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Alcosan bond issue expected to save $27 million

Aaron Aupperlee
| Wednesday, July 22, 2015, 11:30 p.m.

The Allegheny County Sanitary Authority expects to save about $27 million through refinancing $195 million in 10-year-old debt, the authority's spokeswoman said Wednesday.

Jeanne Clark said Alcosan hasn't determined how much it will cost to issue the bonds.

The authority should know as it gets closer to selling the bonds, Clark said. Moody's Investors Service, which gave the bonds a stable A1 rating Tuesday, listed July 31 as the expected sale date. Clark said everything should be finalized by September.

The authority's board approved in June issuing $266 million in bonds. About $195 million of it will go toward the 2005 debt. The remaining $75 million will fund capital projects.

Alcosan has not identified what projects the $75 million will cover, but the authority expects to spend billions of dollars in the next decade to comply with a federal order to reduce sewage overflowing into rivers and streams during rainstorms.

“We know we're going to have an ambitious capital program moving forward,” Clark said.

Alcosan is negotiating with the Environmental Protection Agency on the cost and timeline of the plan, Clark said. The authority has submitted plans that could cost $2 billion to $3.6 billion.

The authority increased rates charged to customers 17 percent last year and 11 percent this year. It intends to impose 11 percent rate increases in each of the next two years to pay for the project. By 2017, the average Alcosan customer will pay $417.51 a year, up from $260.92 in 2013.

The authority has about $586 million in debt. It spends about $51 million a year on debt service.

Downtown law firms Campbell & Levine and Clark Hill are co-bond counsels on the current financing deal, Clark said.

BNY Mellon Capital Markets is the financial adviser. Cohen & Grigsby and Dinsmore & Shohl, also Downtown firms, are the legal advisers for the bond underwriting group. The underwriting group includes Boenning & Scattergood, PNC Capital Markets, RBC Capital Markets, Piper Jaffray and Loop Capital Markets.

Alcosan selected the underwriters through an open bidding process. Bond counsel was chosen based on similar factors, Clark said.

Allegheny County Manager William McKain expected the county to spend $266,000 on fees to attorneys and advisors when it issued $247 million in bonds last year. The county used Clark Hill as part of its bond counsel. Clark Hill, Reed Smith and PNC Capital Markets split $50,000 in legal fees in that issue.

The Internal Revenue Service penalized Alcosan $70,000 in 2013 over a 2005 bond refinancing. The IRS claimed Alcosan violated federal limits on how much interest rates could be reduced and how much money could be saved through bond refinancing. Alcosan disputed the allegations but paid the penalty to avoid a costly legal battle.

Clark said the limits that applied to the 2005 bonds do not apply to the current bond proposal.

Aaron Aupperlee is a Trib Total Media staff writer. Reach him at 412-320-7986 or aaupperlee@tribweb.com.

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