Straight from the Tap

Bond Refunding: What it Means for Cleveland Water Customers

11/21/2017

Cleveland Water will see an overall savings of $25.9 million in future debt payments by refunding previously issued revenue bonds with new bonds issued this year. The new issuance consists of $113,585,000 of water revenue bonds, the proceeds of which will refund water revenue bonds from 2012 and 2007.

What does all that mean? A bond refunding is essentially a refinancing. The new bonds will pay off the older bonds but will have a lower rate for repayment. The lower rate will result in lower future debt payments. The accumulation of the savings from these lower payments will result in approximately $25.9 million in savings over 15 years. The refunding will also spread debt payments out more evenly, preventing repayment in any one year from being disproportionately high.

Most importantly, these savings have a direct impact on our customers. Cleveland Water is funded solely by usage rates. When evaluating the need to increase water rates and the percentage of any required increase, a significant factor in the evaluation is the amount of future debt payments. Having lower, more predictable debt payments helps long-term budget planning. It also means that we will be able to pay for scheduled infrastructure projects with cash-on-hand and will not need to take on any new bond debt for several years.

The bonds issued in 2007 and 2012 were used to finance Cleveland Water’s Plant Enhancement Program (PEP) and installation of new automated meter reading equipment. The PEP was a $750-million, 15-year effort to modernize and rebuild our four water treatment plants. As a result of the PEP, Cleveland Water now has four state-of-the-art treatment plants to ensure safe, quality water is available throughout our service area.

Issuing bonds is a common way for public utilities and municipalities to pay for the necessary infrastructure projects up front while spreading costs out over 20 to 30 years. This financing mechanism allows utilities to complete large-scale projects while ensuring that current customers are not responsible for a disproportionate amount of the financial burden.

Cleveland Water received a credit rating increase in connection with the bond refunding and is now at the second highest rating available. A high credit rating results in lower interest rates and better terms on future debt.

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