NSD feels market pinch

Sewer agency must refinance to avoid $600,000 hit; city, county safe

By KEVIN COURTNEY
Register Staff Writer

The nation’s financial crisis has trickled down to Napa, requiring Napa Sanitation District to refinance tax-exempt bonds used to pay for improvements to its sewage treatment plant.

If the district did nothing, the annual interest payment on a $9.1 million debt could double from $600,000 to $1.2 million a year, Michael Abramson, the district’s general manager, said last week.

The district has retained financial advisors to recommend less punitive alternatives, Abramson said.

Higher interest payments would likely come out of the district’s capital improvement budget, resulting in fewer repairs to sewer lines, he said.

To put the situation in perspective, Abramson said a $600,000 jump in interest payments would represent less than 10 percent of the district’s annual capital improvement budget.

It’s likely that the district can refinance its long-term debt and keep the added cost under $200,000, he said.

Napa Mayor Jill Techel, who chairs the sewer district’s board of directors, said she was surprised that the nation’s crippled financial markets could affect the district. “It’s just an indication how broad the difficulties we’re facing are,” she said.

“Even though this stuff feels real far away and real esoteric, it does have direct consequences for us,” director Chuck Gravett said.

Napa County is not affected by Napa Sanitation District’s bond problems, county treasurer Tammy Frasier said Thursday. “We’re in pretty good shape at this time,” she said.

After a pause, Frasier added, “You never know in this market.”

Carole Wilson, Napa’s finance director, said the city also is not affected. Napa has sold fixed-rate bonds to finance infrastructure projects, not the variable rate bonds used by Napa Sanitation, she said.

Since issuing the variable rate bonds in 1998, Napa Sanitation District has paid an average interest rate of 2.4 percent, Abramson said. This was an enviably low rate, he said.

When major finance firms began suffering huge losses in September, the market for these short-term bonds dried up, Abramson said. “No one wanted to buy them,” he said.

Without bond buyers, the district is now paying more than 7 percent annual interest for a New York bank to temporarily hold them, he said.

The district’s consultant, KNN Public Finance of Oakland, is studying several reinvestment strategies. The district could issue its own fixed-rate bonds or seek a short-term loan and wait for the bond market to settle.

The bonds, which mature in 2028, are currently pooled with borrowing from several other sanitation and water districts and sold to investors through the California Waste Reuse Financing Authority.

The district’s credit rating is good enough that the district could pull out of the authority and sell bonds on its own, KNN reported.

Napa Sanitation faces a second, less serious problem. It needs to find another financial institution to hold a $2.2 million reserve fund required by another 1998 debt, $27.8 million in certificates of participation.

The reserve was refunded by American International Group, a national insurer, in September, after AIG required financial support from the federal government and its credit rating dropped, making it ineligible to continue holding the money, Abramson said.

The district is considering investing the reserve fund with the Napa County Treasury Pool or government securities, Abramson said. They are both ultra-conservative choices, he said.

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