The SWS-led syndicate generated nearly all institutional orders throughout the entire yield curve from 54 different investors, totaling approximately $1.1 billion
Proceeds of the bonds were used to fund a portion of the Philadelphia Gas Works’ ongoing capital improvement program, fund the Sinking Fund Reserve for bonds issued under the 1998 Bond Ordinance, refund the Ninth Series Bonds, and, pay the costs of issuance. The Bonds are secured solely from the Gas Works Revenues and the Sinking Fund Reserve.
In anticipation of potential investor aversion to small-sized maturities less than $500,000, SWS created a cost neutral structuring alternative that eliminates small sized refunding bonds in the years between 2025 to 2035. The structuring alternative modifies various maturity sizes between the refunding and new money bonds, allowing for optimal pricing execution while maintaining comparable savings’ objectives and post-transaction net debt service profile. The extensive credit analysis and presentation SWS prepared ultimately resulted in PGW receiving A3 and A ratings from Moody’s and S&P, respectively, and a revised Fitch outlook of “positive” from “stable.”
The transaction consisted of two tax-exempt series with serial bonds amortizing from 2021 through 2040, and two term bonds maturing in 2045 and 2050. The investor presentation prepared by SWS was viewed by over 30 different investors; SWS also facilitated a one-on-one call between the City, PGW, and a potential investor. Utilizing a competitive process, SWS obtained and utilized insurance on bonds maturing in years 2024-2050 at extremely low costs, reducing the net effective yields by 4.4 bps to 12.1 bps for insured bonds. The municipal market in the weeks preceding pricing as well as the week of pricing saw significant issuance volume exceeding $11 billion each week, as issuers rushed to market to avoid volatility expected during the November election.
Effective pricing execution attracted broad investor interest, with an overall subscription of 4.3 times the amount offered. SWS strategically utilized a 4% coupon structure in select serial maturities (2036-2040) and the 2045 term bond in order to maximize investor interest while maintaining sizable offerings with 5% coupons which possess higher option values. Participating investors include bond funds, SMAs, bank portfolios, insurance companies, bank trusts, private wealth management and prop/trading accounts.
The SWS-led syndicate generated nearly all institutional orders throughout the entire yield curve from 54 different investors, totaling approximately $1.1 billion. The strong investor demand resulted in a reduction in yields by 3 to 5 bps for bonds maturing in years 2023 through 2040, 8 bps for the 2045 term bond, and 4 bps for the 2050 term bond. The all-in true interest cost for the combined issue is 3.16%. The refunding series generates $14.6 million of PV savings (or 25.6% of refunded bonds), with $10.6 million cash flow savings realized in 2021 through 2023.