City Treasurer’s Office Announces Successful Bond Sale to Secure Funds for Philadelphia Gas Works Infrastructure Improvements
The Philadelphia Gas Works, working in conjunction with the City Treasurer’s Office, has completed the sale of $273.1 million in bonds that will both fund critical infrastructure needs and provided $742,350 in savings through a refunding, Philadelphia City Treasurer Rasheia Johnson announced.
Proceeds from the sale will be used to finance a portion of PGW’s ongoing Capital Improvement Program, to refund the City’s outstanding Gas Works Revenue Capital Project Commercial Paper Notes, and to refund a portion of the PGW Seventh Series Bonds. The refunding resulted in net present value savings of 10% of the refunded bonds, or $742,350.
After reducing interest rates to reflect the strong investor interest, the bonds had an overall all-in true interest cost of 3.81%. Moody’s recently upgraded PGW’s credit rating from Baa1 to A3, reflecting improvements in performance and planning that have taken place at the utility over the last year. Prior to the sale, the City and PGW engaged in extensive pre-marketing to promote the bonds and educate investors about the credit. The rating upgrade and pre-marketing contributed to the momentum which enabled the City to price the Bonds at tight spreads in a competitive market environment.
“Moody’s upgrade is a reflection of PGW’s strong management team that has increased PGW’s operating efficiencies and financial position in addition to the constructive relationship between PGW’s board of directors (PFMC) and the Pennsylvania Public Utility Commission (PUC)” Treasurer Johnson said. Upon release, the bonds received over $1.2 billion of orders from 52 investor accounts including many of the largest U.S. bond funds. Compared to closing MMD rates on August 8th. the 2047 maturity long bond priced at a spread to MMD of 55 basis points. During the pricing, due to strong investor demand, the City was able to lower yields by as much as nine (9) basis points per maturity compared to the preliminary scale.
Compared to PGW’s latest prior bond issuance in August of 2016, the City lowered spreads, relative to MMD, by 15 basis points for the 10-year bond and by eight (8) basis points for the 15-year bond. Robust investor interest and orders reflect the market’s high confidence in the City of Philadelphia PGW credit and enables PGW to fund its critical infrastructure needs at lower costs.
The bonds were sold by an underwriting syndicate led by Morgan Stanley & Co., LLC. Loop Capital Markets served as co-senior manager. The sale closed on August 16, 2017.