Miami-Dade Water and Sewer sells $1 billion as part of major capital plan

Miami-Dade County plans to bring $1 billion in water and sewer system revenue bonds to the market this week, partly to support a $9 billion capital plan. 

Book running lead underwriter Wells Fargo Securities plans to price $575 million in Series 2025A new money revenue bonds and $425 million in Series 2025B revenue refunding bonds Thursday, according to an online investor presentation about the deal. Public Resources Advisory Group is the municipal advisor.

The bonds are rated Aa3 by Moody’s Ratings, AA by S&P Global Ratings, AA-minus by Fitch Ratings and AA by KBRA, all with stable outlooks. 

The Series 2025A bonds are expected to have maturities from 2026 to 2055 and the Series 2025B bonds are expected to have maturities from 2026 to 2042.

“The deal should have a good reception,” said John Mousseau, vice chairman and chief investment officer of Cumberland Advisors.

“We expect significant interest from a diverse group of investors, including individual investors, SMAs, bond funds, asset managers, advisors, and insurers,” said Nicole Cassidy, executive director and senior lead communications consultant for Wells Fargo. “We expect participation from many investors focused on infrastructure and water/sewer revenue bonds, with participation anticipated both within Florida and nationally.”

Rating agencies say the Miami-Dade County Water and Sewer Department faces a large capital plan that must meet federal and state environmental strictures with hard deadlines but that it has generally met past deadlines. 

“I don’t think the uncertainty of EPA enforcement activity plays a role here. Mainly for three reasons – the growth in the population of the service areas – particularly since Covid – and the need to make improvements in billing, metering etc.  There will be some additional leverage in the system so that’s always a concern, but debt service coverage is good,” Mousseau said. 

“The third reason is that EPA environmental regulation – while maybe slacking – is temporal,” Mousseau said. “Administrations change and so do regulations but the bonds are long term obligations. Probably best to lean into the wind and complete their programs rather than cut back only to have to catch up again with different political winds. That always ends up being more expensive.”

The department has to deal with difficult environmental conditions but benefits from a strong management and good system supply, the rating agencies say. 

The agencies expect the bonds to benefit from solid debt service coverage and the department to have adequate liquidity in the next several years. 

In the medium term the department will have to take steps to reduce levels of a group of chemicals known as PFAS and lead and copper in its water.

Miami-Dade County has $5.87 billion of capital needs through fiscal 2034, of which it expects to fund about 54% with bonds, including the Series 2025A bonds, the preliminary official statement says. 

The capital improvement projects are necessary to provide new capacity for growth, meet regulations of the Florida Department of Environmental Protection and the Environmental Protection Agency, provide back-up reserve water and sewer capacity and improve operating efficiency, the POS says.

“While this is not an immediate credit factor, in our view, we believe the primary medium-term regulatory risks relate to the department’s ability to comply with regulations on emerging contaminants in drinking water, such as per- and polyfluoroalkyl substances (PFAS), as well as the changing requirements under the lead and copper rule, which could be costly,” S&P said. By medium-term it meant three to five years in the future. The department is testing which PFAS-removal technologies would work best for it. 

The EPA has said utilities need to be compliant with PFAS regulations by 2029 but Fitch said recent EPA statements indicate it may change this deadline. 

The county said with other governments it is continuing to pursue legal cases against PFAS manufacturers for money to aid in the clean-ups. 

“The department’s credit quality is underpinned by its strong organizational leadership, which is characterized by prudent rate-setting, stable financial metrics, and a proven track record of delivering capital projects at an accelerated pace,” S&P said.

For KBRA, the department’s credit strengths “are counterbalanced by the high capital costs and leverage associated with federal and state-mandated capital projects.”

Moody’s and S&P cited what they expect will be solid debt service coverage through fiscal 2031 despite the expected debt issuance as factors in their ratings. Moody’s expects at least 1.7 times and S&P expects at least 1.6 times debt service coverage. The department’s fiscal year 2026 runs from Oct. 1, 2025, to September 30, 2026. 

“Water supply and treatment, and sewer treatment capacity are all sufficient relative to demand and flows and expansion at the South District wastewater treatment plant will increase capacity further,” Fitch said.

The county water and sewer system is “vulnerable to hurricanes and sea level rise,” Moody’s said. S&P said the department’s strong emergency planning reduces the chance these natural phenomena will affect the system in the next two years. Some of the department’s capital spending is aimed at adapting to climate change challenges and hardening infrastructure, S&P said. 

The department benefits from the economic strength, diversity and wealth of its customer base, S&P said. Fitch said the service area has a comparatively low unemployment rate and midrange customer growth. 

There are 2.8 million residents in the service area, according to the utility’s investor presentation. 

“Rates remain competitive and affordable despite average annual increases of more than 5% in each of the last eleven years,” KBRA said. Fitch said the rates were affordable for the vast majority of its customers. 

KBRA and S&P said the system has elevated leverage.  S&P said there was a debt to capitalization ratio of 61% as of Dec. 31, 2024. It expected the ratio to remain fairly steady for the next five years.

However, Fitch was more positive on its own analysis of leverage, saying, “The system’s leverage, measured as net adjusted debt to adjusted funds available for debt service, was very low at 8.4x in fiscal 2024 and is expected to peak at 9.3x in fiscal 2025 in Fitch’s Analytical Stress Test rating case before gradually declining to approximately 8.1x through the remaining four years of the FAST.”

The bonds carry a rate covenant that net operating revenues each fiscal year will be equal to 125% of the debt service on the bonds for the fiscal year plus 100% of the required deposits into the reserve account, according to the investor presentation.

The Series 2025B bonds’ proceeds will be used to refund tax-exempt or defease taxable bonds — namely, some Series 2015 bonds, Series 2017A bonds, Series 2017B bonds and Series 2019C bonds, according to the preliminary official statement. Some of the first three series bonds will be redeemed at 100% in early December. 

The Series 2019C bonds will be defeased to their respective maturity or mandatory sinking fund dates, which range from October 2027 to October 2042. The Series 2019C bonds “maturing on and after October 1, 2029 are subject to redemption at the option of the county on or after October 1, 2029… The county retains the right to redeem the callable refunded Series 2019C bonds on or after the Refunded Series 2019C bonds first optional call dates,” according to the POS.  

For the bond deal, Hogan Lovells US and the Law Offices of Steven E. Bullock are bond counsel. Troutman Pepper Locke and the Law Offices of Carol D. Ellis are disclosure counsel.