Tuesday, Sept. 14, 2010 • City successfully refinances natural gas, water — largest city investment ever

Publisher’s note: This story originally appeared in the Tuesday, Sept. 14, 2010 edition of the Lassen County Times.

As of 8:54 a.m. on Wednesday, Sept. 8, the City of Susanville’s natural gas and water system have been successfully refinanced.

City Finance Director Robert Porfiri said the bonds have been refinanced in what he said is the largest investment ever made in city history, as well as the foreseeable future, at a total investment of almost $38.9 million.

The water bond now has a term of 26 years that will mature on June 1 of 2036, while the natural gas bond has a term of 35 years that matures on June 1, 2045.

“I feel the city has been very lucky in this whole process,” Porfiri said. “We were able to get the lowest possible rate we could have ever received. We were able to make the most of the current economic state as opposed to being on the losing end of it. I feel good about it.”

Porfiri explained how until Sept 8, the deal to refinance the bonds and make them available to sell to investors hadn’t been finalized. The city still needed to finish critical legal documents, collect an official opinion from the bond counsel, deliver a final official statement to investors and the receipt of funding from those investors. Porfiri said all the documents were filed in a timely manner.

Porfiri was able to break down many of the steps it’s taken to get to the point of a successful refinance at the Susanville City Council’s Sept. 1 meeting.

A little history
Many of the bonds the city has issued in the past were to finance the natural gas and water infrastructure when both utilities were first constructed. The infrastructure included gas lines, water lines, water storage and wells throughout the city limits.

The infrastructure came out to an initial cost of $24.24 million for the natural gas system and $10.21 million for the water system.

Porfiri said the need for the re-finance was that the original natural gas bonds were issued with a 10-year schedule that would have ended on May 1, 2011.

He said since the city had only been able to make interest-only payments since initially installing the system, it would have had to pay a balloon payment of roughly $24 million by May 1. The new rate schedule now includes principal payment as well, which means the debt will be able to decrease over time.

Just add water
Porfiri said the reason why the water and gas utilities were eventually combined was because it would give the natural gas system a higher rating. With a higher rating, the cost of borrowing goes down, allowing the city to make a lower debt service payment.

The higher ratings, issued by both Standard and Poor’s and Fitch, and given to both utilities is a way of showing how profitable the combined systems are to potential investors.

The investors interested in these bonds range anywhere from banks and other financial institutions to the average man or woman on the street.

Porfiri said the city must continue to maintain a debt service rate covenant of 1.25, which means it will keep the water and gas rates high enough to guarantee investors their payments. He explained how the net revenues must exceed the debt service payment by 1.25 times, showing a consistent profit.

Susanville Mayor Lino Callegari said he was pleased to hear about the refinance going through, as he’s seen the natural gas system go through many phases since its inception.

“I’m just glad we can finally move past it,” Callegari said. “It’s nice to know we can now focus our attention on other issues.”