PHILADELPHIA. — The City of Philadelphia successfully priced Gas Works Revenue Bonds 17th Series A&B, providing $315 million for crucial system-wide investments in the Philadelphia Gas Works (PGW) infrastructure and achieving $7.8 million in net present value savings on refunding bonds. In advance of the sale, Fitch Ratings also improved PGW’s rating outlook to ‘A’ Positive from ‘A’ Stable, reflecting PGW’s strong and improving financial profile.
The $424 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 PGW.
“We appreciate the confidence Fitch has displayed in PGW by increasing our bond rating outlook from stable to positive,” said Seth Shapiro, President & CEO, PGW. “The performance of PGW’s leadership team has continued to advance our rating. We are constantly improving operational excellence and growing revenue,”
The Series A Revenue Bonds provided $315 million for PGW’s infrastructure, with a focus on maintaining a safe, reliable, and efficient system. The Series B Revenue Refunding Bonds refinanced approximately $119 million in existing debt to achieve nearly $7.8 million in net present value savings (6.57 percent of refunded par) for PGW over the next 11 years.
The transaction attracted broad investor interest, with 66 different investors placing orders that equaled more than 5.6 times the amount of bonds being sold. This exceptional demand allowed PGW to further lower interest rates so that debt service was $3.2 million lower than initially estimated.
The transaction’s final combined all-in true interest cost is approximately 4.14 percent and credit spreads were as much as seven basis points better than those PGW achieved in its last bond issuance in 2020 compared to the industry’s MMD benchmark for tax-exempt bonds.
“We were pleased that PGW received such a strong reception from investors during a heavy week for issuance,” said Jackie Dunn, City Treasurer. “This demand is a testament to PGW’s sound financial management and the strength of its credit.”
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 ‘A-.’ The outlook revision reflects PGW’s strong, improving financial profile and lower leverage. 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 strong coverage of fixed costs. Fitch’s report stated that their, “forward look remains supportive of the rating and Positive Outlook based on leverage remaining below 8x even in Fitch’s stress case.”
The 17th Series bonds were sold by an underwriting syndicate led by JP Morgan Securities LLC, with Ramirez & Co. as co-senior manager. PFM Financial Advisors LLC and Phoenix Capital Partners, LLP served as financial advisors on the transaction. The bonds closed on Wednesday, September 18, 2024.
