Unique Characteristics of Project: NHA creatively structured a refunding of the City’s water and sewer debt that assisted the City in meeting its rate covenants without the need for an immediate rate increase. A unique, short-term rate stabilization fund was utilized to secure bond insurance (despite the water bonds being non-rated) and create strong investor demand. Old reserves tied to the prior SRF loans were released to allow City to fund critical CIP
Executive Summary: The City of Corning was in technical default on its rate covenant with respect to approximately $3.7 million in outstanding debt secured by net revenues of its water enterprise. NHA structured a refunding of this debt, along with wastewater utility debt, that helped enable the City to meet its rate covenant without raising water rates immediately. The covenant default was a result of the State mandated cutbacks in water consumption due to the on-going drought, despite the fact that the City’s water supply was 100% from groundwater. The debt restructuring helped enable the City to gauge how much of a “rebound” from the drought would occur with respect to water consumption before structuring its next water rate increase. A unique rate stabilization fund covenant and reserve maintenance policy were utilized instead of a rate increase to provide extra security to bond investors.
While the refunding bonds had no underlying rating, NHA was able to secure a commitment for bond insurance from BAM, a major bond insurer. Insurance on an unrated credit is highly unusual but enabled the City to provide even more relief for the water fund. BAM offered the insurance because of their confidence that the City would raise rates in the near future, and the refunding bonds would subsequently be rated as investment grade.