On November 29, the City of Rialto and its Rialto Utility Authority completed a transfer of responsibility for its municipal water and wastewater system in a P3 public-private partnership transaction with Rialto Water Services, LLC (“RWS”). This is one of the first times that municipal utility assets have been the subject of a P3 transaction in the United States.
RWS is a special purpose entity formed at the direction of Table Rock Capital LLC with other equity sponsors. RWS has entered into a 30 year Concession Agreement with the City and the Authority for the exclusive right to operate, manage, maintain, rehabilitate and collect revenues from their water and wastewater facilities, including the obligation to design and implement improvement projects during the first five years, and a qualified option to do so for any subsequent needed improvements. In return, RWS receives a monthly fee, including a fixed capital charge used to support debt service and returns on equity, a variable cost-reimbursable operating charge used for operation, management and maintenance, and an escalating service fee. RWS has subcontracted with Veolia Water West Operating Services, Inc. (a subsidiary of Veolia Water North America Operating Services LLC) pursuant to a 30 year Operations and Maintenance Subcontract to provide the services required of RWS under the Concession Agreement.
RWS issued 30 year notes which, together with proceeds of equity investments, are to be used to fund capital improvements to the water and wastewater facilities, a rate stabilization fund and various reserves, a lease payment from the Authority to the City, payment or defeasance of all existing Authority debt, and costs of issuance. The City received a substantial upfront payment and future lease rental payments, all of the Authority’s debt is paid or discharged, responsibility for future needed capital improvements and most of the other responsibilities and risks of operating and maintaining water and wastewater systems have been transferred by the City and the Authority to RWS.
A substantial portion of the notes could have been eligible for a tax-exempt municipal bond financing, but in order to speed the process, the bonds were sold in a private placement to institutional accredited investors pursuant to Section 4(2) of the Securities Act. Orrick, Herrington & Sutcliffe LLP represented RWS in connection with the transaction, including as issuer of the notes. Barclays Capital and Goldman Sachs & Co. were placement agents. Milbank, Tweed, Hadley & McCloy LLP represented the investors. Fulbright & Jaworski LLP represented the City and the Authority.
The Orrick team included San Francisco public finance partners Brooke Abola and Roger Davis, New York public finance senior associate Matt Tague, New York public finance senior counsel Bob Fippinger, San Francisco energy and infrastructure partner Tom Glascock, New York energy and infrastructure of counsel Michelle Conde, Portland energy and infrastructure senior associate Heather Stewart, San Francisco energy and infrastructure associate Dao Huynh, San Francisco energy and infrastructure of counsel Bob Lawrence, New York energy and infrastructure of counsel Vincent Casey, San Francisco restructuring partner Thomas Mitchell, San Francisco real estate senior counsel Chris Chavez, San Francisco tax partner Grady Bolding and San Francisco capital markets senior associate Lynne Hirata.