shafter-wasco irrigation district, californiashafter-wasco irrigation district kern county,...
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NEW ISSUE - BOOK-ENTRY ONLY RATINGS: S&P: “A+” (See “RATING” herein.)
In the opinion of Nossaman LLP, Irvine, California, Special Counsel, based on existing statutes, regulations, rulings and court decisions and assuming, among other matters, compliance with certain covenants, interest with respect to the Certificates is excludable from gross income for federal income tax purposes. Interest with respect to the Certificates is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxable income, nor is it included in adjusted current earnings in calculating corporate alternative minimum taxable income. In the further opinion of Special Counsel, interest with respect to the Certificates is, under existing law, exempt from State of California personal income taxes. Special Counsel expresses no opinion regarding other federal or State tax consequences relating to the ownership or disposition of, or the accrual or receipt of interest with respect to, the Certificates. The District has designated the Certificates as “qualified tax-exempt obligations” for purposes of Section 265(b)(3) of the Internal Revenue Code of 1986, as amended. See “TAX MATTERS” herein with respect to tax consequences of the Certificates.
$14,435,000SHAFTER-WASCO IRRIGATION DISTRICTREVENUE CERTIFICATES OF PARTICIPATION
SERIES 2010 (Bank Qualified)
Evidencing Proportionate Undivided Interests in Installment Payments to be Made by the
SHAFTER-WASCO IRRIGATION DISTRICTDated: Date of Delivery Due: November 1, as shown on the inside cover
The Certificates will be executed and delivered as fully registered certificates in book-entry form only, initially registered in the name of Cede & Co., New York, New York, as nominee of The Depository Trust Company (“DTC”), New York, New York. Purchasers will not receive certificates representing their interest in the Certificates. Individual purchases of the Certificates will be in principal amounts of $5,000 or in any integral multiples of $5,000. Interest payable with respect to the Certificates will be payable on November 1 and May 1 of each year, commencing May 1, 2011 (the “Interest Payment Dates”), and principal payable with respect to the Certificates will be paid on the dates set forth in the Maturity Schedule set forth on the inside cover hereof. Payments of principal of and interest with respect to the Certificates will be paid by Wells Fargo Bank, National Association, Los Angeles, California, as trustee (the “Trustee”), to DTC for subsequent disbursement to DTC Participants who will remit such payments to the Beneficial Owners of the Certificates.
The Certificates are being executed and delivered (i) to finance the acquisition of certain water entitlements and water system improvements by the Shafter-Wasco Irrigation District (the “District”) (see “THE PROJECT” herein), (ii) to fund a Reserve Fund for the Certificates, and (iii) to pay certain costs of executing and delivering the Certificates (see “ESTIMATED SOURCES AND USES OF FUNDS” herein). The Certificates evidence undivided proportionate interests in certain Installment Payments (the “Installment Payments”) to be made by the District pursuant to an Installment Purchase Contract, dated as of November 1, 2010 (the “Installment Purchase Contract”), between the District and the SWID Financing Corporation, a California non-profit corporation (the “Corporation”).
The payment of Installment Payments is secured by a pledge of the Net Revenues (as defined herein) of the District’s water system (the “Enterprise”), subject to the parity lien of the DWR Loan (as defined herein) and any additional obligations as provided for in the Installment Purchase Contract. The Corporation, for the benefit of the Owners of the Certificates, has assigned, among other things, its right to receive Installment Payments to the Trustee.
The Certificates are subject to prepayment prior to their scheduled payment dates as described herein. See “THE CERTIFICATES” herein.
This cover page contains information for general reference only, and is not a summary of the security or terms of this issue. Investors must read the entire Official Statement, including the section entitled “RISK FACTORS,” for a discussion of special factors which should be considered, in addition to the other matters set forth herein, in considering the investment quality of the Certificates. Capitalized terms used on this cover page and not otherwise defined shall have the meanings set forth herein.
THE DISTRICT’S OBLIGATION TO MAKE INSTALLMENT PAYMENTS IS A SPECIAL OBLIGATION OF THE DISTRICT PAYABLE SOLELY FROM NET REVENUES AND OTHER FUNDS PROVIDED FOR IN THE INSTALLMENT PURCHASE CONTRACT. NEITHER THE CERTIFICATES NOR THE OBLIGATION OF THE DISTRICT TO MAKE INSTALLMENT PAYMENTS CONSTITUTES A DEBT OF THE DISTRICT OR OF THE STATE OF CALIFORNIA OR OF ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMIT OR RESTRICTION, OR AN OBLIGATION FOR WHICH THE DISTRICT IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE DISTRICT HAS LEVIED OR PLEDGED ANY FORM OF TAXATION.
The Certificates are offered when, as and if sold, executed and delivered, subject to the approval as to their legality by Nossaman LLP, Irvine, California, Special Counsel. Certain legal matters will be passed upon for the District by its general counsel, Young Wooldridge, LLP, Bakersfield, California, and by Nossaman LLP, Irvine, California, Disclosure Counsel. Certain legal matters will be passed upon for the Underwriter by its counsel, Jones Hall, A Professional Law Corporation, San Francisco, California. It is anticipated that the Certificates in book-entry form, will be available for delivery through the facilities of DTC in New York, New York, on or about November 18, 2010.
WELLS FARGO SECURITIESDate: November 3, 2010
MATURITY SCHEDULE
$5,020,000 Serial Certificates
Maturity Date (November 1)
Principal Amount
Interest Rate
Yield
CUSIP®
2011 $255,000 3.000% 0.800% 818887 AA92012 280,000 2.000 1.110 818887 AB72013 285,000 3.000 1.350 818887 AC52014 290,000 3.000 1.700 818887 AD32015 300,000 4.000 2.000 818887 AE12016 310,000 3.000 2.400 818887 AF82017 320,000 3.000 2.760 818887 AG62018 330,000 3.000 3.060 818887 AH42019 340,000 3.250 3.350 818887 AJ02020 350,000 3.250 3.560 818887 AK72021 365,000 3.500 3.790 818887 AL52022 375,000 3.750 4.060 818887 AM32023 390,000 4.000 4.220 818887 AN12024 405,000 4.250 4.370 818887 AP62025 425,000 4.250 4.500 818887 AQ4
$2,420,000 4.750% Term Certificates Due November 1, 2030, Yield: 4.900% (CUSIP®: 818887 AS0)$6,995,000 5.000% Term Certificates Due November 1, 2040, Yield: 5.230% (CUSIP®: 818887 AR2)
® A registered trademark of the American Bankers Association. CUSIP data herein is provided by Standard & Poor’s, CUSIP Services Bureau, a division of The McGraw-Hill Companies, Inc.
SHAFTER-WASCO IRRIGATION DISTRICT Kern County, California
BOARD OF DIRECTORS
Ken Paul, President D. Mark Franz, Vice President
Samuel D. Frantz, Director Jerald R. Mozingo, Director
Roger Riley, Director
ADMINISTRATIVE STAFF
Jerry L. Ezell, General Manager Carolyn Waldrip, Office Manager/Treasurer
PROFESSIONAL SERVICES
Young Wooldridge, LLP Bakersfield, California
District Legal Counsel
Nossaman LLP Irvine, California
Special Counsel and Disclosure Counsel
Wells Fargo Bank, National Association Los Angeles, California
Trustee
No dealer, broker, salesperson or other person has been authorized by the Shafter-Wasco Irrigation District (the “District”) or the Underwriter to give any information or to make any representations other than those contained herein and, if given or made, such other information or representations must not be relied upon as having been authorized by the District or the Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Certificates by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers of the Certificates. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact.
The information set forth herein has been obtained from the District and other sources which are believed to be reliable, but it is not guaranteed as to accuracy or completeness, and is not to be construed as a representation by the Underwriter. The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities under federal securities laws, as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. The information and expressions of opinions herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no changes in the affairs of the District since the date hereof. All summaries of the documents are made subject to the provisions of such documents, respectively, and do not purport to be complete statements of any or all of such provisions. This Official Statement is submitted in connection with the sale of the Certificates referred to herein and may not be reproduced or used, in whole or in part, for any other purpose.
IN CONNECTION WITH THE OFFERING OF THE CERTIFICATES, THE UNDERWRITER MAY EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITER MAY OFFER AND SELL THE CERTIFICATES TO CERTAIN DEALERS AND DEALER BANKS AND BANKS ACTING AS AGENT AT PRICES LOWER THAN THE PUBLIC OFFERING PRICE STATED ON THE COVER PAGE HEREOF. THE PUBLIC OFFERING PRICE MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER.
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TABLE OF CONTENTS
Page
INTRODUCTION ............................................................................................................ 1 General ............................................................................................................... 1 The District and the Corporation.......................................................................... 1 The Certificates ................................................................................................... 1 Purpose............................................................................................................... 2 Security for the Certificates ................................................................................. 2 Prepayment......................................................................................................... 2 Assignment ......................................................................................................... 2 Risk Factors ........................................................................................................ 3 Limited Obligations.............................................................................................. 3 Forward-Looking Statements .............................................................................. 3 Summaries Not Definitive .................................................................................... 3
CONTINUING DISCLOSURE ......................................................................................... 4 THE PROJECT............................................................................................................... 4
The Project.......................................................................................................... 4 Validation ............................................................................................................ 5 Environmental Compliance.................................................................................. 5
ESTIMATED SOURCES AND USES OF FUNDS........................................................... 6 THE CERTIFICATES...................................................................................................... 6
General ............................................................................................................... 6 Prepayment of the Certificates ............................................................................ 7 Book-Entry System.............................................................................................. 9
SCHEDULE OF CERTIFICATE PAYMENTS................................................................ 10 SECURITY FOR THE CERTIFICATES......................................................................... 10
General ............................................................................................................. 10 Installment Payments ........................................................................................ 12 Limitations on Parity Obligations and Superior Obligations ............................... 12 Rate Covenant .................................................................................................. 14 Reserve Fund.................................................................................................... 15 Installment Payments to be Unconditional......................................................... 16 Additional Covenants......................................................................................... 17
RISK FACTORS ........................................................................................................... 18 Enterprise Demand ........................................................................................... 18 Enterprise Expenses ......................................................................................... 18 Parity Obligations .............................................................................................. 18 Proposition 218 ................................................................................................. 19 Constitutional Limit on Appropriations, Fees and Charges ................................ 20 Limited Recourse on Default ............................................................................. 20 Limitations on Remedies Available; Bankruptcy ................................................ 20 No Obligation to Tax.......................................................................................... 21 Change in Law .................................................................................................. 21 Geologic, Topographic and Climatic Conditions ................................................ 21 Impact of State Budget...................................................................................... 22 Environmental Considerations........................................................................... 22 Secondary Market Risk ..................................................................................... 22 Early Prepayment of Premium Certificates ........................................................ 22 Loss of Tax Exemption...................................................................................... 23 IRS Audit of Tax-Exempt Issues........................................................................ 23
STATE AND FEDERAL REGULATORY ACTIVITIES AND LITIGATION...................... 23 Central Valley Project Improvement Act ............................................................ 23
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Bay-Delta .......................................................................................................... 23 Recent State Water Legislation ......................................................................... 24 Bay Delta Conservation Plan............................................................................. 24 State Water Resources Control Board (SWRCB).............................................. 25 ESA Litigation.................................................................................................... 26
THE DISTRICT AND THE ENTERPRISE..................................................................... 29 History; Service Area......................................................................................... 29 Governance....................................................................................................... 30 Management ..................................................................................................... 30 Employees ........................................................................................................ 30 Retirement Plan; Other Post-Employment Benefits ........................................... 30 Current Land Use .............................................................................................. 31 Existing Facilities............................................................................................... 32 Water Supply..................................................................................................... 32 Water Treatment; Storage................................................................................. 38 Water Connections............................................................................................ 38 Capital Improvement Program........................................................................... 39 Water Rates and Charges................................................................................. 39 Largest Water Sale Customers ......................................................................... 42 General Fund Reserves .................................................................................... 44 Outstanding Enterprise Indebtedness ............................................................... 44 District Financial Information ............................................................................. 44 Projected Operating Results and Debt Service Coverage ................................. 45
THE CORPORATION................................................................................................... 47 UNDERWRITING ......................................................................................................... 47 LEGAL OPINIONS........................................................................................................ 47 TAX MATTERS............................................................................................................. 48 BANK QUALIFIED ........................................................................................................ 50 LITIGATION.................................................................................................................. 50 PROFESSIONAL FEES................................................................................................ 52 RATINGS...................................................................................................................... 52 MISCELLANEOUS........................................................................................................ 52 APPENDIX A -- SUMMARY OF PRINCIPAL LEGAL DOCUMENTS ...........................A-1 APPENDIX B -- AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR
FISCAL YEAR 2009...........................................................................B-1 APPENDIX C -- PROPOSED FORM OF FINAL OPINION ......................................... C-1 APPENDIX D -- FORM OF CONTINUING DISCLOSURE AGREEMENT................... D-1 APPENDIX E -- BOOK ENTRY PROVISIONS.............................................................E-1
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$14,435,000 SHAFTER-WASCO IRRIGATION DISTRICT
REVENUE CERTIFICATES OF PARTICIPATION SERIES 2010
(Bank Qualified)
Evidencing Proportionate Undivided Interests in Installment Payments to be Made by the
SHAFTER-WASCO IRRIGATION DISTRICT
INTRODUCTION
General
The purpose of this Official Statement (which includes the cover page and the Appendices attached hereto) is to provide information concerning the execution and delivery of the Shafter-Wasco Irrigation District Revenue Certificates of Participation, Series 2010 (the “Certificates”), in the aggregate principal amount of $14,435,000, evidencing proportionate interests of the registered owners thereof in certain Installment Payments (described herein) to be made by the Shafter-Wasco Irrigation District (the “District”) to the SWID Financing Corporation (the “Corporation”).
The District and the Corporation
The District, comprising approximately 38,094 acres of suburban and agricultural land, was formed in 1937 pursuant to the California Irrigation District Law (Section 25800 et seq. of the Water Code of the State of California). Its primary purpose is to obtain and provide a supplemental supply of water for lands located within the boundaries of the District. The District lies entirely within Kern County (the “County”) and includes the cities of Shafter and Wasco, with a current estimated population of approximately 41,750 (although the District does not, with minor exceptions, directly serve urban users within these agencies). See “THE DISTRICT AND THE ENTERPRISE” herein. A copy of the audited financial statements of the District for the year ended December 31, 2009 is attached hereto as APPENDIX B.
The Corporation is a nonprofit public benefit corporation created in 2010 for the purpose of aiding the financing of projects for the District.
The Certificates
The Certificates are being executed and delivered pursuant to the provisions of a Trust Agreement, dated as of November 1, 2010 (the “Trust Agreement”), among the District, the Corporation and Wells Fargo Bank, National Association, as trustee (the “Trustee”). The Certificates evidence undivided proportionate interests in certain Installment Payments (the “Installment Payments”) to be made by the District pursuant to an Installment Purchase Contract, dated as of November 1, 2010 (the “Installment Purchase Contract”), between the District and the Corporation. The Certificates are subject to prepayment prior to their scheduled payment dates as described herein.
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Purpose
The proceeds of the sale of the Certificates will be used (i) to finance certain permanent water entitlements and other improvements (the “Project”) for the District’s water system (the “Enterprise”), (ii) to fund a Reserve Fund for the Certificates, and (iii) to pay certain costs of executing and delivering the Certificates. See “THE PROJECT,” “THE DISTRICT AND THE ENTERPRISE” and “ESTIMATED SOURCES AND USES OF FUNDS” herein.
Security for the Certificates
The Certificates evidence undivided proportionate interests in the Installment Payments to be made by the District pursuant to the Installment Purchase Contract. The payment of Installment Payments is secured by a pledge of the Net Revenues (as defined herein) of the Enterprise. Under the Installment Purchase Contract, the District has irrevocably pledged all Net Revenues (as defined herein) to the payment of the Installment Payments, subject to the terms and conditions of the Installment Purchase Contract. See “SECURITY FOR THE CERTIFICATES” herein.
The lien of the Installment Payments on Net Revenues of the District is subject to the parity lien of certain obligations owed to the California Department of Water Resources (“DWR”) pursuant to Contract No. E74006, dated as of May 26, 1994 (the “DWR Loan”), in the original principal amount of $2,314,125, of which $710,429 remains outstanding. The Installment Purchase Contract provides that the District may incur additional Parity Obligations payable on a parity basis with the Installment Payments only upon the satisfaction of certain conditions as described therein (see “SECURITY FOR THE CERTIFICATES – Limitations on Parity Obligations and Superior Obligations” herein). See “SECURITY FOR THE BONDS” herein. The Installment Payments are calculated to be an amount sufficient to pay all scheduled principal of and interest with respect to the Certificates when due. See “SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS” herein.
Pursuant to the Installment Purchase Contract, the District has consented to fix, prescribe and collect certain rates and charges for service provided by the Enterprise. See “SECURITY FOR THE CERTIFICATES - Rate Covenant” herein.
Prepayment
The Certificates are subject to optional and mandatory prepayment as described herein.
Assignment
Pursuant to an Assignment Agreement, dated as of November 1, 2010 (the “Assignment Agreement”) between the Corporation and the Trustee, the Corporation has assigned to the Trustee for the benefit of the Owners of the Certificates (i) its right to receive Installment Payments from the District under the Installment Purchase Contract, (ii) its rights under the Installment Purchase Contract and (iii) without any further act on the part of the Corporation, any and all of the other rights of the Corporation under the Installment Purchase Contract as may be necessary to enforce payments of Installment Payments when due and otherwise to protect the interests of the Owners.
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Risk Factors
There can be no assurance that the local demand for the services provided by the Enterprise will be maintained at levels described in this Official Statement, or that the District’s expenses for operating and maintaining the Enterprise will be consistent with the levels described in this Official Statement. Changes in technology, decreased demand, new regulatory requirements, increases in the cost of energy or other expenses would reduce Net Revenues, and could require substantial increases in rates or charges in order to comply with the rate covenant. Such rate increases could increase the likelihood of nonpayment, and could also further decrease demand.
If the District defaults on its obligation to make Installment Payments, the Trustee has the right to accelerate the total unpaid principal amount of the Certificates. However, in the event of a default and such acceleration there can be no assurance that the District will have sufficient Net Revenues to pay the accelerated payments.
See “RISK FACTORS” herein for a discussion of special factors which should be considered, in addition to the other matters set forth herein, in considering the investment quality of the Certificates, including a discussion of the impact of Proposition 218, Constitutional limits on fees and charges, seismic considerations, limitation on remedies and changes in law.
Limited Obligations
THE DISTRICT’S OBLIGATION TO MAKE INSTALLMENT PAYMENTS IS A SPECIAL OBLIGATION OF THE DISTRICT PAYABLE SOLELY FROM NET REVENUES AND OTHER FUNDS PROVIDED FOR IN THE INSTALLMENT PURCHASE CONTRACT. NEITHER THE CERTIFICATES NOR THE OBLIGATION OF THE DISTRICT TO MAKE INSTALLMENT PAYMENTS CONSTITUTES A DEBT OF THE DISTRICT OR OF THE STATE OF CALIFORNIA OR OF ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMIT OR RESTRICTION, OR AN OBLIGATION FOR WHICH THE DISTRICT IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE DISTRICT HAS LEVIED OR PLEDGED ANY FORM OF TAXATION.
Forward-Looking Statements
This Official Statement contains statements which, to the extent they are not recitations of historical fact, constitute “forward-looking statements.” The achievement of certain results or other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Except as provided in the Continuing Disclosure Agreement, the District does not plan to issue any updates or revisions to those forward-looking statements if or when its expectations, or the events, conditions or circumstances on which such statements are based, occur or do not occur.
Summaries Not Definitive
The summaries and references of documents, statutes, reports and other instruments referred to herein do not purport to be complete, comprehensive or definitive, and each such summary and reference is qualified in its entirety by reference to each document, statute,
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report, or instrument. The capitalization of any word not conventionally capitalized, or otherwise defined herein, indicates that such word is defined in a particular agreement or other document and, as used herein, has the meaning given it in such agreement or document. See APPENDIX A hereto for the definitions of certain terms used herein and for a summary of certain provisions of the Trust Agreement and the Installment Purchase Contract.
Copies of the documents described herein will be available at the office of the District General Manager, 16294 Highway 43, Wasco, CA 93280.
CONTINUING DISCLOSURE
The District has covenanted for the benefit of Owners to provide certain financial information and operating data relating to the District by not later than 270 days after the end of the District’s Fiscal Year (presently December 31) in each year commencing with its report for the 2010 Fiscal Year (the “District Annual Report”) and to provide notices of the occurrence of certain enumerated events. The District Annual Report and notices of material events will be filed by the District with the Municipal Securities Rulemaking Board (the “MSRB”). These covenants have been made in order to assist the Underwriter in complying with Securities Exchange Commission Rule 15c2-12(b)(5). The specific nature of the information to be contained in the District Annual Report or the notices of material events by the District is contained in “APPENDIX D - FORM OF CONTINUING DISCLOSURE AGREEMENT.” Failure of the District to provide the required ongoing information may have a negative impact on the value of the Certificates in the secondary market. The District has not entered into any previous undertakings with respect to said rule to provide annual reports or notices of material events.
THE PROJECT
The Project
The Project consists of the (i) acquisition of a permanent contractual right to purchase water in accordance with a contract (the “Friant Contract”) between the District and the United States Bureau of Reclamation (the “Bureau”), and (ii) construction of an approximately 4,500 square foot administration building on property currently owned by the District. Pursuant to the Friant Contract, the District will acquire a permanent contractual right to up to 50,000 acre-feet of Class 1 water and up to 39,600 acre-feet of Class 2 water from the Friant Division of the federal Central Valley Project (the “CVP”). Upon its execution, the Friant Contract will supersede and replace in its entirety the District’s existing Water Supply Contract (described under the caption “THE DISTRICT AND THE ENTERPRISE - Water Supply”). Construction of the administration building is expected to commence in Spring 2011, with completion anticipated by December 2011.
The total cost of the water entitlement component of the Project is estimated by the District to be approximately $12 million, and the total cost of the administration building is approximately $1.2 million. Amounts not funded from proceeds of the Certificates are expected to be funded from surplus revenues and other available resources of the District.
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Validation
On August 17, 2010, the Superior Court of California, County of Kern, entered a final judgment in a validation action brought with respect to the Friant Contract, confirming and approving the validity of the proceedings leading up to, and including, the authorization of the execution and approval of the Friant Contract by District, and the validity of each of the provisions of the Friant Contract; and approving, confirming and declaring the Friant Contract lawful, valid and upon execution binding upon the respective parties thereto.
Environmental Compliance
The Project and its various components could, under certain circumstances, be subject to the California Environmental Quality Act (“CEQA”). Under CEQA, a project which may have a significant effect on the environment and which is to be carried out or approved by a public agency must comply with a comprehensive environmental review process, including the preparation of an Environmental Impact Report (“EIR”). Contents of an EIR include a detailed statement of the project’s significant environmental effects; any such effects which cannot be avoided if the project is implemented; mitigation measures proposed to minimize such effects; alternatives to the proposed project; any significant irreversible environmental changes which would result from the project; the project’s growth-inducing impacts; and a brief statement setting forth the agency’s reasons for determining that certain effects are not significant and hence do not require discussion in an EIR. If the public agency determines that the project itself will not have a significant effect on the environment, it may adopt a negative declaration to that effect and need not prepare an EIR. If the public agency determines the project is covered by a statutory or categorical exemption under CEQA, then no further analysis is required.
On June 9, 2010, the District filed and duly posted a Notice of Exemption under CEQA with the Kern County Clerk regarding its approval to enter into the Friant Contract. The District currently anticipates filing a notice of exemption from CEQA with respect to the administration building component of the Project. The District does not believe that environmental or permitting considerations will adversely affect the acquisition of the Project.
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ESTIMATED SOURCES AND USES OF FUNDS
The proceeds to be received from the sale of the Certificates, together with other moneys, are anticipated to be applied as follows:
SOURCES:
Principal Amount of Certificates $14,435,000.00 Net Original Issue Discount (265,429.50)
TOTAL SOURCES: $14,169,570.50
USES:
Acquisition Fund $13,075,503.00 Costs of Issuance(1) 185,580.00 Reserve Fund 908,487.50
TOTAL USES: $14,169,570.50 (1) Includes fees of Special Counsel, Disclosure Counsel and Trustee, Underwriter’s discount
and other costs of executing and delivering the Certificates.
THE CERTIFICATES
General
The Certificates are being delivered in the form of fully registered Certificates, without coupons, in denominations of $5,000 or any integral multiple thereof, and shall be dated the date of delivery to the initial purchaser thereof. The Certificates, when executed and delivered, will be registered in the name of Cede & Co., as registered owner and nominee of The Depository Trust Company, New York, New York (“DTC”). So long as DTC, or Cede & Co. as its nominee, is the registered owner of all Certificates, all payments with respect to the Certificates will be made directly to DTC, and disbursement of such payments to the DTC Participants (defined below) will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners (defined below) will be the responsibility of the DTC Participants, as more fully described hereinafter. See “Book-Entry System” below.
Interest evidenced by the Certificates shall be payable on November 1 and May 1 of each year, commencing May 1, 2011 (each, an “Interest Payment Date”), and continuing to and including the date of maturity or prior prepayment, whichever is earlier. Principal evidenced by the Certificates shall be payable on November 1 in each of the years and in the amounts set forth on the inside cover page of this Official Statement. Principal and premium, if any, evidenced by the Certificates shall be payable to the Owner upon presentation and surrender of such Certificate at the corporate trust office of the Trustee in Los Angeles, California. Interest evidenced by the Certificates shall be calculated on the basis of a 360-day year consisting of twelve 30-day months and shall be payable by check mailed by first class mail on each Interest Payment Date to the Owners as of the close of business on the 15th day of the month (whether or not such day is a Business Day) preceding an Interest Payment Date (the “Record Date”) at their addresses shown on the registration books maintained by the Trustee; provided however, that upon the written request from any Owner of any Certificate in a denomination of, or Certificates aggregating, at least $1,000,000 in principal amount, received on or prior to the first
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day of the month preceding an applicable Payment Date, payment may be made by wire in Federal Reserve Funds on the Payment Date with regard to which such payment is made.
Prepayment of the Certificates
Optional Prepayment. The Certificates shall not be subject to optional prepayment prior to November 1, 2020. The Certificates are subject to prepayment, in whole or in part in any integral multiple of $5,000, at the option of the District on any date on or after November 1, 2020, from any available source of funds, at the prepayment price equal to the principal amount of the Certificates to be prepaid from the proceeds of such prepayment, plus accrued interest thereon to the date of prepayment, without premium.
Extraordinary Prepayment from Net Proceeds of Insurance and Condemnation. The Certificates are subject to extraordinary prepayment on any Interest Payment Date upon notice as hereinafter provided, as a whole or in part in integral multiples of $5,000, from prepaid Installment Payments made by the District from funds received by the District due to a casualty loss or governmental taking of the Enterprise or portions thereof by eminent domain proceedings, at a prepayment price equal to the sum of the principal amount evidenced thereby plus accrued interest accrued to the date fixed for prepayment of the Certificates, without premium.
Mandatory Sinking Account Prepayment. (i) The Certificates maturing on November 1, 2030 (the “2030 Term Certificates”) are also subject to mandatory sinking fund prepayment in whole, or in part by lot, on November 1 in each year commencing November 1, 2026, from Installment Payments made by the District pursuant to the Installment Purchase Contract, at a prepayment price equal to the principal amount evidenced thereby to be prepaid, without premium, in the aggregate respective principal amounts and on November 1 in the respective years as set forth in the following table:
2030 Term Certificates
Prepayment Date (November 1)
Principal Amount
2026 $440,000 2027 460,000 2028 485,000 2029 505,000 2030 (Maturity) 530,000
(ii) The Certificates maturing on November 1, 2040 (the “2040 Term Certificates”) are also subject to mandatory sinking fund prepayment in whole, or in part by lot, on November 1 in each year commencing November 1, 2031, from Installment Payments made by the District pursuant to the Installment Purchase Contract, at a prepayment price equal to the principal amount evidenced thereby to be prepaid, without premium, in the aggregate respective principal amounts and on November 1 in the respective years as set forth in the following table:
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2040 Term Certificates
Prepayment Date (November 1)
Principal Amount
2031 $555,000 2032 585,000 2033 615,000 2034 645,000 2035 675,000 2036 710,000 2037 745,000 2038 780,000 2039 820,000 2040 (Maturity) 865,000
Partial Prepayment of Term Certificates. If some but not all of a Term Certificate has been prepaid pursuant to optional or extraordinary prepayment, the total amount of all future sinking fund payments relating to such Term Certificate shall be reduced by the aggregate principal amount of such Term Certificate so prepaid, to be allocated among such sinking fund payments on a pro rata basis as determined by the District.
Selection of Certificates for Prepayment. In the event that part, but not all, of the Certificates are to be prepaid, the Certificates to be prepaid shall be selected by the Trustee from maturities designated by the District in writing, and by lot within a maturity. For the purposes of such selection, Certificates shall be deemed to be composed of $5,000 portions, and any such portion may be separately prepaid.
Notice of Prepayment; Rescission. When prepayment is authorized or required, the Trustee shall give notice of the prepayment of the Certificates on behalf and at the expense of the District. Such notice shall state (a) the Certificates or designated portions thereof (in the case of prepayment of the Certificates in part but not in whole) which are to be prepaid, (b) the date of prepayment, (c) the place or places where the prepayment will be made, including the name and address of any paying agent, (d) the prepayment price, (e) the CUSIP numbers (if any) assigned to the Certificates to be prepaid, (f) the Certificate numbers of the Certificates to be prepaid in whole or in part and, in the case of any Certificate to be prepaid in part only, the amount of such Certificate to be prepaid, and (g) the original issue date, interest rate and stated maturity date of each Certificate to be prepaid in whole or in part. Such notice shall further sate that on the specified date there shall become due and payable upon each Certificate, the principal and premium, if any, together with interest accrued to said date, and that from and after such date interest with respect thereto shall cease to accrue and be payable.
The District shall have the right to rescind any optional prepayment by written notice to the Trustee on or prior to the date fixed for prepayment. Any such notice of optional prepayment shall be canceled and annulled if for any reason funds will not be or are not available on the date fixed for prepayment for the payment in full of the Certificates then called for prepayment, and such cancellation shall not constitute an Event of Default under the Trust Agreement. The District, the Corporation and the Trustee shall have no liability to the Owners or any other party related to or arising from such rescission of prepayment. The Trustee shall mail notice of such rescission of prepayment in the same manner as the original notice of prepayment was sent.
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Effect of Notice of Prepayment. Moneys for the prepayment (including the interest to the applicable date of prepayment) of Certificates having been set aside in the Installment Payment Fund, the Certificates shall become due and payable on the date of such prepayment, and, upon presentation and surrender thereof at the Trust Office of the Trustee, said Certificates shall be paid at the unpaid principal amount (or applicable potion thereof) represented thereby plus any applicable premium and plus interest accrued and unpaid to said date of prepayment. If, on said date of prepayment, moneys for the prepayment of all the Certificates to be prepaid, together with interest represented thereby to said date of prepayment, shall be held by the Trustee so as to be available therefor on such date of prepayment, then, from and after said date of prepayment, interest represented by the Certificates shall cease to accrue and become payable.
Book-Entry System
DTC will act as securities depository for the Certificates. The Certificates will be executed and delivered as fully-registered certificates registered in the name of Cede & Co., (DTC’s partnership nominee). One fully-registered Certificate will be delivered for each maturity of the Certificates, each in the aggregate principal amount of such maturity, and will be deposited with DTC. See “APPENDIX E - BOOK ENTRY PROVISIONS” herein.
The District and the Trustee cannot and do not give any assurances that DTC, DTC Participants or others will distribute payments of principal, interest or premium, if any, with respect to the Certificates paid to DTC or its nominee as the registered owner, or will distribute any redemption notices or other notices, to the Beneficial Owners, or that they will do so on a timely basis or will serve and act in the manner described in this Official Statement. The District and the Trustee are not responsible or liable for the failure of DTC or any DTC Participant to make any payment or give any notice to a Beneficial Owner with respect to the Certificates or an error or delay relating thereto.
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SCHEDULE OF CERTIFICATE PAYMENTS
The table below shows the annual payments of principal of and interest with respect to the Certificates. The Installment Payments are due on the fifteenth day of the month prior to each Interest Payment Date.
Period Ending (November 1)
Principal
Interest
Total
2011 $255,000 $606,097.67 $861,097.67 2012 280,000 628,487.50 908,487.50 2013 285,000 622,887.50 907,887.50 2014 290,000 614,337.50 904,337.50 2015 300,000 605,637.50 905,637.50 2016 310,000 593,637.50 903,637.50 2017 320,000 584,337.50 904,337.50 2018 330,000 574,737.50 904,737.50 2019 340,000 564,837.50 904,837.50 2020 350,000 553,787.50 903,787.50 2021 365,000 542,412.50 907,412.50 2022 375,000 529,637.50 904,637.50 2023 390,000 515,575.00 905,575.00 2024 405,000 499,975.00 904,975.00 2025 425,000 482,762.50 907,762.50 2026 440,000 464,700.00 904,700.00 2027 460,000 443,800.00 903,800.00 2028 485,000 421,950.00 906,950.00 2029 505,000 398,912.50 903,912.50 2030 530,000 374,925.00 904,925.00 2031 555,000 349,750.00 904,750.00 2032 585,000 322,000.00 907,000.00 2033 615,000 292,750.00 907,750.00 2034 645,000 262,000.00 907,000.00 2035 675,000 229,750.00 904,750.00 2036 710,000 196,000.00 906,000.00 2037 745,000 160,500.00 905,500.00 2038 780,000 123,250.00 903,250.00 2039 820,000 84,250.00 904,250.00 2040 865,000 43,250.00 908,250.00
TOTALS $14,435,000 $12,686,935.17 $27,121,935.17
SECURITY FOR THE CERTIFICATES
General
THE DISTRICT’S OBLIGATION TO MAKE INSTALLMENT PAYMENTS IS A SPECIAL OBLIGATION OF THE DISTRICT PAYABLE SOLELY FROM NET REVENUES AND OTHER FUNDS PROVIDED FOR IN THE INSTALLMENT PURCHASE CONTRACT. NEITHER THE CERTIFICATES NOR THE OBLIGATION OF THE DISTRICT TO MAKE INSTALLMENT PAYMENTS CONSTITUTES A DEBT OF THE DISTRICT OR OF THE STATE OF
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CALIFORNIA OR OF ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMIT OR RESTRICTION OR ANY OBLIGATION FOR WHICH THE DISTRICT IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE DISTRICT HAS LEVIED OR PLEDGED ANY FORM OF TAXATION.
Each Certificate evidences an undivided proportionate interest in the Installment Payments to be made by the District under the Installment Purchase Contract. The Corporation, pursuant to the Assignment Agreement, has transferred, conveyed and assigned to the Trustee, for the benefit of the Owners, all of the Corporation’s rights, title and interest under the Installment Purchase Contract, including the right to receive Installment Payments from the District and the right to exercise any remedies provided therein in the event of a default by the District thereunder.
All Net Revenues (defined below) are pledged to the payment of the Installment Payments and debt service on other Parity Obligations as provided in the Installment Purchase Contract, and the Net Revenues shall not be used for any other purpose while any of the Installment Payments remain unpaid; provided, however, that out of the Net Revenues there may be apportioned such sums for such purposes as are expressly permitted by the Installment Purchase Contract, including payment of debt service on any Parity Obligations. This pledge constitutes a first lien on the Net Revenues for the payment of the Installment Payments, on parity with the lien securing debt service on any Parity Obligations in accordance with the Installment Purchase Contract. The Certificates are not secured by a direct lien on the Enterprise.
The “Enterprise” means the District’s water system, including all facilities, works, properties and structures of the District for the treatment, transmission and distribution of potable and non-potable water, including all contractual rights to water supplies, transmission capacity supply, easements, rights-of-way and other works, property or structures necessary or convenient for such facilities, together with all additions, betterments, extension and improvements to such facilities or any part thereof hereafter acquired or constructed. Neither the Enterprise nor the Project is security for the Certificates.
“Net Revenues” means, for any Fiscal Year or other period, the Revenues, less Maintenance and Operation Costs of the Enterprise. “Revenues” means all gross income and revenue received or receivable by the District from the ownership and operation of the Enterprise, calculated in accordance with Generally Accepted Accounting Principles, including all rates, fees and charges (including fees for connecting to the Enterprise and any water stand-by or water availability charges or assessments) received by the District for Water Service and all other income and revenue howsoever derived by the District from the Enterprise or arising from the Enterprise; provided, however, that (i) any specific charges levied for the express purpose of reimbursing others for all or a portion of the cost of the acquisition or construction of specific facilities, or (ii) customers’ deposits or any other deposits subject to refund until such deposits have become the property of the District, are not Revenues and are not subject to the lien of the Installment Purchase Contract. Revenues shall include amounts on deposit in the Revenue Fund which have been previously released from the pledge and lien of the Installment Purchase Contract. Revenues shall also include interest with respect to any Parity Obligations reimbursed to or on behalf of the District by the United States of America pursuant to Section 54AA of the Internal Revenue Code of 1986, as amended (Section 1531 of Title I of Division B of the American Recovery and Reinvestment Act of 2009), or any future similar program.
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“Maintenance and Operation Costs” of the Enterprise means the reasonable and necessary costs and expenses paid by the District for maintaining and operating the Enterprise, as determined in accordance with Generally Accepted Accounting Principles, including but not limited to (a) the reasonable expenses of management and repair and other costs and expenses necessary to maintain and preserve the Enterprise in good repair and working order, including the cost of water and payments to the Bureau pursuant to the Friant Contract, and (b) administrative costs of the District attributable to the Enterprise and the financing thereof; but excluding (x) depreciation, replacement and obsolescence charges or reserves therefor, (y) in any Fiscal Year prior to setting aside an amount equal to the Installment Payments for such Fiscal Year, capital expenditures other than as set forth in subsection (a) above, and (z) amortization of intangibles or other bookkeeping entries or a similar nature.
In the Installment Purchase Contract, the District covenants that it will not make any pledge of or place any lien on Net Revenues senior to the pledge and lien for the payment of the Installment Payments and will not make any pledge of or place any lien on the Net Revenues on a parity with the pledge and lien for Installment Payments, or subordinate thereto, except as otherwise provided in the Installment Purchase Contract. The District has the right to issue or incur indebtedness or other obligations on a parity with the Installment Payments (see “Limitations on Parity Obligations and Superior Obligations” below).
Installment Payments
The Installment Purchase Contract requires the District make Installment Payments on each October 15 and April 15, commencing April 15, 2011, prior to a related Interest Payment Date (each a “Due Date”), and continuing thereafter during the term of the Certificates, in amounts as specified in the Installment Purchase Contract (see “APPENDIX A” hereto). The Installment Payments shall be paid directly to the Trustee.
Limitations on Parity Obligations and Superior Obligations
Obligations Superior to Installment Payments. The District has covenanted in the Installment Purchase Contract that it will not enter into other Installment Purchase Contracts or issue any type of securities permitted by law and secured by revenues of the District having a priority on Net Revenues superior to that of the Certificates or the Installment Payments.
Obligations on a Parity with the Installment Payments. The District has covenanted that the District shall not issue or incur any Parity Obligations while any Certificates are outstanding unless:
(1) No Event of Default shall have occurred and be continuing;
(2) The Net Revenues, calculated in accordance with Generally Accepted Accounting Principles, either (i) as shown by the books of the District for the latest Fiscal Year, as verified by a certificate of the District, or (ii) as shown by the books of the District for any more recent twelve (12) month period selected by the District, as verified by a certificate or opinion of an Independent Certified Public Accountant employed by the District, plus in either case (at the option of the District) the Additional Revenues, shall be at least equal to one hundred and ten percent (110%) of the amount of Maximum Annual Debt Service; and
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(3) Except with respect to Governmental Loans, there shall be established from the proceeds of such Parity Obligations a reserve fund for the security of such Parity Obligations, in an amount equal to the lesser of (i) the maximum amount of debt service required to be paid by the District with respect to such Parity Obligations during any Fiscal Year, or (ii) the maximum amount then permitted under the Code, in either event as certified in writing by the District. With respect to Governmental Loans, the District may, in its sole discretion, establish a reserve fund in an amount not to exceed the limits set forth in the Installment Purchase Contract.
“Additional Revenues” means, with respect to the issuance of any Parity Obligations, an allowance for Net Revenues (i) arising from any increase in the charges made for service from the Enterprise adopted prior to the incurring of such Parity Obligations and effective within eighteen (18) months following the date of incurring such Parity Obligations, 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 the most recent completed Fiscal Year or during any more recent twelve (12) month period selected by the District, and (ii) arising from any increase in service connections to the Enterprise prior to the incurring of such Parity Obligations, in an amount equal to the total amount by which the Net Revenues would have been increased if such connections had been in existence during the whole of the most recent completed Fiscal Year or during any more recent twelve (12) month period selected by the District, all as shown by the certificate or opinion of an Independent Financial Consultant.
The provisions of subsection (2) above shall not apply to any Parity Obligations if (i) all of the proceeds of which (other than proceeds applied to pay costs of issuing such Parity Obligations and to make the reserve fund deposit required pursuant to subsection (3) above) shall be deposited in an irrevocable escrow held in cash or invested in Federal Securities for the purpose of paying the principal of and interest and premium (if any) on any Outstanding Certificates or on any outstanding Parity Obligations, (ii) at the time of the incurring of such Parity Obligations, the District certifies in writing that maximum annual debt service on the refunding Parity Obligations will not exceed Maximum Annual Debt Service on the Outstanding Certificates being refunded, and (iii) the final maturity of the refunding Parity Obligations is not later than the final maturity of the refunded Certificates.
The District may at any time execute contracts or issue bonds or other indebtedness payable from Net Revenues or the Revenue Fund payable on a subordinated basis to the payment of the Installment Payments.
In order to maintain the parity relationship of the Installment Payments to all Parity Obligations, the District has covenanted that all payments in the nature of principal and interest with respect to any Parity Obligations, except with respect to Governmental Loans, will be structured to occur semi-annually on the Due Dates and in each year as such payments are due with respect to the Installment Payments, and reserve account replenishment with respect to any Parity Obligations, except with respect to Governmental Loans, will be structured to occur monthly, and to otherwise structure the terms of such Parity Obligations to ensure that they are in all respects payable on a parity with the Installment Payments and not prior thereto; provided that the District shall not make a payment on such Governmental Loan to the extent it would have the effect of causing the District to fail to pay Installment Payments on a timely basis. In such event, the District shall make Installment Payments and payments on such Governmental Loan on a pro rata basis.
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If interest on any Parity Obligation is reasonably anticipated to be reimbursed to or on behalf of the District by the United States of America pursuant to Section 54AA of the Internal Revenue Code of 1986, as amended (Section 1531 of Title I of Division B of the American Recovery and Reinvestment Act of 2009), or any future similar program, then interest payments with respect to such Parity Obligations shall be excluded by the amount of such interest reasonably anticipated to be paid or reimbursed by the United States of America, and such reimbursements will not be included as Revenues for purposes of the coverage calculations required in paragraph (a)(2) above.
Rate Covenant
The District has covenanted that the District shall fix, prescribe, revise and collect rates, fees and charges for the service and facilities furnished by the Enterprise during each Fiscal Year, which are at least sufficient, after making allowances for contingencies and error in the estimates, to yield Revenues sufficient to pay the following amounts in the following order of priority:
(a) The District will, at all times while any of the Certificates remain Outstanding, fix, prescribe and collect rates, fees and charges in connection with the Enterprise so as to yield Revenues at least sufficient, after making reasonable allowances for contingencies and errors in the estimates, to pay the following amounts in the order below set forth:
(1) All Maintenance and Operation Costs of the Enterprise;
(2) The Installment Payments and all payments (including payments of interest and under reimbursement agreements) with respect to related Parity Obligations issued or incurred as they become due and payable;
(3) Amounts necessary to bring the amount of funds in the Reserve Fund up to the Reserve Requirement within one year of a draw thereon; and
(4) All payments required to meet any other obligations of the District which are charges, liens, encumbrances upon, or which are otherwise payable from the Revenues during such Fiscal Year.
(b) Furthermore, the District shall fix, prescribe, revise and collect rates, fees and charges for the services and facilities furnished by the Enterprise during each Fiscal Year which are sufficient to yield estimated Net Revenues which are at least equal to one hundred and ten percent (110%) of the aggregate amount of the Installment Payments, and principal of and interest on any Parity Obligations issued or incurred after the date hereof payable from Net Revenues coming due and payable during such Fiscal Year. The District may make adjustments, from time to time, in its rates, fees and charges as it deems necessary, but shall not reduce its rates, fees and charges below those in effect unless the Net Revenues resulting from such reduced rates, fees and charges shall at all times be sufficient to meet the requirements set forth in this paragraph.
(c) If the District violates the covenants set forth above, such violation shall not, in and of itself, be a default under the Installment Purchase Contract and shall not give rise to a declaration of an Event of Default if (a) the coverage does not decrease below 1.00 times the sum of (i) annual Installment Payments, (ii) payments on Parity Obligations, (iii) amounts
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sufficient to maintain the Reserve Fund at the Reserve Requirement, and (iv) Maintenance and Operation Costs of the Enterprise and, (b) within 120 days after the date such violation is discovered, the District hires an Independent Financial Consultant or an Independent Engineer to review the revenues and expenses of the Enterprise and abides by such consultant’s recommendations to revise the schedule of rates, fees and charges and to revise any Maintenance and Operation Costs of the Enterprise insofar as practicable and to take such other actions as are necessary so as to produce Net Revenues to cure such violation for future compliance; provided, however, that if the District does not cure such violation within twelve (12) months succeeding the date such violation is discovered, an Event of Default shall be deemed to have occurred.
For purposes of calculating the interest on any Outstanding Parity Obligations, if interest on any Parity Obligations is reasonably anticipated to be reimbursed to or on behalf of the District by the United States of America pursuant to Section 54AA of the Internal Revenue Code of 1986, as amended (Section 1531 of Title I of Division B of the American Recovery and Reinvestment Act of 2009), or any future similar program, then interest on such Parity Obligations shall be excluded to the extent such interest is reasonably anticipated to be paid or reimbursed by the United States of America, and such reimbursements will not be included as Revenues for purposes of the coverage calculations set forth above.
See “RISK FACTORS – Proposition 218” herein for a discussion of certain procedural matters and possible limitations relating to increases of the Districts rates and charges.
Reserve Fund
The District has agreed to establish and maintain so long as any Certificates are outstanding a separate fund, to be held by the Trustee for and on behalf of the District, to be known as the Reserve Fund. The District is initially funding the Reserve Fund from proceeds of the Certificates, as described in “ESTIMATED SOURCES AND USES OF FUNDS” above. All amounts in the Reserve Fund shall be used and withdrawn by the Trustee solely for the purpose of paying interest on or principal of the Certificates, when due and payable to the extent that moneys deposited in the Installment Payment Fund are not sufficient for such purpose, and making the final payments of principal of and interest on the Certificates. After the initial deposit has been made, the District shall maintain or cause to be maintained in the Reserve Fund an amount equal to the Reserve Requirement. In the event of a deficiency in the Reserve Fund, the District shall pay from Net Revenues in an amount sufficient to cure such deficiency by the earlier of the end of the Fiscal Year in which such deficiency occurs, or the date on which the next Installment Payment is due and payable.
“Reserve Requirement” means, as of any date of calculation by the District, the lesser of (i) 10% of the original principal amount of the principal payments due under the Installment Purchase Contract (less original issue discount, if any), (ii) an amount equal to the maximum annual Installment Payment payable in a Certificate Year by the District between such date of calculation and the expiration of the Installment Purchase Contract, or (iii) 125% of the average annual Installment Payment payable in a Certificate Year by the District.
If on any Interest Payment Date the moneys on hand in the Installment Payment Fund do not equal the amount of the interest payment or principal payment then due and payable with respect to the Certificates, the Trustee shall apply the moneys on hand in the Reserve Fund to make such payment on behalf of the District by transferring the amount necessary to the Installment Payment Fund. Upon receipt by the Trustee from the District of any delinquent
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Installment Payment with respect to which moneys have been advanced from the Reserve Fund, such Installment Payment shall be deposited in the Reserve Fund to the extent of such advance.
If the amount of any income realized from the investment of the money in the Reserve Fund plus the remaining principal amount thereof exceeds the Reserve Requirement, such excess shall be transferred to the Installment Payment Fund.
If the Trustee notifies the District that on any Interest Payment Date or Principal Payment Date the moneys on hand in the Reserve Fund and the Installment Payment Fund are sufficient to pay all Outstanding Certificates, including all principal, interest, and prepayment premiums, if any, the Trustee shall, upon the written direction of the District Representative, transfer all amounts then on hand in the Reserve Fund to the Installment Payment Fund to be applied to the payment of the Installment Payments or Prepayments on behalf of the District.
For so long as any of the Certificates remain Outstanding, amounts on deposit in the Reserve Fund will only be available to pay the principal and interest with respect to the Certificates, and shall not be available to pay debt service on or with respect to any Parity Obligations.
Installment Payments to be Unconditional
The obligation of the District to make the Installment Payments and to perform and observe the other agreements contained in the Installment Purchase Contract shall be absolute and unconditional and shall not be subject to any defense or any right of set-off, counterclaim, or recoupment arising out of any breach of the District or the Trustee of any obligation to the District, or out of indebtedness or liability at any time owing to the District by the District or the Trustee.
Until such time as all of the Installment Payments shall have been fully paid, prepaid or secured, the District:
(a) will not suspend, discontinue or fail to make any Installment Payments, whether or not the Enterprise or any part thereof is operating or operable, or its use is suspended, interfered with, reduced or curtailed or terminated in whole or in part;
(b) will perform and observe all other agreements contained in the Installment Purchase Contract; and
(c) will not terminate the Installment Purchase Contract for any cause, including, without limiting the generality of the foregoing, the occurrence of any act or circumstance that may constitute failure of consideration, eviction or constructive eviction, destruction of or damage to the Enterprise, the taking by eminent domain of title to or temporary use of any or all of the Enterprise, commercial frustration of purpose, any change in the tax or other laws of the United States of America or of the State of California or any political subdivision of either, or any failure of the District or the Trustee to perform and observe any agreement, whether express or implied, or any duty, liability, or obligation arising out of or connected with the Trust Agreement or the Installment Purchase Contract.
Nothing shall be construed to release the District or the Trustee from the performance of any of the agreements on its part in the Installment Purchase Contract or in the Trust
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Agreement contained, and in the event the District or the Trustee shall fail to perform any such agreements on its part, the Corporation may institute such action against the District or the Trustee as the Corporation may deem necessary to compel performance so long as such action does not abrogate the obligations of the District to pay the Installment Payments.
Additional Covenants
Additional covenants of the District contained in the Installment Purchase Contract include, but are not limited to, the following (see “APPENDIX A - Installment Purchase Contract” hereto):
(a) Sale or Eminent Domain of Enterprise. Except as provided in the Installment Purchase Contract, the District covenants that the Enterprise shall not be encumbered, sold, leased, pledged, any charge placed thereon, or otherwise disposed of, as a whole or substantially as a whole; provided that the District shall be authorized to dispose of any facilities constituting a part of which the District determines are not essential or of no continuing usefulness to the operation of the Enterprise. Neither the Net Revenues nor any other funds pledged or otherwise made available to secure payment of the Installment Payments shall be mortgaged, encumbered, sold, leased, pledged, any charge placed thereon, or disposed or used except as authorized by the terms of the Installment Purchase Contract. The District shall not enter into any agreement which impairs the operation of the Enterprise or any part of it necessary to secure adequate Net Revenues to pay the Installment Payments, or which otherwise would impair the rights of the Certificate Owners with respect to the Net Revenues. If any substantial part of the Enterprise shall be sold, the payment therefor shall either (a) be used for the acquisition or construction of improvements, extension or replacements of facilities constituting part of the enterprise, or (b) be applied on a pro rata basis to pay or prepay the Installment Payments and any Parity Obligations.
Any amounts received as awards as result of the taking of all or any part of the Enterprise by the lawful exercise of eminent domain, if and to the extent that such right can be exercise against such property of the District, shall either (a) be used for the acquisition or construction of improvements to the Enterprise, or (b) be applied on a pro rata basis to pay or prepay the Installment Payments and any Parity Obligations.
(b) Insurance. The District shall at all times maintain with responsible insurers all such insurance on the Enterprise as is customarily maintained with respect to works and properties of like character against accident to, loss of or damage to such works or properties. If any useful part of the Enterprise shall be damaged or destroyed, such part shall be restored to use. All amounts collected from insurance against accident to or destruction of any portion of the Enterprise shall be used to repair or rebuilt such damaged or destroyed portion of the Enterprise, and to the extent not so applied, shall be applied on a pro rata basis to pay or prepay the Installment Payments and any Parity Obligations.
The District shall also maintain worker’s compensation insurance and insurance against public liability and property damage to the extent reasonably necessary to protect the District.
Any policy of insurance may be maintained as part of or in conjunction with any other insurance coverage carried by the District, and may be maintained in whole or in part in the form of self-insurance by the District or in the form of the participation by the District in a joint powers agency or other program providing pooled insurance.
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(c) Records and Accounts. The District shall keep proper books of records and accounts of the Enterprise in which complete and correct entries shall be made of all transactions relating to the Enterprise. Said books shall, upon prior request, be subject to the reasonable inspection of the Owners of not less than ten percent (10%) of the Outstanding Certificates, or their representatives authorized in writing, upon not less than two (2) Business Days’ prior notice to the District. The District shall cause the books and accounts of the Enterprise to be audited annually by an Accountant not more than two hundred seventy (270) days after the close of each Fiscal Year, and shall make a copy of such report available for inspection by the Certificate Owners at the office of the District and at the Trust Office of the Trustee. Such report may be part of a combined financial audit or report covering all or part of the District’s finances.
RISK FACTORS
The following factors, along with other information in this Official Statement, should be considered by potential investors in evaluating the risks in the purchase of the Certificates.
Enterprise Demand
There can be no assurance that the local demand for water service provided by the Enterprise will be maintained at levels described in this Official Statement under the heading “THE DISTRICT AND THE ENTERPRISE.” Reduction in the level of demand could require an increase in rates or charges in order to produce Net Revenues sufficient to comply with the District’s rate covenant in the Installment Purchase Contract. Such rate increases could increase the likelihood of nonpayment, and could also further decrease demand. Furthermore, there can be no assurance that any other entity with regulatory authority over the Enterprise will not adopt further restrictions on operation of the Enterprise.
Enterprise Expenses
There can be no assurance that Maintenance and Operation Costs of the Enterprise will be consistent with the levels described in this Official Statement. Changes in technology, increases in the cost of energy or other expenses would reduce Net Revenues, and could require substantial increases in rates or charges in order to comply with the rate covenant. Such rate increases could increase the likelihood of nonpayment, and could also decrease demand.
Parity Obligations
Although the District has covenanted not to issue additional obligations payable from Net Revenues senior to the Installment Payments, the Installment Purchase Contract permits the issuance by the District of certain indebtedness which may have a lien upon the Net Revenues which is on a parity basis to the lien which secures the Installment Payments, if certain coverage tests are met (see “SECURITY FOR THE CERTIFICATES - Limitations on Parity Obligations and Superior Obligations” herein). These coverage tests involve, to some extent, projections of Net Revenues. If such indebtedness is issued, the debt service coverage for the Certificates will be diluted below what it otherwise would be subject to under the coverage tests. Moreover, there is no assurance that the assumptions which form the basis of such projections, if any, will be actually realized subsequent to the date of such projections. If such assumptions are not realized, the amount of future Net Revenues may be less than
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projected, and the actual amount of Net Revenues may be insufficient to provide for the payment of the Installment Payments and such additional indebtedness.
Proposition 218
On November 5, 1996, the voters of the State approved Proposition 218, the “Right to Vote on Taxes Act.” Proposition 218 added Articles XIIIC and XIIID to the State Constitution, which contain a number of provisions affecting the ability of the District to levy and collect both existing and future taxes, assessments, fees and charges. Proposition 218 also extends the initiative power to reducing or repealing any local taxes, assessments, fees and charges. This extension of the initiative power is not limited to taxes, assessments, fees and charges imposed on or after November 6, 1996, the effective date of Proposition 218, and could result in retroactive repeal or reduction in any existing taxes, assessments, fees or charges, except those which are pledged to the repayment of debt. In addition, Proposition 218 imposed restrictions on the levy of charges for “property-related services.” Proposition 218 requires that any agency imposing or increasing any property-related fee or charge must provide written notice thereof to the record owner of each identified parcel upon which such fee or charge is to be imposed and must conduct a public hearing with respect thereto. The proposed fee or charge may not be imposed or increased if a majority of owners of the identified parcels file written protests against it. In addition, Proposition 218 includes a number of limitations applicable to existing fees and charges including provisions to the effect that (i) revenues derived from the fee or charge shall not exceed the funds required to provide the property-related service, (ii) such revenues shall not be used for any purpose other than that for which the fee or charge was imposed, (iii) the amount of a fee or charge imposed upon any parcel or person as an incident of property ownership shall not exceed the proportional cost of the service attributable to the parcel and (iv) no such fee or charge may be imposed for a service unless that service is actually used by, or immediately available to, the owner of the property in question. Property-related fees or charges based on potential or future use of a service are not permitted.
In July 2006 the California Supreme Court confirmed that a public agency’s charges for ongoing water delivery are “fees and charges” within the meaning of Proposition 218. As a result, the District’s ability to increase its fee or charge may be limited by a majority protest. Additionally, voters in the District could adopt an initiative measure that reduced or repealed water rates and charges levied by such agency, although it is not clear (and has not been determined by State courts) whether such action would be enforceable where such fees and charges are pledged to the repayment of indebtedness.
The District’s current revenue assessments were adopted in conformity with the requirements of Proposition 218, and the District believes that its fees for service provided by the Enterprise will not be adversely affected by the application of the procedural requirements Proposition 218, and that Proposition 218 will not have any immediate adverse effect on the District’s ability to comply with its covenants under the Installment Purchase Agreement or its ability to operate the Enterprise.
The District is unable to predict how Article XIIIC and Article XIIID will ultimately be interpreted by the courts and what, if any, further implementing legislation will be enacted, and there can be no assurance that Article XIIIC and Article XIIID will not limit the future ability of the District to impose, levy, charge and collect increased fees and charges for the Enterprise.
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Constitutional Limit on Appropriations, Fees and Charges
If a portion of the Enterprise rates or connection charges were determined by a court to exceed the reasonable costs of providing service, any fee which the District charges may be considered to be a “special tax,” which under Article XIIIA of the California Constitution must be authorized by a two-thirds vote of the affected electorate. This limitation is applicable to the District’s rates for service provided by the Enterprise. The reasonable cost of service provided by the Enterprise has been determined by the State Controller to include depreciation and allowance for the cost of capital improvements. In addition, the California courts have determined that fees such as connection fees (capacity charges) will not be special taxes if they approximate the reasonable cost of constructing Enterprise improvements contemplated by the local agency imposing the fee. Such court determinations have been codified in the Government Code of the State of California (Section 66000 et seq.).
Under Article XIIIB of the California Constitution, state and local government entities have an annual “appropriations limit” which limits their ability to spend certain moneys called “appropriations subject to limitation,” which consists of tax revenues, certain state subventions and certain other moneys, including user charges to the extent they exceed the costs reasonably borne by the entity in providing the service for which it is levying the charge. In general terms, the “appropriations limit” is to be based on certain fiscal year 1978/79 expenditures, and is to be adjusted annually to reflect changes in the consumer price index, population and services provided by these entities. Among other provisions of Article XIIIB, if an entity’s revenues in any year exceed the amount permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years.
The District is of the opinion that the rates and use charges imposed by the District in connection with the Enterprise do not exceed the costs it reasonably bears in providing such services.
Limited Recourse on Default
If the District defaults on its obligation to make Installment Payments, the Trustee, as assignee of the Corporation, has the right to accelerate the total unpaid principal amount of the Installment Payments. However, in the event of a default and such acceleration there can be no assurance that the District will have sufficient Net Revenues to pay the accelerated Installment Payments.
Limitations on Remedies Available; Bankruptcy
The enforceability of the rights and remedies of the Owners and the obligations of the District may become subject to the following: the federal bankruptcy code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors’ rights generally, now or hereafter in effect; equitable principles which may limit the specific enforcement under State law of certain remedies; the exercise by the United States of America of the powers delegated to it by the Federal Constitution; and the reasonable and necessary exercise, in certain exceptional situations, of the police power inherent in the sovereignty of the State and its governmental bodies in the interest of servicing a significant and legitimate public purpose. Bankruptcy proceedings, or the exercising of powers by the federal or State government, if initiated, could subject the Owners to judicial discretion and interpretation of their rights in bankruptcy or otherwise and consequently may entail risks of delay, limitation, or modification of their rights.
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No Obligation to Tax
The obligation of the District to pay the Installment Payments does not constitute an obligation of the District for which the District is obligated to levy or pledge any form of taxation or for which the District has levied or pledged any form of taxation. The obligation of the District to pay Installment Payments does not constitute a debt or indebtedness of the District, the State of California or any of its political subdivisions, within the meaning of any constitutional or statutory debt limitation or restriction.
Change in Law
In addition to the other limitations described herein, the California electorate or Legislature could adopt a constitutional or legislative initiatives with the effect of reducing revenues payable to or collected by the District. There is no assurance that the California electorate or Legislature will not at some future time approve additional limitations that could reduce the revenues and adversely affect the security of the Certificates.
Geologic, Topographic and Climatic Conditions
The value of the Enterprise, and the ability to generate Revenues, is contingent upon the ability of the District to deliver water to its customers. The financial stability of the District can be adversely affected by a variety of factors, particularly those which may affect infrastructure and other public improvements and private improvements and the continued habitability and enjoyment of such private improvements. Such additional factors include, without limitation, geologic conditions (such as earthquakes), topographic conditions (such as earth movements and floods) and climatic conditions (such as droughts and tornadoes). The Sacramento area is in an active geological area. The District does not carry earthquake insurance on the Enterprise.
Engineering standards require that some of these factors be taken into account, to a limited extent, in the design of improvements, including the Enterprise. Some of these factors may also be taken into account, to a limited extent, in the design of other infrastructure and public improvements neither designed nor subject to design approval by the District. Design criteria in any of these circumstances are established upon the basis of a variety of considerations and may change, leaving previously-designed improvements unaffected by more stringent subsequently established criteria. In general, design criteria reflect a balance at the time of protection and the future costs of lack of protection, based in part upon a present perception of the probability that the condition will occur and the seriousness of the condition should it occur. Conditions may occur which may result in damage to improvements in varying degrees, and such damage may entail significant repair or replacement costs, and there can be no assurance that such repair or replacement will occur. Under any of these circumstances, the public and private improvements within the District in general may well depreciate or disappear, notwithstanding the establishment of design criteria for any such condition.
The area encompassed by the District, like that in much of California, may be subject to unpredictable seismic activity. Occurrence of earthquakes could cause an interruption of deliveries of water to and from the District until repairs could be effected, thus possibly diminishing the value of the Enterprise and the amount of Net Revenues. In addition, the State of California has periodically experienced severe droughts, which could cause a reduction in the amount of groundwater available for pumping by the District. Interruption of delivery of water for any reason will not alter the legal obligation of the District to pay Installment Payments.
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However, a reduction in the availability of water could materially adversely affect the Revenues and Net Revenues.
Impact of State Budget
The State is experiencing serious budgetary shortfalls for the current and immediately succeeding Fiscal Years. The District cannot predict what actions will be taken in the future by the State Legislature and the Governor to deal with changing State revenues and expenditures. The budget bills for Fiscal Year 2010/11 do not resolve the State’s ongoing budget deficit, and it is currently projected to experience budgetary shortfalls of up to $10 billion in Fiscal Year 2011/12. It is therefore anticipated that there will be additional future legislation which addresses this situation. The District cannot predict what measures may be proposed or implemented for the current Fiscal Year or in the future. Given the magnitude of the State’s budgetary deficit, it is possible that future legislation will impact revenues of local agencies. These developments at the State level will most likely adversely affect local governments. However, since the District does not receive any portion of the ad valorem property tax levy, it does not currently anticipate that the State budget problems will materially adversely impact the operation of the District’s water operations.
Environmental Considerations
The listing of the Steelhead (Omykiss) fish species as threatened under the federal and/or California Endangered Species Acts may affect the CVP operations and may limit operational flexibility of the CVP. See “STATE AND FEDERAL REGULATORY ACTIVITIES AND LITIGATION” below for a discussion of the status of litigation and certain proposed settlements. The District cannot predict the ultimate outcome of any of the litigation or regulatory processes described above, or the success or failure of any proposed settlements, at this time. However, it is anticipated that in any event these circumstances could have an impact on the operation of the District, although the extent or severity of such impact cannot be predicted at this time.
Secondary Market Risk
There can be no assurance that there will be a secondary market for purchase or sale of the Certificates, and from time to time there may be no market for them, depending upon prevailing market conditions, the financial condition or market position of firms who may make the secondary market and the financial condition of the District.
Early Prepayment of Premium Certificates
Certificates purchased, whether at original issuance or otherwise, for an amount greater than their principal amount payable at maturity (or, in some cases, at their earlier call date) (“Premium Certificates”) will be treated for federal tax purposes as having amortizable premium. If such Premium Certificates are prepaid prior to maturity (or, in some cases, prior to a scheduled prepayment date) as described herein under “THE CERTIFICATES – Prepayment of the Certificates,” not all of the amortized premium may be realized by the Owner. The Premium Certificates are treated as all other Certificates for purposes of selection for prepayment prior to maturity as described herein.
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Loss of Tax Exemption
As discussed in this Official Statement under the caption “TAX MATTERS,” interest with respect to the Certificates could become includable in gross income for purposes of federal income taxation retroactive to the date the Certificates were delivered, as a result of future acts or omissions of the District in violation of its covenants in the Installment Purchase Contract or Trust Agreement. Should such an event of taxability occur, the Certificates are not subject to a special prepayment and will remain outstanding until maturity or until prepaid under one of the other prepayment provisions contained in the Trust Agreement.
IRS Audit of Tax-Exempt Issues
The IRS has initiated an expanded program for the auditing of tax-exempt issues, including both random and targeted audits. It is possible that the Certificates will be selected for audit by the IRS. It is also possible that the market value of the Certificates might be affected as a result of such an audit of the Certificates (or by an audit of similar obligations).
STATE AND FEDERAL REGULATORY ACTIVITIES AND LITIGATION
Central Valley Project Improvement Act
The Central Valley Project Improvement Act, Title XXXIV of the Act of October 30, 1992 (106 Stat. 4706) (the “CVPIA”) became law in 1992, with principal stated goals of protecting, restoring and enhancing fish, wildlife and related Central Valley and Trinity River habitats while addressing CVP impacts on fish, wildlife and habitats. The CVPIA makes use of CVP water for fish and wildlife purposes an equal priority to irrigation and municipal and industrial uses. To do so, it allocates 800,000 acre-feet of CVP yield for fish, wildlife and habitat restoration, prescribes minimum flow for the Trinity River and requires minimum deliveries to wildlife refuges. As a result, agricultural water supplies have been reduced in most years substantially below the levels that are required to meet existing contract allocations, including those of the District.
The CVPIA established a fund in the initial amount of $50,000,000 to carry out habitat restoration and environmental programs. Among the funding sources for this restoration fund are the Friant Division surcharge on Friant Division water users (see THE DISTRICT AND THE ENTERPRISE – Water Supply” below). The CVPIA required the Bureau and the United States Fish and Wildlife Service (the “USFWS”) to prepare a programmatic environmental impact statement in order to analyze the mandates of the CVPIA and the renewal of water service contracts. The programmatic environmental impact statement, which was completed in 1999, serves as the basis for future, more localized environmental studies on CVP activities in localized areas, such as contract renewal.
Bay-Delta
Most of California’s developed water supply flows into or is exported through the critical Sacramento-San Joaquin River Delta/San Francisco Bay Estuary (Delta). Human activity and changing environmental conditions coupled with a complex framework of federal and state laws administered by numerous agencies have made management of the Delta difficult. Having recognized the problems associated with management of the Delta and provision of water exports, more than 15 years ago – in December, 1994 – key federal and state agencies,
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together with stakeholders in the water community representing agricultural, urban and environmental perspectives, entered into a historic document entitled “Principles for Agreement on Bay/Delta Standards Between the State of California and the Federal Government” (the “Bay/Delta Accord”). Hailed as a truce in California’s water wars, the Bay/Delta Accord outlined new water quality standards designed to restore and protect the Bay/Delta estuary and aquatic species.
Recent State Water Legislation
In November 2009, the State Legislature enacted and the Governor signed into law legislation which, effective January 1, 2010, created a new state agency, the Delta Stewardship Council (the “DSC”), to assume Bay-Delta management responsibilities in lieu of the California Bay-Delta Authority. The DSC must adopt a comprehensive Bay-Delta management plan and certify that any State or local public agency project within the Bay-Delta or Suisun Marsh is consistent with such plan. The legislation also reshaped the existing Delta Protection Commission (the “DPC”) into a 15-member body primarily comprised of local representatives from Bay-Delta communities. The DPC is required to adopt a Bay-Delta economic sustainability plan, and may review and comment on any proposed project within the scope of the Bay-Delta management plan adopted by the DSC.
The legislation also created a new Sacramento-San Joaquin Delta Conservancy (the “Conservancy”) to engage in ecosystem restoration projects within the Bay-Delta and Suisun Marsh. The Conservancy is authorized to acquire conservation easements and to support efforts that advance the economic well-being of Bay-Delta residents.
Finally, the legislation mandated that SWRCB conduct informational hearings and issue a decision establishing criteria for Bay-Delta outflows that would, in the SWRCB Board’s opinion, protect and preserve public trust resources, primarily fish such as the smelt, Chinook salmon, steelhead, and other species either residing in, or transiting through the Bay-Delta (or affected by outflow of the Bay-Delta) listed under the State or federal Endangered Species Acts as endangered, threatened, or subject to study. In a report that was unanimously adopted on August 3, 2010, SWRCB’s Board concluded that substantially increased flows from rivers flowing into the Bay-Delta are required, including flows from the San Joaquin River (the origin of CVP Friant Division water). The study suggests that as much as 60% of the unimpaired inflow of the San Joaquin River during the months of February through June of each year would be required to protect and preserve the public trust resources of the Bay-Delta. While the report has no regulatory impact at this time, such a demand for water from the San Joaquin River, if implemented, would substantially further reduce supplies available for diversion in the Friant Division.
Bay Delta Conservation Plan
The Bay Delta Conservation Plan (the “BDCP”) is being developed to advance the co-equal goals of a reliable water supply and a sustainable Delta ecosystem. It is intended to provide the basis for long-term permits under the federal Endangered Species Act and California Natural Community Conservation Planning Act for operation of the State Water Project (“SWP”) and CVP. The BDCP is guided by a steering committee of local water agencies, environmental and conservation organizations, state and federal agencies, and other interest groups. Under the existing proposed schedule, a draft BDCP will be released for public review in November 2010. But it is foreseeable that the schedule could change, and, in any event, a final BDCP will not be available until 2012, at the earliest. In the long-run, it is
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anticipated that the BDCP will replace the other forms of take coverage described below and subject to extensive, on-going litigation.
State Water Resources Control Board (SWRCB)
On May 22, 1995, the SWRCB adopted a new Water Quality Control Plan for the Sacramento-San Joaquin River Delta/San Francisco Bay Estuary (Delta). The plan contains water quality objectives and outflow requirements for the San Joaquin River, and certain project operation constraints consistent with the Bay/Delta Accord. In December 2003, the SWRCB initiated a periodic review of the 1995 Water Quality Control Plan to determine whether it provides adequate protection for existing beneficial uses of water. The SWRCB completed that review, and adopted an amended Water Quality Control Plan (the “1995 WQCP”) for the Delta on December 13, 2006. The SWRCB made what it described as “minor” changes to the plan adopted in 1995. These changes included updating the plan of implementation and monitoring program, as well as new descriptions of upcoming SWRCB actions, and new recommendations to other agencies. The Office of Administration Law approved the 2006 plan on June 27, 2007, and the SWRCB has commenced review of flow and salinity requirements for the Delta.
SWRCB Decision 1641. From July 1, 1998 through December 27, 1999, the SWRCB conducted Phases 1 through 7 of the Bay/Delta Water Rights Hearing. On December 29, 1999, the SWRCB adopted Water Right Decision 1641 (“D-1641”), determining partial responsibility for meeting the objectives in the 1995 Water Quality Control Plan and resolving other related issues. Among these were the circumstances under which the CVP and SWP could jointly utilize their respective points of diversions in the Delta. In D-1641, the SWRCB assigned responsibility for specified periods to water users (including the Bureau and the California Department of Water Resources) in the watersheds of the San Joaquin River above Vernalis, the Mokelumne River, Putah Creek, Cache Creek and the Bear River.
Phase 2 of the Bay/Delta Water Rights Hearing focused on the obligations of water users on the San Joaquin River and its tributaries to Delta water quality and environmental objectives. A number of affected parties and stakeholders, including the District, the Bureau, the Department of Water Resources, organizations representing water users on tributaries, and various others, entered into the San Joaquin River Agreement. That agreement described an experimental ten year (although a possible extension is currently being discussed) adaptive management program called the Vernalis Adaptive Management Plan (“VAMP”) designed to develop information about the effects of different flow regimes in the San Joaquin River on salmon smolt survival through the Delta and other conditions in the Delta. VAMP is a large-scale, long-term experimental/management program designed to protect juvenile Chinook salmon migrating from the San Joaquin River through the Delta. VAMP is also an experiment to determine how salmon survival rates change in response to alterations in San Joaquin River flows, SWP/CVP exports and certain other operational changes. The purpose of VAMP is for the CVP and SWP to acquire water and use it for a pulse flow for a 31-day period during April and May to facilitate migration of Fall Run Chinook Salmon smolts.
Because little data existed relative to impacts of varying flows on the San Joaquin River, the parties to the San Joaquin River Agreement proposed that VAMP be implemented as the operative flows on the San Joaquin River. The SWRCB agreed and implemented the flow objectives of the 1995 WQCP in the San Joaquin River Agreement as part of D-1641. No other flow requirements were imposed on San Joaquin River water users as a part of D-1641. Under the San Joaquin River Agreement the District is responsible for making up to a maximum of
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11,000 acre-feet available for the spring pulse flow under VAMP and a additional 15,000 acre-feet available to the Bureau at New Melones Reservoir.
The San Joaquin River Agreement expires in 2010, and must be renegotiated and re-adopted in order to remain in effect. Various parties to the San Joaquin River Agreement have indicated that they are not satisfied with its current provisions, and that amendments will be required. If the parties are able to negotiate acceptable amendments, the amended agreement will have to be submitted for approval to the SWRCB, which may or may not adopt it. If the parties are unable to negotiate acceptable amendments, or if the amended agreement is not accepted, additional proceedings on the San Joaquin River will occur that could also result in the imposition of obligations on the District to release water to assist in achieving Delta objectives.
Various legal challenges to D-1641 were resolved in a published appellate decision, in which the court of appeal largely upheld D-1641. On remand, the SWRCB has addressed those aspects of D-1641 that the court of appeal found deficient, through the amendments to the Water Quality Control Plan described above, and other proceedings.
SWRCP Flow Criteria. The Sacramento-San Joaquin Delta Reform Act of 2009 mandated the preparation of flow criteria by the SWRCB for the Delta necessary to protect public trust resources. Water Code 85086(c). The flow criteria are intended to inform planning decisions and are not regulatory in nature. On August 3, 2010, the SWRCB adopted flow criteria. They call for significantly increased flows into and through the Delta and do not reflect a balancing of all public trust concerns. It is unclear how these flow criteria could influence future regulatory proceedings.
ESA Litigation
The listing of several fish species as threatened or endangered under the federal and/or California Endangered Species Acts (respectively, the “Federal ESA” and the “California ESA” and, collectively, the “ESAs”) have impacted SWP operations, by reducing the amount of water pumped by the SWP and by limiting the flexibility of the SWP. An annual environmental water account established under the CALFED Bay-Delta Program as a means of meeting environmental flow requirements and export limitations has helped to mitigate these impacts. Currently, six species, the Sacramento River winter-run and Central Valley spring-run Chinook salmon, delta smelt, North American green sturgeon, Central Valley steelhead and Southern Resident killer whale are listed under the Federal ESA and are the subject of two biological opinions involving the operation of the SWP.
The Federal ESA requires that before any federal agency authorizes, funds or carries out an action, it must consult with the appropriate federal wildlife agency to determine whether the action would jeopardize the continued existence of any threatened or endangered species, or adversely modify the species’ critical habitat. The result of the consultation is known as a “biological opinion.” In the biological opinion, the federal wildlife agency determines whether the action would cause jeopardy or adverse modification and recommends reasonable and prudent alternatives (in the event an affirmative finding of jeopardy or adverse modification is made) or measures (in the event a finding is made that the action is not likely to result in jeopardy or adverse modification) that would allow the action to proceed without causing jeopardy or adverse modification. Typically, an “incidental take statement” accompanies the biological opinion. The incidental take statement allows the action to go forward even though it will result in some level of “take,” including harming or killing some members of the species, incidental to
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the agency action, provided that the agency action does not jeopardize the continued existence of any threatened or endangered species and complies with reasonable mitigation and minimization measures recommended by the federal fishery agency.
In July 2004, the United States Fish and Wildlife Service (the “Service”) issued a biological opinion and incidental take statement that govern operations of the SWP and federal Central Valley Project (“CVP”) with respect to the delta smelt and its critical habitat. Several environmental interest groups filed litigation in the United States District Court for the Eastern District of California challenging the legality of the biological opinion and incidental take statement (NRDC v. Kempthorne). In 2007, the court issued a summary judgment ruling holding that the delta smelt Biological Opinion was invalid because, among other things, the Biological Opinion improperly failed to consider 2005 delta smelt abundance data, relied on legally inadequate mitigation measures, failed to set proper take limits based on current species abundance, failed to adequately consider impacts of the Central Valley Project and State Water Project on delta smelt critical habitat, and wrongly ignored data about global climate change. On June 1, 2007, the district court set a hearing for August, 2007 (later delayed until December), to consider an appropriate remedy. This remedies hearing focused on whether and to what extent current project operations should be modified until a new Biological Opinion is developed. In December 2007, the court issued an order allowing the projects to continue operations under the existing biological opinion, subject to certain additional conditions, until a new biological opinion can be issued. The court also set a deadline of September 12, 2008 for issuance of the new biological opinion. The additional protective conditions applied until issuance of the new biological opinion. On December 15, 2008, the Service issued a biological opinion consistent with the court order, as described below.
In October 2004, NOAA’s National Marine Fisheries Service (“NMFS”) issued a biological opinion and incidental take statement on the proposed CVP and SWP operations with respect to the Sacramento River winter-run Chinook salmon, Central Valley spring-run Chinook salmon, Central Valley steelhead and their critical habitat. Several environmental interest groups filed litigation in the United States District Court for the Eastern District of California challenging the legality of the biological opinion and incidental take statement (Pacific Coast Federation of Fishermen’s Association v. Gutierrez). The court ruled in favor of the environmental plaintiffs in April 2008 and set and deadline of March 2009 for the issuance of a new biological opinion by NMFS. The court did not issue any interim remedies pending the final NMFS biological opinion. NMFS filed a motion to extend the time for completion of the biological opinion, and the court granted an extension date of June 2, 2009. On June 4, 2009, NMFS issued a new biological opinion as described below.
In its 2008 biological opinion (the “2008 Biological Opinion”) for the threatened delta smelt and its designated critical habitat, the Service concluded that the continued long-term operation of the CVP and the SWP and cumulative effects are likely to jeopardize the continued existence of the delta smelt. The Department of Water Resources sought and obtained a consistency determination under the California ESA based, in part, on the 2008 Biological Opinion. In the spring of 2009, several water agencies and other entities filed five separate complaints challenging the 2008 Biological Opinion. These cases have been consolidated (San Luis and Delta Mendota Water Authority v. Salazar). These cases are currently pending before the United States District Court for the Eastern District of California.
In its 2009 biological opinion (“2009 Biological Opinion”) for the Sacramento River winter-run chinook salmon, Central Valley spring-run Chinook salmon, Central Valley steelhead, Central California Coast steelhead, Southern Distinct Population Segment of North American
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green sturgeon (“Green Sturgeon”) and the Southern Resident killer whales (“Southern Resident”). NMFS concluded that the long-term operations of the CVP and the SWP and cumulative effects are likely to jeopardize the continued existence of the winter-run and spring-run Chinook salmon, the Central Valley steelhead, the Green Sturgeon and the Southern Resident. NMFS further concluded that the long-term operations would destroy or adversely modify the designated critical habitat of the winter-run and spring-run Chinook salmon, the Central Valley steelhead, and the proposed critical habitat of the Green Sturgeon. NMFS concluded that the proposed operations are not likely to jeopardize the continued existence of the Central California Coast steelhead.
In the summer of 2009, several water agencies filed complaints challenging the legality of the 2009 Biological Opinion. These cases have been consolidated (San Luis and Delta Mendota Water Authority v. Locke). This case is currently pending in the United States District Court for the Eastern District of California.
In addition to the litigation described above under the Federal ESA, other environmental groups sued the Department of Water Resources on October 4, 2006 in the Superior Court of the State of California for Alameda County alleging that the Department of Water Resources was taking listed species without authorization under the California ESA. This litigation (Watershed Enforcers, a project of the California Sportfishing Protection Alliance v. California Department of Water Resources) requests that the Department of Water Resources be mandated to either cease operation of the State Water Project pumps, which deliver water to the California Aqueduct, in a manner that results in such “taking” of listed species or obtain authorization for such “taking” under the California ESA (Section 2080 of the California Fish and Game Code). On April 18, 2007, the Alameda County Superior Court issued its Statement of Decision in Watershed Enforcers v. California Department of Water Resources. The Statement of Decision finds that the Department of Water Resources is illegally “taking” listed fish through operation of the State Water Project export facilities. The Court ordered the Department of Water Resources to “cease and desist from further operation” of those facilities within 60 days unless it obtains take authorization from the California Department of Fish and Game.
The Department of Water Resources appealed the Alameda County Superior Court’s order on May 7, 2007. This appeal automatically stayed the order pending the outcome of the appeal, unless the plaintiff obtains an order from the trial or appellate court that the appeal not act as a stay based on a showing of irreparable injury. Watershed Enforcers filed a notice that it would not oppose a stay of the Court’s order pending appeal with the Alameda County Superior Court on May 2, 2007. The Department of Water Resources dismissed its appeal in September 2009, and complied with the court’s writ of mandate by obtaining proper authorization from the Department of Fish and Game in compliance with the California ESA for the incidental taking of the Sacramento River winter-run Chinook salmon, the Central Valley Spring-run Chinook salmon, and the delta smelt. Intervenor appellants pursued appeal arguing that a state agency is not a “person” for purposes of Section 2080. Because the Department of Water Resources complied with the court’s write of mandate, the appeal was moot, but the Court of Appeals reached the merit of the appeal. The court issued a decision holding that a state agency is a “person” within the meaning of Fish and Game Code Section 2080, which prohibits any person from taking any endangered or threatened species without a permit from the California Department of Fish and Game.
On May 7, 2007, the Department of Water Resources withdrew its application, which was filed on April 9, 2007, to the Department of Fish and Game for a determination that the existing federal biological opinions are consistent with requirements for incidental take under
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the California ESA and executed a memorandum of understanding (the “MOU”) with the California Department of Fish and Game to assist in reinitiated consultations with the United States Fish and Wildlife Service and National Marine Fisheries Service for new biological opinions on the coordinated operations of the State Water Project and Central Valley Project as they relate to the listed species of fish. In the MOU, the Department of Water Resources and the California Department of Fish and Game agree that the biological assessment and resulting biological opinions under the Federal ESA should be developed to include State Water Project operations that are consistent with the California ESA and set goals for completion of the biological assessment by October 2007 to facilitate completion of the biological opinions by April 2008. After the new biological opinions and incidental take statements for the listed species of fish were completed, the Department of Water Resources applied to the Department of Fish and Game for, and obtained, consistency determinations under the California ESA based on the new biological opinions, reasonable and prudent alternatives, and incidental take statements.
The outcome of the existing or any threatened litigation regarding the listed species of fish could influence how the State Water Project is operated. The Department of Water Resources has altered the operations of the State Water Project to accommodate the listed species. This change in project operations has influenced the manner in which water is diverted from the Bay-Delta and State Water Project deliveries. Additional changes in project operations could result from the consultation process for new biological opinions for listed species under the Federal ESA or from the California Department of Fish and Game’s actions regarding a consistency determination under the California ESA. The District cannot predict the ultimate outcome of any of the litigation or regulatory processes described above at this time or whether such outcome will result in any materially adverse impact on the operation of the CVP, or deliveries to the District. See “THE DISTRICT AND THE ENTERPRISE – Water Supply” and “- The Friant Contract,” and “LITIGATION” herein.
THE DISTRICT AND THE ENTERPRISE
The following material is descriptive of the District. It has been prepared by or excerpted from sources as noted herein and has not been verified by Special Counsel or the Underwriter.
History; Service Area
The District, comprising approximately 38,094 acres of suburban and agricultural land (of which approximately 30,903 acres are currently served by the District), was formed in 1937 pursuant to the California Irrigation District Law (Section 25800 et seq. of the Water Code of the State of California). Its purpose is to obtain and provide a supplemental supply of water for lands located within the boundaries of the District. The District lies entirely within Kern County (the “County”) and includes the cities of Shafter and Wasco, with a current estimated population of approximately 41,750 (although the District does not, with minor exceptions, directly serve urban water users in these agencies, with usage of approximately 700 acre-feet a year). Total irrigated area has remained relatively constant with newly annexed land offsetting decreases due to urban expansion. The District serves water to all lands within its boundaries, through either surface water deliveries or through groundwater replenishment.
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Governance
The District is governed by a board of five directors. Each director is elected to a term of four years by the qualified voters within the District. The names of the current members of the Board of Directors of the District, together with their titles and year in which current terms expire are set forth in the following table:
Name and Title Term Expires
Ken Paul, President December 2012 D. Mark Franz, Vice President December 2014 Samuel D. Frantz, Director December 2014 Jerald R. Mozingo, Director December 2014 Roger Riley, Director December 2012
Management
The General Manager of the District is responsible for carrying out the day-to-day affairs of the District. Jerry Ezell, the General Manager, has been with the District for 12 years. While at the District he has successfully negotiated a new long term contract with the Bureau, and has applied for and received several government grants for the improvement, upgrades and modernization of the District’s delivery system. He has also been actively involved in the formation of the Poso Creek Integrated Regional Water Management Plan made up of six water districts and a resource conservation district. While under his leadership the District has implemented an ongoing program to upgrade its turnout facilities to customers. Mr. Ezell also has negotiated a long term water exchange agreement with West-Side Mutual Water Company. Prior to working for the District Mr. Ezell worked at Pacific Gas & Electric Company for 26 years. He is a graduate from Cal Poly in San Luis Obispo California with a Bachelor of Science Degree in Agricultural Business Management.
Employees
As of January 1, 2010, the District employed 10 full-time employees, consisting of 1 managerial staff, 2 supervisors and 7 Maintenance and Operation personnel. None of the District’s employees are covered by collective bargaining agreements, and the District has never experienced a work-stoppage.
Retirement Plan; Other Post-Employment Benefits
The District contracts with the Public Employees’ Retirement System (“PERS”), a multiple-employer public employee retirement system that acts as a common investment and administrative agent for participating public entities within the State of California. Participants are required to contribute 7% of their annual covered salary, of which the District pays 2%. The District is required to contribute at an actuarially determined rate. The contribution requirements of plan members and the District are established and may be amended by PERS.
The system is funded by a combination of employer and employee contributions. The District pays employer and a portion of employee costs for all full-time employees. The District’s share of the cost of the plan was approximately $74,722 for Fiscal Year 2009, and is budgeted to be $86,656 for Fiscal Year 2010. See the notes included with the District’s audited
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financial statements attached hereto as APPENDIX B for a further discussion of the District’s retirement plan.
The Governmental Accounting Standards Board (GASB) has issued Statement No. 45, Accounting and Financial Reporting by Employers for Post-Employment Benefits Other Than Pensions (GASB 45), which addresses how state and local governments must account for and report their obligations related to post-employment healthcare and other non-pension benefits (OPEB). GASB 45 requires that local governments account for and report the annual cost of OPEB and the outstanding obligations and commitments related to OPEB in essentially the same manner as they currently do for pensions. The District began implementation of GASB 45 for its Fiscal Year ending December 31, 2009.
The District does not provide any post retirement benefits to members of the Board of Directors. The District does provide retirees (those with over 5 years of service) and, in accordance with a District-approved schedule dependent on age and years of service, a portion of spouses and eligible dependents for medical coverage contracted through ACWA/JPIA, up to a maximum term of 5 years. The cost of such benefits, which totaled $17,064 in Fiscal Year 2009 and is budgeted at $28,740 for Fiscal Year 2010, are funded on a pay-as-you-go basis. There were 2 eligible participants that received benefits in Fiscal Year 2009.
In connection with the implementation of GASB 45, the District must report an annual OPEB cost based on actuarially determined amounts that, if paid on an ongoing basis, will provide sufficient resources to pay these benefits as they come due. Based upon the GASB 45 actuarial determination, the District will be required to report the appropriate amount to fund retiree medical benefits. This amount will be audited annually and the additional funds necessary to keep it fully funded will be reported. As of December 31, 2009, the District’s liability was approximately $28,740.
Current Land Use
The total area of the District is approximately 38,094 acres. As of 2009 (the latest date such information is available), land use in the District consisted of 30,903 acres of irrigated agriculture, 5,529 acres of subdivided or residential use (including the cities of Shafter and Wasco), and 2,334 acres of miscellaneous uses (roads, ponds, etc.). Approximately 62% of the cropped lands within the District are planted with permanent crops of trees and vines. A summary of the cropped land use within the District is set forth in the following table.
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TABLE 1
SHAFTER-WASCO IRRIGATION DISTRICT CROPPED LAND USE ACREAGE
(As of 2009)
Crop Acres Percent Almonds 16,284 52.7% Alfalfa/Hay 3,469 11.2 Wheat 1,918 6.2 Corn 1,402 4.5 Grapes 1,223 4.0 Nursery Stock 1,111 3.6 Beans 869 2.8 Pistachios 599 1.9 Cherries 572 1.9 Potatoes 476 1.5 Carrots 442 1.5 Cotton 308 1.0 Walnuts 199 0.6 Prunes/Plums 166 0.5 Other 1,865 6.0 ________________ Source: Shafter-Wasco Irrigation District’s Annual Crop Survey.
Existing Facilities
The District facilities providing for distribution of water within its boundaries were designed and constructed by the United States Bureau of Reclamation (the “Bureau”). In 2002 the District paid off in full its obligation to repay the Bureau the cost of these internal distribution facilities. These facilities consist of:
• over 113.5 miles of pipelines (including 3 miles of 36” two-way pipeline interconnecting the District’s system with Semitropic Water Storage District’s system)
• approximately 551 turnouts • telemetry and monitoring systems • Two interconnection points with North Kern Water Storage District
However, the District continues to repay the Bureau under its water supply contract as described below under “Water Supply”, which cost paid under the water supply contract include a capital component for the District’s share of the CVP wide facilities, which CVP facilities are generally described below under “Water Supply - Imported CVP Water”.
Water Supply
The District water supply is obtained from the Friant Division of the Central Valley Project (“CVP”) operated by the Bureau. In addition, there are numerous privately owned wells throughout the District, of which 2 are capable of pumping into the District’s distribution system. In addition to water supplied by the District, based on the District’s “Reasonable Water Requirements Study Water Years 2008 and 2009,” landowners pump approximately 38,000-
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76,000 acre-feet a year of groundwater supplies depending on the available surface supply from the District.
Imported CVP Water. The District obtains all of its surface water supply from the Friant Division of the CVP. The CVP facilities were built by the Bureau and the United States Army Corps of Engineers (the “Corps”). The Friant Division facilities of the CVP consist primarily of Friant Dam (the construction of which created Millerton Lake), the Friant-Kern Canal, and the Madera Canal. Friant Dam is operated and maintained by the Bureau while the Friant-Kern Canal is operated and maintained by the Friant Water Authority (the “Authority”), a joint powers authority comprised of 21 agricultural contractors along the Friant-Kern and Madera Canals. The District’s Water Supply Contract (defined below) with the Bureau provides for the delivery to the District of water stored in or flowing through Millerton Lake, such water to be available for delivery from Millerton Lake and the Friant-Kern Canal.
Although the Friant Division facilities are integrated operationally and financially with the CVP, the geographic separation of the facilities and the Bureau’s contracting policies compel a unique operating regimen. Inasmuch as the Friant Division is physically removed from other CVP facilities, the water supply available to Friant Division contractors has historically reflected water runoff conditions in the upper San Joaquin River Basin rather than the Sacramento River. Further, because the Bureau has contracted on the basis of Class 1 (i.e., storage facilities are available) and Class 2 (i.e., no facilities are dedicated to storage of this incremental supply) supplies within the Friant Division, contractors such as the District with Class 1 supplies tend to receive a higher proportion of their contract entitlement than other CVP contractors (see “Historic Water Deliveries” below). Class 1 water is the “firm” supply amounting to the first 800,000 acre-feet of yield developed from the upper San Joaquin River Basin and stored within Millerton Lake behind the Bureau’s Friant Dam for the Friant Division. To reflect the “firmness” of the District’s surface water supply, between 1965 and 2008, 94% or an average of 749,000 acre feet of that 800,000 acre foot Class 1 supply has been available to Friant Division contractors with Class 1 long term contracts such as the District’s.
The CVP included contractual arrangements and physical facilities whereby the water that was previously diverted by lower San Joaquin River water right holders would be exchanged for water from the Sacramento River imported via the Delta-Mendota Canal. Consequently, the continued availability of water to the Friant Division is partially dependent on the availability of exchange water from the rest of the CVP. The Bureau may under certain conditions be required to make releases of Friant Division supplies to meet the CVP’s obligations to such lower San Joaquin River water users who executed exchange agreements with the Bureau (the “Exchange Contractors”) if the Bureau is unable to deliver required supplies to the Exchange Contractors via the Delta-Mendota Canal. Such releases would reduce the amount of water available to the District. In the history of the Friant Division, this has never occurred. See “STATE AND FEDERAL REGULATORY ACTIVITIES AND LITIGATION” below.
However, a variety of recent legislative, regulatory and judicial decrees affecting the Sacramento River Delta (the “Delta”) have imposed significant new pumping limitations on the United States that reduce the amount of water that can be delivered to federal water contractors south of the Delta. As a result, there is an increased potential in the future that the Exchange Contractors will not receive all of their exchange water supplies, which could result in the Exchange Contractors calling on Friant Division water supplies (which could reduce the water supplies available to the District). Additional litigation to which the District is not a party is pending that could further restrict Delta diversions, further increasing that risk. The Exchange
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Contractors generally receive the first water diverted from the Delta, meaning that Delta delivery cutbacks would have to be quite severe before the Exchange Contractors would be shorted on their exchange supplies and have a right to call on water that would otherwise be delivered to Friant Division contractors like the District. Nevertheless, a combination of dry hydrologic conditions and mandated diversion reductions could have that effect.
The Friant-Kern Canal runs the length of the District outside of its east boundary, and is operated and maintained by the Authority. The Authority’s predecessor entered into a 10 year contract with the Bureau in 1985 and assumed the operation and maintenance of the Friant-Kern Canal in 1986. The contract was renewed for a one year term on September 30, 1995, and the parties entered into a 25 year contract on March 1, 1998 (the “Transfer Agreement”). The Transfer Agreement has since been assigned to the Authority. Membership in the Authority is currently composed of 21 agencies. There are two types of Authority membership. The first are “O&M Project Members,” which are agencies that are participating in the Transfer Agreement with Bureau for operation and maintenance of the Friant-Kern Canal. The current O&M Project Members are generally those agencies which receive a large percentage of their water supply through the Friant-Kern Canal. All O&M Project Members are also “General Members,” which include agencies that participate in Authority activities relative to issues relating to water supply, district operation and management, state and federal legislation, protection of members' rights and benefits in the CVP and any other common interests. The Authority is governed by a Board of Directors that includes one elected representative of each member agency. The District is a member of the Authority.
The District has historically received its water supply from the Bureau pursuant to a contract with the Bureau originally executed in 1955, which ran for a term of forty years but was subsequently superseded by a series of renewal contracts, with the current one dated January 20, 2001, with a final term of February 28, 2026 (the “Water Supply Contract”).
All water distributed by the District pursuant to such District Water Supply Contract is subject to certain restrictions, terms and conditions as required by the provisions of the District Water Supply Contract and the Reclamation Laws of the United States. Copies of the District Water Supply Contract are on file and available for review at the District office and the provisions therein pertaining to use and distribution of, and payment for, CVP water are binding upon all water users of the District. Pursuant to the Water Supply Contract, the District has a contractual right to purchase up to 50,000 acre feet of Class 1 water from the CVP, and up to 39,600 acre feet of Class 2 water from the CVP (generally available in normal to wet years). Class 1 water is the firm supply amounting to the first 800,000 acre-feet of yield from the Friant Division. The average annual availability to the District of this supply during the period of 1999 through 2009 has been approximately 48,000 acre-feet, or 96% of its Class 1 contracted supply. Class 2 water is supplied after Class 1 demands have been met. While the Class 2 contract limits are 1,400,000 acre-feet, the range varies from zero to the full 1,400,000 and has averaged approximately 14,000 acre-feet annually during the period of 2000 through 2009 (although no Class 2 water was available in Fiscal Year 2008 and only 5% was available in Fiscal Year 2009).
The Water Supply Contract will be superseded and replaced in its entirety by the Frinat Contract described under the caption “Friant Contract” below and “THE PROJECT” herein.
In Fiscal Year 2008/09, the costs to the District for the Class 1 supply was approximately $26.40 per acre-foot, and the cost of the limited amount of Class 2 supply was $11.49 per acre-foot, plus Friant-Kern Canal O&M expenses (described below). This price includes costs for
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capital repayment of the development costs incurred by the United States associated with construction of CVP facilities, including, without limitation, Friant Division facilities. The District is only obligated to pay for the water it uses. The Friant-Kern Canal O&M expenses are related to the payments to the Authority for the O&M of the Friant-Kern Canal. These payments must be made whether or not Friant Division water is used. The Authority prorates the Friant-Kern Canal O&M costs to the participating districts based on water delivery history to each district. The District’s average annual expense for the Friant-Kern Canal O&M was approximately $636,943 per year during the 2002-2008 period, was $943,903 for Fiscal Year 2009 and is budgeted at $850,000 for Fiscal Year 2010.
The District is only obligated to pay for the water it uses. The CVP also has in place a tiered pricing structure whose scale adjusts relative to the percentage of available contract supply used by the District. The amounts added to water costs payable by the District as a result of CVP mandated tiered pricing varied from year to year, but upon execution of the Friant Contract tiered pricing will no longer apply.
Additional water costs stem from the 1992 legislation known as the Central Valley Project Improvement Act (the “CVPIA”). The associated charge is known as the Friant Surcharge and is a fixed cost of $7.00 per acre foot added to the annually determined Bureau water rates. In addition an annually adjusted “restoration” charge is applied and for the 2010 Bureau fiscal year is $9.11 per acre foot (up from $9.06 per acre foot during the 2009 Bureau fiscal year. Finally an assessment from the Trinity Public Utility District of $0.11 per acre foot is added to the water rates charged by the Bureau. See “STATE AND FEDERAL REGULATORY ACTIVITIES AND LITIGATION” below. The price will be adjusted annually to pay the cost of operations and maintenance of the CVP for the term of the Water Supply Contract and for various statutorily mandated surcharges. CVP operation and maintenance costs are being computed on a utility-type charge, on a project-wide basis (see “District Enterprise” above). Any net project deficit is charged against individual contractors.
The Friant Contract. As a result of litigation entitled “Natural Resources Defense Council et al. v. Kirk Rogers, et al.” (the “Litigation”) certain contractors from the Friant Division, including the District, the Bureau, other defendants and the plaintiffs entered into a Stipulation of Settlement dated September 13, 2006 (the “Settlement”). The Settlement was subsequently confirmed and implemented through Legislation known as the San Joaquin River Restoration Settlement Act (Title X, Subtitle A, of the Act of March 30, 2009 (123 Stat. 1349)), approved by Congress and signed into law on March 30, 2009 (the “Enabling Legislation”). The Settlement, as implemented by the Enabling Legislation, establishes goals of the restoration of the San Joaquin River and improved management of the supply of water for Friant Division contractors, including the District. Among other things, the Bureau committed to maintaining specified flows in the San Joaquin River below Friant Dam with the goal to support a self sustaining run of spring run salmon (a listed endangered species), which will require significant flows of water that would otherwise be available for diversion to Friant Division contractors, including the District. The Settlement also resulted in a cessation of active litigation in the Lawsuit, although the court has retained jurisdiction over the proceedings, including provisions for reopening certain aspects of the Settlement.
The Enabling Legislation authorizes and directs the Secretary of the Interior to convert the Water Supply Contract to a repayment contract under subsection (d) of Section 9 of the Federal Reclamation Project Act of August 4, 1939 upon execution, and no later than December 31, 2010, provided the District prepays its allocated share of the currently known construction costs of the Friant Division, either as a lump sum or in installments. The Friant
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Contract has no termination date and therefore is not subject to renewal risk (e.g., the Water Supply Contract would need to be renewed in 2026). The Friant Contract will eliminate certain restrictions on delivery of water to lands that were ineligible to receive water due to the fact that such lands exceed the acreage limits eligible to receive CVP water under the Reclamation Reform Act of 1982 (Public Law 97-293, Title II) (the “RRA”). The Friant Contract will also eliminate tiered pricing of CVP water.
While the Friant Contract will permanently establish the contract total to which the District is entitled, actual deliveries in any year are subject to “Conditions of Shortage,” which are defined in the Friant Contract as drought, physical limitations on facilities and legal obligations placed on the United States or the District, including the need for water to implement the Settlement. In particular, the amount of water required under the Enabling Legislation to implement the Settlement is fixed until 2025, after which time such amount may be reviewed and subject to adjustment in proceedings that would be under the jurisdiction of the State Water Resources Control Board (the “SWRCB”).
Under the Friant Contract, the cost of CVP water will be determined by the Bureau in accordance with the Secretary of the Interior’s rate setting policy for irrigation water adopted in 1988, consistent with the Enabling Legislation. The cost to the District for the Class 1 supply for the Bureau 2010 fiscal year is anticipated to be $26.16 per acre-foot (plus the additional charges levied pursuant to the CVPIA described above), and the cost of Class 2 supply is anticipated to be $12.56 per acre-foot, plus Friant-Kern Canal O&M expenses.
The Bureau imposes two categories of costs under the Friant Contract: charges and rates. Prior to July 1 of each year, the Bureau will provide an estimate of charges for CVP water for the one-year period beginning on October 1 of each year. The Friant Contract will be revised annually to reflect such charges. As provided in the Friant Contract, beginning in 2020 and continuing until the earlier of December 31, 2039 or the delivery of 960,880 acre-feet of CVP water to the District, the Friant Division surcharge will be reduced by up to $3.00 per acre-foot.
In addition to the charges described above, the District will pay CVP construction or other capitalized costs incurred after the execution of the Friant Contract in accordance with the Enabling Legislation, without interest as to irrigation water components. The District could be required to pay such construction or other capitalized costs in a single year or over a longer period at the discretion of the Bureau, depending upon the amount of such costs. Upon completion of the construction of the CVP, which is expected to occur no earlier than 2030, payments made by the District, including the payment for the contract rights under the Friant Contract, will be subject to adjustment at the discretion of the Bureau to reflect any reallocation of CVP construction costs that may have occurred between the determination of the District’s share of CVP construction costs indicated by an audit to be undertaken by the Bureau of the final CVP cost allocation. The District will be entitled to a credit for overpayment of its share of CVP construction costs, or obligated to pay the remaining unpaid allocated costs, as applicable, in accordance with the Friant Contract and the Enabling Legislation.
Groundwater. While the District does not pump groundwater, the economic benefit of utilizing the surface water provided by the District is impacted by the cost to landowners of pumping. Groundwater levels in the District tend to go down in dry years and rebound in wet years. The present average pumping depth is estimated to be approximately 300 feet. While the District currently (and historically) does not pump groundwater, most individual property owners in the District do, particularly in years when surface water supplies have been limited.
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Pumping costs currently average in range from approximately $65 to $75 per acre-foot, compared to the current average cost of $56 per acre-foot for surface water delivered by the District.
Water Ordering Procedures. Under current District water allocation rules, all water users in the District are entitled to water under the Water Supply Contract on a historic acre-foot use basis. Water will not be delivered to any parcel if there are delinquent assessments, standby fees, or any other unpaid charges attributable to such parcel for which application is made.
The following tables summarize the historical water supply and water delivery operations of the Enterprise. The information for the 2010 Fiscal Year is estimated. The following information is based on the CVP water year of March 1 thru February 28.
TABLE 2
SHAFTER-WASCO IRRIGATION DISTRICT SUMMARY OF SURFACE WATER SUPPLY AND COST
(Acre-feet)
Water Year(1)
Class 1 CVP
Class 2 CVP
Total Supply
Total CVP Payments(3)
2000 53,267 28,028 81,295 $3,000,880 2001 56,388 2,433 58,821 2,663,433 2002 47,529 3,208 50,737 2,483,790 2003 51,492 12,781 64,273 2,898,139 2004 47,604 6,978 54,582 2,997,884 2005 50,000 35,484 85,484 3,251,773 2006 48,906 33,192 82,098 2,981,945 2007 33,594 0 33,594 2,116,147 2008 45,865 6,815 52,680 2,995,722 2009 45,102 19,774 64,876 3,205,683 2010(2) 52,000 21,700 73,700 3,465,000
_______________ Source: Shafter-Wasco Irrigation District. (1) Ending February 28 (or February 29 in a leap year). (2) Estimated. (3) Calendar year.
Over the past ten years, the District has delivered (or made available), on average, 62,844 acre-feet of water to its agricultural users. The following table summarizes agricultural water deliveries for the most recent ten Fiscal Years and the estimate for Fiscal Year 2010.
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TABLE 3 SHAFTER-WASCO IRRIGATION DISTRICT
SUMMARY OF OPERATIONS(1)
Fiscal Year(2)
Total Water Production(4)
Water Sold in District
Water Sold to Other Districts
Percent of Ten Year Average
2000 81,295 62,622 18,673 129.4% 2001 58,821 58,821 0 93.6 2002 50,737 50,737 0 80.7 2003 64,273 63,073 1,200 102.3 2004 54,582 49,311 5,271 86.8 2005 85,484 70,484 15,000 136.0 2006 82,098 70,098 12,000 130.6 2007 33,594 33,594 0 53.5 2008 52,680 52,680 0 83.8 2009 64,876 56,396 8,480 103.2 2010(3) 82,000 74,000 8,000 130.5
__________________________ Source: Shafter-Wasco Irrigation District. (1) In acre-feet. (2) As of December 31. (3) Estimated. (4) See Table 2 above. Based on water year ending February 28 (or February 29 in a leap
year).
Water Treatment; Storage
Since the District only supplies agricultural water, it does not treat any water. In 1993 and 1995 the District entered into groundwater banking arrangements with the neighboring North Kern Water Storage District (“North Kern”) and the Semitropic Water Storage District (“Semitropic”), respectively. Pursuant to these arrangements, interconnection facilities were constructed to allow the District to transfer surplus water in any year to the water banking facilities maintained by North Kern and Semitropic, for return in later years. The District’s share of the cost of the facilities with Semitropic was funded by the DWR Loan.
As of August 1, 2010, the District has 24,513 acre-feet stored with North Kern, and 2,666 acre-feet stored with Semitropic. The cost to return the water to the District is estimated to be approximately $70.00 per acre-foot, subject to actual energy cost for returned pumping.
Water Connections
The District serves approximately 690 individual parcels through 551 turnouts. Approximately 6,000 acres in the District are currently not served by the Water System, and rely on groundwater supplies. The 6,000 acres are agricultural only and are subject to RRA restrictions. These lands will be available for water deliveries upon execution of the Friant Contract.
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Capital Improvement Program
Future possible capital improvements to the Water System are currently estimated to cost approximately $3,400,000, and include completion of two new intertie’s with North Kern to be completed by 2012 (estimated cost of $400,000) and upgrading of District turn-outs at approximately $200,000 per year. The District plans to fund these projects through appropriations in its annual budgets.
Water Rates and Charges
Water Charges. The District annually reviews water charges. Any increase in the rates must comply with Proposition 218, meaning that it is subject to being rejected by property owners in the District (see “RISK FACTORS - Proposition 218” herein). The District held a protest hearing on water rates in 2007 in conformity with the requirements of Proposition 218. Following the hearing Resolution 07-02 was unanimously passed and adopted by the Board of Directors setting water rates and procedures for increasing or decreasing future water rates.
The District sets its water rates at the beginning of the year at a level adequate to purchase water from the Bureau and to pay costs to deliver water to the landowner. Payment for water is required to be received by the District no later than the 25th day each month in which water was delivered. Water charges are billed on a monthly basis, by account number, to each grower served by the District. Landowners are financially responsible if their tenants or lessees do not pay their bills. Each parcel has its own turnout or shares a turnout with another property owner.
Additionally, the District levies an annual assessment to cover general and administrative expenses, maintenance and operation costs, costs of water production, debt service and certain other expenses not expected to be covered by other revenues, based upon acreage. The Board of Directors annually determines the level of assessments. The current Fiscal Year 2010 assessment rate is 0.3125% of land value only. Pursuant to procedures undertaken in conformity with Proposition 218 in the Spring of 2010, the landowners in the District approved a new assessment rate effective in November 2010 calculated on a per-acre basis for all the lands in the District, with a base rate of $23.50 per acre. Rates were established base on the benefits received from the District. Total assessments are currently approximately $1.18 million and are generally subject to an annual increase of up to a maximum 2%.
Standby charges are collected pursuant to Section 22280 of the Water Code on lands that receive or are authorized to receive surface water from the District. Charges are billed and collected in two equal installments in the months of March and June of each year. The Standby Charge for Fiscal Year 2010 is $20.00 per acre.
Assessments and delinquent Standby Charges are collected by the Kern County Tax Collector on the secured tax roll of the County, and are due in two installments, on November 1 and February 1 of each Fiscal Year, and become delinquent on December 10 and April 10, respectively. A penalty on delinquent payments may be assessed as determined by the County. Properties on the secured roll with respect to which payments are delinquent become tax defaulted on or about June 30 of the Fiscal Year and water service is immediately halted. Such property may thereafter be redeemed by payment of a penalty of 1½% per month to the time of redemption, plus costs and a redemption fee. If amounts are unpaid for a period of five years or more, the property is deeded to the State and may be sold at public auction by the
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County tax collector. Payment of the standby charge may be made by either the owner or the lessee (if applicable), but ultimate responsibility for payment of the charge rests with the landowner.
Section 4701 through Section 4717 of the California Revenue and Taxation Code permits counties to use a method of apportioning taxes (commonly referred to as the “Teeter Plan”) whereby local agencies receive 100% of their respective shares of amounts levied from the County, without regard to actual collections of taxes. The District no longer participates in the County’s Teeter Plan.
District water rates are established for each class of customer subject to either Reclamation Law or size of parcel. In addition, some standby charges, as described above, are collected in the water rate. The following table illustrates the current water charges levied in the District for Fiscal Year 2010. These charges are less than the maximum rates approved by the landowners in the District pursuant to Proposition 218 in 2007.
TABLE 4
SHAFTER-WASCO IRRIGATION DISTRICT FISCAL YEAR 2010 WATER RATES
(per acre-foot)
Category Rate Est. Acreage
Agricultural Water $56.00 30,684 Ag. Water (Local agency land) 65.50 283 Ag. Metered (Utility) 56.00 42 Full Cost 202(3) 64.50 384 Full cost 205(A)(3) 71.00 881 Ag. Water (less than 5 acres) 65.00 14 M&I Water (w/out Standby Charge) 63.00 194 M&I Water (w/Standby Charge) 73.00 208
___________ Source: Shafter-Wasco Irrigation District.
In 1992 Congress enacted the CVPIA, which significantly revised the purposes and operational practices of the CVP. Under its long-term contract to receive CVP water, the District is now required in accordance with the CVPIA to pay annually into an Environmental Restoration Fund a surcharge fee and restoration fee on each acre-foot of CVP water delivered for the purpose of mitigating the alleged environmental damage created by the CVP. The Restoration Fee and Friant Surcharge are paid based on the number of acre feet delivered and therefore is included in the water rate rather than the Standby Charge. This charge is intended to offset most of the District’s obligation to pay for the aforementioned fees into the federal Environmental Restoration Fund. Currently, the only recourse to reduce or eliminate the environmental charge is through a legislative act of Congress.
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The following tables illustrate historical aggregate assessments and Standby Charges for the current and past ten Fiscal Years.
TABLE 5
SHAFTER-WASCO IRRIGATION DISTRICT HISTORICAL TOTAL ANNUAL ASSESSMENTS AND STANDBY CHARGES
(Fiscal Years 2000 though 2010)
Fiscal Year(1)
Total Assessment Levied
Total Standby Charge Levied
Total Levy
2000 $ 491,028 $657,614 $1,148,642 2001 497,124 654,100 1,151,224 2002 536,996 662,090 1,199,086 2003 637,620 662,250 1,299,870 2004 634,520 652,850 1,287,370 2005 678,874 658,450 1,337,324 2006 805,886 647,900 1,453,786 2007 1,194,106 628,455 1,822,561 2008 1,310,107 636,730 1,946,837 2009 1,688,045 634,670 2,322,715 2010(2) 1,200,000 644,260 1,844,260
_______________ Source: Shafter-Wasco Irrigation District. (1) As of December 31. (2) Estimated.
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The following is a list of the fifteen largest property owners in the District. These property owners own approximately 9,523 acres, or approximately 31% of the irrigated acreage in the District.
TABLE 6
SHAFTER-WASCO IRRIGATION DISTRICT SUMMARY OF LARGEST LANDOWNERS
(Fiscal Year 2009)
Landowner Acreage
Wasco Real Properties, Inc 1,575 Shafter-Wasco Ginning 990 Bloemof Farms and Harvesting 884 Bloemhof Partnership, D & D 867 Vintage Nurseries 715 Sill Properties, Inc 577 Sun World International 488 Shafter-Wasco Investment ,LP 465 Wilson Trust, G & P 462 Mosley Family Trust 449 Portwood Family Trust, Philip 448 Kirschenmann Land & Inv LP 428 Paramount land Company, LP 405 Kroeker & Son, Leland 389 J.P. Oil Company, Inc 381
Totals 9,523 _______________ Source: Shafter-Wasco Irrigation District.
Largest Water Sale Customers
Water sale rates are established by the Board of Directors and are based on budget projections, cash reserves status, and the competitive cost to pump groundwater.
The following is a list of the District’s fifteen largest water sale customers, their consumption in Fiscal Year 2009, and the charges levied. This list will vary from year to year based on the type of water year, how much water is available, types of crops planted by the landowners and many other factors. The fifteen largest customers accounted for approximately 33%, of the total water sale revenues for Fiscal Year 2009, compared to 35% in Fiscal Year 2008. In addition to sales to District customers, the District, with Bureau approval, can sell water to other CVP contractors, which are accounted for as water exchanges, provided such sales don’t impact District customers. There were no such sales in Fiscal Year 2008, but in Fiscal Year 2009 these sales totaled approximately $268,800, and helped offset operational costs to District customers. The average price of such sales was approximately $90.20 an acre-foot in Fiscal Year 2009, compared to $62.23 per acre-foot paid by District customers that year.
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TABLE 7 SHAFTER-WASCO IRRIGATION DISTRICT
SUMMARY OF FIFTEEN LARGEST WATER SALE CUSTOMERS (Fiscal Year 2009)
Customer 2009
Delivery(1) Percent
of Total(2) 2009 Total
Revenues(2) Percent of Total(3)
Furrow Farms & Furrow Farms I 2,395 4.34% $121,355 3.53% Handel & Wilson Farms 1,661 3.01 92,398 2.69 Brambles, Inc. 1,633 2.96 91,014 2.61 Paul Farms 1,542 2.79 88,502 2.58 Kirschenmann Bros. 1,520 2.75 86,096 2.51 Sill Properties, Inc. 1,322 2.39 73,653 2.14 O.D. Handel & Son Farms 1,318 2.39 73,504 2.14 Bloemhof Farms & Harvesting 1,309 2.37 72,799 2.12 W.C. Handel & Son, Inc. 1,307 2.37 72,762 2.12 Shafter-Wasco Ginning Co., Inc. 1,233 2.23 69,428 2.02 Mosley Farms & Mosley Farms I 1,151 2.08 64,377 1.87 Wesley Funk & Son 1,040 1.88 58,007 1.69 Kristen Ritchie Farms 1,030 1.87 57,403 1.67 Leroy Kirschenmann 1,030 1.87 57,528 1.67 Wilson Ag. 953 1.73 53,230 1.55
TOTALS 20,444 37.03% $1,1,32,057 32.91% _______________ Source: Shafter-Wasco Irrigation District. (1) Acre feet. (2) Based on total Fiscal Year 2009 water sale of 55,203 acre-feet. (3) Based on total Fiscal Year 2009 water sale revenues of $3,435,261.
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General Fund Reserves
The following chart illustrates the unencumbered reserves of the District for Fiscal Years 2000 through 2010. The variation in reserves is reflective of the District historically funding capital projects on a pay-as-you-go basis.
TABLE 8 SHAFTER-WASCO IRRIGATION DISTRICT
UNENCUMBERED RESERVES (As of December 31)
Fiscal Year
Ending Fund Balance
Percent Change
2000 $1,504,784 -- 2001 608,078 (59.6%) 2002 573,556 (5.7) 2003 1,048,593 82.9 2004 501,159 (52.2) 2005 1,137,381 126.9 2006 1,162,249 2.2 2007 2,544,984 118.9 2008 3,341,370 31.3 2009 3,599,257 7.7 2010(1) 3,664,000 1.8
___________ Source: Shafter-Wasco Irrigation District. (1) Budgeted.
While the operating reserves may be allocated by the District to pay Installment Payments, they are not pledged for such purpose. Such reserves may be utilized at any time for lawful expenditures by the District, and no assurance can be made that the reserves will be available to pay Installment Payments.
Outstanding Enterprise Indebtedness
As of the date of issuance of the Certificates, the only indebtedness secured by Net Revenues will be the Certificates and the DWR Loan (which matures in 2015).
District Financial Information
See APPENDIX B for the audited financial statement for the Fiscal Year ended December 31, 2009. The auditor has not reviewed such statements in connection with their inclusion in this Official Statement, nor has the District requested such a review. Selected information from the aforementioned audited financial statements has been used to prepare the following three-year comparative summary of revenues and expenses. The results presented in the following summary are qualified in their entirety by reference to the respective annual consolidated audited financial statements of the District, including the notes thereto. Copies of the audited financial statements for the District’s other Fiscal Years can be obtained at the office of the General Manager.
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TABLE 9 SHAFTER-WASCO IRRIGATION DISTRICT
SUMMARY OF REVENUES AND EXPENSES (Fiscal Year Ended December 31)
2006 2007 2008 2009 Operating Revenue
Water sales $3,613,947 $2,427,951 $3,210,295 $3,435,261 Standby charges 647,900 628,455 636,730 633,130 General assessments 805,866 1,194,106 1,310,107 1,688,046 Grant revenue 0 13,535 25,000 218,995 Misc. Rev. 19,461 0 217,785 17,558
Total Operating Revenue 5,087,194 4,264,047 5,399,917 5,992,990
Operating Expenses
Water purchases 2,981,945 2,116,147 2,995,722 3,205,683 Transmission & distribution 433,172 461,809 526,091 500,270 Administration & general 771,970 847,529 968,655 944,852 Depreciation 250,163 170,136 105,294 107,821
Total Operating Expenses 4,437,250 3,595,621 4,595,762 4,758,626
Non-Operating Rev. (Exp.) 649,944 668,426 804,155 1,234,364
Interest income 122,720 207,281 147,703 100,142 Interest expense (68,094) (63,043) (57,702) (52,066) Sale of assets 0 4,500 6,375 3,104
Total Non-Operating Rev. (Exp.) 54,626 148,738 96,376 51,180
Change in Net Assets 704,570 817,164 900,531 1,285,544
Net Assets, beginning of year 3,407,289 4,111,859 4,929,023 5,990,091
Net Assets, end of year $4,111,859 $4,929,023 $5,829,554 $7,275,635
_______________ Source: District Audited Financial Statements.
Projected Operating Results and Debt Service Coverage
The District’s estimated projected operating results for the Enterprise for the Fiscal Years ending December 31, 2010 through 2014 are set forth below, excluding depreciation.
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TABLE 10 SHAFTER-WASCO IRRIGATION DISTRICT
PROJECTED OPERATING RESULTS (Fiscal Year ending December 31)
2010 2011 2012 2013 2014 Operating Revenues(1) Water Sales $4,127,200 $3,959,200 $3,998,792 $4,038,780 $4,079,168 Stand-by Charges 643,060 643,061 643,062 643,063 643,064 Assessments 1,200,000 1,151,400 1,174,428 1,197,917 1,221,875 Other(2) 134,330 138,360 142,511 209,694 215,985
Total Operating Revenues 6,104,590 5,892,021 5,958,793 6,089,454 6,160,092
Operating Expenses(3) Water Purchases 3,691,294 2,803,379 2,861,213 2,920,494 2,981,256 General & Admin. 1,027,646 1,058,475 1,090,230 1,122,937 1,156,625 Transmission & distribution 558,130 574,874 592,120 609,884 628,180
Total Operating Expenditures 5,277,070 4,436,728 4,543,563 4,653,314 4,766,061
Operating Income (Loss) 827,520 1,455,293 1,415,230 1,436,140 1,394,031
Non-operating Revenues: Investment Income(4) 150,000 200,000 200,000 200,000 200,000
Total Non-operating Revenues 150,000 200,000 200,000 200,000 200,000
Net Revenue 977,520 1,655,293 1,615,230 1,636,140 1,594,031
Debt Service(5) DWR Loan 152,072 152,072 152,072 152,072 152,072 Certificates 0 861,098 908,487 907,887 904,337
Total Debt Service $152,072 $1,013,170 $1,060,559 $1,059,959 $1,056,409
Debt Service Coverage 6.43 1.63 1.52 1.54 1.51
Remaining Revenues $825,448 $642,123 $554,671 $576,181 $537,622 ________________ Source: Shafter-Wasco Irrigation District; Wells Fargo Bank, National Association (1) Assessment revenues are projected to increase by 2.0% annually, and water sale are projected to increase by 1.0% annually. (2) Includes transfer fees and miscellaneous revenues. (3) Excludes depreciation. Reflects annual inflation of 3.0% per year. (4) Interest on Revenue Fund, funds held by the Trustee and other related funds. (5) Excludes payments from the Revenue Fund subordinate to the payment of Installment Payments. Maximum annual debt service is $1,064,003
payable in Fiscal Year 2015.
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THE CORPORATION
The Corporation is a nonprofit public benefit corporation created in 2010 for the purpose of aiding the financing of projects for the District. The Corporation’s articles of incorporation and bylaws empower it to act as the counterparty in this financing. The District’s Board of Directors serves as the Board of Directors of the Corporation.
Neither the Corporation nor its members have any obligations or liabilities to the Owners of the Certificates with respect to the payment of the Installment Payments by the District when due, or with respect to the performance by the District of any other covenant made by it in the Installment Purchase Contract.
UNDERWRITING
The District has agreed to sell the Certificates to Wells Fargo Bank, National Association, as underwriter (the “Underwriter”), and the Underwriter has agreed, subject to certain conditions, to purchase the Certificates at a purchase price of $14,085,626.75 (the principal amount of the Certificates less an underwriting discount of $83,943.75, and less net original issue discount of $265,429.50). The obligations of the Underwriter are subject to certain conditions precedent, and it will be obligated to purchase all such Certificates if any such Certificates are purchased. The Underwriter intends to offer the Certificates to the public initially at the prices and/or yield set forth on the cover page of this Official Statement, which prices or yields may subsequently change without any requirement of prior notice.
The Underwriter reserves the right to join with dealers and other underwriters in offering the Certificates to the public. The Underwriter may offer and sell Certificates to certain dealers (including dealers depositing Certificates into investment trusts) at prices lower than the public offering prices, and such dealers may reallow any such discounts on sales to other dealers. In reoffering Certificates to the public, the Underwriter may overallocate or effect transactions which stabilize or maintain the market prices for Certificates at levels above those which might otherwise prevail. Such stabilization, if commenced, may be discontinued at any time.
Wells Fargo Securities is the trade name for the capital markets and investment banking services of Wells Fargo & Company and its subsidiaries, including Wells Fargo Bank, National Association. Wells Fargo Bank, National Association (“WFBNA”), the sole underwriter of the Certificates, has entered into an agreement (the “Distribution Agreement”) with Wells Fargo Advisors, LLC (“WFA”) for the retail distribution of certain municipal securities offerings, including the Certificates. Pursuant to the Distribution Agreement, WFBNA will share a portion of its underwriting compensation with respect to the Certificates with WFA. WFBNA and WFA are both subsidiaries of Wells Fargo & Company. Wells Fargo Bank, National Association is serving as both Underwriter and Trustee for the Certificates.
LEGAL OPINIONS
All legal matters in connection with the execution and delivery of the Certificates are subject to the approval of Nossaman LLP, Irvine, California, Special Counsel. A copy of the approving opinion of Special Counsel will be provided to the registered owners of the Certificates, and the form of such opinion is attached hereto as APPENDIX C. Certain legal matters will be passed upon for the District by Young Wooldridge, LLP, Bakersfield, California, its general counsel, and Nossaman LLP, Irvine, California, as Disclosure Counsel. Certain
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legal matters will be passed upon for the Underwriter by its counsel, Jones Hall, A Professional Law Corporation, San Francisco, California.
TAX MATTERS
General. In the opinion of Nossaman LLP, Special Counsel, based on existing statutes, regulations, rulings and court decisions, the portion of each Installment Payment designated as and representing interest and received by the Owners of the Certificates (the “Interest Portion”) is excludable from gross income for federal income tax purposes and is exempt from State of California personal income taxes. A copy of the proposed opinion of Special Counsel is set forth in APPENDIX C hereto.
The Internal Revenue Code of 1986 (the “Code”), imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as that represented by the Certificates. The District has covenanted to comply with certain restrictions designed to assure that the Interest Portion will not be includable in federal gross income. Failure to comply with these covenants may result in the Interest Portion being included in federal gross income, possibly from the date of execution and delivery of the Certificates. The opinion of Special Counsel assumes compliance with these covenants. Special Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken) or events occurring (or not occurring) after the date of execution and delivery of the Certificates may affect the value of, or the tax status of the Interest Portion. Further, no assurance can be given that pending or future legislation or amendments to the Code, will not adversely affect the value of, or the tax status of the Interest Portion of, the Certificates. Prospective owners are urged to consult their own tax advisors with respect to proposals to restructure the federal income tax.
Special Counsel is further of the opinion that the Interest Portion is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, nor is the Interest Portion included in adjusted current earnings in calculating corporate alternative minimum taxable income.
Prospective purchasers of the Certificates should be aware that (i) with respect to insurance companies subject to the tax imposed by Section 831 of the Code, Section 832(b)(5)(B)(i) reduces the deduction for loss reserves by 15 percent of the sum of certain items, including interest with respect to obligations such as that represented by the Certificates, (ii) interest with respect to obligations such as those represented by the Certificates earned by certain foreign corporations doing business in the United States could be subject to a branch profits tax imposed by Section 884 of the Code, (iii) passive investment income, including interest with respect to obligations such as those represented by the Certificates, may be subject to federal income taxation under Section 1375 of the Code for subchapter S corporations having subchapter C earnings and profits at the close of the taxable year and gross receipts more than 25% of which constitute passive investment income, and (iv) Section 86 of the Code requires recipients of certain Social Security and certain Railroad Retirement benefits to take into account, in determining gross income, receipts or accruals of interest on obligations such as those represented by the Certificates.
If the initial offering price to the public (excluding bond houses and brokers) at which a Certificate is sold is less than the amount payable at maturity thereof, then such difference constitutes “original issue discount” for purposes of federal income taxes and State of California
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personal income taxes. If the initial offering price to the public (excluding bond houses and brokers) at which a Certificate is sold is greater than the amount payable at maturity thereof, then the excess of the tax basis of a purchaser of such Certificate (other than a purchaser who holds such Certificate as inventory, stock in trade or for sale to customers in the ordinary course of business) over the principal amount of such Certificate constitutes “original issue premium” for purposes of federal income taxes and State of California personal income taxes.
Under the Code, original issue discount is excludable from gross income for federal income tax purposes to the same extent as the Interest Portion on the Certificates. Further, such original issue discount accrues actuarially on a constant interest rate basis over the term of each such Certificate and the basis of such Certificate acquired at such initial offering price by an initial purchaser of each such Certificate will be increased by the amount of such accrued discount. The Code contains certain provisions relating to the accrual of original issue discount in the case of purchasers of the such Certificates who purchase such Certificates after the initial offering of a substantial amount thereof. Owners who do not purchase such Certificates in the initial offering at the initial offering prices should consult their own tax advisors with respect to the tax consequences of ownership of such Certificates. All holders of such Certificates should consult their own tax advisors with respect to the allowance of a deduction for any loss on a sale or other disposition to the extent that calculation of such loss is based on accrued original issue discount.
Under the Code, original issue premium is amortized for federal income tax purposes over the term of such a Certificate based on the purchaser’s yield to maturity in such Certificates, except that in the case of such a Certificate callable prior to its stated maturity, the amortization period and the yield may be required to be determined on the basis of an earlier call date that results in the lowest yield on such Certificate. A purchaser of such a Certificate is required to decrease his or her adjusted basis in such Certificate by the amount of bond premium attributable to each taxable year in which such purchaser holds such Certificate. The amount of bond premium attributable to a taxable year is not deductible for federal income tax purposes. Purchasers of such Certificates should consult their tax advisors with respect to the precise determination for federal income tax purposes of the amount of bond premium attributable to each taxable year and the effect of bond premium on the sale or other disposition of such a Certificate, and with respect to the state and local tax consequences of owning and disposing of such a Certificate.
Certain agreements, requirements and procedures contained or referred to in the Installment Purchase Contract and other relevant documents may be changed and certain actions may be taken or omitted under the circumstances and subject to the terms and conditions set forth in those documents, upon the advice or with the approving opinion of nationally recognized bond counsel. Special Counsel expresses no opinion as to any Certificate or the interest payable with respect thereto if any change occurs or action is taken or omitted upon the advice or approval of counsel other than Special Counsel.
Although Special Counsel has rendered an opinion that the Interest Portion is excludable from federal gross income, and is exempt from State of California personal income taxes, the ownership or disposition of the Certificates, and the accrual or receipt of the Interest Portion may otherwise affect an Owner’s state or federal tax liability. The nature and extent of these other tax consequences will depend upon each Owner’s particular tax status and the Owner’s other items of income or deduction. Special Counsel expresses no opinion regarding any such other tax consequences.
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From time to time, there are legislative proposals in the Congress and in the various state legislatures that, if enacted, could alter or amend federal and state tax matters referred to above or adversely affect the market value of the Certificates. It cannot be predicted whether or in what form any such proposal might be enacted or whether if enacted it would apply to Certificates issued prior to enactment. In addition, regulatory actions are from time to time announced or proposed and litigation is threatened or commenced which, if implemented or concluded in a particular manner, could adversely affect the market value of the Certificates. It cannot be predicted whether any such regulatory action will be implemented, how any particular litigation or judicial action will be resolved, or whether the Certificates or the market value thereof would be impacted thereby. Purchasers of the Certificates should consult their tax advisors regarding any pending or proposed legislation, regulatory initiatives or litigation. The opinions expressed by Special Counsel are based upon existing legislation and regulations as interpreted by relevant judicial and regulatory authorities as of the date of execution and delivery of the Certificates and Special Counsel has expressed no opinion as of any date subsequent thereto or with respect to any pending legislation, regulatory initiatives or litigation.
Information Reporting and Backup Withholding. As a result of the enactment of the Tax Increase Prevention and Reconciliation Act of 2005, interest on tax-exempt obligations such as the Certificates is subject to information reporting in a manner similar to interest paid on taxable obligations. Backup withholding may be imposed on payments made after March 31, 2007 to any Certificate owner who fails to provide certain required information including an accurate taxpayer identification number to any person required to collect such information pursuant to Section 6049 of the Code. The new reporting requirement does not in and of itself affect or alter the excludability of interest with respect to the Certificates from gross income for federal income tax purposes or any other federal tax consequence of purchasing, holding or selling tax-exempt obligations.
BANK QUALIFIED
The District has designated the Certificates “qualified tax-exempt obligations” within the meaning of Section 265(b)(3) of the Code, and, in the case of certain financial institutions (within the meaning of Section 265(b)(3) of the Code), a deduction is allowed for 80% of that portion of such financial institutions’ interest expense allocable to interest with respect to the Certificates.
LITIGATION
There is no action, suit or proceeding known to be pending or threatened, restraining or enjoining the execution or delivery of the Certificates, the Trust Agreement or the Installment Purchase Contract or in any way contesting or affecting the validity of the foregoing or any proceedings of the District taken with respect to any of the foregoing. The District is not aware of any litigation pending or threatened questioning the existence or powers of the District or the ability of the District to pay principal of or interest with respect to the Certificates.
Although the District is subject to a number of lawsuits in the ordinary conduct of its affairs, there are no claims or actions, threatened or pending which, if determined against the District, either individually or in the aggregate, would have a material adverse effect on the financial conditions of the District.
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The Litigation. As described under the caption “THE DISTRICT AND THE ENTERPRISE - Water Supply” above, with the court’s 2006 approval of the parties’ formal Settlement, the case became technically “closed”; however, the court has retained ongoing jurisdiction for at least four purposes: (1) To resolve disputes concerning interpretation of the Settlement, pursuant to Settlement provisions for negotiation and mediation, and then reference back to the court; (2) to follow up on the actual results of Settlement implementation, by allowing any party that so desires to file a motion with the court any time during the first six months of 2026, to seek modification of the river flows under the Settlement (after July 1, 2026 any action to modify the agreed flows must be filed as a separate, new, case); (3) to hear any motion plaintiffs might file in connection with the right they retained under the Settlement to seek attorney’s fees from other parties, related to work done after April 10, 2000; and (4) for public notice of certain matters through court filings, such as changes in party names, attorneys, and attorney contact information, as well as the annual report prepared pursuant to the settlement by the Restoration Administrator.
No disputes concerning interpretation of the Settlement are currently pending before the court; however, given the complexity of the Settlement, the number of interested parties and the controversies that could arise over restoration of the San Joaquin River and the demands it makes on the District’s and other CVP contractors’ water supply, such disputes may arise in the future. In the event that the parties themselves are unable to resolve such disputes informally or within the non-judicial processes provided for in the Settlement and any such dispute is considered by the court, under its retained jurisdiction the court could enter orders regarding implementation of the Settlement. The Settlement purports to be a global settlement, which specifies the quantity of water the Friant Division contractors (including the District) are to give up for releases to the San Joaquin River until at least 2026, and limits the financial contributions by Friant Division contractors, however it is possible that any such further proceedings by the court to resolve disputed issues could have adverse affects on the District’s water supply or the water costs; however, it is likely that any change in San Joaquin River flows as a result of the court’s reserved jurisdiction would require an order of the State Water Resources Control Board approving such a change. No request has been made regarding the plaintiffs’ claims for attorney’s fees, and District has no information as to the timing or amount of such claims, or whether or not any such request will be made. Attorney’s fees, if awarded, could be the obligation of the United States alone, or could be a directly or indirectly shared obligation of the United States, the District, the FWA, and the other Friant Division contractors who are parties to the Litigation. It should be noted in this regard, however, that the District, FWA and such other Friant Division contractors are of the position that federal law does not provide for liability on their part for such attorney’s fees.
Court of Claims - Complaint for Compensation Caused by Settlement. On August 26, 2010, a group of plaintiffs, representing the ownership of approximately 12,973 acres adjacent to the San Joaquin River and/or to existing flood bypass channels that convey flood flows in the river, filed a Complaint for Just Compensation against the United States of America in the United States Court of Federal Claims, seeking to recover unspecified monetary damages for alleged takings of land, building, and water rights, including severance damages, alleged to have arisen, or that will arise, from the actions of the United States in seeking to restore flows in the San Joaquin River under the Settlement. The case is Wolfsen Land & Cattle Co., et al., v. The United States of America (Case No. 1:2010cv00580). The complaint alleges that the Settlement, and the restoration of the San Joaquin River under the Settlement, will inflict damages to plaintiffs’ land through the permanent re-establishment of year around flows in the San Joaquin River and its associated flood bypass channels. This complaint does
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not seek to restrict or to enjoin the Settlement itself or implementation of any of its provisions. Damages for the alleged “taking” are requested from only the United States, not from District. However, it is possible that the complaint may impede the progress of the restoration and/or increase the United States’ costs thereof. In the event the complaint, or a decision in the complaint, impedes the efforts of the United States to complete the restoration under the Settlement, it could result in further proceedings in the Litigation under the reservation of jurisdiction as described above. The District can give no assurance that such actions will not occur, nor that future decisions related to the lawsuit will not adversely affect the District’s cost and availability of water from the CVP.
PROFESSIONAL FEES
In connection with the execution and delivery of the Certificates, fees payable to Special Counsel, Disclosure Counsel and the Trustee are contingent upon the execution and delivery of the Certificates. Although it is serving as Special Counsel and Disclosure Counsel to the District in connection with the execution and delivery of the Certificates, Special Counsel represents the Underwriter in connection with other financings and matters unrelated to the Certificates. Wells Fargo Bank, National Association is serving as both Underwriter and Trustee for the Certificates.
RATING
Standard & Poor’s Ratings Group, a division of The McGraw Hill Companies, Inc. (“Standard & Poor’s”) has assigned its municipal bond rating of “A+” to the Certificates. The rating reflects only the views of such organization, and an explanation of the significance of such rating may be obtained from Standard & Poor’s. There is no assurance that any rating will continue for any given period of time or that it will not be revised downward or withdrawn entirely by such rating agency, if, in the judgment of such rating agency, circumstances so warrant. The District undertakes no responsibility to oppose any downward revision or withdrawal of any rating obtained. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Certificates.
MISCELLANEOUS
All of the descriptions of the California Government Code, the California Water Code, other applicable legislation, the Installment Purchase Contract, the Trust Agreement, the Enterprise, the District, the Corporation, agreements and other documents are made subject to the provisions of such legislation and documents respectively and do not purport to be complete statements of any or all of such provisions. Reference is hereby made to such documents on file with the District for further information in connection therewith.
Any statements made in this Official Statement involving matters of opinion or estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized.
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The execution and delivery of this Official Statement has been duly authorized by the Board of Directors of the District.
SHAFTER-WASCO IRRIGATION DISTRICT By: /s/ Jerry L. Ezell
General Manager
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APPENDIX A
SUMMARY OF PRINCIPAL LEGAL DOCUMENTS
THE TRUST AGREEMENT
Definitions
“Accountant’s Report” means a report signed by an Independent Certified Public Accountant.
“Acquisition,” “Acquire” or “Acquired” means, with respect to the Project, the acquisition of an ownership or capacity interest in the Project, or the financing, construction or ownership of the Project.
“Acquisition Costs” with respect to the Project means the contract price paid or to be paid to the contractors therefor upon acquisition, construction, refinancing, improvement, repair, modification or delivery of any portion of the Project and related equipment, in accordance with the purchase order or contract therefor. Acquisition Costs include the costs of site preparation necessary for the installation of any improvements to the Project. Acquisition Costs also include costs incurred by the District, the Corporation and the contractors in connection with the acquisition, delivery and installation of the Project.
“Business Day” means any day other than a Saturday, Sunday or legal holiday or a day on which banks are authorized to be closed for business in California and New York.
“Certificate of the District” means an instrument in writing signed by the General Manager of the District, or by any other officer of the District duly authorized by the Board of Directors of the District for that purpose.
“Depository” means (a) initially, DTC, and (b) any other qualified securities depository acting as Depository pursuant to the Trust Agreement.
“Depository System Participant” means any participant in the Depository’s book entry system.
“DTC” means the Depository Trust Company, New York, New York, and its successors and assigns.
“Event of Default” means an event of default described in the Installment Purchase Contract.
“Federal Securities” means non-callable, direct obligations of (including obligations issued or held in book entry form on the books of the Department of the Treasury of the United States), or obligations the timely payment of the principal of and interest on which are fully and unconditionally guaranteed by, the United States of America.
“Fiscal Year” means the twelve calendar month period terminating on December 31 of each year, or any other annual accounting period hereafter selected and designated by the District as its Fiscal Year in accordance with applicable law.
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“Generally Accepted Accounting Principles” means the uniform accounting and reporting procedures prescribed by the California State Controller or his successor for irrigation districts in the State of California, or failing the prescription of such procedures means generally accepted accounting principles as presented and recommended by the American Institute of Certified Public Accountants or its successor, or by the National Council on Governmental Accounting or its successor, or by any other generally accepted authority on such principles.
“Independent Certified Public Accountant” means any certified public accountant or firm of certified public accountants duly licensed and entitled to practice, and practicing as such, under the laws of the State of California, appointed and paid by the District, and each of whom--
1. is in fact independent and not under the domination of the District; 2. does not have a substantial financial interest, direct or indirect, in the operations
of the District; and 3. is not connected with the District as a board member, officer or employee of the
District, but may be regularly retained to audit the accounting records of and make reports thereon to the District.
“Installment Payments” means the installment payments of principal and interest scheduled to be paid by the District under the Installment Purchase Contract plus amounts required to be paid by the District under the Trust Agreement and pursuant to the Installment Purchase Contract, including, without limitation (except when calculating the Reserve Requirement), amounts necessary to replenish the Reserve Fund.
“Interest Payment Date” means May 1, 2011 and each November 1 and May 1 thereafter; provided, however, if such date is not a Business Day, Interest Payment Date means the next succeeding Business Day.
“Moody’s” means Moody’s Investors Service, its successors and assigns.
“Net Proceeds” means, when used with respect to any insurance or condemnation award, the proceeds from such insurance or condemnation award remaining after payment of all reasonable expenses (including attorneys’ fees) incurred in the collection of such proceeds.
“Nominee” means (a) initially, Cede & Co., as nominee of DTC, and (b) any other nominee of a Depository designated pursuant to the Trust Agreement.
“Outstanding” when used as of any particular time with reference to Certificates, means all Certificates except --
(1) Certificates canceled by the Trustee;
(2) Certificates paid or deemed to have been paid; and
(3) Certificates in lieu of or in substitution for which replacement Certificates shall have been executed and delivered under the Trust Agreement.
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“Owner” means the registered owner of any Outstanding Certificate.
“Permitted Investments” means any of the following which at the time of investment are legal investments under the laws of the State of California for the moneys proposed to be invested therein (the Trustee is entitled to conclusively rely upon any direction of the District as a certification that such investment constitutes a Permitted Investment and is a legal investment under the laws of the State of California):
1. Direct 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, but excluding CATS and TIGRS) or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America.
2. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies and provided such obligations are backed by the full faith and credit of the United States of America (stripped securities are only permitted if they have been stripped by the agency itself):
Farmers Home Administration (FmHA) Certificates of beneficial ownership
Federal Housing Administration Debentures (FHA)
General Services Administration Participation certificates
Government National Mortgage Association (GNMA or “Ginnie Mae”) GNMA – guaranteed mortgage-backed bonds GNMA – guaranteed pass-through obligations (participation certificates) (not acceptable for certain cash-flow sensitive issues.)
U.S. Maritime Administration Guaranteed Title XI financing
U.S. Department of Housing and Urban Development (HUD) Project Notes Local District Bonds New Communities Debentures – U.S. Government guaranteed debentures U.S. Public Housing Notes and Bonds – U.S. Government guaranteed public housing notes and bonds
3. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following non-full faith and credit U.S. government agencies (stripped securities are only permitted if they have been stripped by the agency itself):
Federal Home Loan Bank Enterprise Senior debt obligations
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Federal Home Loan Mortgage Corporation (FHLMC or “Freddie Mac”) Participation certificates Senior debt obligations
Federal National Mortgage Association (FNMA or “Fannie Mae”) Mortgage-backed securities and senior debt obligations
Resolution Funding Corp. (REFCORP) obligations
Farm Credit Enterprise Consolidated system-wide bonds and notes
Federal Agriculture Mortgage Association
Tennessee Valley District
4. Money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933, and having a rating by S&P of “AAAm-G,” “AAA-m,” or “AA-m” and if rated by Moody’s rated “Aaa,” “Aa1” or “Aa2,” including funds for which the Trustee, its parent holding company, if any, or any affiliates or subsidiaries of the Trustee provide investment advisory or other management services.
5. Certificates of deposit secured at all times by collateral described in 1 and/or 2 above. Such certificates must be issued by commercial banks, savings and loan associations or mutual savings banks including the Trustee and its affiliates. The collateral must be held by a third party and the Owners must have a perfected first security interest in the collateral.
6. Certificates of deposit, savings accounts, deposit accounts or money market deposits which are fully insured by FDIC, including BIF and SAIF.
7. Investment agreements, including GIC’s, forward purchase agreements and reserve fund put agreements.
8. Commercial paper rated, at the time of purchase, “Prime -1” by Moody’s and “A-1” or better by S&P.
9. Bonds or notes issued by any state or municipality which are rated by Moody’s and S&P in one of the two highest rating categories assigned by such agencies.
10. Federal funds or bankers acceptances with a maximum term of one year of any bank which has an unsecured, uninsured and unguaranteed obligation rating of “Prime -1” or “A3” or better by Moody’s and “A-1+” by S&P.
11. Repurchase agreements for 30 days or less must follow the following criteria:
(i) Repurchase agreements that provide for the transfer of securities from a dealer bank or securities firm (seller/borrower) to the Trustee (buyer/lender), and the transfer of cash from the Trustee to the dealer bank or securities firm with an agreement that the dealer bank or securities firm will repay the cash plus a yield to the Trustee in exchange for the securities at a specified date.
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12. Medium-term Notes: Corporate notes issued by corporations organized and operating within the United States with a rating of “AAA” or higher at the time of purchase by a nationally recognized rating service and with a maximum remaining maturity of no more than three (3) years after the date of purchase.
13. The Local Agency Investment Fund created pursuant to Section 16429.1 of the California Government Code, to the extent the Trustee is authorized to register such investment in its name.
14. The Kern County Pooled Investment Fund.
15. Investment Trust of California, doing business as CalTRUST
16. Shares in a California common law trust established pursuant to Title 1, Division 7, Chapter 5 of the Government Code of the State of California which invests exclusively in investments permitted by Section 53601 of Title 5, Division 2, Chapter 4 of the Government Code of California, as it may be amended.
“Principal Office” means the corporate trust office of the Trustee currently located in Los Angeles, California, or such other office designated by the Trustee from time to time, except that with respect to presentation of Certificates for payment or for registration of transfer or exchange such term shall mean the office or agency of the Trustee at which, at any particular time, its corporate trust agency business shall be conducted.
“Project” means that certain property to be financed with the proceeds of the Certificates, as described in the Installment Purchase Contract.
“Record Date” means the fifteenth day of the calendar month prior to an Interest Payment Date, whether or not such date is a Business Day.
“Related Documents” means the Trust Agreement, the Assignment Agreement and the Installment Purchase Contract.
“Reserve Requirement” means, as of any date of calculation by the Trustee, the lesser of (i) 10% of the original principal amount of the principal payments due under the Installment Purchase Contract (less original issue discount, if any), (ii) an amount equal to the maximum annual Installment Payment payable in a Certificate Year by the District between such date of calculation and the expiration of the Installment Purchase Contract, or (iii) 125% of the average annual Installment Payment payable in a Certificate Year by the District.
“S&P” means Standard & Poor’s Rating Group, its successors and assigns.
Transfer and Exchange of Certificates
Subject to the provisions of the Trust Agreement, each Certificate shall be transferable only upon a register of the names of each certificate owner (the “Certificate Register”), which shall be kept for that purpose at the principal office of the Trustee, by the Owner thereof in person or by his attorney duly authorized in writing, upon surrender thereof together with a written instrument of transfer satisfactory to the Trustee duly executed by the Owner or his duly authorized attorney. The Trustee shall deem and treat the person in whose name any Outstanding Certificate shall be registered upon the Certificate Register as the
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absolute owner of such Certificate, whether such Certificate shall be overdue or not, for the purpose of receiving payment of, or on account of, the principal of and interest on such Certificate and for all other purposes, and all such payments so made to any such Owner or upon his order shall be valid and effectual to satisfy and discharge the liability upon such Certificate to the extent of the sum or sums so paid, and neither the District nor the Trustee shall be affected by any notice to the contrary.
Certificates Mutilated, Destroyed, Lost or Stolen
If any Certificate shall become mutilated, the Trustee, at the expense of the Owner of said Certificate, shall execute and deliver a new Certificate of like tenor in exchange and substitution for the Certificate so mutilated, but only upon surrender to the Trustee of the Certificate so mutilated. Every mutilated Certificate so surrendered to the Trustee shall be canceled by it and destroyed. If any Certificate shall be lost, destroyed or stolen, evidence of such loss, destruction or theft shall be submitted to the Trustee, and, if such evidence is satisfactory to the Trustee and if an indemnity satisfactory to the Trustee shall be given, the Trustee, at the expense of the Certificate Owner, shall execute and deliver a new Certificate of like tenor and numbered as the Trustee shall determine in lieu of and in substitution for the Certificate so lost, destroyed or stolen. The Trustee may require payment of a reasonable fee for each new Certificate delivered under this Section and of the reasonable expenses which may be incurred by the Trustee in carrying out the duties. Notwithstanding any other provision, in lieu of delivering a new Certificate for a Certificate which has been mutilated, lost, destroyed or stolen and which has matured, the Trustee may make payment of such Certificate, upon receipt of indemnity satisfactory to Trustee.
The Reserve Fund
The Trustee agrees to establish and maintain so long as any Certificates are Outstanding the Reserve Fund. Amounts on deposit in the Reserve Fund shall be available only to pay the principal and interest with respect to the Certificates, and for so long as any Certificates remain outstanding, shall not be available for the payment of debt service on or with respect to any Parity Obligations. The Trustee shall hold the Reserve Fund in trust and shall apply moneys in the Reserve Fund in accordance with the following provisions. If, five (5) days prior to any Interest Payment Date, the money in the Installment Payment Fund is insufficient to make the payments required under the Trust Agreement with respect to the Certificates on such Interest Payment Date the Trustee shall transfer from the Reserve Fund to the Installment Payment Fund the amount of such insufficiency. If as of the first (1st) day of the month preceding any Interest Payment Date there shall be any deficiency in the Reserve Fund (whether due to a payment therefrom or due to the fluctuation in market value of securities credited thereto, or otherwise), the Trustee shall promptly notify the District in writing of the amount of such deficiency and the District shall pay to the Trustee the amount of such deficiency as provided in the Installment Purchase Contract. Delinquent Installment Payments, when received, shall be used to replenish any draw on the Reserve Fund caused by such delinquency.
If, following valuation thereof, the amount available and contained in the Reserve Fund (valued as provided in the Trust Agreement) exceeds the Reserve Requirement and if the District is not then in default under the Trust Agreement, the Trustee shall withdraw the amount of such excess from the Reserve Fund. The Trustee shall deposit such amount in the Installment Payment Fund in accordance with instructions of the District as required under the Trust Agreement. Except for such withdrawals all money in the Reserve Fund shall be used
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and withdrawn by the Trustee solely for the purpose of making the Installment Payments in the event that amounts on deposit in the Installment Payment Fund are insufficient for such purposes, or to pay the final Installment Payments.
Deposit of Installment Payments
All Installment Payments shall be paid directly by the District to the Trustee, and if received by the Corporation at any time shall be deposited by the Corporation with the Trustee within one (1) Business Day after the receipt thereof. All Installment Payments received by the Trustee shall be held in trust by the Trustee under the terms of the Trust Agreement and shall be deposited by it as and when received in the Installment Payment Fund, which fund the Trustee hereby agrees to establish and maintain so long as any Certificates are Outstanding.
Installment Payment Fund
The Trustee shall deposit the money contained in the Installment Payment Fund at the following respective times in the following respective accounts in the following order of priority in the manner provided in the Trust Agreement, each of which fund and account the Trustee hereby agrees to establish and maintain so long as any Certificates are Outstanding, and the money in each of such funds shall be disbursed only for the purposes and uses authorized:
(a) Interest Account. The Trustee, on each Interest Payment Date, shall deposit in the Interest Account that amount of money constituting the interest components due and unpaid or becoming due and payable to but not including such Interest Payment Date. All money in the Interest Account shall be used and withdrawn by the Trustee solely for the purpose of paying the interest evidenced and represented by such Certificates to but not including their respective Interest Payment Dates or any other date on which the Certificates may be prepaid.
(b) Principal Account. The Trustee on each November 1, shall deposit in the Principal Account that amount of money constituting the principal components of Installment Payments representing the principal to become due and unpaid or becoming due and payable on November 1. All moneys in the Principal Account shall be used and withdrawn by the Trustee solely for the purpose of paying the principal evidenced and represented by such Certificates on the principal payment date.
(c) Prepayment Account. The Trustee, on the prepayment date specified in the Certificate of the District filed with the Trustee at the time that any prepayment is paid to the Trustee pursuant to the Installment Purchase Contract, shall deposit in the Prepayment Account the amount of such prepayment. All money in the Prepayment Account shall be used and withdrawn by the Trustee solely for the purpose of paying the interest and principal and any applicable premium evidenced and represented by such Certificates to be prepaid on their respective prepayment dates.
Commingling of Moneys in Funds
The Trustee at its sole discretion may, and upon the written request of the District shall, commingle any of the funds held by it pursuant to the Trust Agreement into a separate fund or funds for investment purposes only; provided, however, that all funds or
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accounts held by the Trustee under the Trust Agreement shall be accounted for separately notwithstanding such commingling by the Trustee.
Arbitrage Covenant
The District and the Corporation covenant with the Owners of the Certificates that, notwithstanding any other provision of the Trust Agreement, they will make no use of the proceeds of the Certificates which would cause the Certificates to be “arbitrage bonds” subject to federal income taxation by reason of Section 148 of the Internal Revenue Code of 1986, as amended. The Trustee hereby covenants with the Owners of the Certificates that it will comply with the express provisions of the Trust Agreement and will follow the written directions of the District and, so long as the Trustee shall have complied with the written instructions of the District as provided in the Trust Agreement with respect to making any rebate indicated therein to the United States, the Trustee shall conclusively be deemed to have complied with its obligations under the Trust Agreement and shall not be liable if the Certificates become arbitrage bonds.
Use of Money in the Acquisition Fund
The Trustee agrees to establish and maintain the Acquisition Fund until the completion of the Acquisition of the Project. All money in the Acquisition Fund shall be held by the Trustee in trust and shall be applied by the Trustee, along with certain other funds of the District, for the payment of Acquisition Costs of certain improvements relating to the Project and the expenses incidental thereto (including reimbursement to the District for any such costs or expenses theretofore paid by it for the account of the Corporation whether or not paid prior to the date of the Trust Agreement). The Trustee shall not disburse any funds from the Acquisition Fund (other than amounts to be deposited into an escrow account to purchase a portion of the Project or to reimburse the District), until the District has obtained title to such component of the Project. Upon receipt of each such Certificate of District, the Trustee shall, so long as the Trustee does not have actual knowledge of or has not received written notice that the District or the Corporation is then in default under the Installment Purchase Contract or under the Trust Agreement, pay the amount set forth therein as directed by the terms thereof from moneys on deposit in the Acquisition Fund, except that the Trustee shall not make any such payment of Acquisition Costs if it has received a stop notice or any other notice of any lien, right to lien or attachment upon, or claim affecting the right to receive payment of, any of the money to be so paid which has not been released or will not be released simultaneously with such payment, other than materialmen’s or mechanics’ liens accruing by mere operation of law or a notice from the Corporation stating that the District is not authorized to act as agent for the Corporation with respect to the matter described in such Certificate of the District. When the Acquisition of the Project has been completed to the satisfaction of the District or when the District determines that a portion of the Project will not be Acquired, the Trustee shall transfer first to the Reserve Fund until the amount therein equals the Reserve Requirement, and thereafter to the Installment Payment Fund, all remaining moneys in the Acquisition Fund, to be credited to the payment of the Installment Payments as provided in the Trust Agreement.
Rebate of Excess Investment Earnings to United States
The District covenants to calculate the amount of, and to rebate to the United States, excess investment earnings, all in accordance with the Regulations. The Trustee shall not be responsible for enforcing compliance with such rebate requirements. The District shall calculate or cause to be calculated, and shall provide, or cause to be provided, written notice to
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the Trustee of the excess investment earnings (as defined in the Code, “Excess Investment Earnings”) at such times and in such manner as may be required pursuant to the Code. The District shall inform the Trustee how frequently calculations are to be made, and shall ensure that a copy of all such calculations which indicate a payment is required is given promptly to the Trustee. The District agrees to deposit with the Trustee the amount of Excess Investment Earnings so calculated. The Trustee shall deposit all amounts paid to it for such purpose by the District in the Rebate Fund, which the Trustee shall establish when so directed by the District. The Trustee shall pay to the United States of America from the amounts on deposit in the Rebate Fund such amounts as shall be identified pursuant to written notice filed with the Trustee by the District for such purpose from time to time.
Compliance with Trust Agreement
The Corporation and the District will not suffer or permit any default by them to occur under the Trust Agreement, but will faithfully comply with, keep, observe and perform all the agreements, conditions, covenants and terms of the Trust Agreement required to be complied with, kept, observed and performed by them.
Compliance with Installment Purchase Contract
The District and the Corporation will faithfully comply with, keep, observe and perform all the agreements, conditions, covenants and terms contained in the Installment Purchase Contract required to be complied with, kept, observed and performed by them and will enforce the Installment Purchase Contract against the other party thereto in accordance with its terms.
Observance of Laws and Regulations
The Corporation and the District will faithfully comply with, keep, observe and perform all valid and lawful obligations or regulations now or hereafter imposed on them by contract, or prescribed by any law of the United States of America or of the State of California, or by any officer, board or commission having jurisdiction or control, as a condition of the continued enjoyment of each and every franchise, right or privilege now owned or hereafter acquired by them, including their right to exist and carry on their respective businesses, to the end that such franchises, rights and privileges shall be maintained and preserved and shall not become abandoned, forfeited or in any manner impaired.
Other Liens
The District will keep the Enterprise and all parts thereof free from judgments and materialmen’s and mechanics’ liens and free from all claims, demands, encumbrances and other liens of whatever nature or character, and free from any claim or liability which may hamper the District in conducting its business or utilizing the Enterprise, and the District shall defend against any and all actions or proceedings in which the validity of the Trust Agreement is or might be questioned, or may pay or compromise any claim or demand asserted in any such actions or proceedings. So long as any Certificates are Outstanding, neither the Corporation nor the District will create or suffer to be created any pledge of or lien on the Installment Payments and the Net Revenues other than as permitted under the Trust Agreement or under the Installment Purchase Contract.
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Prosecution and Defense of Suits
The District will promptly, upon request of the Trustee or any Owner, take such action from time to time as may be necessary or proper to remedy or cure any cloud upon or defect in the title to the Enterprise or any part thereof, whether now existing or hereafter developing, will prosecute all actions, suits or other proceedings as may be appropriate for such purpose and will indemnify and save the Trustee and every Owner harmless from all cost, damage, expense or loss, including attorneys’ fees, which they or any of them may incur by reason of any such cloud, defect, action, suit or other proceeding.
Further Assurances
Whenever and so often as requested to do so by the Trustee or any Owner, the Corporation and the District will promptly execute and deliver or cause to be executed and delivered all such other and further assurances, documents or instruments and promptly do or cause to be done all such other and further things as may be necessary or reasonably required in order to further and more fully vest in the Trustee and the Owners all advantages, benefits, interests, powers, privileges and rights conferred or intended to be conferred upon them by the Trust Agreement, the Installment Purchase Contract or the Assignment Agreement.
Action on Default or Acceleration
If an Event of Default under the Installment Purchase Contract shall happen, then such Event of Default shall constitute an Event of Default under the Trust Agreement. In each and every such case during the continuance of such Event of Default the Trustee or, subject to the provisions of the Trust Agreement, the Owners of not less than a majority in aggregate principal amount represented by the Certificates at the time Outstanding upon notice given in writing to the District and the Trustee may exercise the remedies provided to the Corporation in the Installment Purchase Contract. Upon the occurrence of an Event of Default under the Trust Agreement, the Trustee may declare the principal and interest with respect to all such Certificates immediately due and payable and such principal and interest shall thereupon be due and payable immediately. The Trustee shall apply amounts on deposit in the funds and accounts created under the Installment Purchase Contract and the Trust Agreement in accordance with the Trust Agreement.
Other Remedies of the Trustee
The Trustee and, subject to the provisions of the Trust Agreement, the Owners of not less than a majority in aggregate principal amount represented by the Certificates at the time Outstanding may:
(a) by mandamus or other action or proceeding or suit at law or in equity enforce its rights against the Corporation or the District or any board member, officer or employee thereof, and compel the Corporation or the District or any such board member, officer or employee to perform or carry out its or his duties under law and the agreements and covenants required to be performed by it or him contained in the Trust Agreement; or
(b) by suit in equity enjoin any acts or things which are unlawful or violate the rights of the Trustee;
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(c) intervene in judicial proceedings that affect the Certificates or the security therefor; or
(d) seek the appointment of a receiver or other third party to operate the Enterprise and collect Revenues.
Non-Waiver
A waiver of any default or breach of duty or contract by the Trustee or the Owners shall not affect any subsequent default or breach of duty or contract or impair any rights or remedies on any such subsequent default or breach of duty or contract. No delay or omission by the Trustee or the Owners to exercise any right or remedy accruing upon any default or breach of duty or contract shall impair any such right or shall be construed to be a waiver of any such default or breach of duty or contract or an acquiescence therein, and every right or remedy conferred upon the Trustee or the Owners by law or by this article may be enforced and exercised from time to time and as often as shall be deemed expedient by the Trustee. If any action, proceeding or suit to enforce any right or to exercise any remedy is abandoned or determined adversely to the Trustee or the Owners, the Trustee, the Owners, the Corporation and the District shall be restored to their former positions, rights and remedies as if such action, proceeding or suit had not been brought or taken.
Remedies Not Exclusive
No remedy in the Trust Agreement conferred upon or reserved to the Trustee is intended to be exclusive of any other remedy, and each such remedy shall be cumulative and shall be in addition to every other remedy given under the Trust Agreement or now or hereafter existing in law or in equity or by statute or otherwise and may be exercised without exhausting and without regard to any other remedy conferred by any law.
No Liability by the Corporation to the Owners
The Corporation shall not have any obligation or liability to the Owners with respect to the payment when due of the Installment Payments by the District, or with respect to the performance by the District of the other agreements and covenants required to be performed by it contained in the Installment Purchase Contract or in the Trust Agreement, or with respect to the performance by the Trustee of any right or obligation required to be performed by it contained in the Trust Agreement.
No Liability by the District to the Owners
Except for the payment when due of the Installment Payments and the interest thereon, and the performance of the other agreements and covenants required to be performed by it contained in the Installment Purchase Contract or in the Trust Agreement, the District will not have any obligation or liability to the Owners with respect to the Trust Agreement or the preparation, execution, delivery or transfer of the Certificates or the disbursement of the Installment Payments, and the interest thereon, by the Trustee, or with respect to the performance by the Trustee of any right or obligation required to be performed by it contained in the Trust Agreement.
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No Liability by the Trustee to the Owners
Except for the duty of the Trustee to make payments of principal, prepayment premiums and interest with respect to the Certificates from moneys received from the District, the Trustee will not have any obligation or liability to the Owners with respect to the payment when due of the Installment Payments and the interest thereon by the District, or with respect to the performance by the District of the other agreements and covenants required to be performed by it contained in the Installment Purchase Contract or in the Trust Agreement.
Limitation on Owners’ Right to Bring Suit
No Owner of any Certificate shall have any right to institute any proceeding, judicial or otherwise, under or with respect to the Trust Agreement, or for the appointment of a receiver or trustee or for any other remedy under the Trust Agreement, at law or in equity, unless:
(1) such Owner has previously given written notice to the Trustee of a continuing event of default;
(2) the owners of not less than a majority in principal amount of the Certificates Outstanding shall have made written request to the Trustee to institute proceedings in respect of such event of default in its own name as Trustee under the Trust Agreement;
(3) such Owner or Owners have offered to the Trustee reasonable indemnity, satisfactory to the Trustee, against the costs, expenses and liabilities to be incurred in compliance with such request; and
(4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding.
It being understood and intended that no one or more Owners shall have any right in any manner whatever by virtue of, or by availing of, any provision of the Trust Agreement to affect, disturb or prejudice the lien of the Trust Agreement or the rights of any other Owners or to obtain or to seek to obtain priority or preference over any other Owners or to enforce any right under the Trust Agreement, except in the manner in the Trust Agreement provided and for the equal and ratable benefit of all Certificates. Notwithstanding the foregoing, the Owner of any Certificate shall have the right which is absolute and unconditional to receive payment of interest on such Certificate when due in accordance with the terms thereof and of the Trust Agreement and the principal of such Certificate at the stated maturity thereof and to institute suit for the enforcement of any such payment in accordance with the provisions of the Trust Agreement and such rights shall not be impaired without the consent of such Owner.
Application of Funds Upon Default
All monies received by the Trustee or by any receiver pursuant to any right given or action taken shall, after payment of the reasonable costs and fees of, and the reasonable expenses, liabilities and advances incurred or made by the Trustee in and about the performance of its powers and duties under the Trust Agreement, be deposited in the Installment Payment Fund and all moneys so deposited during the continuance of an Event of Default (other than moneys for the payment of Certificates which have previously matured or otherwise become payable prior to such Event of Default or for the payment of interest due
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prior to such Event of Default), together with all moneys in the Funds maintained by the Trustee under the Trust Agreement, shall be applied as follows:
(a) Unless the principal of all Certificates shall have become or shall have been declared due and payable, all such moneys shall be applied:
First: To the payment to the Persons entitled thereto of all installments of interest then due on the Certificates, with interest on overdue installments, if lawful, at the rate per annum borne by the Certificates, in the order of the maturity of the installments of such interest, and, if the amount available shall not be sufficient to pay in full any particular installment of interest, then to the payment ratably according to the amounts due on such installment, to the Persons entitled thereto without any discrimination or privilege;
Second: To the payment to the Persons entitled thereto of the unpaid principal of any of the Certificates which shall have become due (other than Certificates called for prepayment for the payment of which moneys are held pursuant to the provisions of the Trust Agreement), with interest on such Certificates at their rate from the respective dates upon which they became due, in the order of their due dates, and, if the amount available shall not be sufficient to pay in full Certificates due on any particular date, together with such interest, then to the payment ratably, according to the amount of principal and interest due on such date, to the Persons entitled thereto without any discrimination or privilege; and
Third: To the payment of amounts, if any, payable to the United States Treasury in respect of rebate.
(b) If the principal of all the Certificates shall have become due or shall have been declared due and payable, all such moneys shall be applied:
First: To the payment of the principal and interest then due and unpaid upon the Certificates, with interest on overdue interest and principal, as aforesaid, without preference or priority over interest or of interest over principal or of any installment of interest over any other installment of interest, or of any Certificates over any other Certificates, ratably, according to the amounts due respectively for principal and interest, to the Persons entitled thereto without any discrimination or privilege; and
Second: To the payment of amounts, if any, payable to the United States Treasury in respect of rebate.
The Trustee
The District (so long as an Event of Default has not occurred) or the Owners of a majority in aggregate principal amount of all Certificates Outstanding may, by thirty (30) days prior written request, remove the Trustee initially a party hereto, and any successor thereto, and in such event, or in the event the Trustee resigns, the District shall appoint a successor Trustee, but any such successor shall be a bank, corporation or trust company in good standing doing business and having an office in Los Angeles or San Francisco, California, having a combined capital (exclusive of borrowed capital) and surplus of at least fifty million dollars ($50,000,000) and subject to supervision or examination by federal or state authority. The
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Trustee may at any time resign by giving written notice to the District and by giving to the Certificate Owners notice by mailing a notice of such resignation to their addresses appearing in the Certificate register. Upon receiving any such notice of resignation, the District shall promptly appoint a successor Trustee by an instrument in writing; provided, however, that in the event that the District does not appoint a successor Trustee within thirty (30) days following receipt of such notice of resignation, the resigning Trustee may petition an appropriate court having jurisdiction to appoint a successor Trustee. Any resignation or removal of the Trustee shall not become effective until written acceptance of appointment by the successor Trustee under the Trust Agreement.
Whenever in the administration of its duties under the Trust Agreement, the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action under the Trust Agreement, such matter (unless other evidence in respect thereof be specifically prescribed in the Trust Agreement) may, in the absence of bad faith on the part of the Trustee, be deemed to be conclusively proved and established by the certificate of an Authorized Officer of the District and such certificate shall be full warranty to the Trustee for any action taken or suffered under the provisions of the Trust Agreement upon the faith thereof, but in its discretion the Trustee may, in lieu thereof (but shall not be obligated to), accept other evidence of such matter. The Trustee may execute any of the trusts or powers of the Trust Agreement and perform the duties required of it under the Trust Agreement by or through attorneys, agents, or receivers, and shall be entitled to advice of counsel concerning all matters of trust and its duty under the Trust Agreement.
Before taking any remedial action under the Trust Agreement the Trustee may require that a satisfactory indemnity bond or other indemnity satisfactory to the Trustee be furnished for the reimbursement of all reasonable expenses to which it may be put and to protect it against all liability which may be incurred in connection with the taking of such action, except liability which is adjudicated to have resulted from its negligence or willful misconduct; provided, however, the Trustee shall not seek such indemnity prior to making payments on the Certificates. The Trustee, prior to the occurrence of an Event of Default, and after the curing or waiving of all Events of Default which may have occurred, undertakes to perform only such duties as are specifically set forth in the Trust Agreement. The Trustee shall, during the existence of any Event of Default (which has not been cured or waived), exercise such of the rights and powers vested in it by the Trust Agreement, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use in the conduct of such person’s own affairs. The Trustee shall not be deemed to have knowledge of an event of default under the Installment Purchase Contract (except in connection with a failure of the District to make Installment Payments when due) until it has actual knowledge thereof, or until notified in writing of such event of default.
In acting as Trustee under the Trust Agreement, the Trustee acts solely in its capacity as Trustee under the Trust Agreement and not in its individual or personal capacity, and all persons, including without limitation the Owners, the District and the Corporation, having any claim against the Trustee shall look only to the funds and accounts held by the Trustee under the Trust Agreement for payment, except as otherwise provided in the Trust Agreement. Under no circumstances shall the Trustee be liable in its individual or personal capacity for the obligations evidenced by the Certificates.
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Amendment or Supplement by Consent of Owners
The Trust Agreement may be amended in writing by agreement among all of the parties, but no such amendment (except as provided below) shall become effective as to the Owners of the Certificates then Outstanding, unless and until approved by the Owners of a majority in aggregate principal amount of Certificates Outstanding; provided that no such amendment shall impair the right of any Owner to receive his proportionate share of any Installment Payments in accordance with his Certificate of Participation unless consented to by the applicable Certificate Owner. Notwithstanding the foregoing, the Trust Agreement and the rights and obligations provided thereby may also be modified or amended at any time without the consent of any Owners of the Certificates, but only (1) for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained in the Trust Agreement, or (2) in regard to questions arising under the Trust Agreement which the District may deem necessary or desirable and not inconsistent with the Trust Agreement and which shall not materially adversely affect the interests of the Owners; provided that the Corporation, the District and the Trustee may rely in entering into any such amendment of the Trust Agreement upon the opinion of nationally recognized bond counsel stating that the requirements of this sentence shall have been met with respect to such amendment.
Defeasance
Any Outstanding Certificates shall be paid and discharged in any one or more of the following ways:
(a) by paying or causing to be paid the principal and interest with respect to the Certificates Outstanding to be defeased, as and when the same become due and payable;
(b) by depositing with the Trustee, in trust, before maturity, money which, together with the amounts which are then on deposit in the Installment Payment Fund and the Reserve Fund, is fully sufficient to pay such Certificates Outstanding, including all principal and interest relating thereto;
(c) by depositing with the Trustee, in trust under an escrow deposit and trust agreement, non-callable Federal Securities (the “Defeasance Obligations”) in such amount as a nationally recognized certified public accountant shall determine will, together with the interest to accrue thereon and moneys then on deposit in the Installment Payment Fund and Reserve Fund to be applied to such defeasance together with the interest to accrue thereon, be fully sufficient to pay and discharge such Certificates (including all principal and interest) at or before their respective maturity dates;
(d) by depositing with the Trustee, under an escrow deposit and trust agreement, cash, or Defeasance Obligations for the payment of a portion of Installment Payments as more particularly described in the Installment Purchase Contract, said Defeasance Obligations to be held by the Trustee, as agent for District and to be applied by the Trustee to pay Installment Payments representing the obligation of the District under the Installment Purchase Contract, as described in the Installment Purchase Contract.
Notwithstanding that some Certificates may not have been surrendered for payment, all obligations of the Corporation, the Trustee and the District under the Trust Agreement with respect to all defeased Certificates shall cease and terminate, except only the
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obligation of the Trustee to pay or cause to be paid to the Owners of the Certificates all sums due thereon.
Unclaimed Moneys
Anything contained in the Trust Agreement to the contrary notwithstanding, any money held by the Trustee in trust for the payment and discharge of the interest or principal evidenced and represented by any of the Certificates which remains unclaimed for two (2) years after the date when the payments evidenced and represented by such Certificates have become payable, if such money was held by the Trustee at such date, or for two (2) years after the date of deposit of such money if deposited with the Trustee after the date when the interest and principal evidenced and represented by such Certificates have become payable, the Trustee shall pay such amounts to the District as its absolute property free from trust, and the Trustee shall thereupon be released and discharged with respect thereto and the Owners shall look only to the District for interest and principal represented by such Certificates.
Benefits of Trust Agreement Limited to Parties
Nothing contained in the Trust Agreement, expressed or implied, is intended to give to any person other than the Corporation, the District, the Trustee and the Owners any claim, remedy or right under or pursuant hereto, and any agreement, condition, covenant or term contained in the Trust Agreement required to be observed or performed by or on behalf of the Corporation or the District shall be for the sole and exclusive benefit of the Trustee and the Owners.
Waiver of Personal Liability
No board member, officer or employee of the Corporation or the District shall be individually or personally liable for the payment of the interest or principal evidenced and represented by the Certificates, but nothing contained in the Trust Agreement shall relieve any board member, officer or employee of the District or the Corporation from the performance of any official duty provided by any applicable provisions of law or by the Installment Purchase Contract or hereby.
Investments
Amounts on deposit in any fund or account created pursuant to the Installment Purchase Contract or the Trust Agreement (except the Reserve Fund) shall be invested in Permitted Investments which will, as nearly as practicable, mature on or before the dates when such money is anticipated to be needed for disbursement under the Trust Agreement, in accordance with such written directions as the District may from time to time provide to the Trustee. Amounts on deposit in the Reserve Fund shall be invested by the Trustee, in accordance with written directions from the District, in Permitted Investments (i) having an average aggregate weighted term to maturity not greater than five (5) years, or (ii) of any maturity, but callable at par for any purpose required by the Trust Agreement. The Trustee may act as principal or agent in the acquisition or disposition of any such investment. The Trustee shall not be liable or responsible for any loss suffered in connection with any such investment made by it. The Trustee may sell or present for prepayment any obligations so purchased whenever it shall be necessary in order to provide moneys to meet any payment of the funds so invested, and the Trustee shall not be liable or responsible for any losses resulting from any such investment sold or presented for prepayment. Interest or profit received on such
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investments shall be deposited to the Reserve Fund to the extent the amount on deposit therein is less than the Reserve Requirement, and thereafter to the Acquisition Fund until the Project is Acquired, and thereafter to the Installment Payment Fund. The Trustee may exclusively rely that any investment directed by the District under the Trust Agreement is a Permitted Investment as required by the Trust Agreement. The Trustee may act as depository, manager, advisor or sponsor with regard to any Permitted Investment.
In computing the amount in any fund or account, Permitted Investments shall be valued at fair market value, marked to market, exclusive of accrued interest. The Trustee shall perform such valuation (i) in no event less often than once a year or more frequently than monthly, and (ii) upon any draw on the Reserve Fund. In making any valuations under the Trust Agreement, the Trustee may utilize any securities pricing services that may be available to it, including those within its regular accounting system, and conclusively rely thereon. If amounts on deposit in the Reserve Fund shall, at the time of valuation, be less than the applicable Reserve Requirement the Trustee shall notify the District within five (5) Business Days and such deficiency shall be immediately made up by the District from Revenues and such Reserve Fund shall be valued monthly until amounts on deposit therein equal the Reserve Requirement.
If at any time after investment therein a Permitted Investment ceases to meet the criteria set forth in the definition of Permitted Investments and such obligation, aggregated with other non-conforming investments, exceeds ten percent (10%) of invested funds, such Permitted Investment shall be sold or liquidated. The Trustee shall terminate any repurchase agreement upon a failure of the counterparty thereto to maintain the requisite collateral percentage after the restoration period and, if not paid by the counterparty in federal funds against transfer of the repurchase securities, liquidate the collateral. The Trustee shall, upon actual knowledge of a default under a repurchase or investment agreement or the withdrawal or suspension of either of the ratings of a repurchase or investment agreement provider or a drop in the ratings thereon below “AA” or “Aa”, as appropriate, or “AAA” or “Aaa”, as appropriate, in the case of a foreign bank, shall demand further collateralization of the agreement or termination thereof and liquidation of the collateral.
California Law
The Trust Agreement shall be construed and governed in accordance with the laws of the State of California.
THE INSTALLMENT PURCHASE CONTRACT
Definitions
“Accountant’s Report” means a report signed by an Independent Certified Public Accountant.
“Additional Revenues” means, with respect to the issuance of any Parity Obligations, an allowance for Net Revenues (i) arising from any increase in the charges made for service from the Enterprise adopted prior to the incurring of such Parity Obligations and effective within eighteen (18) months following the date of incurring such Parity Obligations, in an amount equal to the total amount by which the Net Revenues would have been increased if
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such increase in charges had been in effect during the whole of the most recent completed Fiscal Year or during any more recent twelve (12) month period selected by the District, and (ii) arising from any increase in service connections to the Enterprise prior to the incurring of such Parity Obligations, in an amount equal to the total amount by which the Net Revenues would have been increased if such connections had been in existence during the whole of the most recent completed Fiscal Year or during any more recent twelve (12) month period selected by the District, all as shown by the certificate or opinion of an Independent Financial Consultant.
“Alternate Project” means an alternate project designated by the District pursuant to the Installment Purchase Contract.
“Business Day” means any day other than a Saturday, Sunday or legal holiday or a day on which banks are authorized to be closed for business in California and New York.
“Certificate Year” means the twelve calendar month period commencing on November 2 and terminating on November 1 of the following year; provided, that the first Certificate Year shall commence on the Closing Date and terminate on November 1, 2011.
“Code” means the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder.
“Due Date” means each October 15 and April 15, commencing April 15, 2011.
“DWR Loan” means that certain loan from the California Department of Water Resources, as evidenced by Contract No. E74006, dated as of May 26, 1994, as amended.
“Engineer’s Report” means a report signed by an Independent Engineer.
“Enterprise” means the District’s water system, including all facilities, works, properties and structures of the District for the treatment, transmission and distribution of potable and non-potable water, including all contractual rights to water supplies, transmission capacity supply, easements, rights-of-way and other works, property or structures necessary or convenient for such facilities, together with all additions, betterments, extension and improvements to such facilities or any part thereof hereafter acquired or constructed.
“Event of Default” means an event of default described in the Installment Purchase Contract.
“Governmental Loan” means a loan from the State or the United States of America, acting through any of its agencies, to finance improvements to the Enterprise, and the obligation of the District to make payments to the State or the United States of America under the loan agreement memorializing said loan on a parity basis with the payment of Installment Payments.
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“Independent Certified Public Accountant” means any certified public accountant or firm of certified public accountants duly licensed and entitled to practice, and practicing as such, under the laws of the State of California, appointed and paid by the District, and each of whom--
1. is in fact independent and not under the domination of the District; 2. does not have a substantial financial interest, direct or indirect, in the
operations of the District; and 3. is not connected with the District as a board member, officer or employee
of the District, but may be regularly retained to audit the accounting records of and make reports thereon to the District.
“Independent Engineer” means any registered engineer or firm of engineers of national reputation generally recognized to be well qualified in engineering matters relating to systems similar to the Enterprise, appointed and paid by the District, and who or each of whom- 1. is in fact independent and not under the domination of the District; 2. does not have a substantial financial interest, direct or indirect, in the
District; and 3. is not connected with the District as a board member, officer or employee
of the District, but may be regularly retained to make reports to the District.
“Independent Financial Consultant” means any financial consultant or firm of such consultants of national reputation generally recognized to be well qualified in financial matters relating to systems similar to the Enterprise, appointed and paid by the District, and who, or each of whom-- 1. is in fact independent and not under the control of the District; 2. does not have a substantial financial interest, direct or indirect, in the
District; and 3. is not connected with the District as a council member, officer or
employee of the District, but may be regularly retained to make reports to the District.
“Installment Payments” means the installment payments of principal and interest scheduled to be paid by the District under the Installment Purchase Contract plus amounts required to be paid by the District under the Installment Purchase Contract and pursuant to the Trust Agreement, including, without limitation (except when calculating the Reserve Requirement), amounts necessary to replenish the Reserve Fund.
“Insurance Consultant” means any nationally recognized independent actuary, insurance company or broker who has actuarial personnel knowledgeable with respect to insurance carried by, required for and available to special districts operating facilities similar to the Enterprise, including a pooled self-insurance program in which premiums are established on the basis of the recommendation of an actuary of national reputation.
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“Maintenance and Operation Costs” of the Enterprise means the reasonable and necessary costs and expenses paid by the District for maintaining and operating the Enterprise, as determined in accordance with Generally Accepted Accounting Principles, including but not limited to (a) the reasonable expenses of management and repair and other costs and expenses necessary to maintain and preserve the Enterprise in good repair and working order, including the cost of water and payments to the Bureau pursuant to the Friant Contract, and (b) administrative costs of the District attributable to the Enterprise and the financing thereof; but excluding (x) depreciation, replacement and obsolescence charges or reserves therefor, (y) in any Fiscal Year prior to setting aside an amount equal to the Installment Payments for such Fiscal Year, capital expenditures other than as set forth in subsection (a) above, and (z) amortization of intangibles or other bookkeeping entries or a similar nature.
“Maximum Annual Debt Service” means, as of the date of any calculation, the maximum sum obtained for the current or any future Fiscal Year so long as any of the Certificates remain Outstanding by totaling the following amounts for such Fiscal Year:
(a) the principal amount of the Certificates and Parity Obligations coming due and payable by their terms in such Fiscal Year, including the principal amount of any term Certificates and term Parity Obligations which are subject to mandatory sinking fund redemption in such Fiscal Year; and
(b) the amount of interest (net of any interest subsidy with respect to the Installment Payments or any Parity Obligations, paid or payable to or for the account of the District by any governmental body or agency) which would be due during such Fiscal Year on the aggregate principal amount of the Certificates and Parity Obligations which would be Outstanding in such Fiscal Year if such Certificates and Parity Obligations are retired as scheduled.
“Net Proceeds” means, when used with respect to any insurance or condemnation award, the proceeds from such insurance or condemnation award remaining after payment of all reasonable expenses (including attorneys’ fees) incurred in the collection of such proceeds.
“Net Revenues” means, for any period, all of the Revenues during such period less all of the Maintenance and Operation Costs during such period.
“Parity Obligations” means the DWR Loan and all bonds, notes, loan agreements, installment sale agreements, leases or other obligations of the District, payable from and secured by a pledge of and lien upon any of the Net Revenues incurred on a parity with the payment of the Installment Payments
“Revenue Fund” means the fund maintained by the District into which it deposits Revenues.
“Revenues” means all gross income and revenue received or receivable by the District from the ownership and operation of the Enterprise, calculated in accordance with Generally Accepted Accounting Principles, including all rates, fees and charges (including fees for connecting to the Enterprise and any water stand-by or water availability charges or assessments) received by the District for Water Service and all other income and revenue howsoever derived by the District from the Enterprise or arising from the Enterprise; provided, however, that (i) any specific charges levied for the express purpose of reimbursing others for
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all or a portion of the cost of the acquisition or construction of specific facilities, or (ii) customers’ deposits or any other deposits subject to refund until such deposits have become the property of the District, are not Revenues and are not subject to the lien of the Installment Purchase Contract. Revenues shall include amounts on deposit in the Revenue Fund which have been previously released from the pledge and lien of the Installment Purchase Contract. Revenues shall also include interest with respect to any Parity Obligations reimbursed to or on behalf of the District by the United States of America pursuant to Section 54AA of the Internal Revenue Code of 1986, as amended (Section 1531 of Title I of Division B of the American Recovery and Reinvestment Act of 2009), or any future similar program.
“Water Service” means the portable and recycled water service made available or provided by the Enterprise.
Acquisition of the Enterprise and the Project
The Corporation agrees to use or permit the use of the proceeds of the Certificates for the payment, as in the Installment Purchase Contract provided, of the costs and expenses of the Acquisition of the Project and the expenses incidental thereto (including reimbursement to the District for any such costs or expenses paid by it for the account of the Corporation, including costs and expenses paid by the District prior to the date of the Installment Purchase Contract). To provide moneys for the Acquisition of the Project, the Corporation agrees to sell its rights to the Enterprise obtained pursuant to the Conveyance Agreement to the District, and the District agrees to purchase the Enterprise from the Corporation. The District covenants to use the proceeds received from the Corporation pursuant to the Conveyance Agreement for the costs and expenses of the acquisition of the Project.
The District may change the specifications of the Project, so long as such change does not substantially alter the nature of the Project; provided, however, that the District and the Corporation, in their sole discretion, may designate an Alternate Project. In the event an Alternate Project is designated, the District shall certify in writing to the Trustee and the Corporation that Acquisition Costs shall not materially increase as a result from such change. In the event Acquisition Costs shall materially increase as a result of the designation of an Alternate Project, prior to designating such Alternate Project the District shall either deposit in the Acquisition Fund an amount sufficient to pay such increase, or shall certify in writing to the Trustee and the Corporation that funds sufficient to pay such increase in Acquisition Costs are otherwise available to the District. Payment of the costs and expenses of the Acquisition of the Enterprise, including incidental expenses, shall be from money deposited with the District, by the District as the agent of the Corporation for the account of the Corporation. Upon the Closing Date, all of the Corporation’s remaining interest in the Enterprise, if any, shall be transferred to and vest in the District, without the necessity of any additional document or transfer. Nothing in the Installment Purchase Contract shall require the Corporation to perform any obligations of any purchaser with respect to any contract or purchase order with respect to the Enterprise.
District to Acquire Project; Corporation not Liable
The District, as the agent of the Corporation, shall cause such Acquisition of the Project to be completed as soon as is reasonably practicable and in accordance with the Installment Purchase Contract and the Trust Agreement and any applicable requirements of governmental authorities and law. The Corporation and its directors, officers and employees
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shall not be liable to the District or to any other party whomsoever for any death, injury or damage that may result to any person or property by or from any cause whatsoever in, on, or about or relating to the Project, and in no event shall the Corporation be liable for any incidental, indirect, special or consequential damage in connection herewith or arising under the Installment Purchase Contract.
Disclaimer of the Corporation
The District acknowledges and agrees that the Corporation makes no representation or warranty, express or implied, as to the Enterprise or the Project, except as expressly set forth in the Installment Purchase Contract. The District acknowledges that all risks relating to the Enterprise or the Project or the transactions contemplated thereby or by the Assignment Agreement or the Trust Agreement, are to be borne by the District, and the benefits of any and all implied warranties and representations of the Corporation are hereby waived by the District.
Payment of the Installment Payments
Each Installment Payment, and the interest thereon, shall be payable to the Corporation in accordance with the terms of the Installment Purchase Contract and at the times required by the Installment Purchase Contract in lawful money of the United States of America. In the event the District fails to make any of the payments required to be made by it, such payment shall continue as an obligation of the District until such amount shall have been fully paid and the District agrees to pay the same with the stated interest thereon. In the event an Installment Payment and the interest thereon is insufficient to make the payments of principal and interest represented by the Certificates on the next succeeding Interest Payment Date, due to investment losses incurred while on deposit in the Installment Payment Fund or for any other reason, the District shall immediately pay to the Trustee upon notice therefrom additional amounts to cure such insufficiency. The obligation of the District to make the Installment Payments and to pay the interest thereon is absolute and unconditional, whether or not the Project shall be acquired, and until such time as all Installment Payments and the interest thereon shall have been fully paid and the Certificates are no longer Outstanding (or provision for the payment thereof shall have been made), the District will not, under any circumstances, discontinue, abate or suspend any Installment Payments or any interest thereon required to be made by it when due, whether or not the Enterprise or any part thereof is operating or operable or has been completed, or whether or not the Enterprise is condemned, damaged, destroyed or seized or its use is suspended, interfered with, reduced or curtailed or terminated in whole or in part, and such payments shall not be subject to reduction whether by offset, counterclaim, defense, recoupment, abatement, suspension, deferment or otherwise and shall not be conditional upon the performance or nonperformance by any party of any agreement or covenant contained in the Installment Purchase Contract for any cause whatsoever.
Pledge of Net Revenues and Other Funds; Revenue Fund
The District irrevocably pledges all of the Net Revenues to the punctual payment of the Installment Payments, and the interest thereon, and such Net Revenues, except as otherwise permitted in the Installment Purchase Contract, shall not be used for any other purpose while any of the Certificates remain outstanding. This pledge shall constitute a first lien on the Revenues for the payment of the Installment Payments and payments of all Parity Obligations in accordance with the terms of the Installment Purchase Contract and thereof. All of the Net Revenues, together with any interest earned thereon, shall, so long as any
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Certificates shall be Outstanding under the Trust Agreement, be deposited with the Finance Officer as received by the District in the Revenue Fund, which fund the District hereby covenants and agrees to maintain with the Finance Officer so long as any Certificates shall be Outstanding under the Trust Agreement. All of the Revenues, together with any interest earned thereon, shall be deposited with the Finance Officer as received by the District in the Revenue Fund. The Revenue Fund may contain such accounts and subaccounts as are necessary to account for the various zones of the District under applicable District rules and procedures.
Receipt and Deposit of Revenues
The District covenants and agrees that all Revenues, when and as received, will be received and held by the District in trust under the Installment Purchase Contract and will be deposited by the District with the Finance Officer in the Revenue Fund and will be accounted for through and held in trust in the Revenue Fund; provided, that the District may withdraw such amounts in the Revenue Fund as may be necessary to make refunds for amounts paid in advance for services provided by the Enterprise, which such service was not thereafter made available or provided.
Establishment and Maintenance of Accounts; Use and Withdrawal of Revenues
All Revenues in the Revenue Fund shall be set aside by the Finance Officer or deposited by the Finance Officer with the Trustee, or the trustee or fiscal agent with respect to Parity Obligations, as the case may be, as follows and in the following order of priority:
(1) Maintenance and Operation Costs. The District agrees to pay all Maintenance and Operation Costs of the Enterprise (including amounts reasonably required to be set aside in contingency reserves for Maintenance and Operation Costs of the Enterprise, the payment of which is not then immediately required) from the Revenue Fund as they become due and payable.
(2) Debt Service Accounts. The Installment Payments, and of all other Parity Obligations, shall be paid in accordance with the terms of the Installment Purchase Contract and the Trust Agreement, and of such Parity Obligations, without preference or priority, and in the event of any insufficiency of such moneys, ratably without any discrimination or preference.
(3) Reserve Funds. Payments required under the Installment Purchase Contract, or with respect to Parity Obligations, to replenish reserve accounts established therefor or under the Installment Purchase Contract shall be made in accordance with the terms of the Installment Purchase Contract and of such Parity Obligations, without preference or priority, and in the event of any insufficiency of such moneys, ratably without any discrimination or preference.
(4) General Expenditures. All Net Revenues remaining after paying all of the sums required to be paid under the Installment Purchase Contract by the Finance Officer by the provisions of Sections (1), (2) and (3) above, or in connection with any Parity Obligation may be withdrawn by the Finance Officer for expenditure for any lawful purpose of the District.
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Certain Necessary Transfers
The parties acknowledge that although all Parity Obligations are secured equally and ratably by Net Revenues, debt service and other funds with respect to obligations other than the Certificates may be held by the Trustee or by trustees other than the Trustee under documents and agreements other than the Trust Agreement and the Installment Purchase Contract, and the Installment Purchase Contract and the Trust Agreement impose no obligations upon the Trustee with respect to such other obligations. The Finance Officer is hereby authorized to make such transfers from the Revenue Fund necessary to effectuate such Parity Obligations’ parity claim on the Net Revenues contemplated hereby.
Deposits to Installment Payment Fund
On the Due Date next preceding each Interest Payment Date, the District shall deposit with the Trustee, for deposit in the Installment Payment Fund, from amounts legally available therefor on deposit in the Revenue Fund, a sum equal to the amount of interest becoming due under the Installment Purchase Contract on the next Interest Payment Date plus the amount of principal becoming due under the Installment Purchase Contract on such Interest Payment Date. The District shall be entitled to receive as a credit against Installment Payments an amount equal to the amount of any balance contained in the Installment Payment Fund prior to the Due Date for such Installment Payments (excluding money designated for the prepayment of Certificates).
Reserve Fund
If amounts on deposit in the Reserve Fund shall, at any time, be less than the Reserve Requirement, such deficiency shall be made up by the District from the first available Net Revenues after required payment of Installment Payments over a twelve (12) month period, in twelve (12) substantially equal payments. No deposit need be made in the Reserve Fund if the amount available and contained therein (valued from time to time in accordance with the Trust Agreement) is at least equal to the Reserve Requirement.
Compliance with Installment Purchase Contract
The District will punctually pay the Installment Payments and the interest thereon in strict conformity with the terms of the Installment Purchase Contract, and will faithfully observe and perform all the agreements, conditions, covenants and terms contained in the Installment Purchase Contract required to be observed and performed by it, and will not terminate the Installment Purchase Contract for any cause whatsoever, including, without limiting the generality of the foregoing, any acts or circumstances that may constitute failure of consideration, destruction of or damage to the Enterprise or the Project, condemnation of the Enterprise or the Project by any governmental entity, commercial frustration of purpose, any change in the tax or other laws of the United States of America or of the State of California or any political subdivision of either or any failure of the Corporation to observe or perform any agreement, condition, covenant or term required to be observed and performed by it contained in the Installment Purchase Contract, whether express or implied, or any duty, liability or obligation arising out of or connected with the Installment Purchase Contract. The District will faithfully observe and perform all the agreements, conditions, covenants and terms contained in the Trust Agreement required to be observed and performed by it, and it is expressly understood and agreed by and among the parties to the Installment Purchase Contract and the Trust Agreement that each of the agreements, conditions, covenants and terms contained in
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the Trust Agreement and the Installment Purchase Contract is an essential and material term of the purchase of and any payment for the Entrprise by the District. The District will faithfully observe and perform all the agreements, conditions, covenants and terms required to be observed and performed by it pursuant to all outstanding Parity Obligations as such may from time to time be amended.
Against Encumbrances
The District hereby covenants that there is no pledge of or lien on Net Revenues senior to the pledge and lien securing the Installment Payments. The District will not make any further pledge of or place any lien on the Net Revenues, provided that the District may at any time, or from time to time, pledge or encumber the Net Revenues in connection with the issuance or execution of Parity Obligations or other obligations permitted by the Installment Purchase Contract, or subordinate to the pledge of Net Revenues in the Installment Purchase Contract.
Against Sale or Other Disposition of Property
The District will not sell, lease, encumber or otherwise dispose of the Enterprise or any part thereof in excess of one-half of one percent of the book value of the Enterprise in any Fiscal Year, unless a Finance Officer certifies that such sale, lease, encumberance or disposition will not materially adversely affect the operation of the Enterprise or the Net Revenues; provided however, any real or personal property which has become nonoperative or which is not needed for the efficient and proper operation of the Enterprise, or any material or equipment which has become worn out, may be sold or exchanged at not less than the fair market value thereof and the proceeds (if any) of such sale or exchange shall be deposited in the Revenue Fund. The District will not enter into any agreement or lease which would impair the ability of the District to meet the rate covenant set forth in the Installment Purchase Contract or which would otherwise impair the rights of the Certificate Owners or the operation of the Enterprise.
Against Competitive Facilities
The District will not, to the extent permitted by law, acquire, maintain or operate and will not, to the extent permitted by law and its current contractual rights and obligations and within the reasonable scope of its powers, permit any other public or private agency, corporation, district or political subdivision or any person whomsoever to acquire, maintain or operate within the District any utility system competitive with the Enterprise.
Tax Covenants
The District 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 with respect to the Certificates to become includable in gross income for federal income tax purposes. To that end, the District makes the following specific covenants: (a) the District covenants that it shall not make or permit any use of the proceeds of the Certificates that may cause the Certificates to be “arbitrage bonds” within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended; (b) the District covenants that the proceeds of the Certificates will not be used as to cause the proceeds on the Certificates to satisfy the private business tests of Section 141(b) of the Code or the private loan financing test of Section 141(c) of the Code; and (c) the District covenants not to take any action or permit or suffer any action
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to be taken if the result of the same would be to cause the Certificates to be “federally guaranteed” within the meaning of Section 149(b) of the Code.
Prompt Acquisition
The District will Acquire the Project with all practicable dispatch and such Acquisition will be made in an expeditious manner and in conformity with law so as to complete the same as soon as possible.
Maintenance and Operation of the Enterprise; Budgets
The District will maintain and preserve the Enterprise in good repair and working order at all times and will operate the Enterprise in an efficient and economical manner and will pay all Maintenance and Operation Costs of the Enterprise as they become due and payable.
Payment of Claims
The District will pay and discharge any and all lawful claims for labor, materials or supplies which, if unpaid, might become a lien on the Net Revenues or any part thereof or on any funds in the control of the District or the Trustee prior or superior to the lien of the Installment Payments and the interest thereon or which might impair the security of the Installment Payments.
Compliance with Contracts
The District will comply with, keep, observe and perform all agreements, conditions, covenants and terms, expressed or implied, required to be performed by it contained in all contracts for the use of the Enterprise and all other contracts affecting or involving the Enterprise to the extent that the District is a party thereto.
Insurance
The District will procure and maintain insurance on the Enterprise with commercial insurers or through participation in a joint powers insurance authority, in such amounts, with such deductibles and against such risks (including accident to or destruction of the Enterprise) as are usually insurable in connection with similar enterprises. In the event of any damage to or destruction of the Enterprise caused by the perils covered by such insurance, the proceeds of such insurance shall be applied to either (i) the repair, reconstruction or replacement of the damaged or destroyed portion of the Enterprise, or (ii) if the repair, reconstruction or replacement of the damaged or destroyed portion of the Enterprise is not essential to the efficient operation of the Enterprise and the maintenance of Net Revenues, to prepay, on a pro rata basis across maturities, the Certificates and any outstanding Parity Obligations. The District shall cause such repair, reconstruction or replacement to begin promptly after such damage or destruction shall occur and to continue and to be properly completed as expeditiously as possible, and shall pay out of the proceeds of such insurance all costs and expenses in connection with such repair, reconstruction or replacement so that the same shall be completed and the Enterprise shall be free and clear of all liens and claims. If the proceeds received by reason of any such loss shall exceed the costs of such repair, reconstruction or replacement, the excess shall be applied to the prepayment of Installment Payments.
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Alternatively, if the proceeds of such insurance are sufficient to enable the District to retire all outstanding Parity Obligations and the Certificates and all other amounts due under the Installment Purchase Contract and under the Trust Agreement, the District may elect not to repair, reconstruct or replace the damaged or destroyed portion of the Enterprise, and thereupon such proceeds shall be applied to the prepayment of the Installment Payments and to the payment of all other amounts due under the Installment Purchase Contract and under the Trust Agreement, and as otherwise required by the documents pursuant to which such Parity Obligations were issued.
The District will procure and maintain public liability insurance covering claims against the District for bodily injury or death, or damage to property, occasioned by reason of the ownership or operation of the Enterprise, such insurance to afford protection in such amounts and against such risks as are usually covered in connection with similar enterprises. The District will procure and maintain workers’ compensation insurance against liability for compensation under the Workers’ Compensation Insurance and Safety Act of California, or any act hereafter enacted as an amendment or supplement or in lieu thereof, such insurance to cover all persons employed in connection with the Enterprise.
In lieu of obtaining insurance coverage, such coverage may be maintained by the District in the form of self-insurance so long as the District certifies to the Trustee and the Corporation that (a) the District has segregated amounts in a special insurance reserve meeting the requirements of this Section; (b) an Insurance Consultant certifies annually, on or before March 1 of each year in which self-insurance is maintained, in writing to the Trustee and the Corporation that the District’s general insurance reserves are actuarially sound and are adequate to provide the necessary coverage and the Trustee may conclusively rely thereon; and (c) such reserves are held in a separate trust fund by an independent trustee. Any statements of self-insurance shall be delivered to the Trustee.
Books and Accounts; Financial Statements
The District will keep proper books of record and accounts of the Enterprise, separate from all other records and accounts of the District, in which complete and correct entries shall be made of all transactions relating to the Enterprise. The District will prepare and file with the Trustee annually within two hundred seventy (270) days after the close of each Fiscal Year so long as any of the Certificates are Outstanding, an audited financial statement for the District (prepared in accordance with Generally Accepted Accounting Principles) for the preceding Fiscal Year, together with an accountant’s report thereon and along with a certificate of the District to the effect that no Event of Default has occurred, or if an Event of Default has occurred, specifying the nature thereof and, if the District has a right to cure pursuant to the Installment Purchase Contract, stating in reasonable detail the measures, if any, being undertaken by the District to cure such Event of Default; and a certified statement that all insurance required by this Agreement to be carried by the District with respect to the Enterprise is in full force and effect and complies with the terms of the Installment Purchase Contract.
Payment of Taxes and Compliance with Governmental Regulations
The District will pay and discharge all taxes, assessments and other governmental charges, if any, which may hereafter be lawfully imposed upon the Enterprise or any part thereof or upon the Revenues when the same shall become due. The District will duly observe and conform with all valid regulations and requirements of any governmental authority relative to the operation of the Enterprise or any part thereof, but the District shall not be
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required to comply with any regulations or requirements so long as the validity or application thereof shall be contested in good faith.
Operation of Enterprise; Collection of Rates and Charges
The District will continue to operate the Enterprise and shall have in effect at all times, except as otherwise provided by law, rules and regulations requiring all users of the Enterprise provided by the District that is provided or made available to pay the rates, fees and charges applicable to the Enterprise provided or made available to such users, and providing for the billing thereof and for a due date and a delinquency date for each bill. In each case where such bill remains unpaid in whole or in part after such bill becomes delinquent, the District, in accordance with law, may refuse to provide or make available the services provided by the Enterprise to such premises until all delinquent rates, fees and charges and penalties have been paid in full. Except in connection with the receipt of federal or State funding, or as required by law or as a condition to the acquisition or operation of the Project or Enterprise, the District will not permit any part of the Enterprise, or any facility thereof, to be used, or taken advantage of, free of charge by any person, firm or corporation, or by any public agency (including the United States of America, the State of California and any public corporation, political subdivision, city, county, district or agency of any thereof), excepting only that the District may without charge use the services and facilities of the Enterprise.
Eminent Domain Proceeds
If all or any part of the Enterprise shall be taken by eminent domain proceedings, the Net Proceeds thereof shall be applied as follows:
(a) If (1) the District prepares a report showing (i) the estimated loss of annual Net Revenues, if any, suffered or to be suffered by the District by reason of such eminent domain proceedings, (ii) a general description of the additions, betterments, extensions or improvements to the Enterprise proposed to be acquired by the District from any Net Proceeds, and (iii) an estimate of the additional annual Net Revenues to be derived from such additions, betterments, extensions or improvements, and (2) on the basis of such certificate, the District determines that the estimated additional annual Net Revenues will sufficiently offset the estimated loss of annual Net Revenues resulting from such eminent domain proceedings so that the ability of the District to meet its obligations under the Installment Purchase Contract will not be substantially impaired (which determination shall be final and conclusive); then the District shall promptly proceed with the acquisition of such additions, betterments, extensions or improvements substantially in accordance with such report and such Net Proceeds shall be applied for the payment of the costs of such acquisition, and any balance of such Net Proceeds not required by the District for such purpose shall be applied to prepay the Installment Payments, and any Parity Obligations, on a pro rata basis in the manner provided in the Installment Purchase Contract and in the instruments authorizing such Parity Obligations.
(b) If the foregoing conditions are not met, then such Net Proceeds shall be applied to the prepayment of Installment Payments.
Continuing Disclosure
The District covenants and agrees that it will comply with and carry out all of the provisions of the Continuing Disclosure Agreement of the District, dated as of the date of the Installment Purchase Contract. Notwithstanding any other provision of the Installment
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Purchase Contract, failure of the District to comply with the Continuing Disclosure Agreement shall not be considered an Event of Default; however, the Corporation may (and, at the request of any participating underwriter or the Owners of at least 25% aggregate principal amount of Outstanding Certificates, shall, after receiving indemnification to its satisfaction) or any Owner may take such actions as may be necessary and appropriate, including seeking mandamus or specific performance by court order, to cause the District to comply with its obligations under this Section.
Security Deposit
Notwithstanding any other provision of the Installment Purchase Contract, the District may secure the payment of all or a portion of Installment Payments by a deposit with the Trustee, as escrow holder under an escrow deposit and trust agreement as referenced in and in conformance with the Trust Agreement, of either (i) cash in an amount which, together with available amounts on deposit in the Installment Payment Fund and the Reserve Fund, is sufficient to pay such unpaid Installment Payments, including the principal and interest components thereof, in accordance with the Installment Payment schedule set forth in Exhibit B attached hereto, or (ii) non-callable Federal Securities (as defined in the Trust Agreement) or pre-refunded non-callable municipal obligations rated “AAA” and “Aaa” by S&P and Moody’s, respectively, together with cash if required, in such amount as will, in the opinion of nationally-recognized bond counsel and of an independent certified public accountant (which opinion shall be addressed to the Trustee), together with interest to accrue thereon and, if required, all or a portion of moneys or non-callable Federal Securities then on deposit in the Installment Payment Fund and Reserve Fund, be fully sufficient to pay such unpaid Installment Payments on their payment dates so that such Installment Payments shall be defeased as provided for in the Trust Agreement.
Events of Default and Events of Mandatory Acceleration; Acceleration of Maturities
If one or more of the following Events of Default shall happen:
(a) default shall be made in the due and punctual payment by the District of any Installment Payment or any interest thereon when and as the same shall become due and payable;
(b) default shall be made by the District in the performance of any of the agreements or covenants contained in the Installment Purchase Contract or in the Trust Agreement required to be performed by it, and such default shall have continued for a period of thirty (30) days after the District shall have been given notice in writing of such default by the Corporation or the Trustee;
(c) the District shall file a petition seeking arrangement or reorganization under federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or if a court of competent jurisdiction shall approve a petition filed with the consent of the District seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or if under the provisions of any other law for the relief or aid of debtors any court of competent jurisdiction shall assume custody or control of the District or of the whole or any substantial part of its property; or
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(d) an event of default shall have occurred with respect to any Parity Obligations;
then and in each and every such case during the continuance of such Event of Default the Corporation may, by notice in writing to the District declare the principal amount of the unpaid Installment Payments, and the accrued interest thereon to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable, anything contained in the Installment Purchase Contract to the contrary notwithstanding.
This provision, however, is subject to the condition that, except with respect to an Event of Default under subsection (c) above, if at any time after such principal amount of the unpaid Installment Payments and the accrued interest thereon shall have been so declared due and payable and before the acceleration date or the date of any judgment or decree for the payment of the money due shall have been obtained or entered, the District shall deposit with the Trustee a sum sufficient to pay such unpaid principal amount of the Installment Payments due prior to such date and the accrued interest thereon, with any interest due on such overdue installments, and the reasonable expenses of the Corporation and the Trustee, and any and all other defaults known to the Corporation (other than in the payment of such principal amount of the unpaid Installment Payments and the accrued interest thereon due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Corporation or provision deemed by the Corporation to be adequate shall have been made therefor, then and in every such case the Corporation, by written notice to the District, may rescind and annul such declaration and its consequences; but no such rescission and annulment shall extend to or shall affect any subsequent default or shall impair or exhaust any right or power consequent thereon.
Application of Funds Upon Acceleration
All moneys and investments in the funds and accounts held under the Installment Purchase Contract and under the Trust Agreement (other than the Rebate Fund, if any) upon the date of the declaration of acceleration and all Revenues thereafter received shall be applied as provided for in the Trust Agreement.
Other Remedies of the Corporation
The Corporation may--
(a) by mandamus or other action or proceeding or suit at law or in equity enforce its rights against the District, or any board member, officer or employee thereof, and compel the District or any such board member, officer or employee to perform and carry out its or his duties under applicable law and the agreements and covenants contained in the Installment Purchase Contract required to be performed by it or him;
(b) by suit in equity enjoin any acts or things which are unlawful or violate the rights of the Corporation;
(c) by suit in equity upon the happening of an Event of Default require the District and its board members, officers and employees to account as the trustee of an express trust; or
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(d) by suit in equity, to seek the appointment of a receiver or other third party to operate the Enterprise and collect the Revenues.
Non-Waiver
Nothing in the Installment Purchase Contract shall affect or impair the obligation of the District, which is absolute and unconditional, to pay the Installment Payments and the interest thereon to the Corporation at the respective due dates or upon prepayment from the Revenues, or, except as expressly provided in the Installment Purchase Contract, shall affect or impair the right of the Corporation, which is also absolute and unconditional, to institute suit to enforce such payment by virtue of the contract embodied in the Installment Purchase Contract. A waiver of any default or breach of duty or contract by the Corporation shall not affect any subsequent default or breach of duty or contract or impair any rights or remedies on any such subsequent default or breach of duty or contract. No delay or omission by the Corporation to exercise any right or remedy accruing upon any default or breach of duty or contract shall impair any such right or remedy or shall be construed to be a waiver of any such default or breach of duty or contract or an acquiescence therein, and every right or remedy conferred upon the Corporation by applicable law or by this Article VII may be enforced and exercised from time to time and as often as shall be deemed expedient by the Corporation. If any action, proceeding or suit to enforce any right or exercise any remedy is abandoned or determined adversely to the Corporation, the District and the Corporation shall be restored to their former positions, rights and remedies as if such action, proceeding or suit had not been brought or taken.
Remedies Not Exclusive
No remedy in the Installment Purchase Contract conferred upon or reserved to the Corporation is intended to be exclusive of any other remedy, and each such remedy shall be cumulative and shall be in addition to every other remedy given under the Installment Purchase Contract or now or hereafter existing in law or in equity or by statute or otherwise and may be exercised without exhausting and without regard to any other remedy conferred by any other law.
Liability of District Limited
Notwithstanding anything contained in the Installment Purchase Contract, the District shall not be required to advance any moneys derived from any source of income other than the Revenues legally available therefor in the Net Revenue Fund or the Reserve Fund, and the other funds provided in the Installment Purchase Contract and in the Trust Agreement for the payment of the Installment Payments and the interest thereon or for the performance of any agreements or covenants contained in the Installment Purchase Contract required to be performed by it. The District may, however, but shall not be required to, advance moneys for any such purpose so long as such moneys are derived from a source legally available for such purpose and may be legally used by the District for such purpose. The obligation of the District to make the Installment Payments, the interest thereon and the other amounts due under the Installment Purchase Contract is a special obligation of the District payable solely from the moneys legally available therefor under the Installment Purchase Contract and under the Trust Agreement, including but not limited to the Net Revenues and such other funds, but excluding the proceeds of any taxes, and does not constitute a debt or pledge of the faith and credit of the District or of the State of California or of any political subdivision thereof within the meaning of any constitutional or statutory debt limitation or restriction.
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Waiver of Personal Liability
No board member, officer or employee of the District shall be individually or personally liable for the payment of the Installment Payments or the interest thereon, but nothing contained in the Installment Purchase Contract shall relieve any board member, officer or employee of the District from the performance of any official duty provided by any applicable provisions of law or hereby.
Assignment
The Installment Purchase Contract and any rights under the Installment Purchase Contract shall be assigned by the Corporation, in accordance with the Assignment Agreement, to the Trustee or any successor in interest to the Trustee, without the necessity of obtaining the prior consent of the District. The District may not assign any of its rights under the Installment Purchase Contract.
Net Contract
The Installment Purchase Contract shall be deemed and construed to be a net-net-net contract, and the District shall pay absolutely net during the term of the Installment Purchase Contract the Installment Payments, the interest thereon and all other payments required under the Installment Purchase Contract free of any deductions and without abatement, diminution or set-off whatsoever.
California Law
The Installment Purchase Contract shall be construed and governed in accordance with the laws of the State of California.
Amendments
The District may at any time amend or modify Exhibit A of the Installment Purchase Contract to provide for the designation of an Alternate Project without the consent of the Trustee, the Corporation or any of the Certificate Owners. The Installment Purchase Contract may be amended in writing as may be mutually agreed by the District and the Corporation, with the written consent of the Owners of a majority of the aggregate principal evidenced by the Certificates then Outstanding; provided, however, that no such amendment shall (i) extend the payment date of any Installment Payment or reduce the amount of any Installment Payment, or the interest rate applicable thereto, without the prior written consent of the Owner of each Certificate so affected, (ii) reduce the percentage of Owners whose consent is required for any amendment without the prior written consent of the Owners of all Certificates then Outstanding, or (iii) amend the section relating to amendments without the prior written consent of the Owners of all Certificates then Outstanding.
The Installment Purchase Contract and the rights and obligations of the District and the Corporation thereunder may also be amended or supplemented at any time by an amendment, without the written consents of any Owners, but only to the extent permitted by law and only for any one or more of the following purposes -
(i) to add to the agreements, certifications, covenants and terms required by the Corporation or the District to be observed or performed therein, other
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agreements, certifications, covenants and terms thereafter to be observed or performed by the Corporation or the District, or to surrender any right or power reserved herein to or conferred therein on the Corporation or the District, and which in either case shall not materially adversely affect the interests of the Owners;
(ii) to make such provisions for the purpose of curing any ambiguity or of correcting, curing or supplementing any defective provision contained therein or in regard to questions arising thereunder which the Corporation or the District may deem desirable or necessary and not inconsistent therewith, and which shall not materially adversely affect the interests of the Owners;
(iii) to make such additions, deletions or modifications as may be necessary or appropriate to assure the exclusion of interest from federal or State income taxes; and
(iv) to make such other changes herein or modifications thereto as the Corporation or the District may deem desirable or necessary, and which shall not materially adversely affect the interests of the Owners.
Any amendment made in violation shall be a nullity and void.
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APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR FISCAL YEAR 2009
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APPENDIX C
PROPOSED FORM OF FINAL OPINION [Addressees]
Re: $_________ Shafter-Wasco Irrigation District Revenue Certificates of Participation, Series 2010
Ladies and Gentlemen:
We have acted as Special Counsel to the Shafter-Wasco Irrigation District (the “District”), in connection with the sale, execution and delivery of $_________ aggregate principal amount of Shafter-Wasco Irrigation District Revenue Certificates of Participation, Series 2010 (the “Certificates”), representing proportionate interests of the owners thereof in the right of the SWID Financing Corporation (the “Corporation”), a California non-profit public benefit corporation, to receive Installment Payments (the “Installment Payments”) to be made by the District pursuant to an Installment Purchase Contract, dated as of November 1, 2010 (the “Installment Purchase Contract”) between the District and the Corporation.
The Certificates are being executed and delivered pursuant to a Trust Agreement, dated as of November 1, 2010 (the “Trust Agreement”), between the Corporation, the District and Wells Fargo Bank, National Association, as trustee (the “Trustee”). All capitalized terms used herein and not otherwise defined shall have the same meanings assigned to them in the Trust Agreement.
The District is obligated under the Installment Purchase Contract to pay the Installment Payments, a portion of which is designated as interest. The Corporation has assigned its right to receive Installment Payments and certain other right and interests in the Installment Purchase Contract to the Trustee pursuant to an Assignment Agreement, dated as of November 1, 2010 (the “Assignment Agreement”) between the Corporation and the Trustee.
As Special Counsel we have examined copies certified to us as being true and complete copies of the proceedings of the Board of Directors of the District in connection with the authorization and sale of the Certificates. Our services as Special Counsel were limited to an examination of the transcript of such proceedings and to rendering the opinions set forth herein. In this connection, we have also examined such other documents, opinions and instruments as we have deemed necessary in order to render the opinions expressed herein. In such examination, we have assumed the genuineness of all signatures (of parties other than the District) on original documents and the conformity to the original documents of all copies submitted to us. We have also assumed the due execution and delivery (by all parties other than the District) of all documents which we have examined where due execution and delivery are a prerequisite to the effectiveness thereof. As to the various questions of fact material to our opinion, we have relied upon statements or certificates of officers and representatives of the Corporation, the District, public officials and others.
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On the basis of the foregoing examination and assumptions and in reliance thereon and on all such other matters of fact as we deemed relevant under the circumstances, and upon consideration of the applicable laws, we are of the opinion that:
1. The Trust Agreement and the Installment Purchase Contract have been duly and validly authorized, executed and delivered by the District and the Corporation, and the Assignment Agreement has been duly and validly authorized, executed and delivered by the Corporation, and, assuming such documents have been duly authorized, executed and delivered by the other parties thereto, constitute the legally valid and binding obligations of the Corporation and the District enforceable in accordance with their respective terms. The Trust Agreement creates a valid pledge, which it purports to create, of all right, title and interest in and to all amounts on hand from time to time in the funds and accounts created thereunder. The Certificates are entitled to the benefits of the Trust Agreement.
2. The portion of each Installment Payment accruing under the Installment Purchase Contract designated as and comprising interest and received by the owners of the Certificates is excludable under existing statutes, regulations, rulings and court decisions, from gross income for Federal income tax purposes pursuant to Section 103(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and is exempt from personal income taxes of the State of California under present law. In addition, the portion of each Installment Payment designated as and comprising interest received by the owners of the Certificates is not an item of tax preference for purposes of the Code’s alternative minimum tax provisions, nor is it included as an adjustment in calculating federal corporate alternative minimum taxable income for purposes of determining a corporation's alternative minimum tax liability.
In rendering the opinions expressed in paragraph 2 above, we are relying upon representations and covenants of the Corporation and the District in the Trust Agreement, the Installment Purchase Contract and in the Tax Certificate of the District of even date herewith concerning the use of the facilities financed with Certificate proceeds, the investment and use of Certificate proceeds and the rebate to the Federal government, if necessary, of certain earnings thereon. In addition, we have assumed that all such representations are true and correct and that the Corporation and the District will comply with such covenants.
We express no opinion with respect to the exclusions of the interest from gross income under Section 103(a) of the Code in the event that any such representations are untrue or the District or the Corporation fail to comply with such covenants. Except as stated above, we express no opinion as to any Federal tax consequences of the receipt of the portion of each Installment Payment designated as and comprising interest with respect to, or the ownership or disposition of the Certificates.
Certain agreements, requirements and procedures contained or referred to in the Trust Agreement, the Installment Purchase Contract and other relevant documents may be changed and certain actions (including, without limitation, prepayment of the Installment Payments) may be taken or omitted under the circumstances and subject to the terms and conditions set forth in such documents. No opinion is expressed herein as to any Certificate or the interest represented thereby if any such change occurs or action is taken or omitted upon the advice or approval of counsel other than ourselves.
The opinions expressed in paragraph 1 above are qualified to the extent that enforcement of the agreements referred to in such paragraphs may be limited by bankruptcy,
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insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors’ rights generally.
We express no opinion as to the availability of equitable remedies, and advise you that a California court may not strictly enforce certain covenants if it concludes that enforcement would be unreasonable under the circumstances. Furthermore, we express no opinion with respect to any indemnification, contribution or choice of law provisions contained in these agreements. Finally, we undertake no responsibility herein for the accuracy, completeness or fairness of the Official Statement or other offering material relating to the Certificates and express no opinion with respect thereto.
Respectfully submitted, NOSSAMAN LLP
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APPENDIX D
FORM OF CONTINUING DISCLOSURE AGREEMENT
This Continuing Disclosure Agreement (the “Disclosure Agreement”), dated as of November 1, 2010, is executed and delivered by the Shafter-Wasco Irrigation District (“District”) and Wells Fargo Bank, National Association (the “Trustee”), as Trustee and Dissemination Agent in connection with the execution and delivery of the Shafter-Wasco Irrigation District Revenue Certificates of Participation, Series 2010 (the “Certificates”), in the aggregate principal amount of $_________, evidencing proportionate interests of the registered owners thereof in certain Installment Payments (described herein) to be made by the Shafter-Wasco Irrigation District (the “District”) to the _______________ (the “Corporation”). The Certificates are being executed and delivered pursuant to the provisions of a Trust Agreement, dated as of November 1, 2010 (the “Trust Agreement”), among the District, the Corporation and Wells Fargo Bank, National Association, as trustee (the “Trustee”). The District covenants and agrees as follows:
Section 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the District and the Trustee for the benefit of the holders and beneficial owners of the Certificates and in order to assist the Participating Underwriter in complying with the Rule (defined below).
Section 2. Definitions. In addition to the definitions set forth in the Trust Agreement, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:
“Annual Report” shall mean any Annual Report provided by the District pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement.
“Dissemination Agent” shall mean the Trustee, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the District and which has filed with the District a written acceptance of such designation.
“Listed Events” shall mean any of the events listed in Section 5(a) of this Disclosure Agreement.
“MSRB” shall mean the Municipal Securities Rulemaking Board and any successor entity designated under the Rule as the repository for filings made pursuant to the Rule.
“Official Statement” shall mean the Official Statement relating to the Certificates.
“Participating Underwriter” shall mean the original underwriter of the Certificates required to comply with the Rule in connection with offering of the Certificates.
“Rule” shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission (the “SEC”) under the Securities Exchange Act of 1934, as amended from time to time.
Section 3. Provision of Annual Reports. (a) The District shall, or shall cause the Dissemination Agent to, annually not later than 270 days following the end of the District’s Fiscal Year, commencing with the report for Fiscal Year ending December 31, 2010, provide to
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the MSRB an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. Not later than fifteen (15) Business Days prior to said date, the District shall, by telecommunications or other reasonable means, provide the Annual Report to the Dissemination Agent (if other than the District). The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Agreement; provided that the audited financial statements of the District may be submitted separately from the balance of the Annual Report, and later than the date required above for the filing of the Annual Report if not available by that date.
(b) Not later than fifteen (15) Business Days prior to the date specified in subsection (a) for the providing of the Annual Report to Repositories, the District shall provide the Annual Report to the Dissemination Agent. If by such date, the Dissemination Agent has not received a copy of the Annual Report, the Dissemination Agent shall contact the District to determine if the District is in compliance with the first sentence of this subsection (b). If the Dissemination Agent is unable to verify that an Annual Report has been provided to the Repositories by the date required in subsection (a), the Dissemination Agent shall send a notice to the MSRB in substantially the form attached as Exhibit A.
(c) The Dissemination Agent shall:
(i) determine each year prior to the Annual Report date the then-applicable rules and electronic format prescribed by the MSRB for the filing of annual continuing disclosure reports; and
(ii) to the extent it can confirm such filing of the Annual Report, file a report with the District certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided to the MSRB.
Section 4. Content of Annual Reports. The District’s Annual Report shall contain or incorporate by reference the most recent audited financial statements of the District prepared in accordance with generally accepted accounting principles promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. In addition, for years following the Fiscal Year ending December 31, 2010, the Annual Report shall contain an annual updating of the following tables and information contained in the Official Statement:
(i) Summary of Surface Water Supply and Cost (for such Fiscal Year only) (Table 2);
(ii) Summary of Operations (for such Fiscal Year only) (Table 3); (ii) Total Annual Assessment and Standby Charge (for such Fiscal Year
only) (Table 5); and (iii) Unencumbered Reserves (for such Fiscal Year only) (Table 8).
Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the District or related public entities, which have been submitted to the MSRB or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the MSRB. The District shall clearly identify each such other document so included by reference.
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Section 5. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 5, the District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Certificates, if material:
(1) Principal and interest payment delinquencies. (2) Non-payment related defaults. (3) Unscheduled draws on debt service reserves reflecting financial
difficulties. (4) Unscheduled draws on credit enhancements reflecting financial
difficulties. (5) Substitution of credit or liquidity providers, or their failure to perform. (6) Adverse tax opinions or events affecting the tax-exempt status of the
security. (7) Modifications to rights of security holders. (8) Certificate calls, excluding scheduled Mandatory Sinking Prepayments. (9) Defeasances. (10) Release, substitution, or sale of property securing repayment of the
securities. (11) Rating changes.
(b) Whenever the District obtains knowledge of the occurrences of a Listed Event, the District shall as soon as possible determine if such event would be material under applicable Federal Securities law.
(c) If the District determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, the District shall promptly notify the Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent to file a notice of such occurrence with the MSRB. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(8) and (a)(9) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Certificates pursuant to the Indenture.
(d) If the Dissemination Agent has been instructed by the District to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with the MSRB with a copy to the District. Notwithstanding the foregoing notice of Listed Events described in subsections (a)(8) and (a)(9) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to the holders of affected Certificates pursuant to the Indenture.
Section 6. Termination of Reporting Obligation. The District’s obligations under this Disclosure Agreement shall terminate upon the legal defeasance, prior prepayment or payment in full of all of the Certificates.
Section 7. Dissemination Agent. The District may, from time to time, appoint a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent may resign by providing thirty (30) days written notice to the District. If at any time there is not any other designated Dissemination Agent, the Trustee shall be the Dissemination Agent. Any company succeeding to all or substantially all of the Dissemination Agent’s corporate trust business shall be the successor to the Dissemination Agent hereunder without the execution or filing of any paper or any further act.
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Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the District and the Trustee may amend this Disclosure Agreement (and the Trustee shall agree to any amendment so requested by the District to the extent that such amendment does not adversely affect the Trustee), and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied:
(a) the amendment or waiver, if it relates to annual or event information to be provided, is made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of the District, or type of business conducted;
(b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Certificates, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and
(c) the proposed amendment or waiver (i) is approved by holders of the Certificates in the manner provided in the Indenture for amendments to the Indenture with the consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of holders.
Section 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the District chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the District shall have no obligation under this Continuing Disclosure Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.
Section 10. Default. In the event of a failure of the District or Dissemination Agent to comply with any provision of this Disclosure Agreement any holder or beneficial owner of the Certificates may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District or the Dissemination Agent to comply with its obligations hereunder. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Indenture or the Installment Purchase Contract, and the sole remedy under this Disclosure Agreement in the event of any failure of the District or Dissemination Agent to comply with this Disclosure Agreement shall be an action to compel performance.
Section 11. Duties, Immunities and Liabilities of Dissemination Agent. Article VII of the Indenture is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Indenture. The Dissemination Agent shall be entitled to the protections and limitations from liability afforded to the Trustee thereunder. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the District agrees to indemnify and save the Dissemination Agent, the Trustee and their officers, directors, employees, attorneys, agents and receivers, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due
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to the Dissemination Agent’s or the Trustee’s respective negligence or willful misconduct. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Certificates.
The Dissemination Agent may conclusively rely upon the Annual Report provided to it by the District as constituting the Annual Report required of the District in accordance with this Disclosure Agreement and shall have no duty or obligation to review such Annual Report. The Dissemination Agent shall have no duty to prepare the Annual Report nor shall the Dissemination Agent be responsible for filing any Annual Report not provided to it by the District in a timely manner in a form suitable for filing with the Repositories. In accepting the appointment under this Agreement, the Dissemination Agent is not acting in a fiduciary capacity to the Holders or Beneficial Owners of the Certificates, the District, the Participating Underwriters or any other party or person. No provision of this Disclosure Agreement shall require the Dissemination Agent to risk or advance or expend its own funds or incur any financial liability, or compel the District to adhere to the requirements herein. The Dissemination Agent shall be entitled to compensation for its services as Dissemination Agent and reimbursement for its out-of-pocket expenses, attorney’s fees, costs and advances made or incurred in the performance of its duties under the Certificates and this Agreement in accordance with its written fee schedule provided to the District, as such fee schedule may be amended from time to time in writing.
Section 12. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the District, the Dissemination Agent (if such Dissemination Agent is not the District), the Participating Underwriters and holders and beneficial owners, from time to time, of the Certificates, and shall create no rights in any other person or entity.
Section 13. Counterparts. This Disclosure 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.
SHAFTER-WASCO IRRIGATION DISTRICT By: ______________________________
General Manager
WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee and Dissemination Agent
By: _______________________________ Authorized Officer
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EXHIBIT A
NOTICE OF MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT
Name of Issuer: Shafter-Wasco Irrigation District Name of Issue: Shafter-Wasco Irrigation District Revenue Certificates of Participation,
Series 2010
Date of Issuance: ______________, 2010
NOTICE IS HEREBY GIVEN that the District has not provided an Annual Report with
respect to the above-named Certificates as required by the Continuing Disclosure Agreement. The District anticipates that the Annual Report will be filed by _________________________.
Dated: _____________________
WELLS FARGO BANK, NATIONAL ASSOCIATION, as Dissemination Agent By: ______________________________
Authorized Officer cc: District and Corporation
APPENDIX E BOOK-ENTRY PROVISIONS
The information concerning DTC set forth herein has been supplied by DTC, and the District assumes no responsibility for the accuracy thereof.
Unless a successor securities depository is designated pursuant to the Indenture, DTC will act as Securities Depository for the Certificates. The Certificates will be delivered as fully-registered securities, registered in the name of Cede & Co., DTC’s partnership nominee, or such other name as may be requested by an authorized representative of DTC. One fully-registered Certificate will be delivered for each maturity of the Certificates, each in the aggregate principal amount of such maturity, and will be deposited with DTC.
DTC and Its Participants. DTC, the world’s largest depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code and a “clearing corporation” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 85 countries that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfer and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others, such as both U.S. and non-U.S. securities brokers and dealers, banks and trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has Standard & Poor’s highest rating: “AAA.” The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org.
Purchase of Ownership Interests. Purchases of the Certificates under the DTC system must be made by or through Direct Participants, which will receive a credit for the Certificates on DTC’s records. The ownership interest of each actual purchaser of each Certificate (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Certificates are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Certificates, except in the event that use of the book-entry system for the Certificates is discontinued.
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To facilitate subsequent transfers, all Certificates deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Certificates with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Certificates; DTC’s records reflect only the identity of the Direct Participants to whose accounts such securities are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers.
Notices and Other Communications. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. THE DISTRICT AND THE TRUSTEE WILL NOT HAVE ANY RESPONSIBILITY OR OBLIGATION TO SUCH DTC PARTICIPANTS OR THE PERSONS FOR WHOM THEY ACT AS NOMINEES WITH RESPECT TO THE CERTIFICATES.
Redemption notices shall be sent to DTC. If less than all of the Certificates within an issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.
Voting Rights. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Certificates unless authorized by a Direct Participant in accordance with DTC’s MMI procedures. Under its usual procedures, DTC mails an Omnibus Proxy to an issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Certificates are credited on the record date (identified in a listing attached to the Omnibus Proxy).
Redemption Proceeds. Payments of principal and interest with respect to the Certificates will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts on interest payment dates in accordance with their respective holdings shown on DTC’s records unless DTC has reason to believe that it will not receive payment on the interest payment date. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC nor its nominee, the Trustee, or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, principal and interest to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC is the responsibility of the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.
THE TRUSTEE AND THE DISTRICT SHALL NOT HAVE ANY RESPONSIBILITY OR OBLIGATION TO ANY DTC PARTICIPANT, ANY BENEFICIAL OWNER OR ANY OTHER PERSON CLAIMING A BENEFICIAL OWNERSHIP INTEREST IN THE CERTIFICATES UNDER OR THROUGH DTC OR ANY DTC PARTICIPANT, OR ANY OTHER PERSON WHICH IS NOT SHOWN ON THE REGISTRATION BOOKS OF THE TRUSTEE AS BEING AN OWNER OF CERTIFICATES, WITH RESPECT TO THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY DTC PARTICIPANT; THE PAYMENT BY DTC OR ANY DTC
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PARTICIPANT OF ANY AMOUNT IN RESPECT OF THE PRINCIPAL OF, AND PREMIUM, IF ANY, OR INTEREST WITH RESPECT TO THE CERTIFICATES; ANY NOTICE WHICH IS PERMITTED OR REQUIRED TO BE GIVEN TO OWNERS OF THE CERTIFICATES UNDER THE TRUST AGREEMENT; THE SELECTION BY DTC OR ANY DIRECT OR INDIRECT PARTICIPANT OF ANY PERSON TO RECEIVE PAYMENT IN THE EVENT OF A PARTIAL REDEMPTION OF THE CERTIFICATES; ANY CONSENT OR OTHER ACTION TAKEN BY DTC AS OWNER OF THE CERTIFICATES; OR ANY OTHER PROCEDURES OR OBLIGATIONS OF DTC UNDER THE BOOK-ENTRY SYSTEM.
SO LONG AS CEDE & CO. IS THE REGISTERED OWNER OF THE CERTIFICATES, AS NOMINEE OF DTC, REFERENCES HEREIN TO THE REGISTERED OWNERS OF THE CERTIFICATES SHALL MEAN CEDE & CO., AS AFORESAID, AND SHALL NOT MEAN THE BENEFICIAL OWNERS OF THE CERTIFICATES (EXCEPT FOR THE MATTERS UNDER THE CAPTION “TAX MATTERS” HEREIN)
The foregoing description of the procedures and record keeping with respect to beneficial ownership interests in the Certificates, payment of principal and interest with respect to the Certificates to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial owner interest in such Certificates and other related transactions by and between DTC, the DTC Participants and the Beneficial Owner is based solely on information provided by DTC. Accordingly, no representations can be made concerning these matters, and neither the DTC Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be.
Discontinuance of Book-Entry System. DTC may discontinue providing its services as securities depository with respect to the Certificates at any time by giving reasonable notice to the District or the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, Certificates are required to be printed and delivered as described in the Indenture.
The District may decide to discontinue use of the system of book entry-only transfers through DTC (or a successor securities depository). In that event, Certificates will be printed and delivered as described in the Indenture and payment of interest to each Owner who owns of record $1,000,000 or more in aggregate principal amount of Certificates may be made to such Owner by wire transfer to such wire address within the United States that such Owner may request in writing for all Interest Payment Dates following the 15th day after the Trustee’s receipt of such request.
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