D.C. deal is its first P3; tax-exempts will upgrade lights, add Wi-Fi

Bonds

The District of Columbia is coming to market on Tuesday with its first public-private partnership issue, a largely tax-exempt municipal green bond deal boosted by a provision in the Infrastructure Investment and Jobs Act.

The District Department of Transportation’s “Smart Street Lighting Project” will convert D.C.’s network of more than 75,000 streetlights into energy-efficient LED bulbs and also upgrade its Wi-Fi infrastructure with an expanded and updated network.

The deal is described as the first street lighting/smart city P3 to use tax-exempt financing. The deal also includes a smaller taxable component.

A nighttime scene on Washington’s U Street corridor. The District of Columbia is embarking on a P3 to convert 75,000 street lamps to energy efficient LED bulbs.

Bloomberg News

“I’m excited about this project because as other major urban areas, other cities, other counties and even other states think about how they’re going to get ready for the future of technology with this being a major part of city infrastructure and urban planning, I think this is a great example of a project and how you can achieve those goals,” Julie Burger, managing director at Wells Fargo Securities, lead manager on the deal, told The Bond Buyer.

She said the District’s first P3 deal is funding a very innovative project.

“It’s going to upgrade their lights, but then there’s also the installation of smart cities technology — so it has two components to it,” she said. “It has a lot of value for the District and it is the country’s first upgrade and refurbishment of urban lights and only the second street lighting project across the country.”

The existing light network is dated and is a hodgepodge of different types, which are inefficient and unreliable and unable to be monitored remotely. Besides the streetlights, lighting for about 30 bike trail, tunnel and “Welcome to Washington D.C.” signs will be replaced.

Wells Fargo is set to price the $154.535 million of revenue bonds on Tuesday.

The issue is composed of $140.185 million of Series 2022A tax-exempt private activity green revenue bonds that are subject to the alternative minimum tax and $14.35 million of Series 2022 taxable green revenue bonds. There is no third-party verification of the green status.

Burger said that the Infrastructure Investment and Jobs Act passed by Congress in November helped the District save money by allowing it to use tax-exempt bonds.

“The project received an allocation from the U.S. Department of Transportation and that allocation was important because the use of tax-exempt financing allows us to reduce the cost to the district,” she said. “The infrastructure bill increased the allocation of private activity bonds and that really makes projects like this more possible, because there is now more available capacity to issue tax-exempt bonds for transportation and for infrastructure projects such as this.”

The Series 2022A tax-exempts are tentatively structured as split serials due Feb. 28 and Aug. 31 running from 2025 to 2037; the Series 2020B taxables are tentatively structured as term bonds, due Feb. 28, 2025.

TD Securities is co-manager on the deal and Orrick Herrington & Sutcliff is bond counsel.

Moody’s has assigned a first-time A3 rating with stable outlook to Plenary Infrastructure DC LLC’s amortizing senior secured bonds. The bonds are being issued by the District of Columbia, which will function as a conduit issuer and will lend the proceeds to Plenary Infrastructure.

Plenary Infrastructure will use the proceeds to finance part of its obligations under the long-term P3 agreement it signed with the District of Columbia to design, build, finance and maintain the upgrades to the street light network. Moody’s assigns District of Columbia general obligation bonds its top rating of Aaa.

Plenary Infrastructure is a special and single purpose entity, which is indirectly owned by Plenary Americas US Holdings Inc., Kiewit Development Co. and Phoenix Infrastructure Group LLC.

The projects incorporation of energy efficient technology is why the deal was designated as green by Plenary.

Burger said the issuer chose to use the P3 model because it will speed up completion of the project and has a host of environmental and social benefits for residents.

As a public-private partnership, it will allow the DDOT complete the upgrades within two years as compared to the usual eight to 12 and will provide long-term energy savings and lasting environmental benefits.

“This is really the future of what we’re going to see in urban cities,” she said. “I think this provides a template for how other cities might install similar technologies in a way that does so in accelerated fashion and with cost savings.”

Moody’s also took note.

“The stable outlook reflects our expectation that the project will be completed before the long-stop date and if any issues arise we expect the consortium to manage them to ensure project completion is achieved,” Moody’s said. “Once completed we expect the project to operate with limited deductions to its availability payments, thus generating the sound forecast financial metrics.”

The project is expected to be completed within 24 months of the financial close, around May 2024.

“Once completed, the project is forecast to generate a sound minimum annual debt service coverage ratio of 1.20 times and an average annual DSCR of 1.22 times, excluding the final and first partial years,” Moody’s said. “Moody’s calculated minimum all cost break-even ratio is sculpted to be at least 20% in all years over the 13 year operating period.”

The project aims to eliminate 38,000 tons of greenhouse gas emissions each year and cut streetlight energy consumption by about 50% annually. Also, much of the light pollution that the current streetlights are producing will be reduced as they are replaced by the energy efficient LED technology.

Additionally, under the project agreement, the developer is being held to performance metrics to ensure that energy performance is upheld to certain standards.

The Wi-Fi component of the project will add 239 wireless access points across the District, expanding broadband availability into areas of need.

“The project very clearly has environmental and social benefits,” Burger said.

Burger said she believes the P3 model is one that will be emulated by more and more municipalities as time goes by.

“I think this deal is a great example of the kinds of projects that the infrastructure bill makes possible and hopefully we’ll see more projects like this,” Burger said. “It’s the District’s first P3 and another example of the growing interest in public private partnerships across the country.”

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