BOARD AGENDA MEMORANDUM
Government Code § 84308 Applies: Yes ☐ No ☒
(If “YES” Complete Attachment A - Gov. Code § 84308)
SUBJECT: Title
Receive an Update on the Issuance of Water System Refunding Bonds and Revenue Notes in an Aggregate Not-to-Exceed Amount of $600 Million and Adopt a Resolution Approving the Form of a Preliminary Official Statement in Connection with the Issuance of Water System Refunding Revenue Bonds and Revenue Notes and Certain Acts in Connection Therewith.
End
RECOMMENDATION: Recommendation
A. Receive an update on the issuance of Water System Refunding Revenue Bonds and Revenue Notes in an aggregate not-to-exceed amount of $600 million; and
B. Adopt resolution APPROVING THE FORM OF A PRELIMINARY OFFICIAL STATEMENT IN CONNECTION WITH THE ISSUANCE OF WATER SYSTEM REFUNDING REVENUE BONDS AND REVENUE NOTES AND CERTAIN ACTS IN CONNECTION THEREWITH.
Body
SUMMARY:
Board approval of staff recommendations will allow the Santa Clara Valley Water District (Valley Water) to adopt a resolution (Attachment 1) approving the publishing of the Preliminary Official Statement (Attachment 2) bond disclosure document pursuant to the Securities Exchange Act Rule 15c2-12, and proceed with the issuance of Water Utility (WU) Enterprise debt in an aggregate not to exceed a principal amount of $600 million as authorized by the Board on May 12, 2026, for the following purposes:
1. Issue Refunding Revenue Bonds to refund all outstanding tax-exempt WU Series 2017A and 2019A debt for debt service savings;
2. Issue Refunding Revenue Bonds to refund outstanding Commercial Paper Notes and Revolving Line of Credit Certificates issued to finance projects for the WU Enterprise (the “outstanding short-term obligations”);
3. Issue Revenue Notes to acquire and/or construct, or reimburse the cost of the acquisition or construction of, certain WU capital improvements and to capitalize interest on the Revenue Notes; and
4. Pay costs of issuance.
The Revenue Notes will be used primarily to fund Anderson Dam Seismic Retrofit Project costs in advance of entering into a planned Water Infrastructure and Financing Innovation Act (WIFIA) construction loan with the United States Environmental Protection Agency.
Based on current projections of interest rates and funding needs, the aggregate principal amount of the combined issuance is anticipated to total approximately $530 million. The projections and estimates provided herein may change depending on market conditions; however, the total debt issuance amount cannot exceed $600 million pursuant to Board Resolution 2026-25, adopted on May 12, 2026.
Valley Water Disclosure Responsibilities / Preliminary Official Statement
Valley Water’s Board and executive team are responsible for ensuring that no material facts are omitted or misstated in the Preliminary Official Statement in accordance with federal securities laws and disclosure requirements outlined in the Valley Water Debt Management Policy.
As the primary securities offering document to potential investors, the Preliminary Official Statement must contain all material information relevant to the Refunding Revenue Bonds and Revenue Notes (the “Obligations”) and the security thereof. The materiality standard is determined in the context of all the facts and circumstances and is based on whether there is a substantial likelihood that a reasonable or prospective investor would consider the information important in deciding whether to invest. Confidentiality and political considerations are not exceptions to the requirement for full disclosure. If the Board, executive team, or any Valley Water staff contributing to and/or reviewing the Preliminary Official Statement has concerns about the accuracy or completeness of the disclosure, those concerns should be raised and discussed with Valley Water’s Chief Financial Officer and the debt management staff immediately. Additionally, as per federal securities law, Valley Water has an obligation to provide material updates, if any, to the Official Statement(s) up to 25 days after the closing date of the Obligations (in addition to continuing disclosure obligations laid out in the Continuing Disclosure Agreement, the form of which was approved by this Board on May 12, 2026). As described below, it is currently contemplated that the tax-exempt series of the Refunding Revenue Bonds and Revenue Notes will be sold separately from, and approximately two weeks earlier than, the taxable Refunding Bonds. If the sale process occurs in this manner, the Preliminary Official Statement presented at this meeting will be revised into two Preliminary Official Statements. Each Preliminary Official Statement will describe the Obligations being offered thereunder, however, the information regarding Valley Water will be identical in both documents.
Additional information on municipal disclosure responsibilities and consequences of non-compliance with securities laws is attached (Attachment 3).
Method of Sale
The Obligations are being sold on a competitive basis, which is expected to result in the lowest overall financing cost. Valley Water has issued multiple series of Water Utility debt obligations in recent years, and investors are familiar with the credit structure, so the competitive sale approach in the current market is expected to be the most cost-effective method. The Notice of Sale will specify minimum qualifications as follows: (1) the firms with the winning bids must be in compliance with the Valley Water Board of Directors’ Executive Limitation (EL) 4.7.7 by having an Environmental, Social, and Governance (ESG) rating of medium or better (small local firms are exempt) and (2) the firm is currently qualified in the California State Treasurer’s Office underwriter pool. Notice of Sale advertisements will be placed in the San Jose Post, El Observador, and Vietnam Daily, as well as the Bond Buyer, the daily municipal bond publication, to ensure a broad and diverse audience of potential bidders is informed of the competitive sale. In addition to the aforementioned outreach, the Procurement team will advertise the Notice of Sale on the PlanetBids VendorLine government bidding platform utilized by Valley Water.
In addition, the sale of the tax-exempt Obligations will occur in August and the sale of the taxable Obligations will occur approximately 15 days later in September. The separation would allow Valley Water to structure the Obligations in a manner to reduce overall debt service cost and is necessary for the structure to comply with certain tax law requirements.
Financing Plan
The financing structure of the Obligations is summarized in the table below.
|
|
Refunding Bonds - 2017A/2019A Debt |
Refunding Bonds - Short-Term Obligations |
Revenue Notes |
|
Purpose |
Refund $50.2 million of outstanding tax-exempt debt for savings |
Refund $327.1 million of outstanding short-term obligations |
Generate $150 million of proceeds to fund future construction costs |
|
Repayment Term/Maturity |
23 years |
30 years |
3 ¼ years |
|
Annual Debt Service |
Stepped down on a combined basis; optimized for debt service savings |
|
Security |
Net Water Utility System Revenues pursuant to the Parity Master Resolution |
The Obligations will be issued under Valley Water’s Water Utility System Parity Master Resolution (16-10), adopted on February 23, 2016 (as amended by Resolution No. 16-82, the “Parity Master Resolution”). The authority to issue the Obligations is provided for in Sections 53580-53589.5 of the California Government Code and the District Act.
Outstanding debt previously issued under the Parity Master Resolution (“Parity Debt”) is currently rated ‘AA+’ by Fitch Ratings (“Fitch”) and ‘Aa1’ by Moody’s Investors Service (“Moody’s), both one-notch below the highest possible ratings of ‘AAA’ and ‘Aaa,’ respectively. Staff will be requesting ratings for the Obligations from Fitch and Moody’s and anticipates receiving similar high-grade credit ratings for this transaction.
Board approval of the Preliminary Official Statement does not commit Valley Water to a definite course of action with regard to any particular project and does not limit Valley Water in exercising any discretion following California Environmental Quality Act (CEQA) review of any project, including (i) considering other feasible alternatives and mitigation measures to avoid or minimize project impacts, (ii) making modifications deemed necessary to reduce project impacts, or (iii) determining not to proceed with one or more component of a project. Additionally, approval does not obligate Valley Water to approve the construction of any of the projects.
Estimated Sources and Uses of Bond Proceeds
An estimate of sources and uses of funds for the Obligations is set forth below. Details of the true interest cost, finance charge, total proceeds, and payment amounts are provided in the “Good Faith Estimated Costs” section below.
|
|
Tax-Exempt Refunding Bonds (2026A) |
Taxable Refunding Bonds (2026B) |
Tax-Exempt Revenue Notes (2026C) |
Total |
|
Sources |
|
|
|
|
|
Principal Amount |
$ 277,400,000 |
$ 87,960,000 |
$ 164,630,000 |
$ 529,990,000 |
|
Premium |
13,445,764 |
-- |
10,699,304 |
24,145,068 |
|
Debt Service Funds |
1,254,375 |
-- |
-- |
1,254,375 |
|
TOTAL |
$ 292,100,139 |
$ 87,960,000 |
$ 175,329,304 |
$ 555,389,443 |
|
|
|
|
|
|
|
Uses |
|
|
|
|
|
Repay Short-Term Debt |
$ 239,600,000 |
$ 87,500,000 |
-- |
$ 327,100,000 |
|
Refund 2017A/2019A Bonds |
51,027,793 |
-- |
-- |
51,027,793 |
|
New Project Funds |
-- |
-- |
150,000,000 |
150,000,000 |
|
Capitalized Interest |
-- |
-- |
24,453,551 |
24,453,551 |
|
Underwriters’ Fee |
1,109,600 |
351,840 |
658,520 |
2,119,960 |
|
Costs of Issuance |
362,746 |
108,160 |
217,233 |
688,139 |
|
TOTAL |
$ 292,100,139 |
$ 87,960,000 |
$ 117,329,304 |
$ 555,389,443 |
Note that, in comparison to the estimated sources and uses included in the May 12, 2026, Board memo, the Revenue Notes were upsized to generate $50 million more in new project funds to adequately fund projected capital costs.
Good Faith Estimated Costs
Pursuant to California Government Code Section 5852.1, the good faith estimates are as follows: (1) the true interest cost is currently estimated to be 4.66%; (2) the finance charge (which means the sum of all fees and charges paid to third parties) is estimated to be $2,808,099 (3) the amount of proceeds received by Valley Water (which is net of the finance charge) is estimated to be $526,873,418; and (4) the total payment amount (which means the sum of all debt service payments to the final maturity not paid from debt proceeds) is estimated to be $861,648,468.
The estimates provided are based on market rates as of July 13, 2026, plus 0.50%. Actual results will differ depending on the market rate on the pricing dates, which are expected to occur in August/September 2026.
Issuance Costs
The estimated total costs of issuance will be paid from the proceeds of the debt issuances upon or shortly after closing:
|
Description |
Estimate |
|
Rating Fees (Fitch/Moody’s) |
$ 287,000 |
|
Bond Counsel |
205,000 |
|
Municipal Advisor |
122,978 |
|
Trustee |
35,000 |
|
Official Statement Publication |
5,000 |
|
Notice of Sale Advertisements |
2,500 |
|
Verification Agent |
1,550 |
|
Contingency |
29,111 |
|
Total |
$ 688,139 |
Additionally, underwriting costs, totaling approximately $2,119,960 and dependent on the amounts bid for the Obligations, will be retained at closing by the winning firm(s).
Financing Schedule
The current financing schedule is summarized below:
|
Description |
Date |
|
Board Meeting - Preliminary Official Statement |
August 11, 2026 |
|
Receive Credit Ratings |
August 12, 2026 |
|
Post Tax-Exempt Debt Preliminary Official Statement |
August 14, 2026 |
|
Publish Notice of Sale |
August 14 - 18, 2026 |
|
Competitive Tax-Exempt Bids Due |
August 25, 2026 |
|
Post Taxable Debt Preliminary Official Statement |
August 30, 2026 |
|
Competitive Taxable Bids Due |
September 9, 2026 |
|
Closing |
September 17, 2026 |
ENVIRONMENTAL JUSTICE IMPACT:
There are no Environmental Justice impacts associated with this item.
FINANCIAL IMPACT:
The estimated total costs of issuance in the amount of $688,139, plus underwriter’s fees of approximately $2,119,960, will be paid from the proceeds of the debt issuance. The Board adopted FY 2026-27 Budget includes sufficient funds for debt service costs for the Obligations in the Water Utility fund.
Based on market rates as of July 13, 2026, plus 0.50%, the refunding of the tax-exempt 2017A and 2019A debt is estimated to result in total savings of $5.3 million. Actual results will differ and depend on market rates on the pricing dates currently targeted for August/September 2026.
CEQA:
The recommended action does not constitute a project under California Environmental Quality Act (CEQA) because it does not have a potential for resulting in direct or reasonably foreseeable indirect physical change in the environment, as outlined in the State CEQA Guidelines, Section 15060(c)(2).
ATTACHMENTS:
Attachment 1: Resolution
Attachment 2: WU Preliminary Official Statement
Attachment 3: PowerPoint
UNCLASSIFIED MANAGER: Manager
Darin Taylor, 408-630-3068