Trusters approve preliminary steps for long-term bond to raise CIP capacity

The Oklahoma City Water Utilities Trust on Aug. 26 approved a resolution authorizing the general manager designate to begin preparatory work for a long-term fixed-rate bond sale to refund commercial paper and raise new money for construction spending.

The action comes as the utility looks to increase its ability to let large, multi-year construction contracts for the capital improvement program (CIP). Dennis Whaley, the utility’s financial adviser with PFM, told trustees the utility expects about $2.7 billion in CIP spending over the next five years and roughly $6 billion over 10 years, and that several large projects are driving the need for additional appropriation capacity.

Whaley said the Atoka pipeline project accounts for about $348 million in expected spending and the Deer Creek water/wastewater treatment plant about $230 million. He summarized interim and longer-term strategies the utility is pursuing to expand capacity: raising commercial paper capacity, soliciting a bank note program, pursuing a long-term bond issue to refund commercial paper and raise new money, and continuing to use the Oklahoma Water Resources Board State Revolving Fund (SRF) when projects qualify.

"We came to you in January '25 and talked about the need to raise capacity for the letting of contracts," Whaley said. He described recent actions: the utility increased its commercial paper program capacity (closed April 30) and reissued a request for proposals for a bank note program on July 30. The reissued RFP asked banks to bid on either a $320 million three-year program or a $500 million five-year program; Whaley said the utility received two responses for each option and is evaluating them.

Whaley explained what the approved resolution authorizes: preparatory work that includes developing a preliminary official statement, drafting legal documents and arranging rating agency meetings. He said the trust has issued a mini-RFP to investment banks on the city's authorized pool and expects responses back on Aug. 28.

He also reviewed the current short-term and capacity figures cited to trustees: the tax authorization for debt (described as the first authorization) sits at $700 million; roughly $34 million of commercial paper is outstanding; the trust had about $500 million in spending capacity under the recently raised program, but had appropriated roughly $365 million against a $500 million letter of credit, leaving materially less remaining appropriation capacity (Whaley described an available additional capacity of about $98 million to let new projects under that letter of credit). Whaley framed the bond sale as a way to restore longer-term capacity for contracting.

On timing, Whaley said market timing is uncertain but suggested a possible rate cut in the near term could lower the short end of the yield curve while longer-term yields remain pressured by inflation and global risks. "I think there's a very good chance there will be a rate cut in September," he said, adding that the yield curve may flatten at the short end and remain elevated on the long end.

Trustees moved to approve the resolution; a motion and second were made and the item passed.

Trust staff and the financial adviser will proceed with the specified preliminary actions; trustees did not provide a public timetable for a final bond sale during the meeting.