Debt Financing (continued)

Debt Management (continued)

UnlikeNorthCarolina’scitiesandcounties,MSDdoesnothaveadebtlimit.However,provisionsintheDistrict’s BondOrder requireminimum debt coverageof120% of netrevenues to bondeddebtservice.

TheBoardestablishedarevenuepolicy,whichsetsagoalfordebtcoverageratiotobeapproximately 150%for forecastingand planning purposes,realizing theimpact oftheincreaseddebtcoverage ratio on bond ratings.

The District maintains a ten-year forecast to budget capital improvements financed by a combination of debt and current fees. Based on projections using modest, consistent rate increases and capital improvement projects as outlined in the District’s 10-year Capital Improvement Plan, an additional $50 million in debt is anticipatedto beissuedin FY2026 withoutaffectingthe plannedrateofusercharge increases.

Capital Projects Funding

Funding for capital projects comes from a combination of revenue bonds and pay-as-you-go financing. Details maybefoundinthePolicies&BudgetProcesstabofthisbudgetdocumentwhereDebtPolicyispresentedand, in the schedule, “Budget/Rate Forecast” which illustrates the timing of debt issues and accumulation of revenues overexpendituresanticipatedto beavailable for capital financing.

Generally speaking, half of the funds for capital improvements come from debt financing, with the other half fundedby theexcess of revenuesoverexpenditures (pay-as-you-go).

During FY2018, the District issued $37.5 million fixed rate revenue bonds. $11.4 million was used to refund portions of the 2009A Series bonds. The remaining $26.1 million has been expended. The District will accumulate funding from operations to finance a portion of the capital budget until the next debt issuance, anticipatedto bein FY2026.

AsofJune30,2023,theDistrictwillhave$82millionparvalueofoutstandingrevenuebonddebt.DuringFY2024, over$5.6millioninprincipalwillberepaid.TheDistrictanticipatesissuinganadditional$50millionin revenue bondsinFY2026.DebtservicefromthisfuturebondissuehasbeenincludedintheDistrict’slong-termbusiness plan and sewer rate increases. A summary of outstanding debt at June 30, 2023 and anticipated principal repayment during FY2024begin belowand continueonthefollowingtwo (2) pages.