Erie Water Works Announces Bond Restructuring with FHLBank Pittsburgh.

ERIE, Pa. -- The Erie Water Works today completed the restructuring of $80.58 million in outstanding revenue bonds, allowing it to better manage its debt costs and assist the Water Works in conserving funds for use in a variety of future projects.

The $80 million in outstanding bonds being refinanced is part of a bond package developed by Boenning & Scattergood, the Water Works' investment banker. Due to the scheduled September 2009 expiration of a letter of credit (LOC) from a large New York bank, the Water Works and Boenning had been searching for a way to create a new financing structure to support the outstanding bonds.

The outstanding bonds will be refinanced using several structures, one of which is made possible through the use of the Federal Home Loan Bank of Pittsburgh's (FHLBank) Letter of Credit (LOC) program. By issuing its own LOC to support a local lender's credit, FHLBank effectively provides its top-level credit rating to the financing, in essence passing along the short-term (A-1+) rating issued by Standard & Poor's on FHLBank Pittsburgh's debt. This is the highest short-term rating issued by Standard & Poor's. Boenning recognized the value of FHLBank's program and introduced the concept to the Water Works in early 2009.

"This refinancing is a milestone in our mission to guarantee a continuous, uninterrupted, reasonably priced supply of quality water to our customers which assures public health while promoting regional stability and future development," said Paul D. Vojtek, chief executive officer of the Erie Water Works. "Through the use of the FHLBank's program, we have been better able to manage our debt, resulting in a lower cost than available through other alternatives. This allows us to maintain our current rate structure in today's extremely tough economic times."

Participants at today's closing included the Water Works; FHLBank Pittsburgh; ERIEBANK (a subsidiary of CNB Bank); Northwest Savings Bank and S&T Bank; Boenning & Scattergood, the issue's Pittsburgh-based managing underwriter; and The Bank of New York Mellon Trust Company, N.A., acting as trustee.

The restructuring of Water Works debt was made possible using a new tool that Congress provided to municipalities in July 2008, when the Federal Home Loan Banks (FHLBanks) received authority under the Housing and Economic Recovery Act (HERA) of 2008 to provide letters of credit for tax-exempt, non-mortgage-related financing. The FHLBanks are privately funded cooperatives that provide low-cost liquidity to local lenders in support of housing finance and community and economic development.

The FHLBank provision in HERA was introduced in the US House by former Congressman Phil English (PA-03) and was supported by a broad bipartisan coalition that included Senators Arlen Specter and Robert P. Casey Jr. of Pennsylvania. Erie Mayor Joseph Sinnott and Erie County Executive Mark DiVecchio were early supporters of the FHLBanks' tax-exempt letter of credit concept and worked hard to help ensure its passage in Congress.

Under this change in law, the nation's FHLBanks can now effectively provide a AAA credit rating to support original public purpose bond issues or refinancings, providing a credit enhancement that lowers borrowing costs for the issuer. Erie Water Works is one of several dozen issuers across the country to take advantage of this new power.

"This tax-exempt letter of credit fills a void left by the downgrading of municipal bond insurers as well as the reduced appetite of many financial institutions for LOC exposure in today's credit markets," said John R. Price, president and chief executive officer of FHLBank Pittsburgh, one of the twelve FHLBank cooperatives across the country. "We are especially pleased that three of our local members - ERIEBANK, Northwest Savings Bank and S&T Bank - stepped forward and agreed to collaborate on this important municipal issue."

Under the arrangement penned today, FHLBank Pittsburgh's LOC will back the three banks as they assist the Water Works in refinancing a series of the outstanding bonds totaling $29 million of the $80 million outstanding. FHLBank will confirm each member bank's own letter of credit for a specific amount: ERIEBANK, $5 million; Northwest Savings Bank, $14 million; and S&T Bank, $10 million.

"In these trying economic times, getting refinancings done can be extremely difficult," stated Erie Mayor Joseph Sinnott. "The principals in this refinancing arrangement are demonstrating what can be achieved by applying financial innovation, cooperation, and genuine commitment to community."

"This new approach of wrapping FHLBank's AAA rating around its members' LOCs to drive down costs is especially useful with bond issues of this size, where a small group of banks can support the issue," added Erie County Executive Mark DiVecchio. "We're pleased to be in the vanguard of municipalities in the US that are starting to make use of this very timely service."

FHLBank tax-exempt LOCs can support original or refinanced tax-exempt issues, from several million dollars upwards, using one or more FHLBank members as partners. FHLBank Pittsburgh can issue a confirming letter of credit in support of its member, or a direct pay LOC, in which a drawdown may be made against FHLBank, which is then reimbursed by its member. Opportunities for LOC financing include water or sewer infrastructure, municipal general obligations, industrial development, healthcare facilities, retirement communities, school districts including private schools, colleges or universities, and multi-family housing.

At March 31, 2009, FHLBank Pittsburgh had 320 members in its cooperative, held approximately $83 billion in assets, enjoyed a AAA rating, and remained in compliance with all regulatory capital requirements. The FHLBank operates in support of its members across Delaware, Pennsylvania and West Virginia. Collectively, the twelve FHLBanks have a membership that totals more than 8,000 commercial banks, savings and loans, credit unions and insurance companies across America.