City of Philadelphia Announces Successful Pricing of $254 million of Gas Works Revenue Bonds

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PHILADELPHIA – The City of Philadelphia successfully priced Gas Works Revenue Bonds that will achieve $15 million in net present value savings and provide $240 million for crucial system-wide investments in the Philadelphia Gas Works’ (PGW) infrastructure.

The $254 million bond deal combines a refunding of existing debt with low cost funding for PGW’s ongoing capital plan. The robust investor demand for the bonds showcases continued investor confidence in both the City and PGW through the COVID-19 pandemic.

The Series A Revenue Bonds will provide $240 million for PGW’s infrastructure. The Series B Revenue Refunding bonds will refinance approximately $57 million in existing debt to achieve nearly $15 million in net present value savings (25.6% of refunded par) for PGW over the next 20 years.

The transaction attracted broad investor interest, with 54 different investors placing over $1 billion in orders (4.3 times oversubscribed). This exceptional demand led to a further lowering of interest rates by 3 to 8 basis points from the preliminary pricing scale. The final combined all-in true interest cost for the transaction is approximately 3.16%, which is 0.65% lower than the rate for the City’s most recent Gas Works Revenue borrowing.

“We were pleased that PGW received such a strong reception from investors during a heavy week for issuance,” said Acting City Treasurer Jacqueline Dunn. “This demand is a testament to PGW’s sound financial management and reflects strong execution by the underwriter.”

PGW’s Executive Vice President and Acting Chief Financial Officer, Joseph F. Golden, Jr. said, “We are pleased to achieve meaningful debt service savings and procure low-cost financing for our critical infrastructure projects that will benefit residents and businesses throughout the City.”

Ahead of the sale, Fitch Ratings improved its outlook on Philadelphia’s Gas Works Revenue Bonds to Positive from Stable, while affirming its existing rating of ‘BBB+’. This positive outlook change was achieved at a time of wholesale sector outlook and credit rating downgrades. Moody’s Investors Service and Standard & Poor’s Global Ratings affirmed their Stable outlooks and ratings of ‘A3’ and ‘A’, respectively.

All three rating agencies cited PGW’s strong financial performance, noting its seasoned management team, continued progress on its collection ratios, and productive relationship with the Pennsylvania Public Utility Commission. The Moody’s report noted, “The stable outlook reflects our expectation that PGW’s sound management and the constructive regulatory environment will continue to yield stable and relatively predictable financial and operating results.”

The 2020 bonds were sold by an underwriting syndicate led by Siebert Williams Shank & Co., LLC, with PNC Capital Markets LLC serving as co-senior manager. PFM Financial Advisors LLC and Phoenix Capital Partners, LLP served as financial advisors on the transaction. The bonds closed on October 29, 2020.

November 2, 2020