San Francisco Opens $4.8 Billion Sewer-Bond Effort: Muni Deals

The initial test of investor interest in San Francisco since Moody’s Investors Service upgraded the city and county comes as soon as tomorrow with a sale of $335.3 million in bonds backed by wastewater revenue, the first of almost $5 billion in planned borrowings.

The issue by the Public Utilities Commission of the City and County of San Francisco will be the first in California’s fourth most-populous municipality after Moody’s increased the rating of the city and county’s general obligations to the second-highest level. The competitive deal is the largest U.S. municipal-bond sale this week, according to data compiled by Bloomberg. It’s also the first borrowing backed by wastewater revenue since 2010 that wasn’t aimed at retiring previous debt, said Todd Rydstrom, the chief financial officer.

San Francisco’s commission plans to sell $4.8 billion of revenue bonds over 10 years for sewer improvements, Rydstrom said in a telephone interview. Proceeds from this week’s sale will go toward a $2 billion replacement of a treatment facility. Officials hope the deal, which has a final maturity in 2042, will generate an overall borrowing cost around 3.5 percent “or better,” he said.

Employment Lead

Moody’s on Feb. 5 increased the general-obligation bond rating of San Francisco to Aa1 because of the “notable strengths” of the tax base and economy. Its unemployment rate was 6.7 percent in November, below the state average of 9.6 percent, Standard & Poor’s said.

S&P rates the commission’s upcoming debt AA-, fourth-highest, saying it has a “demonstrated ability and willingness” to adjust rates. A revenue bond issued in June and maturing in 2041 on Feb. 7 traded at a premium of 176 basis points over a top-rated benchmark, near the widest since Jan. 25, according to Bloomberg data. A basis point is 0.01 percentage point.

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