Anatomy of a deal: AlexRenew's Small Issuer winner

In June, AlexRenew became the first wastewater authority in the Commonwealth of Virginia to issue green bonds with a $45.7 million deal to fund projects that provide a positive environmental impact.

"AlexRenew's green bond sale represents a unique and critical investment in our community's future," said Justin Carl, AlexRenew's general manager and CEO.
"The deal demonstrates how smaller issuers can leverage innovative solutions to fund environmental projects at the local level."

The deal, sold by the City of Alexandria Sanitation Authority, operating as AlexRenew, won the Small Issuer category of The Bond Buyer's 2024 Deal of the Year awards.

The issuance is structured as serial bonds maturing from 2025-2046 and two term bonds maturing in 2049 and 2054.

The proceeds will support long-term projects to improve water quality in the Potomac River and Chesapeake Bay, including upgrades to AlexRenew's biosolids treatment systems, filtration processes, wastewater screening, and pumping facilities over the next several years.

"Because AlexRenew must meet some of the strictest regulatory requirements in the country, we often invest in cutting-edge wastewater treatment technology," said Caitlin Feehan, AlexRenew's chief administrative officer. "This deal will help fund several innovative projects that will directly benefit our community and its waterways."

Previously, AlexRenew raised capital by using state revolving funds, state pooled financing programs and Water Infrastructure Finance and Innovation Act loans from the Environmental Protection Agency.

One of the biggest challenges faced was the decision to enter the municipal bond market as a new credit.

"Since we are a public utility, solely funded by ratepayers, our team has a responsibility to search for the best deal for our customers," said Feehan. "We weighed our financing options and ultimately decided to go to the bond market. When the bonds sold, we were able to secure financing at lower rates than we originally predicted."

S&P Global Ratings rated the bonds AAA.

The nominating statement noted exceptional demand from a diverse group of investors.

The sale generated more than $268 million in orders from 35 investment firms and individuals with a 6.9x oversubscription rate. The strong demand allowed AlexRenew to lower rates throughout the pricing process.

The bonds were sold at an overall interest rate of 4.17%.

The transaction laid the groundwork for future AlexRenew debt issuances that are expected within the next two to three years.

"This was our first time going to market and everything was a learning experience," said Feehan. "We can now apply everything we learned to future deals. From start to finish, the entire process was extremely fast-paced."

Siebert Williams Shank & Co. led the underwriting team with Loop Capital and Wells Fargo Corporate and Investment Banking as co-managers.

The municipal advisor is Sarah Frey with PFM Financial Advisors. Thomas Williams of McGuire Woods is the bond counsel and US Bank is the trustee. Raftelis provided consulting on the project.

AlexRenew was established by the Virginia Water and Waste Authorities Act in 1952 to manage and treat wastewater in Alexandria, which has about 155,000 residents, and parts of Fairfax County. It is one of 33 water and wastewater authorities in Virginia that share a similar mission.

The choice to undertake an offering offered multiple advantages based on revolving loan fund availability, interest rates, and additional project requirements for certain financing options.

The decision required additional work upfront and incurred overtime expense invested in drafting comprehensive public market disclosures. The team produced a video to assist in marketing the bonds to investors.

Construction on the infrastructure projects at AlexRenew are expected to start later this year in support of the facility's biosolids upgrades, while work on its screening, pumping, and filtration processes will begin in 2025.

"The funds generated by this deal will allow us to stay on schedule and make necessary upgrades to our treatment plant, which will help us build the foundation for a healthier community," said Feehan.

Going green was part of the plan from the beginning. Third-party documentation was performed by Kestrel who determined that the bonds are in conformance with the four core components of the International Capital Market Association, Green Bond Principles in the Sustainable Wastewater Management category.

By financing projects that improve reliability of a sustainable wastewater system, the bonds also advance multiple United Nations Sustainable Development Goals. Theres also a green commitment at the local level.

"The decision to embrace green bonds aligns strategically with AlexRenew's environmental sustainability objective," said Carl.

"We're investing in our future with these projects, building a foundation for our city and region to thrive, and striving to set a new bar for the industry through AlexRenew's use of innovative funding strategies and advanced technologies."

The planned upgrades directly advance goals for achieving net zero energy use by reducing energy consumption and associated greenhouse gas emissions. The projects align with Alexandria's goal to reduce community-wide greenhouse gas emissions 50% by 2030.

"AlexRenew's use of green bonds is both a strategic financial decision and a commitment to sustainably recovering resources from wastewater," said Feehan.

"The bond proceeds will support projects focused on improving water quality in the Potomac River and Chesapeake Bay waterways that are both critical to the health and future of our region."

The upgrades will happen in conjunction with the RiverRenew Tunnel Project which is designed to address combined sewer pollution in Alexandria. The goal is minimizing nutrient levels in effluent and complying with water quality standards.

"The RiverRenew project also exemplifies the Authority's dedication to watershed stewardship and sustainable infrastructure with environmental and community co-benefits," Kestrel said.

Combined sewer systems are currently active in 770 US cities. The systems collect rainwater runoff and wastewater in the same pipes. During heavy rainfalls the systems often overflow and releases untreated sewage into local waterways.

Municipalities are working with EPA directives to negate the effect of combined sewer systems via improved infrastructure in numerous locations across the country.

The authority has also implemented several sustainability initiatives that have resulted in reducing the impact from its operations on the environment, including reducing potable water demand by 97%.

They are using captured methane to offset 50% of natural gas needs, annually producing 6,000 tons of biosolids to fertilize farms and equipping 420 solar panels on the Authority's administrative building.

In December 2023, the authority's board adopted an Environmental Justice Policy, which affirms its commitment to prevent and mitigate disproportionate environmental impacts of the activities on the community it serves.

S&P, ratings the bonds AAA, said "the rating is anchored by the affluent service area located immediately outside the nation's capital, Washington D.C. In addition, all-in debt service coverage has been maintained above 2.0x, and despite additional debt is projected to remain above 1.6x in the near term."