The City of Phoenix Civic Improvement Corporation Junior Lien Water - - PowerPoint PPT 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

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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

• ther 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

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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

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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 2018 30,000 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

• f 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

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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

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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

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• Water rate schedules are adopted by the Mayor and City Council by
• rdinance, 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

($) 50 100 150 200 250 300 350

San Francisco, CA Austin, TX San Diego, CA Indianapolis, IN Philadelphia, PA San Jose, CA Houston, TX New York, NY Los Angeles, CA Charlotte, NC Detroit, MI Columbus, OH Jacksonville, FL Fort Worth, TX Dallas, TX Chicago, IL Phoenix, AZ El Paso, TX San Antonio, TX Memphis, 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

• f $41.69 and a sewer

bill of $22.27 Average Monthly Single‐Family Bill: Largest 20 U.S. Cities

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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

• f 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

• utstanding 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

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• 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

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• 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 200,000 400,000 600,000 800,000

2020 2030 2040 2050 2060

On-Project Supply Off-Project Supply Groundwater Supply Intermitten Supply Demand

2019 Water Supply and Demand

Acre‐Feet 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 Supply Intermitten Supply Demand

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• 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

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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

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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

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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

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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

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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

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Junior Lien Water System Revenue Bonds – Legal Structure

Security Pledge of Designated Revenues - Revenues after payment of

• peration 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

• f 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

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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

20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 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 Thousands 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

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• 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

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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 denise.olson@phoenix.gov Kathleen Gitkin, City Treasurer & Deputy Finance Director kathleen.gitkin@phoenix.gov Margie Backstrom, Managing Director margaret.backstrom@morganstanley.com Kaumudi Atapattu, Executive Director kaumudi.atapattu@morganstanley.com Richard Weiss, Executive Director richard.weiss@morganstanley.com

Key Contacts

* Preliminary, subject to change

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Thank You for Your Interest in Our Upcoming Transaction http://phoenix.gov/finance/investor