Bakersfield council approves wastewater refunding bonds to cut debt costs

The Bakersfield City Council on July 23 approved a resolution authorizing the issuance and sale of not-to-exceed $65,000,000 in aggregate principal of City of Bakersfield Wastewater Revenue Refunding Bonds, Series 2025A, to refinance prior debt tied to the Plant 3 expansion.

City Finance Director Randy McKegan told the council the deal is a targeted refinancing of bonds originally issued in 2007 and refinanced in 2015 and 2020. He said the city will only move forward because current market conditions produce savings beyond the council's threshold: "we don't move forward with refinancing unless there's a net present value savings of at least 3%." McKegan said the underwriter's July 9 analysis shows a true interest cost of about 2.45 percent and total savings on the order of several million dollars.

Why it matters: the refunding is secured by the wastewater enterprise's net revenues and does not commit the city general fund, officials said. The bonds will remain on parity with existing wastewater debt and will be subject to the master indenture terms adopted in February 2007, including a covenant requiring rates that generate at least 125 percent net revenue relative to annual debt service.

Details presented to council: staff said they plan to issue roughly $55.8 million in new debt and expect to draw on available wastewater funds so the total sources for the transaction would be approximately $70.7 million. McKegan told the council the transaction would not extend the maturity beyond the original schedule for the refunded debt. Based on the underwriter analysis, staff reported estimated gross savings of about $4.8 million, a net present value savings reported in the presentation at about $5.45 million, and a total savings of roughly 6.5 percent. Staff also estimated annual debt-service savings to the wastewater division of about $582,000 per year for the first seven years and a final-year savings of about $261,000.

Standard & Poor's recently reaffirmed a "AA" rating on the wastewater debt, McKegan said, reflecting what S&P called a very strong capacity to meet financial commitments for the enterprise. The city selected Bank of America Securities as underwriter after an RFP/RFQ process with its municipal advisor.

Council questions and next steps: Council member Smith asked for clarification about transaction costs and long-term interest paid on wastewater projects; Smith said he had previously calculated roughly $116 million in interest paid since 2007 and about $133 million in principal on those financings. Council member Weier requested a follow-up report on the broader wastewater program and rates in the September'October timeframe; City staff said they expect to return this fall with additional analysis to guide outreach and possible rate or program changes. Staff said if the council approved the resolution the next steps were finalizing the preliminary official statement with the underwriter, pricing in a couple of weeks and closing a few weeks after that, with a refunding expected near August 1.

Outcome: Vice Mayor Kaur moved to adopt staff's resolution. The motion passed; the clerk announced the item was approved with Council member Arias absent.