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$115,730,000 Resource Recovery Facility Lease Revenue Refunding Bonds (Covanta Union, Inc. Lessee – Series 2011A) (AMT) and $21,015,000 Resource Recovery Facility Lease Revenue Bonds (Covanta Union, Inc. Lessee – Series 2011B) (Federally Taxable) (collectively, the “2011 Facility Lease Bonds”)
$47,245,000 Solid Waste System Revenue Refunding Bonds (County Deficiency Agreement – Series 2011A) (Tax Exempt) and $21,835,000 Solid Waste System Revenue Refunding Bonds (County Deficiency Agreement – Series 2011B) (Federally Taxable) (collectively, the “2011 Solid Waste System Bonds”)
In 1998, as a result of the Atlantic Coast decision, which invalidated solid waste flow control, UCUA and Union County were facing default on over $276 million in debt issued in 1990 to build a waste to energy facility. UCUA solved the problem by entering into an innovative public/private partnership with Covanta Union, Inc., the operator of the Facility. The resulting transaction, implemented through a Waste Disposal Agreement between UCUA and Covanta and a long term Facility Lease Agreement between them, allowed the UCUA to refinance its 1990 bonds by issuing $181,290,000 Solid Waste Facility Senior Lease Revenue Bonds and $86,002,990.20 of County Deficiency Agreement Solid Waste Bonds. Since 1998, UCUA lease revenues, together with other revenues from its solid waste business and available funds, allowed it to service the 1998 Bonds without the need to call on a County deficiency agreement guaranty. With the recent economic downturn and resulting reduction in waste flows, it appeared that the County guaranty would be needed in the near future. A permanent long-term solution was needed.
On December 31, 2010, UCUA and Covanta entered into an amendment to the Waste Disposal Agreement, subject to regulatory approvals and a refinancing and restructuring of the 1998 Bonds. This amendment, among other things, extended the Waste Disposal Agreement from its 2023 expiration to December 31, 2045, increased the UCUA’s guaranteed tonnage, and provided for a substantial reduction in the service charge payable to Covanta for processing waste, resulting in substantial savings to participating towns. It also proposed extending the final maturity of the bonds to 2045. The NJDEP refused to approve the amendment, requiring that it extend no longer than 2031. Consequently, UCUA needed a structure to cover debt service, provide savings to the participating towns and provide sufficient incentives to Covanta, all within a 2031 final maturity date.
NW Capital created an alternative financing scenario to substantially shorten the maturity of the restructuring bonds and re-drafted legal documents in order to meet the cash flow requirements of the UCUA and the demands participants, Covanta and of state regulators. A particularly unique feature was the County’s agreement to extend credit support for the 2011 Lease Bonds, which mature in 2031, assimilating its credit risk with the relatively low shorter term risk of solid waste flow volume and regulatory changes. As a result, S&P upgraded the rating on the 2011 Facility Lease Bonds from a BBB credit to AA+, resulting in substantial interest savings.
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