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 in an Aggregate Not-to-Exceed Amount of $520 Million and Adopt a Resolution Approving the Form of a Preliminary Official Statement.
End
RECOMMENDATION: Recommendation
A. Receive an update on the issuance of Water System Refunding Revenue Bonds in an aggregate not-to-exceed amount of $520 Million; and
B. Adopt the Resolution APPROVING THE FORM OF A PRELIMINARY OFFICIAL STATEMENT IN CONNECTION WITH THE ISSUANCE OF WATER SYSTEM REFUNDING REVENUE BONDS 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 form and 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 $520 million as authorized by the Board on May 16, 2025, for the following purposes:
1. Issue Refunding Revenue Bonds to refund all outstanding tax-exempt WU Series 2016AC debt for debt service savings;
2. Issue Refunding Revenue Bonds to refund outstanding taxable Revolving Line of Credit Certificates issued to finance projects for the WU Enterprise (the “short-term obligations”); and
3. Pay costs of issuance.
Based on current projections of interest rates and funding needs, the aggregate principal amount of the combined issuance is anticipated to total approximately $206 million. The projections and estimates provided herein may change depending on market conditions; however, the total debt issuance amount cannot exceed $520 million pursuant to Resolution No. 2025-29, adopted on May 16, 2025. Note that the authorization amount included capacity to issue debt to provide for new-money project funds (~$200 million) and a refunding of outstanding taxable WU Series 2016BD debt (~$98 million), both of which are not currently contemplated because there is no current need for new-money and interest rates have not decreased sufficiently to recognize debt service savings from refunding the taxable WU Series 2016BD debt.
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 (the “Obligations”) and the security thereof. The materiality standard is determined in 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, according to federal securities law, Valley Water has an obligation to provide material updates, if any, to the Official Statement 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 16, 2025). Additional information on municipal disclosure responsibilities and consequences of non-compliance with securities laws are attached (Attachment 3).
Method of Sale
The Obligations are recommended to be sold on a competitive basis, which is expected to result in the lowest overall cost of financing. Valley Water has issued multiple series of Water Utility debt obligations in recent years and investors are familiar with the credit structure such that competitive sales in the current market is expected to be the most cost-effective method of sale. Staff will conduct a targeted outreach to small, local banks informing them of the pending competitive sale. Notice of Sale advertisements will be placed in the San Jose Post, El Observador, Chinese News, Vietnam Daily, as well as the Bond Buyer, the daily municipal bond newspaper, to ensure a broad and diverse audience of potential bidders are informed of the competitive sale. 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. In addition to the aforementioned outreach, the Procurement team will be advertising the Notice of Sale on the PlanetBids VendorLine government bidding platform that is utilized by Valley Water.
Financing Plan
The financing structure of the Obligations are summarized in the table below.
|
|
Refunding Bonds - 2016AC Debt (2025A) |
Refunding Bonds -Short-Term Obligations (2025B) |
|
Purpose |
Refund $123.4 million of outstanding tax-exempt 2016AC debt |
Refund $90.0 million of outstanding taxable short-term obligations |
|
Repayment Term/Maturity |
21 years |
30 years |
|
Annual Debt Service |
Level 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.
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 components of a project. Additionally, approval does not oblige 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 are 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.
|
|
Refunding Bonds - 2016AC Debt (2025A) |
Refunding Bonds - Short-Term Obligations (2025B) |
Total |
|
Sources |
|
|
|
|
Principal Amount |
$ 115,355,000 |
$ 90,685,000 |
$ 206,040,000 |
|
Premium |
7,869,726 |
- |
7,869,726 |
|
Interest Payment |
3,084,375 |
- |
3,084,375 |
|
TOTAL |
$ 126,309,101 |
$ 90,685,000 |
$ 216,994,101 |
|
|
|
|
|
|
Uses |
|
|
|
|
Refund Obligations |
$ 125,423,344 |
$ 90,000,000 |
$ 215,423,344 |
|
Underwriters’ Fee |
576,775 |
453,425 |
1,030,200 |
|
Costs of Issuance |
308,982 |
231,575 |
540,557 |
|
TOTAL |
$ 126,309,101 |
$ 90,685,000 |
$ 216,994,101 |
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 5.150%; (2) the finance charge (which means the sum of all fees and charges paid to third parties) is estimated to be $1,570,757 (3) the amount of proceeds received by Valley Water (which is net of the finance charge) is estimated to be $212,338,969; and (4) the total payment amount (which means the sum of all debt service payments to the final maturity) is estimated to be $367,958,921.
The estimates provided are based on market rates as of June 24, 2025, plus 0.50%. Actual results will differ depending on market rates on the pricing date, which is expected to occur in August 2025.
Issuance Costs
The estimated total costs of issuance in the amount of $540,557 will be paid from the proceeds of the debt issuances upon or shortly after closing:
|
Description |
Estimate |
|
Rating Fees (Fitch/Moody’s) |
$197,000 |
|
Bond Counsel |
205,000 |
|
Municipal Advisor |
78,311 |
|
Trustee |
25,000 |
|
Official Statement Publication |
5,000 |
|
Notice of Sale Advertisements |
2,500 |
|
Verification Agent |
1,000 |
|
Contingency |
26,746 |
|
Total |
$540,557 |
Additionally, underwriting costs in the estimated amount of approximately $1,030,200, which is dependent on the amount 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 12, 2025 |
|
Receive Credit Ratings |
August 13, 2025 |
|
Post Preliminary Official Statement |
August 15, 2025 |
|
Publish Notice of Sale |
August 15 - 19, 2025 |
|
Competitive Bids Due |
August 26, 2025 |
|
Closing |
September 10, 2025 |
Community Bank Investments
Valley Water’s Board has implemented an innovative approach that promotes small, local bank participation in Valley Water’s financings and investments. Executive Limitation (EL) 4.7.7 requires that Valley Water only engage with banks that have an Environmental, Social, and Governance (ESG) rating from at least one professional ESG research company of at least an average/medium (or its equivalent); banks located within the nine Bay Area counties with total assets below $10 billion are exempt from this limitation. As a result of this policy, the following banking arrangements have been established:
• $58 million in deposits with various small, local banks.
• Three letters of credit issued by San Jose-based Technology Credit Union totaling $841,000 to meet the U.S. Army Corps’s financial assurance requirements for the operations of Upper Penitencia, Coyote Ridge, and Rancho Cañada de Pala Preserve watershed projects.
• Valley Water underwriting pool is limited to investment banks with ESG ratings of medium or better, with exceptions for small, local California banks.
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 $540,557 plus underwriter’s fees of approximately $1,030,200 will be paid from the proceeds of the debt issuance. The Board adopted FY 2025-26 Budget includes sufficient funds for debt service costs for the Obligations in the Water Utility fund.
Based on market rates as of June 24, 2025, plus 0.50%, the refunding of the tax-exempt 2016AC debt is estimated to result in total savings of $7,362,329. Actual results will differ and depend on market rates on the pricing date currently targeted for August 2025.
CEQA:
The recommended action does not constitute a project under California Environmental Quality Act (CEQA) because it does not have 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