Background
In 2021, Agua SUD was providing drinking water service to 16,508 connections with coverage reaching approximately 99% of households in its service area, while only 9% receive wastewater service through 1,482 connections. However, the utility is currently implementing a project to expand its wastewater system and provide first-time access to nearly 1,850 households in the city of Palmview, which will increase wastewater collection coverage from 9% to 21% of its service area. The utility has entered into an interlocal agreement with the City of Mission to purchase 2.5 million gallons a day of capacity to treat the new wastewater flows collected in Palmview.
Description
The project consists of refinancing up to US$2.0 million in existing debt for Agua SUD. The debt has a final maturity of roughly 21 years and an average interest rate of 4.45%. Refinancing the debt at a lower interest rate and with a similar maturity is expected to save the utility an average of US$17,000 annually in debt service obligations over the next 21 years, providing cash flows for the maintenance and operation of its water and wastewater systems and the ongoing provision of these essential services.
Benefits
The refinancing is expected to reduce debt service obligations by roughly US$17,000 over 21 years—which represents 3.2% of system repair and replacement expenses or 1.6% of the Utility’s cost of water production and treatment in 2020. The net present value of these savings over the full 21-year tenor of the loan is US$257,189. These annual savings will increase available cash flows for the operation and maintenance of existing infrastructure, as well as lessen the possible need to raise rates and help the Utility to continue providing critical water and wastewater services for the benefit of its customers.
