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Hot Springs officials outline $72.5 million wastewater bond plan, note credit downgrade and pricing implications
Summary
City staff presented a proposed ordinance to issue up to $72.5 million in wastewater revenue bonds to fund sewer system improvements, discussed a two‑notch downgrade of the sewer credit rating and said pricing will be set next week.
City of Hot Springs finance staff and bond advisors told the board at an agenda meeting that the city plans to ask the Board of Directors to consider Ordinance O25‑07 next Tuesday, authorizing up to $72,500,000 in wastewater revenue bonds to finance improvements to the city's wastewater system.
Finance Director Karen Scott and bond advisor Robert (Bob) Wright reviewed the proposal, saying the bonds would fund treatment‑plant work, gravity mains, force mains and pump station upgrades. The draft offering allows for a debt service reserve in a maximum principal amount of $7,250,000 in the form of a surety bond or similar instrument. The board was told a pricing session is planned for the following Tuesday and that a March 27 closing date is targeted.
Why it matters: the measure would supply the construction funds the city says are needed to comply with a consent administrative order and to complete a suite of wastewater capital projects. Officials said structuring decisions were influenced by a recent Standard & Poor’s review and by federal insurance/wrap pricing that affect borrowing costs.
City and bond advisers explained the credit context. Standard & Poor’s recently downgraded the city’s sewer rating two notches (to single‑B or triple‑B+ level in the presentation) and lowered the water rating one notch; the advisers said that reflected national sector caution about extreme weather and the city’s projected regulatory‑driven debt. Wright and staff said the sewer downgrade raised the cost of a bond insurance wrap and changed some sizing decisions for the transaction, though the bond insurance (reported as AA‑rated) would still support lower effective interest rates for investors.
Officials described two transaction choices that raised the par amount: (1) adding a capitalized interest deposit of $1,830,000 to the uses to cover interest while construction proceeds, and (2) an increased insurance premium tied to the lower rating. Staff said keeping capitalized interest in the deal preserves roughly $17 million of construction funds that otherwise would be lost from the construction account.
Advisers also discussed debt‑service structure and optional redemption language. The preliminary offering document was revised so that new bonds would be callable in June 2030 (rather than later dates originally printed), preserving flexibility to refinance if market rates decline. Wright said if long‑term rates fall by roughly 1 percentage point he would return to discuss refinancing opportunities.
Next steps: staff said they will bring final pricing figures and the ordinance to the Board of Directors’ meeting Tuesday, Feb. 18 at 6 p.m. The board was not asked to vote at the agenda meeting; the ordinance will be presented for formal action at the public meeting.
Quotes from the meeting: “We plan to price these bonds next Tuesday morning and be down here,” Bob Wright said. Karen Scott summarized the public hearing and the bond proposal and noted staff will provide final numbers at the next meeting.
Ending: The board will consider the ordinance and hold the required public hearing at the Feb. 18 business meeting; staff said the proposed structure aims to deliver the full construction program while monitoring the market for refinancing opportunities.
