21
March 12, 2020 The City of Phoenix Civic Improvement Corporation Junior Lien Water System Revenue Bonds, Series 2020A and Series 2020B (Sustainability Bonds) Investor Presentation
March 12, 2020
The City of Phoenix Civic Improvement Corporation
Junior Lien Water System Revenue Bonds,
Series 2020A and Series 2020B (Sustainability Bonds)
Investor Presentation
1
This electronic Investor Presentation you are about to view is provided as of March 12, 2020 for a proposed offering by the City of Phoenix, Arizona (the “City”), through the City of Phoenix Civic Improvement Corporation, of the Junior Lien Water System Revenue Bonds, Series 2020A and Series 2020B (Sustainability Bonds) (the “Bonds”). Market prices, financial data, and other information provided herein are not warranted as to completeness or accuracy and are subject to change without notice. If you are viewing this presentation after March 12, 2020, there may have been events that occurred subsequent to such date that would have a material adverse effect on the financial information that is presented herein, and neither the City, nor Morgan Stanley & Co. LLC, as representative of the Underwriters, have undertaken any obligation to update this electronic presentation.
This Investor Presentation is provided for your information and convenience only. By accessing this presentation, you agree not to duplicate, copy, download, screen capture, electronically store or record this Investor Presentation, or to produce, publish or distribute this Investor Presentation in any form whatsoever. This Investor Presentation does not constitute an offer to sell or the solicitation of an offer to buy any security or other financial instrument, including the Bonds, or to adopt any investment strategy. Any offer or solicitation with respect to the Bonds will be made solely by means of the Preliminary Official Statement or Official Statement, which describe the actual terms of such Bonds. The Underwriters make no representations as to the legal, tax, credit or accounting treatment of any transactions mentioned herein, or any other effects such transactions may have on you and your affiliates or any other parties to such transactions and their respective affiliates. In no event shall the Underwriters or the Issuer be liable for any use by any party of, for any decision made or action taken by any party in reliance upon, or for any inaccuracies or errors in, or omissions from, the information contained herein and such information may not be relied upon by you in evaluating the merits of participating in any transaction mentioned herein. Nothing in these materials constitutes a commitment by the Underwriters or any of their affiliates to enter into any transaction. No assurance can be given that any transaction mentioned herein could in fact be executed. Any investment decision regarding the Bonds should only be made after a careful review of the complete Preliminary Official Statement. You will be responsible for consulting with your own advisors and making your own independent investigation and appraisal of the risks, benefits, appropriateness and suitability of the proposed transaction and any other transactions contemplated by this presentation, and the Issuer and the Underwriters are not making any recommendations (personal or otherwise) or giving any investment advice and will have no liability with respect thereto. Transactions involving the Bonds may not be suitable for all investors. You should consult with your own advisors as to the suitability of the Bonds for your particular circumstances. Past performance is not indicative of future returns, which will vary. This Investor Presentation may contain “forward‐looking” statements that involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results may differ materially from those expressed or implied by such forward‐looking statements. We caution you not to place undue reliance on these statements. All statements other than the statements of historical fact could be deemed forward‐looking. All opinions, estimates, projections, forecasts and valuations are preliminary, indicative and are subject to change without notice. Prospective investors should contact their salesperson at, and execute transactions through the Underwriters for the Bonds qualified in their home jurisdiction unless governing law permits otherwise.
Disclaimer
2
Transaction Summary
* Preliminary, subject to change
Issuer The City of Phoenix Civic Improvement Corporation Issue Junior Lien Water System Revenue Bonds, Series 2020A and Series 2020B (Sustainability Bonds) Par Amount* Series 2020A: $169,030,000 and Series 2020B (Sustainability Bonds): $235,810,000 Expected Pricing Date* Tuesday, March 24, 2020 Expected Dated/Delivery Date* Tuesday, April 14, 2020 Credit Ratings Aa2 (Moody's) / AAA (S&P) Tax Status* Tax-Exempt Interest Payment Dates On January 1 and July 1 of each year, commencing July 1, 2020
Maturities* Series 2020A: Serial Bonds Maturing 7/1/2030 to 7/1/2040; Term Bonds Maturing 7/1/2044 Series 2020B: Serial Bonds Maturing 7/1/2030 to 7/1/2040; Term Bonds Maturing 7/1/2044
Optional Call Feature* Any day on or after July 1, 2030 at Par
Purpose Series 2020A: Prepay 2019 Revolving Loan of $200 million and fund System improvements Series 2020B (Sustainability Bonds): Finance a portion of the System’s CIP targeting drought resiliency
Sustainability Bonds The Series 2020B Bonds will be designated as Sustainability Bonds utilizing the City’s Green and Sustainability Bond Framework and in compliance with the Green Bonds Principles
Security
The Bonds are special revenue obligations of the Corporation and are payable solely from payments required to be paid by the City of Phoenix, Arizona to the Corporation pursuant to the City Purchase Agreement dated as of April 1, 2020, by and between the City and the Corporation. The obligations of the City to make the payments and any other obligations of the City under the City Purchase Agreement are payable from a pledge of Designated Revenues received from the City’s water system and do not constitute a pledge of the full faith and credit or the ad valorem taxing power of the City. The Bonds are issued on a parity basis with certain other outstanding junior lien water system revenue obligations of the City and the Corporation
Additional Bonds Test Most recently completed fiscal year Net Operating Revenues must equal at least 110% of all Senior Lien and Junior Lien Revenue Obligations, including proposed bonds
Rate Covenant
Continuously own, control, operate and maintain the System; establish, fix, maintain and collect rates, fees and other charges for all water and services furnished by the System; provide for 100% of the Expenses of Operation and Maintenance; produce Net Operating Revenues in each bond year which will equal at least 110% of the interest and principal requirement for the then current bond year on all Revenue Obligations then outstanding
Senior Manager Morgan Stanley
3
575
585
595
605
615
625
2011 2012 2013 2014 2015 2016 2017 2018 2019
City of Phoenix Population(1)
(MM)
Phoenix MSA Per Capita Personal Income(2)
($)
Unemployment Rate(3)
Annual Data, Not Seasonally Adjusted (%)
City of Phoenix Housing Units(4)
(000)
Sources: 1. U.S. Census Bureau (December 2019) 2. U.S. Bureau of Economic Analysis 3. U.S. Bureau of Labor Statistics 4. Maricopa Association of Governments
1.3
1.4
1.5
1.6
1.7
2010 2011 2012 2013 2014 2015 2016 2017 201830,000
35,000
40,000
45,000
50,000
2011 2012 2013 2014 2015 2016 2017 2018
2%
4%
6%
8%
10%
12%
2011 2012 2013 2014 2015 2016 2017 2018
Phoenix MSA State of Arizona U.S.
3.90%
4.80%
4.20%
With a 2018 population of 1.7 million, Phoenix is the 5th largest city in the U.S
‒ Accounts for nearly a quarter of the state’s population
‒ Population growth of nearly 15% since 2010
Phoenix is the state capital of Arizona and the center of the metropolitan area encompassed by Maricopa County
Employment and income data for Phoenix MSA is strong
‒ Phoenix MSA’s unemployment rate of 4.2% is below that of the State of Arizona
‒ Per capita income for Phoenix MSA increased by 26.6% from 2011 to 2018
City of Phoenix housing permits increased by 32,280 units from 2011 to 2019
City of Phoenix Overview
4
MAJOR WATER SOURCE SALT/VERDE RIVERS
(Salt River Project)
MAJOR WATER SOURCE COLORADO RIVER
(Central Arizona Project)
The City’s Water Department provides reliable, high‐quality water to 1.7 million people in and around the City of Phoenix
Ample water supply, treatment, and water distribution capacity
Record of environmental compliance
Responsible reinvestment in critical infrastructure
Water System Overview
Water System Key Statistics Service Area 543 sq. mi. Treatment Capacity 646 mgd
Water Accounts 430,592 Maximum Day Demand 384 mgd Water Treatment Plants 5 Average Daily Demand 265 mgd
Active Groundwater Wells 22 Storage Capacity 500 mg Miles of Water Mains 6,905 Lost and Unaccounted-for Water 8.5%
Booster Pump Stations 114 Water System Employees 1,043 mgd– million gallons per day; mg –million gallons
5
88%
4% 8%
# of Accounts - 430,592* Billed Volume – 112,892,724* ccf
City of Phoenix is the largest customer, accounting for 3.7% of rate revenue Top ten customers accounted for 7.3% of rate revenue
Largely Residential System with Diverse Users
Accounts by User Group Billed Volume by User Group
■ Single-Family ■ Multi-Family ■ Non-Residential
50%
15%
35%
* Accounts and billed volume as of June 2019
6
Water rate schedules are adopted by the Mayor and City Council by ordinance, subject to certain statutory restrictions on rates charged to non-residents
Since 1974, water rates have been reviewed annually, in accordance with the Council’s adopted policy
The City’s principal consideration in adjusting water rates is to maintain the System’s operations as a completely self-supporting enterprise
Within the last twenty years, the City has approved eighteen general rate adjustments, with the most recent increase of 6% effective February 1, 2020
Rate History and Peer Comparison
Water Rate Revenue Adjustments
(%)
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
($)
0
50
100
150
200
250
300
350
San
Fra
ncis
co, C
A
Aus
tin, T
X
San
Die
go, C
A
Indi
anap
olis
, IN
Phi
lade
lphi
a, P
A
San
Jos
e, C
A
Hou
ston
, TX
New
Yor
k, N
Y
Los
Ang
eles
, CA
Cha
rlotte
, NC
Det
roit,
MI
Col
umbu
s, O
H
Jack
sonv
ille,
FL
Fort
Wor
th, T
X
Dal
las,
TX
Chi
cago
, IL
Pho
enix
, AZ
El P
aso,
TX
San
Ant
onio
, TX
Mem
phis
, TN
Source: The City of Phoenix, March 2019
Based on rates in effect March 2019, Phoenix’s average annual monthly
bill total is $63.96, comprised of a water bill of $41.69 and a sewer
bill of $22.27
Average Monthly Single‐Family Bill: Largest 20 U.S. Cities
7
Water Resource Utility of the Future Today Award
2017
One of 25 water utilities in the country to receive this recognition. The Utility of the Future Today recognition celebrates the achievements of forward-thinking, innovative water utilities
that are providing resilient value-added service to communities. The recognition focuses specifically on community engagement, watershed stewardship and recovery of resources
such as water, energy and nutrients
Association of Metropolitan Water Agencies (“AMWA”) Awards
2019 Sustainable Water Utility Management
Phoenix Water was one of the fifteen systems that received the Sustainable Water Utility Management Award for achieving a balance of innovative and successful efforts in areas of economic, social and
environmental endeavors. Some of the successes that separated Phoenix Water from other municipal utilities include the acquisition of water resources to meet demand 100 years into the future; reduced energy consumption through the adoption of electronic processes
such as automated meter reading; and 140 million gallons of wastewater recycled, daily. In all, 19 utilities received awards for demonstrating excellence in various areas of utility management.
2016 Platinum Award for Utility Excellence
Phoenix Water was one of ten water utilities in the country to receive the Platinum Award for Utility Excellence. The Sustainable Water
Utility Management Award recognizes water utilities that have made a commitment to management that achieves a balance of innovative
and successful efforts in areas of economic, social and environmental endeavors. The Platinum Award recognizes
outstanding achievement in implementing the nationally recognized Attributes of Effective Utility Management.
The City meets or exceeds all regulatory mandates: ‒ Safe Drinking Water Act ‒ Minimal impact under Lead and Copper Rule ‒ Clean Water Act ‒ State Aquifer Protection Permit Program ‒ Arizona Effluent Reuse Program ‒ Clean Air Act; Titles: I, III and V ‒ Resource Conservation and Recovery Act ‒ Emergency Preparedness and Community ‐
Right-to‐Know-Act
Regulatory Compliance
8
Acquired more surface water supplies than needed under non‐drought conditions to provide a buffer during surface water shortages
100+ year planning to achieve 100‐Year Assured Water Supply designation
Water in the Desert Strategies Recharged Local Aquifers ‒ Partnered in the first aquifer recharge facility in Arizona, the Granite Reef
Underground Storage Project starting in 1994 Phoenix/Tucson Water Exchange ‒ Agreement between Phoenix and Tucson in which Phoenix will store some of its
unused Colorado River water in Tucson aquifers for Tucson's use during Colorado River shortages with allocation of part of Tucson's supply for Phoenix customers
Drought Pipeline ‒ New pipeline and pump stations allow Phoenix to move Salt and Verde River water
to areas traditionally served with Colorado River water Water Reuse ‒ Development of reclaimed water which is reused for agricultural irrigation, local
power generation, groundwater recharge and wetland restoration
Drought Resiliency Arrangements
9
On Project Supply (Salt River Project (“SRP”) Water) ‒ Lands located within the Salt River
Project area and rights to SRP Water Off Project (Central Arizona Project
(“CAP”) Water) ‒ Lands located outside the Salt River
Project area with water supplied by the CAP
Intermittent Supply (Other Surface Water) ‒ Verde River gate water, Roosevelt Dam
new conservation space and water from the Roosevelt Irrigation District
Strong water planning results in excess supply, which is needed with persistent drought conditions
Demand declining because of conservation practices and increased efficiencies
Phoenix Water Supply Portfolio and Climate Adaptation
Projected Water Supply and Demand Acre‐Feet
0
200,000
400,000
600,000
800,000
2020 2030 2040 2050 2060On-Project Supply Off-Project SupplyGroundwater Supply Intermitten SupplyDemand
2019 Water Supply and Demand Acre‐Feet
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
2019 Water Demand 2019 Water Supply
On-Project Supply Off-Project Supply Groundwater SupplyIntermitten Supply Demand
10
After an extensive community consultation process, on April 12, 2016, Phoenix City Council adopted 2050 Environmental Sustainability Goals
Key Clean Water Tenets Include: ‒ Support conservation that
helps stabilize Lake Mead ‒ Use innovative water-sharing
arrangements that allow water to move flexibly and efficiently across Arizona
‒ Continued protection of the fossil aquifer that underlies the Valley of the Sun
City of Phoenix Sustainability Goals
11
Series 2020B Bonds Designated Sustainability Bonds
Note: 1. Please refer to the POS, City Sustainability Bond Framework: Designation of 2020B Bonds as Sustainability Bonds for additional information.
Colorado River Resiliency Projects to be Funded by Series 2020B Sustainability Bonds ($MM)(1)
Well Projects Provides access to stored water underground $27
Pump North Projects Distribute water throughout the Water System $263
Total Sustainability Bond Proceeds Diversifies sources of potable water and supports socio-economic well-being of entire region $290
Use of Proceeds ‒ Finance costs of the Sustainability Projects, targeting drought
resiliency efforts that protect Water System customers during Colorado River shortages
Process for Project Evaluation and Selection ‒ Utilizes the City’s Green and Sustainability Bond Framework ‒ Incorporates input from the Sustainability Office, the Finance
Department and the Water Services Department Proceeds Management
‒ Proceeds will be deposited into a separate subaccount and will be tracked and disbursed for the Sustainability Projects
Reporting ‒ Until proceeds have been expended, City expects to report annually on a voluntary basis. The report shall
be made public and include a list of sustainability projects with description, progress, alignment with City goals and US SDGs
‒ The report on the projects’ completion and use of bond proceeds will be included in the City’s annual CDP disclosure. CDP is a not-for-profit that operates a global disclosure system for cities and other entities to manage their environmental impacts
12
Developer Contribution
1.1%
Mesa Participation
4.4%
Operating Funds 30.7%
Other 0.3%
Bond Funds/CP
63.5%
Production 23.3%
Distribution 64.0%
Other 12.7%
Sources of Funds
Uses of Funds
Responsible, reinvestment focused on system reliability
Proposed water capital projects total $2.1 billion over the next six years (FY 2020 – FY 2025)
Projects include: ‒ Improvements to water treatment
plants, storage facilities ‒ Rehabilitation and replacement of
water mains and infrastructure ‒ Modifications to meet regulatory
mandates ‒ Upgrades to automation and
environmental systems
Capital Improvement Program Overview
13
CIP Sources and Uses of Funds
(in ‘000s) FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 Total
Sources
Operating Funds $90,904 $101,683 $115,562 $136,821 $111,897 $75,575 $632,442
Mesa Participation 19,968 11,220 4,916 12,215 10,011 33,083 91,413
Developer Contributions 802 17,097 - - - 4,795 22,694
Bond Funds 203,936 455,784 151,829 159,235 141,480 200,075 1,312,339
Other Sources - - 3,333 3,333 - - 6,666
Total Sources of Funds $315,610 $585,784 $275,640 $311,604 $263,388 $313,528 $2,065,554
Uses
Production $122,292 $77,877 $60,131 $65,815 $60,655 $95,219 $481,989
Distribution 152,040 470,024 160,306 205,404 163,555 170,503 1,321,832
Other 41,278 37,883 55,203 40,385 39,178 47,806 261,733
Total Uses of Funds $315,610 $585,784 $275,640 $311,604 $263,388 $313,528 $2,065,554
14
Consistent Financial Performance (in ‘000s) FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 Revenues(1) Metered Water Sales(2) $274,367 $299,767 $323,051 $337,063 $298,509(2)
Environmental Charges 42,613 40,105 33,358 34,427 42,846 Raw Water Charge 23,582 24,979 25,425 26,452 26,395 Wholesale Water Sales 3,848 3,596 3,920 3,506 3,278 Other Misc. Fees and Charges 27,180 31,261 34,717 40,019 35,184 Total Revenues $371,590 $399,708 $420,471 $441,467 $406,212 Operation & Maintenance Expenditures & Encumbrances Administration & Engineering $17,561 $16,648 $21,930 $24,986 $20,376 Customer Service 9,510 9,039 6,691 7,074 7,432 Production & Treatment 76,471 82,413 97,364 111,300 111,825 Distribution & Centralized Functions 55,964 60,204 42,133 49,658 65,648 Total O&M Expenditures & Encumbrances $159,506 $168,304 $168,118 $193,018 $205,281
Net Revenues Available for Junior Lien Debt Service $212,084 $231,404 $252,353 $248,449 $200,931
Junior Lien Debt Service $106,535 $96,401 $107,029 $109,837 $113,003 Junior Lien Debt Service Coverage 1.99x 2.40x 2.36x 2.26x 1.78x
Revenues Available After Junior Lien Debt Service $105,549 $135,003 $145,324 $138,612 $87,928
Unrestricted Fund Balance, End of Year $162,854 $165,736 $122,706 $151,266 $146,610
Days Cash on Hand 373 days 359 days 266 days 286 days 261 days
(1) Revenues and related expenditures include the City of Mesa’s share of the Val Vista Water Treatment Plant (2) In fiscal year 2018-19, Metered Water Sales decreased due to cooler temperatures and higher than normal rainfall. Rainfall in fiscal year 2018-19 was 11.35 inches versus the median rainfall of 5.48 inches. The decrease in revenue resulted in a temporary drop in coverage below the targeted 2.0x
15
Financial Forecast*
* Please Refer to Appendix B of the POS for Discussion of Forecast Assumptions
(in ‘000s) FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 Revenues(1) Metered Water Sales $321,177 $329,199 $330,532 $332,355 $334,510 $336,774 Environmental Charges 70,109 74,364 75,294 76,235 77,188 78,153 Raw Water Charge 35,859 37,330 37,797 38,270 38,748 39,232 Wholesale Water Sales 3,700 3,700 3,737 3,774 3,812 3,850 Other Misc. Fees and Charges 34,810 40,140 55,493 70,272 92,028 112,241 Total Revenues $465,655 $484,733 $502,853 $520,906 $546,286 $570,250 Operation & Maintenance Expenditures & Encumbrances Administration & Engineering $26,680 $26,713 $27,514 $28,339 $29,189 $30,065 Customer Service 8,327 8,957 9,225 9,502 9,788 10,081 Production & Treatment 116,996 129,287 141,295 146,337 150,677 155,509 Distribution & Centralized Functions 61,933 65,987 67,967 70,006 72,106 74,269 Total O&M Expenditures & Encumbrances $213,936 $230,944 $246,001 $254,184 $261,760 $269,924
Net Revenues Available for Junior Lien Debt Service $251,719 $253,789 $256,852 $266,722 $284,526 $300,326
Junior Lien Debt Service $117,965 $133,875 $133,886 $133,878 $143,888 $141,016 Junior Lien Debt Service Coverage 2.13x 1.90x 1.92x 1.99x 1.98x 2.13x
Revenues Available After Junior Lien Debt Service $133,754 $119,914 $122,966 $132,844 $140,638 $159,310
Unrestricted Fund Balance, End of Year $167,790 $164,900 $142,648 $114,319 $115,490 $169,389
Days Cash on Hand 286 days 261 days 212 days 164 days 161 days 229 days (1) Revenues and related expenditures include the City of Mesa’s share of the Val Vista Water Treatment Plant
16
Junior Lien Water System Revenue Bonds – Legal Structure
Security Pledge of Designated Revenues - Revenues after payment of operation and maintenance expenses and senior lien debt service requirements (no senior lien debt outstanding)
Additional Bonds Test
Most recently completed fiscal year Net Operating Revenues must equal at least 110% of all Senior Lien and Junior Lien Revenue Obligations, including proposed bonds
Rate Covenant
Provide for 100% of the Expenses of Operation and Maintenance and produce Net Operating Revenues in each bond year which will equal at least 110% of the interest and principal requirement for the then current bond year on all Revenue Obligations then outstanding
Operating Revenues • Metered Water Sales • Environmental Charge • Raw Water Charge • Wholesale Water Sales • Development, Connection, Interest and Other
Fees
Net Operating Revenues
Junior Lien Obligations and Junior Lien Parity Obligations (including the Bonds)
Senior Lien Obligations (none outstanding)
Expenses of Operation and Maintenance
17
Series 2020A Series 2020B (Sustainability Bonds)
Par Amount ($) $169,030,000* $235,810,000*
Purpose Prepay 2019 Revolving Loan of $200 million and fund System improvements
Finance a portion of the System’s CIP targeting drought resiliency
Structure Wrapped to achieve aggregate level debt service beginning in FY 2030
Wrapped to achieve aggregate level debt service beginning in FY 2030
Final Maturity 7/1/2044 7/1/2044
Call Provision 10-year par call 10-year par call
020,00040,00060,00080,000
100,000120,000140,000160,000
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044
Thou
sand
s
Existing Debt Service New 2020 Debt Service
Source: City of Phoenix and Montague DeRose and Associates; interest rates as of 2/7/2020 plus 50 bps *Preliminary, subject to change, based on market rates as of February 7, 2020 +50 bps
Aggregate Projected Debt Service
Transaction Highlights & Structure
18
Proactive management team with significant industry experience
Ample long-term water supply with excess treatment capacity
Compliance with regulatory mandates
Flexible and manageable CIP with focus on rehabilitation and system reliability
2050 Sustainability Goal of a 100-year clean and reliable water supply
Diverse and primarily residential customer base
4th lowest single family water/wastewater bill of top 20 largest US cities
Strong financial results
Healthy fund balance and liquidity
Strong bondholder debt service coverage
Junior Lien ratings of Aa2 / AAA from Moody’s and S&P, respectively
Key Strengths of the Water System
19
Key Dates and Contacts
Holiday
Key Dates
March 24: Bond Pricing* April 14: Closing*
March April S M T W T F S S M T W T F S 1 2 3 4 5 6 7 1 2 3 4 8 9 10 11 12 13 14 5 6 7 8 9 10 11
15 16 17 18 19 20 21 12 13 14 15 16 17 18 22 23 24 25 26 27 28 19 20 21 22 23 24 25 29 30 31 26 27 28 29 30
City of Phoenix Morgan Stanley Denise Olson, Chief Financial Officer
Kathleen Gitkin, City Treasurer & Deputy Finance Director
Margie Backstrom, Managing Director [email protected]
Kaumudi Atapattu, Executive Director [email protected]
Richard Weiss, Executive Director [email protected]
Key Contacts
* Preliminary, subject to change
20
Thank You for Your Interest in Our Upcoming Transaction
http://phoenix.gov/finance/investor
