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Mike Kanin is the Publisher of the Austin Monitor. As such, he doesn't report on much--aside from the workings of the Monitor--any more. In his previous life as a freelance journalist, Kanin has written for the Washington City Paper, the Washington Post's Express, the Boston Herald, Boston's Weekly Dig, the Austin Chronicle, and the Texas Observer.
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Document reveals dramatic level of LCRA debt on water systems
It could take more than $231 million to pay down the debt that the Lower Colorado River Authority has amassed on the 29 water and wastewater systems it aims to sell, according to documents obtained by In Fact Daily. That figure includes more than $18 million in defeasance costs—the price a borrower to settle a loan early.
The LCRA formally announced its decision to sell the utilities in November. The winning bidder for most of the systems, a Vancouver-based firm called Corix, was announced in August, but the LCRA put off a final decision until at least its September meeting. Meanwhile, a consortium of Central Texas communities, concerned about significantly higher rates if a private buyer takes over, continues to pressure the organization to sell the utilities to its member municipalities.
This new financial information could further complicate the bidding process. Corix is rumored to have offered the LCRA roughly $200 million. The consortium’s bid is thought to be around $100 million.
In addition to the debt on the water and wastewater utilities, the LCRA is projecting that it could lose up to half its existing revenue when 10 of its electric power customers end their current agreements with the organization (See In Fact Daily, Aug. 30, 2011). LCRA General Manager Becky Motal linked that fact with the start of a major re-organization at the utility.
Roughly 70 percent of LCRA’s revenue come from wholesale electric sales.
The new debt figures were distributed electronically to system bidders last week. The LCRA has not released any information associated with the bid to the public, including the debt figures.
According to the document, seven water and wastewater systems are worth less than the debt assigned to them. Two of these, the Glenlake Water System and the West Lake Hills Wastewater System are in Travis County.
The Glenlake system provides treatment and water distribution to roughly 980 people in western Travis County where it also connects with the River Place Municipal Utility District. The spreadsheet provided to bidders lists the utility’s “net book value” at $52,020. The total debt for the system as of October 2012 would be $1.8 million. That figure includes defeasance and commercial paper costs.
The West Lake Hills system is listed at just over $12.3 million. As of October 2012, the total debt costs for the system would be $17.26 million.
West Lake officials made two buyout offers for the system. One was for $17 million, and the other was for $16 million. Each of those bids was rejected.
An audit later requested by the City of West Lake Hills put the value of their system at roughly $8 million.
As part of the bidding process, interested parties were given a debt figure pegged to a June 30, 2011 date. That number was $190,313,533 for all of the systems in question.
Other LCRA water and wastewater systems that are worth less than their debt costs include Leander Water, Matagorda Dunes Water, Tahitian Village Wastewater, and the Lakeway Barge and Windmill Ranch raw water pumping stations.
Tahitian Village’s system was worth roughly $3.3 million (with $3.98 million in 2012 debt costs) according to the LCRA’s document. Leander’s is listed at $25.3 million (with $36.7 million in 2012 debt costs). Each of those regions suffered damage from this weekend’s fires.
In addition to Corix, LCRA staff and a firm hired to help the utility with its bidding process recommended that a handful of the utilities be sold individually to an assortment of municipalities. That included a recommendation that LCRA sell the Glenlake water system to the Austin Water Utility.
The director of Corix’s mergers and acquisitions division John Shaw told In Fact Daily that the spreadsheet contained a “more comprehensive” set of numbers. “They’ve produced an estimate of what they expect their debt to be, as well as the costs to get out of that debt.”
Shaw said that, though he was surprised by the figures, in retrospect, he shouldn’t have been. “We’re in a very low interest rate climate,” he said.
Many of the utilities were built or bought by the LCRA in the 1990s. Since then, federal officials have lowered the rate pegged to the bonds that might have been used to finance those projects.
When asked if Corix would change its bid based on the new information, Shaw was realistic. “I have to make an assessment of what represents fair value and the LCRA is going to have to determine if that differs.”
He added that any decision made by the company would not be solely based on the figures presented to bidders last week. The ultimate decision about whether to continue with the bidding process rests, says Shaw, with Corix’s board of directors.
“We’re very optimistic that we can go forward with a package that will address LCRA’s needs as well as…(being) focused on how to minimize to the extent possible…the impact on the community,” he said.
A consortium of municipalities looking to buy the LCRA’s utilities repeatedly warned that any sale to a private firm could dramatically increase utility rates. That group’s bid is rumored to be roughly $100 million. Corix’s bid is believed to be in the $200 million range.
The LCRA did not return a call requesting comment.
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