Los Angeles advances commercial paper increase for wastewater program

Plans to increase the commercial paper authorization for Los Angeles wastewater projects advanced this week.

The city council’s budget and finance committee approved a request Monday to increase the city’s commercial paper program to $400 million from $250 million to support $2.2 billion in planned wastewater system projects.

City Administrative Officer Matt Szabo submitted the request in a report earlier this month.

The request would increase the maximum limit on the CP program to meet the capital needs of the wastewater system consistent with the Bureau of Sanitation’s capital improvement plan. Roughly $2.2 billion of the CIP is anticipated to be debt financed over the next five years, according to the CAO’s report.

The city council had authorized up to $400 million for wastewater’s CP program in 1997, but the city had only been tapping up to $250 million.

“We plan on increasing the usage of the CP as an interim financing mechanism for the Wastewater Capital Improvement Program,” said Ha To, the city’s debt manager.

The full city council is slated to hear the matter on Oct. 12.

“We don’t expect any objections,” To said.

The city had planned to sell $450 million of bonds earlier in the spring to support wastewater projects, but it was delayed, To said.

The issuance that was previously expected in the spring is now anticipated to occur this winter, To said.

“It will include a CP takeout and the refunding of certain outstanding bonds,” To said.

On Sept. 23, 2021, the city closed on a $224 million WIFIA loan with the EPA. The loan will finance the Advanced Water Purification Facility at the Donald C. Tillman Water Reclamation Plant.

Szabo also recommended extending the letters of credit currently provided by Barclay’s Bank PLC and Toronto-Dominion Bank, New York Branch for three years through October 2024.

The LOC to be provided by Barclays is for $120 million plus interest, with a LOC fee rate of 24 basis points (0.24%) per annum. The LOC for TD Bank is for $280 million plus interest with a LOC fee rate of 22 basis points, 0.22% per annum.

The financing is expected to close on Oct. 15, or prior to the expiration date of the current letters of credit, which is on Oct. 22.

There is no impact to the general fund from the approval of the financing as the total cost including LOC fees, interest costs and other fees association with the transaction are budgeted in the sewer construction and maintenance fund for fiscal year 2021-22, according to the CAO’s report.

The letter of credit will be a “direct pay” meaning that the bank will pay the interest and principal on the commercial paper as it becomes due, and then the city will reimburse the bank by the close of the business day.

The CP broker dealers are Barclays and Citi. The issuing and paying agent is U.S. Bank.

The financing team is comprised of Montague DeRose and Associates as municipal advisor and Hawkins, Delafield & Wood as note counsel, which was previously approved by Mayor Eric Garcetti and the City Council.