stable outlook reflects our belief that NYW will retain the financial capacity and management autonomy to navigate its near-term economic, infrastructure, climate, and regulatory pressures,” S&P analyst Scott Garrigan said in a news release.

Fitch’s rating report noted the authority’s strong financial profile, history of low leverage and legal protections for bondholders.

“Bondholders are afforded strong protections through a statutory framework providing a gross lien on pledged water and sewer revenues,” the report said, “along with Fitch’s expectation of the remoteness of either the authority or water board filing for bankruptcy protection or being included in a city bankruptcy proceeding if one were to ever occur.”

The system delivers a billion gallons of water to New York City every day, it said in its online investor presentation.

The report described an authority in a good financial position. The New York City Department of Environmental Protection, for which the authority issues bonds, has a monopoly on water services for all of New York City and the upstate counties where its water sources are located. Its service area is 9.3 million people, according to the roadshow. It provides sewer services to most of those people as well. 

Revenue from this wide service area has been strong in recent years. Payments declined during the pandemic thanks to lower water usage and an increase in delinquencies, but increased 6.3% in fiscal 2022, the investor presentation said. The authority attributed that increase to higher usage, lower delinquency and an increase in rates.

The authority’s governing body, the Water Board, has the power to adjust its rates as needed without oversight. In fiscal 2023, the board hiked prices almost 5% and raked in $276.1 million in revenue — a 7.6% increase over the previous fiscal year. 

The board plans to raise rates by more than 5% each year for the next four years, according to its investor presentation. The board also projects a 1% decline in water consumption per year from 2024-2028. 

Moody’s said its Aa1 rating “reflects a claim on revenue generated by an essential service utility in a vast and diverse metropolitan area, the healthy liquidity of the water and sewer system, and strong rate management by the New York City Water Board. The second resolution bonds’ claim on system revenue is subordinate to the claim of first resolution bonds. However, annual debt service on first resolution bonds is modest, providing holders of second resolution bonds access to a very large revenue base.”

The authority’s leverage — net adjusted debt to adjusted funds available for debt service — was “in the mid-7.0x range through fiscal 2020,” Fitch said in its report. The dip in revenues from the pandemic drove leverage up to 8.3x in fiscal 2021, but it’s steadily declined since then, down to 7.3x in 2023. 

A consistent challenge for the authority’s leverage, according to Fitch, is rent payments to New York City. The city did not request a rent payment in 2022, which was a factor in the improving leverage that year, Fitch said. But the city requested $145 million for rent in 2024 and $295 million in 2025. 

With these rent payments, Fitch estimated that leverage will reach 8.3x in FY2028, “in line with levels previously anticipated.”

“Leverage would be declining in the absence of the lease payments,” Fitch’s report said. Still, “Fitch anticipates a continued trend of declining leverage; failure to maintain this trend would likely have negative rating implications.

Fitch considered the water system’s operating cost burden last fiscal year very low, at $3,497 per million gallons.

This issuance is the authority’s second since the city released its current capital plan on January 4. The capital plan will be updated along with the executive budget later this month. The water system’s estimated capital spending averages $2.4 billion from 2024-2028, which, according to Fitch, should support a continued low life cycle ratio. 

The system’s capital improvement plan from 2024-2033 is $28.3 billion, the roadshow said. That includes $9.2 billion for sewers, $8.7 billion for water pollution control and $6.3 billion for water distribution. From 2024 to 2028, the authority projects it will issue $10.548 billion of new money bonds. 

Last year, New York State Comptroller Thomas DiNapoli warned in a report that state water systems need to better protect themselves from cyberattacks and natural disasters, although the report did not include data from New York City. 

“New York has thousands of water systems supplying drinking water but, as we’ve seen in other states, this critical infrastructure is increasingly targeted by cyber and other attacks,” DiNapoli said in the report. “The state should do more to ensure public water systems are protected from threats with security assessments and emergency plans that are accurate and up to date.”

To this end, the water system works with city, state and federal entities to prevent cyberattacks, the authority said in the investor presentation.

These entities include the New York City Office of Information and Technology; New York City Cyber Command, a sub-organization of the Office of Information and Technology with more than 100 employees; and the FBI’s Joint Terrorism Task Force. As part of New York City policy, the water system does not carry cybersecurity insurance, the presentation said.

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