“A monumental day:” City refinances Missoula Water acquisition bonds

Dale Bickell, the city’s chief administrative officer, right, answers questions from the City Council’s Committee of the Whole in 2017 during financing discussion on Mountain Water. Also pictured are Chris Roberts representing Barclays (center), and David MacGillivray, a financial analyst with Springsted. All three members were involved Wednesday in refinancing the 2017 package. (Martin Kidston/Missoula Current file photo)

Calling it a monumental day, members of the Missoula City Council on Wednesday approved the sale of revenue bonds to refinance short-term debt associated with the 2017 acquisition of Mountain Water Co., all while continuing with capital improvements.

The city was also awaiting an updated credit rating from Standard & Poors.

“As of at least this morning, we’re still waiting for the results of that,” said Mayor John Engen. “We believe the conversation was good and was mostly based on the fact that everything we said would happen as a function of the acquisition of Mountain Water has come true, and in many cases, it’s been better than we imagined.”

The city in 2017 entered into two bond anticipation notes to fund the purchase of Mountain Water and to cover any possible liabilities as the acquisition played out in the courts. Both notes were callable, allowing the city to redeem and retire the old ones and issue long-term debt at a better and more predictable rate.

As approved, the 2019 Series A bond won’t exceed $130 million while the Series B bond won’t exceed $5 million, according to Leigh Griffing, the city’s finance director. The public sale will be managed by Barclays, while DA Davidson of Missoula serves as a local partner.

“We can ask them to prioritize the way the bonds are sold,” Griffing said. “It starts with retail and Missoula customers – folks who go to DA Davidson who are interested in buying these bonds. The next level would be Montana customers followed by out-of-state and institutional investors.”

Dale Bickell, the city’s chief administrative officer, said the water system is performing as predicted. While the city’s water rates remain at 2011 levels and 6 percent less than what Mountain Water had charged, it’s still generating the revenue needed to pay off debt and make capital improvements.

Engen also praised the system’s performance, saying the predictions argued by experts during the years-long legal battle over Mountain Water were spot on. The city, he added, has proved to be a capable utility owner.

“We knew there was enough cash in the utility for us to retain employees. We knew there was enough cash for us to make debt service. We knew there was enough cash in existing rates to make system improvements,” Engen said. “I consider this a success story by any measure, and the pitch we made to Standard & Poors would reflect that.”

The city pledged not to raise water rates when it acquired the system, at least for several years. But officials said the reality is that inflationary costs will at some point require a slight rate adjustment.

Bickell said that could come through water development fees or rate increases.

“That would be the driving factor in any new revenue due to the capital improvement of the system,” he said. “We’re showing in some of these out years an inflationary style 2 percent increase through rate increases or development fees.”

The two 2019 bonds approved Wednesday are expected to close on April 1. Members of the council, once leery of short-term debt with an unsettled interest rate, praised the securing of long-term debt at a stable rate.

“You can make a strong case that with utilities, it’s all about capital improvements and rates,” said City Council President Bryan von Lossberg. “What we’re showing is greater capital investment in a system that has needed it for some time. It’s a monumental day.”

Council member Jesse Ramos, a critic of the prior financing package, was pleased with the bonds approved Wednesday.

“I’ve been fairly critical of some aspects of the Mountain Water takeover, but I’m fully supportive of these,” he said.