After a nearly 30-year hiatus from bond markets, the Western Placer Waste Management Authority, California, returns next week with $97 million in solid waste revenue bonds.
S&P Global Ratings gave the deal an AA rating.
The $88.4 million Series 2022A bonds have a self-proclaimed green label — without third-party verification — while the $8.7 million Series 2022B bonds do not. The 2022A series has a 10-year notice period, the 2022B series has a 2027 notice period. All debts are tax free.
The deal should attract investor interest because it’s a new loan, and California debt usually has a ready market for high-net-worth investors to take advantage of the tax exemption.
“I think it’s unique in the market,” said Eric McKean, a managing director at insurer Ramirez & Co. “There haven’t been many substantial service credits in the market.”
The finance team consists of Del Rio Advisors as financial adviser, Stradling Yocca Carlson & Rauth as underwriter’s counsel, Jones Hall as bond and disclosure counsel and US Bank Trust Co. as trustee.
The bonds, which are expected to be graded on August 23, will not have separate institutional and retail days.
The agency is a joint powers agency formed in 1978 by Placer County and the cities of Lincoln, Rocklin and Roseville to own, operate and maintain a sanitary landfill and associated improvements. The facility is located on 800 acres of land owned by the agency, with the material recovery facility adjacent to the landfill.
According to the bid documents, it provides waste disposal services for 95% of the county.
Placer County, east of Sacramento, which has a population of over 400,000, has long treated its waste differently from other California governments. For example, homeowners in Los Angeles have three different bins for recycling yard waste and plain old junk.
In Placer County, residents only have one trash can because the waste that residents produce is separated at the waste disposal facility.
“We’ve found that it increases the rate of diversion and is more responsive to the market for recyclables,” said Eric Oddo, environmental engineering program manager at the Waste Management Agency.
Additionally, half of the county’s waste stream is residential and the other half is industrial, Oddo said.
“It puts a strain on business to separate the trash,” Oddo said. “And if we do it that way, we don’t have to worry about the participation rate of customers,” who may or may not be careful to throw things in the right bin.
“What we’ve found over time is that our system is equal to or better than systems that require residents to take out recyclables,” Oddo said.
If the county were to use the three-bin system, “we would be constantly trying to educate 300,000 to 400,000 residents who are constantly changing,” said Ken Grehm, executive director of the agency.
Oddo said the agency has been doing this since 1995, when it first built the waste treatment facility. The bonds will pay off to modernize the facility and make it more efficient, he said. It will also integrate new technologies such as robotics and artificial intelligence.
“It’s the same process, we’re just increasing the effectiveness of the system,” he said.
The improvements will cost $130 to $140 million, with the bonds funding the bulk of the project.
“We’re completely upgrading the material recovery plant and taking out 100% of the equipment,” said Grehm. “We use optical scanners, devices that sort by size and density. There will also be a manual room where people can select products that need to be pulled from the waste stream.”
The state has now mandated that material facilities process 75% of organic material to remove it from the waste stream. The Placer County facility will compost most of it. The county is already a leader because of its agricultural heritage and has an excellent record when it comes to composting, Grehm said.
The agency has retained FCC Environmental Services, LLC to operate the landfill and to design, construct and operate the materials recovery facility. It’s a Spanish company with an office in Texas.
“They are confident that they can market the material locally,” McKean said. “Instead of shipping it across the country, it would be shipped by road.”
For example, a local company is interested in using plastics to develop low-cost building materials, he said. Another pilot they are considering would be providing biomass to a company that wants to use it to generate energy and electricity.
The project is nearing completion of the design with the goal of starting construction later this year or in the first quarter of 2023 and for completion by the fourth quarter of 2025.
“The plant would continue to operate throughout the process because it would be built in stages,” said Grehm.
Regarding the bond sale, Ken Dieker, a director at Del Rio Advisors, said “there was clearly a lot of market volatility.”
“We modeled conservative projected interest rates,” Dieker said. “The market has improved over the past few weeks. We don’t know where it will be when we set prices, but we’re happy where it’s going now.”
He pointed to the fact that mutual funds are starting to return money to the muni area.
“Demand is increasing, the yield level is high enough to attract investors,” said Dieker. “There is also a huge amount of redemptions this month which will boost demand. We expect things to remain stable or better than expected as we price.”
The agency also has no future debt plans, so bonds won’t be diluted with future parity debt, Dieker said. “I think that will also be attractive for investors.”
It last sold bonds in 1994, according to the Municipal Securities Rulemaking Board’s EMMA disclosure website, and those bonds have matured.
The finance team doesn’t expect the deal to be as profitable given its double-A rating.
“The agency has a great credit record,” McKean said. “I think investors will focus more on that than construction risk.”
In anticipation of the financing, the Management Board also increased interest rates in addition to an interest rate hike implemented three years ago.
“I think there will be a wide range of buyers,” McKean said. “We expect a lot of interest, especially from California bond funds.”
The deal also offers investors less risk than other utilities, like water, that have been hit by the drought, Del Rio said.
“Water loans in particular will have problems, there may not be defaults, but they will see drought surcharges and conservation measures that will eat into revenues,” Dieker said. “It’s a stable loan. Everyone has to dispose of their rubbish.”
Investors also appreciate the opportunity to invest in another name, McKean said.