Mesirow Financial served as senior managing underwriter to the City of Hutto in the City’s acquisition of a private water company's assets. Mesirow Financial’s Public Finance group helped solve the problem of rising water costs, and in doing so, implemented a public acquisition of the water system assets of a private water company.
The City of Hutto, Texas is one of the fastest growing cities in the country. The City’s drinking water was supplied by three wholesale water suppliers, each under long-term contracts with the City. Take-or-pay provisions of one of these contracts led to substantial City rate hikes and the highest water rates in the region. The City renegotiated the contract twice, to no avail.
Amid the rising water costs, recently appointed City Manager Odis Jones immediately tackled the issue. Jones commented, “As the water was flowing in, too much money was flowing out. We needed relief. I reached out for a solution from Mesirow Financial, whose bankers understand public-private partnerships”.
In concert with financial, legal and technical experts engaged by Jones, Mesirow Financial considered contractual relief – options included rate renegotiation, rate buy-downs, or outright purchase of the assets held by the company holding the contract. Mesirow Financial’s analysis showed numerous City benefits with a purchase of the company or its assets; Jones approached the company, which was willing to sell at a fair price. After a due diligence review of the company's assets, water rights and permits, Jones negotiated a lower acquisition price.
In September, Mesirow Financial successfully priced $78 million Certificates of Obligation Series 2017 bonds for the City of Hutto to fund the purchase. As underwriter, Mesirow Financial underwrote nearly half of the bonds offered due to weak market conditions, ensuring the City achieved the lowest possible interest rates. The City took control of the system on October 12, 2017.
Walter Kulakowski, managing director of Mesirow Financial’s Public Finance group noted, “The acquisition gives the City and its rate payers long-term control of water, rate mitigation, and long-term cost savings.