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DATE: October 1, 2012
TO: Honorable Mayor and Members of the City Council through City Manager
FROM: William Mushallo, Finance Director
SUBJECT: Resolution Authorizing the Refinancing of 2001 Water Revenue Bonds
RECOMMENDATION
It is recommended that the City Council Adopt the Resolution Authorizing the Execution
and Delivery of a Loan Agreement to Refinance Outstanding Water Revenue Bonds of
the City, and Approving Related Agreements and Actions.
BACKGROUND
In August of 2001, the City issued Bonds to refinance its then outstanding 1990
Certificates of Participation and to finance additional improvements to the Petaluma
municipal water system. The 2001 Bonds were issued in the par amount of$10,165,000.
Interest rates on the 2001 Bonds range from 4.40% in 2013 to 5.00% in their final
maturity of 2031. The 2001 Bonds are callable on any date at par (0% premium). There
is currently $7,440,000 principal outstanding on the issue, with $540,000 coming due on
November 1, 2012:
DISCUSSION:
Because of the current low interest rate environment, City staff began looking into the
refinancing of the 2001 Bonds in early 2012. Staff solicited refinancing proposals from
three different firms. Of the responses received, Brandis Tallman LLC provided the most
cost effective structure which resulted in the most economic benefit to the City. Over the
past several months, staff has been working with Brandis Tallman as Placement Agent
and Jones Hall as Bond Counsel, to structure the financing and develop documents for
Council review and approval.
Agenda Review: /1 !
City Attorne I `.!`, Finance Dire tof r City Manage
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The financing structure proposed by Brandis Tallman:is a direct loan from a
"sophisticated investor", an investor who has sufficient experience and knowledge to
weigh the risks and merits of an investment opportunity. This method of sale is known as
a private placement. Brandis Tallman solicited quotes from high net worth and
institutional investors and received the best terms.and lowest interest rate from City
National Bank. The Resolution authorizes a Loan Agreement between Municipal
Finance Corporation, the representative for City National Bank, and the City. The
Resolution authorizes the execution and delivery of a Loan Agreement in a not to exceed
principal amount of$8,000,000.
FINANCIAL IMPACTS
The City and financing team have been able to secure an interest rate of 3.67% for the
refinancing, more than 130 basis points of interest rate differential compared to the 2001
Bonds. This interest rate is locked until the transaction closes. The transaction is
expected to close on October 18, 2012.
Additionally, the final maturity can be shortened by one year, to 2030, because there is no
reserve fund requirement with the private placement method of sale. The shortening of
the terns and the lower interest rate provide the City with savings that can be used for new
water projects. Upon closing, approximately $1,048,000 will be generated as cash
savings. This savings will be restricted in a Project account to be programmed in future
capital projects in conjunction with the 2013-14 Capital Improvement Program budgeting
process.
The transaction provides approximately $1,048,273 in net present value savings, which is
14.09% of the principal amount of the 2001 Bonds being refunded. The industry
standard benchmark for moving forward with a refinancing is 3.0% as set by large issuers
in the State. The projected savings are net of all costs of issuance. Those costs include
$16,000 in underwriting costs and $35,000 for bond counsel services. There are no
upfront or accruing costs to the City for proceeding with the financing. All fees and costs
are paid from loan proceeds only if the transaction closes.
ATTACHMENTS
L Resolution Authorizing the Execution and Delivery of a Loan Agreement to
Refinance Outstanding Water Revenue Bonds of the City and Approving Related
Agreements and Actions
2. Loan Agreement
ATTACHMENT 1
RESOLUTION AUTHORIZING THE EXECUTION.AND DELIVERY OF A
LOAN AGREEMENT TO REFINANCE OUTSTANDING WATER REVENUE
BONDS OF THE CITY, AND APPROVING RELATED AGREEMENTS AND
ACTIONS
WHEREAS, the City of Petaluma (the "City") is authorized pursuant to the provisions of
Chapter 4.08 (commencing with Section 4.08.010) of the Petaluma Municipal Code, as
amended, and enacted pursuant to the charter of the City (the "Revenue Bond Law"), to
issue its revenue bonds for the purposes of financing or refinancing improvements to its
water enterprise (the "Water System"); and
WHEREAS, under the 2001 Indenture, the City has the right to redeem the 2001 Bonds
on any date on or after November 1, 2011; and
WHEREAS, the City wishes at this time to redeem the 2001 Bonds in accordance with
the 2001 Indenture in order to achieve interest savings; and
WHEREAS, under the Revenue Bond Law, the term "bonds" includes bonds, notes, and
other forms of obligations, such as loan agreements; and
WHEREAS, the City Council wishes at this time to authorize the execution and delivery
of a Loan Agreement, between the City and the Municipal Finance Corporation (the
"Loan Agreement") under the Revenue Bond Law to refund the 2001 Bonds; and
WHEREAS, the Loan Repayments due under the Loan Agreement will be secured by a
pledge of the Net Revenues of the Water System; and
WHEREAS, the City Council of the City has duly considered such transactions and
wishes at this time to approve said transactions in the public interests of the City;
NOW, THEREFORE BE IT RESOLVED, by the City Council of the City of Petaluma
as follows:
Section 1. Approval of Loan Agreement. The City Council hereby authorizes the
incurrence of the Loan under the provisions of the Revenue Bond Law, in a principal
amount not to exceed $8,000,000, for the purpose of providing funds to refund the 2001
Bonds, pursuant to the Loan Agreement, which is hereby approved in substantially the
form on file with the City Clerk, together with any changes therein or additions thereto
deemed advisable by the City Manager, including changes deleting references to the
funding of capital improvements to the Water System from the proceeds of the Loan.
The execution of the Loan Agreement by the City Manager shall be conclusive evidence
of the approval of,such changes and additions. The City Council hereby authorizes and
directs the City Manager to execute, and.the City Clerk to attest, said form of the Loan
Agreement for and in the name of the City. The City Council hereby authorizes the
delivery and performance of the Loan Agreement.
Section 2. Refunding of the 2001 Bonds. The City Council hereby authorizes and
approves the refunding of the 2001 Bonds from the proceeds of the Loan. The refunding
of the 2001 Bonds shall be accomplished as provided in the Loan Agreement and an
Escrow Deposit and Trust.Agreement, between the City and Union Bank, N.A., as trustee
for the 2001 Bonds, which Escrow Agreement is hereby approved, in the form on file
with the City Clerk.
Section 3. Official Actions. The Mayor, the City Manager, the City Clerk and any and
all other officers of the City are hereby authorized and directed, for and in the name and
on behalf of the City, to do any and all things and take any and all actions, including
execution and delivery of any and all assignments, certificates, requisitions, agreements,
notices, consents, instruments of conveyance, warrants and other documents, which they,
or any of them, may deem necessary or advisable in order to consummate the transactions
described herein. Whenever in this resolution any officer of the City is authorized to
execute or countersign any document or take any action, such execution, countersigning
or action may be taken on behalf of such officer by any person designated by such officer
to act on his or her behalf if such officer is absent or unavailable.
Section 4. Effective Date. This Resolution shall take effect from and after the date of its
passage and adoption.
2/
ATTACHMENT 2
LOAN AGREEMENT
This Loan Agreement (this "Loan Agreement"), dated for convenience as of October I, 2012, is
between Municipal Finance Corporation, a corporation duly organized and existing under the
laws of the State Of California (the "Lender"), and the City of Petaluma, a charter city duly
organized and existing under the constitution and laws of the State of California (the "City").
BACKGROUND:
1. The City is authorized pursuant to the provisions of Chapter 4.08 (commencing with
Section 4.08.010) of the Petaluma Municipal Code, as amended, and enacted pursuant to the
charter of the City (the "Revenue Bond Law"), to issue its revenue bonds for the purposes of
financing and refinancing improvements to its water enterprise(the"Water System").
2. In order to finance improvements to the Water System, the City has previously issued
its Water Revenue Bonds, Series 2001 in the principal amount of $10,165,000 (the "2001
Bonds"), pursuant to the Revenue Bond Law and an Indenture of Trust, dated as of August I,
2001, between Union Bank of California, N.A. (the'"2001 Trustee") and the City (the "2001
Indenture").
3. The City has determined that it is in its best interests at this time to refinance the 2001
Bonds and thereby realize interest savings.
4. In addition, the City has determined that it is in the best interests of the City at this
time to apply the savings realized by the refunding of the 2001 Bonds to pay the cost of capital
improvements to the Water System (the "Project").
5. Under the Revenue Bond Law, the term "bonds" includes bonds, notes, and other
forms of obligations, such as loan agreements.
6. In order to provide funds for the purposes of refunding the 2001 Bonds and funding
the Project, the City has determined to borrow the amount of $ from the Lender
under this Loan Agreement, to be secured by a pledge of and lien on the Net Revenues of the
Water System, as set forth in this Loan Agreement.
7 The City is authorized to enter into this Loan Agreement and to borrow amounts
hereunder for the purpose of refinancing the 2001 Bonds and financing the Project under the laws
of the State of California, including the Revenue Bond Law.
8. Concurrently with the execution and delivery of this Loan Agreement, the Lender has
assigned its rights hereunder to City National Bank.
AGREEMENT:
In consideration of the foregoing and the material covenants hereinafter contained, the City and
the Lender formally covenant, agree and bind themselves as follows:
ARTICLE I
Definitions and Appendices
Section 1.1. Definitions. All terms defined in this Section 1.1 have the meanings herein specified
for:all purposes of this Loan Agreement.
"Additional Revenues" means, with respect to the issuance of any Parity Obligations, an
allowance for Net Revenues arising from any increase in the charges made for service from the
Water System which has become effective prior to the incurring of such Parity Obligations but
which, during all or any part of the latest Fiscal Year or such 12-month period, was not in effect,
in an amount equal to the total amount by which the Net Revenues would have been increased if
such increase in charges had been in effect during the whole of such Fiscal Year or 12-month
period, all as shown by the certificate or opinion of an independent certified public accountant
employed by the City.
"Assignee" means (a) initially, City National Bank, as assignee of certain rights of the Lender
hereunder, and (b) any other entity to whom the rights of the Lender are assigned hereunder.
"Bond Counsel" means (a) Jones Hall, A Professional Law Corporation, or(b) any other attorney
or firth of attorneys of nationally recognized expertise with respect to legal matters relating to
obligations the interest on which is excludable from gross income under Section 103 of the Tax
Code.
"City" means the City of Petaluma, a charter city formed under the constitution and laws of the
State of California.
"Charges" means fees, tolls, assessments, rates and charges prescribed under the Bond Law or
any other law of the State by the Council for the services and facilities of the Water System
furnished by the City.
"Closing Date" means the date of execution and delivery of this Loan Agreement by the parties
hereto, being October_, 2012.
"Escrow Agreement" means the Escrow Deposit and Trust Agreement, dated the Closing Date,
between the City and Union Bank, N.A., relating to the redemption and refunding of the 2001
Bonds.
"Event of Default" means any of the events of default as defined in Section 5.1.
"Federal Securities" means any direct general non-callable obligations of the United States of
America (including obligations issued or held in book entry form on the books of the Department
of the Treasury of the United States of America), or obligations the timely payment of principal
of and interest on which are directly guaranteed by the United States of America.
"Fiscal Year" means each twelve-month period during the Term of this Loan Agreement
commencing on July 1 in any calendar year and ending on June 30 in the next succeeding
calendar year, or any other twelve-month period selected by the City as its fiscal year period.
(P
"Gross Revenues" means, for any period of computation, all gross charges received for, and all
other gross income and revenues derived by the City from, the ownership or operation of the
Water System or otherwise arising from the.Water System during such period, including but not
limited to (a) all Charges received by the City for use of the Water System, (b) all receipts
derived from the investment of the Revenue Fund, (c) transfers from (but exclusive of any
translers.,to) any rate stabilization reserve accounts, and (d) all moneys received by the City from
other public entities whose inhabitants are served pursuant to contracts with the City.
"Lender" means Municipal Finance Corporation, a corporation duly organized and existing under
the laws of the State of California.
"Loan" means the loan made by the Lender to the City in the original principal amount of
$ under Section 3.1.
"Loan Agreement" means this Loan Agreement, dated as of October 1, 2012, between the Lender
and the City.
"Loan Repayment Date" means May 1 and November 1 in each year, commencing May 1, 2013,
and continuing to and including the date on which the Loan Repayments are paid in full.
"Loan Repayments" means all payments required to be paid by the City under Section 3.4,
including any prepayment thereof under Sections 6.1 or 6.2.
"Maintenance and Operation Costs" means the reasonable and necessary costs and expenses paid
by the City for maintaining and operating the Water System, including but not limited to the
reasonable expenses of management and repair and other costs and expenses necessary to
, maintain and preserve the Water System in good repair and working order, and including but not
limited to administrative costs of the City attributable to the Water System and the financing
thereof. "Maintenance and Operation Costs" do not include (a) depreciation, replacement and
obsolescence charges or reserves therefor, (b) amortization of intangibles or other bookkeeping
entries of a similar nature, (c) payments of principal of and interest on any Parity Obligations or
other obligations of the City, and (d) costs of capital additions, replacements or improvements
which are chargeable to a capital account.
"Maximum Annual Debt Service" means, as of the date of any calculation, the maximum sum
obtained for the current or any future Fiscal Year during the Term of this Loan Agreement by
totaling the aggregate amount'of(i) the Loan Repayments coming due in such Fiscal Year, and
(ii) the principal and interest coming due and payable in such Fiscal Year on any Parity
Obligations which are payable from the Net Revenues, including the principal amount coming
due and payable by operation of mandatory sinking fund redemption. There shall be excluded
from such calculation any principal of and interest on any obligations which have been defeased
or discharged, or for the payment of which a security deposit has been posted.
"Net Revenues" means, for any period, an amount equal to all of the Gross Revenues received
from the Water System during such period, minus the amount required to pay all Maintenance
and Operation Costs of the Water System which are payable during such period.
"Parity Obligations" means any bonds, notes or other obligations of the City payable from and
secured by a pledge of and lien on the Net Revenues on a parity with the Loan Repayments, and
issued in accordance with Section 4.7.
"Project Fund" means a project fund created under Section 3.7. dedicated to pay for certain
extensions and improvement's to the City's Water System specified in the City's Capital
Improvement Program for the Water System for the Fiscal Years 2013-14, or any other
improvements to the Water System selected by the City.
"Revenue Fund" means the Water Revenue Fund which the City has previously established for
the receipt and deposit of Gross Revenues derived from the Water System.
"Tax Code" means the Internal Revenue Code of 1986 as in effect on the Closing Date or (except
as otherwise referenced herein) as it may be amended to apply to obligations issued on the
Closing Date, together with applicable proposed, temporary and final regulations promulgated,
and applicable official public guidance published, under the Tax Code.
"term of this Loan Agreement" or "Term" means thetime during which this Loan Agreement is
in effect, as provided in Section 3.3.
"2001 Bonds" means the Water Revenue Bonds, Series 2001, issued by the City in the original
principal amount of$10,165,000, $7,440,000 of which are presently outstanding.
"Water System" means the existing water system of the City, comprising all facilities for the
collection, transmission, transportation, treatment and distribution of water for the residents,
commercial and industrial consumers of water in the City.
Section 1.2. Appendix. The following Appendix is attached to, and by reference made a part of,
this Loan Agreement:
Appendix A: The schedule of.Loan Repayments to be paid by the City hereunder, showing the
date and amount of each Loan Repayment.
ARTICLE II
Representations,Covenants and Warranties
Section 2.1. Representations, Covenants and Warranties of the City. The City represents,
covenants and warrants to the Lender as follows:
(a) Due Organization and Existence. The City is a charter city and political subdivision
of the State of California, duly organized and existing under the constitutioniand laws of the State
of California.
(b) Authorization. The laws of the State of California authorize the City to enter into this
Loan Agreement, to enter into the transactions contemplated hereby and to carry out its
obligations hereunder, and the City Council of the City has duly authorized the execution and
delivery of this Loan Agreement.
(c) No Violations. Neither the execution and delivery.of this Loan Agreement, nor the
fulfillment of or compliance with the teens and conditions hereof, nor the consummation of the
transactions contemplated hereby, conflicts with or results in a breach of the terms, conditions or
provisions of any restriction or any agreement or instrument to which the City is now a party or
by which the City is bound, or constitutes a default under any of the foregoing, or results in the
creation or imposition of any lien, charge or encumbrances whatsoever upon any of the property
or assets of the City, other than as set forth herein.
(d) Prior Indebtedness: The City has not issued or incurred any obligations which are
currently outstanding having any priority in payment out of the Gross Revenues or the Net
Revenues over the payment of the Loan Repayments.
Section 2.2. Representations, Covenants and Warranties of Lender. The Lender represents,
covenants and warrants to the City as follows:
(a) Due Organization and Existence. The Lender is a corporation duly organized and
existing under the laws of the State of California; has power to enter into this Loan Agreement; is
possessed of full power to make the Loan as provided herein; and the governing board of the
Lender has duly authorized the execution and delivery of this Loan Agreement.
(b) No Encumbrances. The Lender will not pledge or assign the Loan Repayments or its
other rights under this Loan Agreement, except as provided under the terms of this Loan
Agreement.
(c) No Violations. Neither the execution and delivery of this Loan Agreement, nor the
fulfillment of or compliance with the terms and conditions hereof, nor the consummation of the
transactions contemplated hereby, conflicts with or results in a breach of the terms, conditions or
provisions of any restriction or any agreement or instrument to which the Lender is now a party
or by which the Lender is bound, or constitutes a default under any of the foregoing, or results in
the creation or imposition of any lien, charge or encumbrance whatsoever upon any of the
property or assets of the Lender.
ARTICLE III
Terms of Loan
Section 3.1. Obligation to Make Loan: Amount of Loan. The Lender hereby agrees to lend to the
City, and the City hereby agrees to borrow from the Lender, the amount of $
under the terms and provisions'set forth in this Loan Agreement. The Loan shall be made by the
Lender to the City in immediately available funds on the Closing Date.
Section 3.2. Application of Loan Proceeds. The Lender hereby agrees on the Closing Date to
deposit theproceeds of the Loan in the following amounts:
I) $ shall be deposited with Union Bank, N.A., for deposit to the Escrow
Fund, to be held and administered under the Escrow Agreement for the purpose of paying and
redeeming the 2001 Bonds. As provided in the Escrow Agreement, the 2001 Bonds shall be paid
and redeemed in full on November 1, 2012, and shall be fully discharged and defeased on the
Closing Date; and
2) $ shall be deposited with the City, for deposit to the Project Fund; and
3) $ shall be deposited with Union Bank, N.A., for deposit to the Costs of
Issuance Account held under the Escrow Deposit and Trust Agreement.
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Section 3.3. Term. The Term of this Loan Agreement commences on the Closing Date, and
ends on the date on which the Loan is paid in full or provision for such payment is made as
provided herein.
Section 3.4. Loan Repayments.
The City hereby agrees to repay the Loan in the aggregate principal amount of
$ , together with interest(calculated at the rate of % on the basis of a
360-day year of twelve 30-day months) on the unpaid principal balance thereof, payable in
semiannual Loan Repayments in the respective amounts and on the respective Loan Repayment
Dates specified in Appendix A. As a result of the assignment by the Lender to the Assignee of
the right of the Lender to receive the Loan Repayments, the City shall pay all Loan Repayments
when due directly to the Assignee.
If the City prepays the Loan Repayments in full under.Article VI, the City's obligations under
this Loan Agreement shall thereupon cease and terminate, including but not limited to the City's
obligation to pay Loan Repayments under this Section 3.4; subject however, to the provisions of
Section 6.3 in the case of prepayment by application of a security deposit.
If the City fails to make any of the payments, in this Section 3.4, the payment in default
shall continue as an obligation of the City until the amount in default has been fully paid, and the
City agrees to pay the same with interest thereon, to the extent permitted by law, from the Loan
Repayment Date to the applicable date of payment at the rate of 8% per annum.
Section 3.5. Nature of City's Obligations.
(a) Special Obligation. the City's obligation:to pay the Loan Repayments is a special
obligation of the City limited solely to the Net Revenues of the Water System and amounts on
deposit in the Revenue Fund. Except as provided in subsection (b) of this section, the City is not
required to advance moneys derived from any source of income other than the Net Revenues and
other sources specifically identified herein for the payment of the Loan Repayments, and no other
funds or property of the City are liable for the payment of the Loan Repayments.
(b) Obligations Absolute. The obligation of the City to pay the Loan Repayments from
the Net Revenues, and the obligation of the City to perform and observe the other agreements
contained herein, are absolute and unconditional and are not subject to any defense or any right of
setoff, counterclaim or recoupment arising out of any breach of the City or the Lender of any
obligation to the City or otherwise with respect to the Water System, whether hereunder or
otherwise,•or out of indebtedness or liability at any time owing to the City by the Lender. Until
such time as all of the Loan Repayments have been fully paid or prepaid, the City:
(i) will not suspend or discontinue payment of any Loan Repayments,
(ii) will perform and observe all other agreements contained in this Loan Agreement, and
(iii) will not terminate this Loan Agreement for any cause, including, without limiting the
generality of the foregoing, the occurrence of any acts or circumstances that may constitute
failure of consideration, eviction or constructive eviction, destruction of or damage to the Water
System, the sale of the Water System, the taking by eminent domain of title to or temporary use
of any component of the Water System, commercial frustration of purpose, any change in the tax
or other laws of the United States of America or The State of California or any political
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subdivision of eitherthereof or any failure of the Lender to perform and observe any agreement,
whether express or implied, or any duty, liability or obligation arising out of or connected with
this Loan Agreement.
(c) Protection of Rights. If the Lender fails to perform any such agreements on its part,
the City may institute such action against the Lender as the City deems necessary to compel
performance so long as such action does not abrogate the obligations of the City contained in this
section. the City may, however, at the City's own cost and expense and in the City's own name
or in the name of the Lender prosecute or defend any action or proceeding or take any other
action involving third persons which the City deems reasonably necessary in order to secure or
protect the City's rights hereunder, and in such event the Lender will cooperate fully with the
City and take such action necessary to effect the substitution of the City for the Lender in such
action or proceeding if the City shall so request.
Section 3.6. Pledge and Application of Net Revenues and Revenue Fund.
(a) Pledge. All of the Net Revenues, and all amounts on deposit in the Revenue Fund, are
hereby irrevocably pledged to the punctual payment of the Loan Repayments and any Parity
Obligations. The Net Revenues and amounts on deposit in the Revenue Fund may not be used for
any other purpose so long as the Loan Repayments remain unpaid; except that out of the Net
Revenues and such other amounts there may be apportioned such sums, for such purposes, as are
expressly permitted by this Section 3.6.
(b) Deposit of Gross Revenues; Transfers to Make Loan Repayments. The City has
heretofore established the Revenue Fund, which the City agrees.to continue to hold and maintain
for the purposes and uses set forth herein. The City shall deposit all Gross Revenues in the
Revenue Fund promptly upon the receipt thereof.
All Net Revenues will be held by the City in the Revenue Fund in trust for the benefit of the
Lender and for the security of any Parity Obligations. The City shall withdraw from the Revenue
Fund and transfer to the Lender an amount of Net Revenues equal to the aggregate amount of the
Loan Repayments and the debt service on any Parity Obligations when due and payable.
(c) Other Uses Permitted. The City shall manage, conserve and apply the Net Revenues
in such a manner that all deposits required to be made under the preceding provisions of this
Section 16 will be made at the times and in the amounts so required. Subject to the foregoing
sentence, so long as no Event of Default has occurred and is continuing hereunder, the City may
at any time and from time to time use and apply Net Revenues for (i) the acquisition and
construction of improvements to the Water System; (ii) the prepayment of the Loan and any
Parity Obligations, or(iii),any other lawful purpose of the City.
SECTION 3.7. Project Fund. There is hereby created a separate Fund to be known as the "City of
Petaluma Water System Project Fund", herein referred to as the "Project Fund", to be held in
trust by the City. The City shall disburse moneys in the Project Fund for the purpose of paying or
reimbursing the payment of the costs of acquiring and constructing a capital project, including but
not limited to all costs incidental to or connected with such acquisition and construction.
The City may apply any or all of the moneys on deposit in the Project Fund to the financing of
any alternative project in place of any component of the Project upon the City's determination
that: (i) such substitution will not have any adverse effect on the security for the Loan
Repayments, and (ii) the alternative project identified will be of benefit to the Water System.
Any .amounts remaining in the Project Fund after the date,of completion of the Project (the
"Completion Date") shall be applied by the city to the payment of the next occurring Loan
Repayment.
All interest earnings and profits or losses on the investment of amounts in the Project Fund shall
be deposited in or charged to the Project Fundand applied to the purposes thereof.
ARTICLE IV
Covenants of the City
Section 4.1. Release and Indemnification Covenants. The City shall indemnify the Lender and
its officers, agents, successors and assigns harmless from and against all claims, losses and
damages, including legal fees and expenses, arising out-of the following:
(a) the use, maintenance, condition or management of, or from any work or thing done on
or about the Water System by the City,
(b) any breach or default on the part of the City in the performance of any of its
obligations under this Loan Agreement,
(c) any intentional misconduct or negligence of the City or of any of its agents,
contractors, servants, employees or licensees with respect to the Water System, and
(d) any intentional misconduct or negligence of any lessee of the City with respect to the
Water System.
No indemnification is made under this Section 4.1 or elsewhere in this Loan Agreement for
willful misconduct, gross negligence, or breach of duty under this Loan Agreement by the
Lender, its officers, agents,employees, successors or assigns.
Section 4.2. Sale or Eminent Domain of Water System. Except as provided herein, the City
covenants that the Water System will not be encumbered, sold, leased, pledged, any charge
placed thereon, or otherwise disposed of, as a whole or substantially as a whole if such
encumbrance, sale, lease, pledge, charge or other disposition would materially impair the ability
of the City to pay the Loan Repayments, or any Parity Obligations, or would materially adversely
affect its ability to comply with the terms of this Loan Agreement or the documents authorizing
the issuance of any Parity Obligations. The City shall not enter into any agreement which impairs
the operation of the Water System or any part of it necessary to secure adequate Net Revenues to
pay the Loan Repayments or any Parity Obligations, or which otherwise would impair the rights
of the Lender with respect to the Net Revenues. If any substantial part of the Water System is
sold, the payment therefor must either (a) be used for the acquisition or construction of
improvements and extensions or replacement facilities or (b) be applied to prepay outstanding
obligations of the City relating to the Water System.
Any amounts received as awards as a result of the taking of all or any part of the Water System
by the lawful exercise of eminent domain, if and to the extent that such right can be exercised
against such property of the City, shall either (a) be used for the acquisition or construction of
is
improvements and extension of the Water System, or. (b) be applied to prepay outstanding
obligations of the City relating to the Water System.
Section 4.3. Insurance. The City shall at all times maintain with responsible insurers all such
insurance on the Water System as is customarily Maintained with respect to works and properties
of like character against accident to, loss of or damage to the Water System. If any useful part of
the Water System is damaged or destroyed, such part shall be restored to usable condition. All
amounts collected from insurance against accident to or destruction of any portion of the Water
System shall be used to repair or rebuild such damaged or destroyed portion of the Water System,
and to the extent not so applied, shall be applied on,a pro rata basis to pay the Loan and any
Parity Obligations in the manner provided in this Loan Agreement and in the documents
authorizing such Parity Obligations. The City shall also maintain, with responsible insurers,
worker's compensation insurance and insurance against public liability and property damage to
the extent reasonably necessary to protect the City, the Lender and the Assignee. Any insurance
required to be maintained hereunder may be maintained by the City in the form of self-insurance
or in the form of participation by the City in a program of pooled insurance.
Section 4.4. Records and Accounts. The City shall keep proper books of records and accounts of
the Water System, separate from all other records and accounts, in which complete and correct
entries are made of all transactions relating to the Water System. Said books shall, upon prior
request, be subject to the reasonable inspection of the Lender.
The City shall cause the books and accounts of the Water System to be audited annually by an
independent certified public accountant or firm of certified public accountants, not more than 270
days after the close of each Fiscal Year, and shall furnish a copy of such report to the Lender or
the Assignee. The audit of the accounts of the Water System may be included as part of a general
City-wide audit.
The City shall cause to be published annually, not more than 270 days after the close of each
Fiscal Year, a summary statement showing the amount of Gross Revenues and the disbursements
from Gross Revenues and from other funds of the City in reasonable detail. The City shall
furnish a copy of the statement, upon reasonable written request, to the Lender and the Assignee.
Section 4.5. Rates and Charges.
(a) Covenant Regarding Gross Revenues. The City shall fix, prescribe, revise and collect
rates, fees and charges for the services and facilities furnished by the Water System during each
Fiscal Year which (together with existing unencumbered fund balances which are maintained in
the form of cash or cash equivalents, and which are lawfully available to the City for payment,of
any of the following ainounts during such Fiscal Year) are at least sufficient, after making
allowances for contingencies and error in the estimates, to pay the following amounts in the
following order:
(i) All Maintenance and Operation Costs of the Water System estimated by the City to
become due and payable in such Fiscal Year;
(ii) The Loan Repayments and all principal of and interest on any Parity Obligations
which are payable from the Net Revenues as they become due and payable during such Fiscal
Year, without preference or priority; and
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(iii) All payments required to meet any other obligations of the City which are charges,
liens, encumbrances upon or payable from the Gross Revenues of the Water System during such
Fiscal Year.
(b) Covenant Regarding Net Revenues. In addition to the covenant set forth in the
preceding clause (a) of this Section, the City shall fix, prescribe, revise and collect rates, fees and
charges for the services and facilities furnished by the Water System during each Fiscal Year
which (together with existing unencumbered fund balances which are maintained in the form of
cash or cash equivalents, and which are lawfully available to the City for payment of any of the
following amounts during such Fiscal Year) are sufficient to yield Net Revenues which are at
least equal to 115% of the Loan Repayments and principal of and interest on any Parity
Obligations which are payable from the Net Revenues, when and as the same come due and
payable during such Fiscal Year.
Section 4.6. No Priority for Additional Obligations; Compliance With Prior Financing
Documents. The City may not issue or incur any bonds or other obligations having any priority in
payment of principal or interest out of the Net Revenues over the Loan Repayments.
Section 4.7. Issuance of Parity Obligations. Except for obligations incurred to prepay or post a
security deposit for the Loan in whole, the City may.not issue or incur any Parity Obligations
unless:
(a) The City is not then in default under the-terms of this Loan Agreement.
(b) The amount of such Net Revenues, calculated in accordance with sound accounting
principles, as shown by the books of the City for the latest Fiscal Year or as shown by the books
of the City for any more recent 12-month period selected by the City, in either case verified by a
certificate or opinion of an independent certified public,accountant employed by the City, plus (at
the option of the City) the Additional Revenues, are at least equal 115% of the amount of
Maximum Annual Debt Service.
(c) the City must file with the Lender a written certificate to the effect that the conditions
of this Section 4.7 have been met, signed on behalf of the City by its Finance Director or other
authorized officer.
Section 4.8. Assignment by the Lender. The Lender's rights under this Loan Agreement,
including the right to receive and enforce payment of the Loan •Repayments to be made by the
City under this Loan Agreement, have been assigned to the Assignee. The City hereby consents
to such assignment. Whenever in this Loan Agreement any reference is made to the Lender and
such reference concerns rights which the Lender has assigned to the Assignee, such reference
shall be deemed to refer to the Assignee.
The Lender or the Assignee has the right to make additional assignments of its interests herein,
but no such assignment will be effective as against the City unless and until the Lender or the
Assignee files with the City written notice thereof. The City shall pay all Loan Repayments
hereunder under the written direction of the Lender or the Assignee named in the most recent
assignment or notice of assignment filed with the City. During the Term of this Loan Agreement,
the City shall keep a complete and accurate record of all such notices of assignment.
Section 4.9. Assignment by the City. Neither the Loan nor this Loan Agreement may be assigned
by the City, other than to a public agency which succeeds to the interests of the City in and to the
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Water System and which (by operation of law, by contract or otherwise) becomes legally bound
to all of the terms and,provisions hereof.
Section 4.10. Amendment of this Loan Agreement. This Loan Agreement may be amended by
the City and the Lender, but only with the prior written consent of the Assignee (which consent
may not be unreasonably withheld).
Section 4.11. Tax Covenants.
(a) Generally. The City shall not take any action or permit to be taken any action within
its control which would cause or which, with the passage of time if not cured would cause, the
interest components of the Loan Repayments to become includable in gross income for federal
income tax purposes.
(b) Private Activity Bond Limitation. The City shall assure that the proceeds of the Loan
are not so used as to cause the Loan to satisfy the private business tests of section I41(b) of the
Tax Code or the private loan financing test of section l41(c) of the Tax Code.
(c) Federal Guarantee Prohibition. The City shall not take any action or permit or suffer
any action to be taken if the result of the same would be to cause the Loan Repayments to be
"federally guaranteed" within'the meaning of Section 149(b) of the Tax Code.
(d) No Arbitrage. The City shall not take, or permit or suffer to be taken, any action with
respect to the proceeds of the Loan Repayments which, if such action had been reasonably
expected to have been taken, or had been deliberately and intentionally taken, on the Closing
Date would have caused the Loan Repayments to be "arbitrage bonds" within the meaning of
Section 148(a) of the Tax Code.
(e) Small Issuer Exemption from Bank Nondeductibility Restriction. The City hereby
designates this Loan Agreement for purposes of paragraph (3) of Section 265(b) of the Tax Code
and represents that not more than $10,000,000 aggregate principal amount of obligations the
interest on which is excludable (under Section 103(a)'of the Tax Code) from gross income for
federal income tax purposes (excluding(i) private activity bonds, as defined in Section 141 of the
Tax Code, except qualified 501(c)(3) bonds as defined in Section 145 of the Tax Code and (ii)
current refunding obligations to the extent the amount of the refunding obligation does not exceed
the outstanding amount of the refunded obligation), including this Loan Agreement, has been or
will be issued by the City, including all subordinate entities of the City, during the calendar year
2012.
(0 Arbitrage Rebate. The City shall take any and all actions necessary to assure
compliance with section 148(1) of the Tax Code, relating to the rebate of excess investment
earnings, if any, to the federal government, to the extent that such section is applicable to the
Loan.
(g) Acquisition, Disposition and Valuation of Investments. Except as otherwise provided
in the following sentence, the City covenants that all investments of amounts deposited in any
fund or account created by or pursuant to this Loan Agreement, or otherwise containing gross
proceeds of the Loan (within the meaning of Section 148 of the Tax Code) shall be acquired,
disposed of and valued (as of the date that valuation is required by this Agreement or the Tax
Code) at Fair Market Value. Investments in funds or accounts (or portions thereof) that are
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subject to a yield restriction under applicable provisions of the Tax Code shall be valued at their
present value (within the meaning of section 148 of the Tax Code).
For purposes of this subseetion (g), the term "Fair Market Value" means the price at which a
willing buyer would purchase the investment from a,willing seller in a bona fide, arm's length
transaction (determined as of the date the contract to purchase or sell the investment becomes
binding) if the investment is traded on an established securities market (within the meaning of
section 1273 of the Tax Code) and, otherwise, the term "Fair Market Value" means the
acquisition price in a bona fide arm's length transaction (as referenced above) if(i) the investment
is a certificate of deposit that is acquired in accordance with applicable regulations under the Tax
Code, (ii) the investment is an agreement with specifically negotiated withdrawal or reinvestment
provisions and a specifically negotiated interest rate (for example, a guaranteed investment
contract, a forward supply contractor other investment agreement) that is acquired in accordance
with applicable regulations under the Tax Code, (iii) the investment is a United States Treasury
Security — State and Local Government Series that is acquired in accordance with applicable
regulations of the United States Bureau of Public Debt, or (iv) any commingled investment fund
in which the City and related parties do not own more than 10% beneficial interest therein if the
return paid by the fund is without regard to the-source of the investment.
ARTICLE V
Events of Default and Remedies
Section 5.1. Events of Default Defined. The following are Events of Default under this Loan
Agreement:
(a) Failure by the.City to pay any Loan Repayment orotherpayment required hereunder
within 15 days after the date on which such Loan Repayment or other payment becomes due, and
the continuation of such failure•for a period of 10 days after written notice specifying such failure
and requesting that it be remedied has been given to the-City by the Lender.
(b) Failure by the City-to observe and perform any covenant, condition or agreement on
its part to be observed or performed hereunder, other than as referred to in the preceding clause
(a) of this Section, for a period of 30 days after written notice specifying such failure and
requesting that it be remedied has been given to the City by the Lender:provided, however, if in
the reasonable opinion of the City the failure stated in the notice can be corrected, but not within
such 30-day period, the Lender may not unreasonably withhold its consent to an extension of
such time if corrective action is instituted by the City within such 30-day period and diligently
pursued until the default is corrected.
(c) The filing by the City of a voluntary petition in bankruptcy, or failure by the City
promptly to lift any execution, garnishment or attachment, or adjudication of the City as a
bankrupt, or assignment by the City for the benefit of ereditors, or the entry by the City into an
agreement of composition with creditors, or the approval by a court of competent jurisdiction of a
petition applicable to the City in any proceedings instituted under the provisions of the Federal
Bankruptcy Code, as amended, or under any similar acts which may hereafter be enacted.
(d) The occurrence of any event of default under and as defined in the documents
authorizing the issuance of any Parity Obligations.
Section 5.2. Remrdies on Default. Upon the occurrence and during the continuation of an Event
of Default, the Lender may, at its option and without_any further demand or notice:
(a) declare all principal components of the unpaid Loan Repayments, together with
accrued interest thereon from the immediately preceding Loan Repayment Date on which
payment was made, to be immediately due and payable, whereupon the same will immediately
become due and payable; and
(b) take whatever action at law or in equity may appear necessary or desirable to collect
the Loan Repayments then due or thereafter to become due during the Teim of this Loan
Agreement, or enforce performance and observance of any obligation, agreement or covenant of
the City under this Loan Agreement.
The provisions of the preceding clause (a) are subject to the condition that if, at any time after the
principal components of the unpaid Loan Repayments have been so declared due and payable
under the preceding clause (a), and before any judgment or decree for the payment of the moneys
due have been obtained or entered, the City deposits with the Lender a sum sufficient to pay all
principal components of the Loan Repayments coming due prior to such declaration and all
matured interest components (if any) of the Loan Repayments, with interest on such overdue
principal and interest components calculated at the rate of 8% per annum, and a sum sufficient to
pay all reasonable costs and expenses incurred by the Lender in the exercise of its rights and
remedies hereunder, and any and all other defaults known to the Lender (other than in the
payment of the principal and interest components of the Loan Repayments due and payable solely
by reason of such declaration) have been made good, then, and in every such case, the Lender
may, by written notice to the City, rescind and annul such declaration and its consequences.
However, no such rescission and annulment shall extend to or shall affect any subsequent default,
or shall impair or exhaust any Eight or power consequent thereon.
Section 5.3. No Remedy Exclusive. No remedy herein conferred upon or reserved to the Lender
is exclusive, and every such remedy is cumulative and in addition to every other remedy given
under this Loan Agreement or now or hereafter existing at law or in equity. No delay or omission
to exercise any right or power accruing upon any default impairs any such right or power or
operates as a waiver thereof, but any such right and power may be exercised from time to time
and as often as may be deemed expedient. In order to entitle the Lender to exercise any remedy
reserved to it in this Article V it is not necessary to give any notice, other than such notice as may
be required in this Article V or by law.
Section 5.4. Agreement to Pdy Attorneys' Fees and Expenses. If either party to this Loan
Agreement defaults under any of the provisions hereof and the nondefaulting party employs
attorneys (including in-house counsel) or incurs other expenses for the collection of moneys or
the enforcement or performance or observance of any obligation or-agreement on the part of the
defaulting party herein contained, the defaulting party will on demand therefor pay to the
nondefaulting party the reasonable fees of such attorneys (including those of in-house counsel)
and such other expenses so-incurred by the nondefaulting party.
Section 5.5. NO Additional Waiver Implied by One Waiver, If any agreement contained in this
Loan Agreement is breached by either party and thereafter waived by the other party, such waiver
shall be limited to the particular breach so waived and shall not be deemed to waive any other
breach hereunder.
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Section 5.6. Assignee to Exercise Rights. Such rights and remedies as are given to the Lender
under this Article V have been assigned by the Lender to the Assignee and shall be exercised
solely by the Assignee..
ARTICLE VI
Prepayment of Loan
Section 6.1. Optional Prepayment. The City may, at its option, prepay the unpaid principal
components of the Loan on any Loan Repayment Date commencing November 1, 2022, in whole,
or in part among the remaining Loan Repayments on such basis as the City designates, upon not
less than 30 days prior Written notice to the Lender, at a prepayment price (expressed as a
percentage of the principal amount of the Loan to be prepaid), as set forth in the following table,
plus accrued interest on the Loan to the prepayment date:
Prepayment Date Prepayment Price
November 1, 2022 through May 1, 2024 102%
November 1, 2025 through November 1, 2030 101
Upon the prepayment of the Loan in part but not in whole, the principal components of the
remaining Loan Repayments shall he reduced on a pro rata basis, and the Lender shall provide the
City with a revised schedule of Loan Repayments.
Section 6.2. Mandatory Prepayment From Net Proceeds of Insurance or Eminent Domain. The
City shall prepay the unpaid principal balance of the Loan in whole on any date, or in part on any
Loan Repayment Date, from and to the extent the City determines to apply any proceeds of
insurance award or condemnation award with respect to the Water System for such purpose under
Sections 4.2 or 4.3 at a price equal to the principal amount to be prepaid plus a prepayment
premium equal to the amount which would apply to such prepayment if the City prepaid its
obligations under Section. 6.1 on such date. The City and the Lender hereby agree that such
proceeds, to the extent remaining after payment of any delinquent'Loan Repayments, shall be
credited towards the City's obligations under this Section 6.2.
Section 6.3. Security Deposit. Notwithstanding any other provision of this Loan Agreement, the
City may on any date secure the payment of Loan Repayments in whole, by irrevocably
depositing with a fiduciary an amount of cash which, together with other available amounts, is
either:
(a) sufficient to pay all such Loan Repayments, including the principal and interest
components thereof, when due under Section 3.4(a), or
(b) invested in whole or in part.in Federal Securities in such amount as will, in the opinion
of an independent certified public accountant, together with interest to accrue thereon and
together with any cash which is so deposited, be fully sufficient to pay all such Loan Repayments
when due under Section 3.4(a) or, if such amounts are sufficient to prepay the Loan Repayments
in full under Section 6.3, when due on any optional prepayment date under Section 6.1, as the
City instructs at the time of the deposit.
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In the event of a security deposit-under this Section for the payment in full of all remaining Loan
Repayments, the pledge:ofNet Revenues from the Water System and all other security provided
by this Loan Agreetnent'for said obligations, will cease and terminate, excepting only the
obligation of the City to make, or cause to be made;all of Loan Repayments from such security
deposit.
ARTICLE VII
Miscellaneous
Section 7.1. Notices. Any notice, request, complaint, demand or other communication under this
Loan Agreement shall be given by first class mail or personal delivery to the party entitled thereto
at its address set forth below, or by telecopier or other?-form of telecommunication, at its number
set forth below. Notice shall be'effective'either (a) upon transmission by telecopier or other form
of telecommunication, (b) 48 hours after deposit in the United States of America first class mail,
postage prepaid, or (c) in the case of personal delivery to any person, upon actual receipt. The
Lender, the City or the-Assignee may, by written notice to the other parties, from time to time
modify the address or number to which communications are to be given hereunder.
If to the City: City of Petaluma
11 English Street
Petaluma, California 94952
Attention: Finance Director
If to the Lender:Municipal Finance Corporation
2945 Townsgate Road, Suite 200
Westlake Village, California 91361
Attention: President
If to the Assignee: City National Bank
555 South Flower Street, 24'h Floor
Los Angeles, California 90071
Attention: Credit Management
Fax: (213) 637-3919
Section 7.2. Binding Effect. This Loan Agreement inures to the benefit of and is binding upon
the Lender and the City and their respective successors and assigns.
Section 7.3. Severability. If any provision of this Loan Agreement is held invalid or
unenforceable by any court of competent jurisdiction, such holding will not invalidate•or render
unenforceable any other provision hereof.
Section 7.4. Net-net-net Contract. This Loan Agreement is a "net-net-net" contract, and the City
hereby agrees that the Loan Repayments are an absolute net return to the Lender, free and clear of
any expenses, charges or set-offs whatsoever.
Section 7.5. Further Assurances and Corrective Instruments. The Lender and the City shall,
from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and
delivered, such supplements hereto and such further instruments as may•reasonably be required
for carrying out the expressed intention of this Loan Agreement.
Section 7.6. Execution in Counterparts. This Loan. Agreement may be executed in several
counterparts, each of which:shall be an original and all of which shall constitute but one and the
same instrument.
Section 7.7. Applicable Law.. This Loan Agreement shall be governed by and construed in
accordance with the laws of the State of California.
Section 7.8. Captions. The.captions or headings in this Loan Agreement are for convenience
only and in no way define, limit or describe the scope or intent of any provisions or Section of
this Loan Agreement.
c2D
IN WITNESS WHEREOF,..the Lender has caused this Loan Agreement to be executed in its
corporate name by its,duly authorized officer and the.City has.caused this Loan Agreement to be
executed in its name by its duly authorized officers, as'of the:date first above written.
MUNICIPAL FINANCE CORPORATION,
as lender
By
President
CITY OF PETALUMA,as borrower
By
City Manager
Attest:
CityClerk
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APPENDIX A
SCHEDULE OF LOAN REPAYMENTS
Loan Repayment Date Principal Interest Total Loan Repayment
May 1, 2013
November 1, 2013
May I;2014
November 1, 2014
May 1, 2015
November 1, 2015
May 1, 2016
November 1, 2016
May 1, 2017
November 1, 2017
May 1, 2018
November I, 2018
May 1, 2019
November 1, 2019
May 1, 2020
November 1, 2020
May 1, 2021
November 1, 2021
May 1, 2022
November 1, 2022
May 1, 2023
November 1, 2023
May 1, 2024
November 1, 2024
May 1, 2025
November 1, 2025
May 1,2026
November 1, 2026
May I. 2027
November 1, 2027
May 1, 2028
November 1. 2028
May 1, 2029,
November I, 2029
May 1,2030
November I, 2030
TOTALS: $ $ $
1969488.1
0.741-%