FAP Presentation:
Prepay Financing Follow Up
May 8, 2025
Agenda
1. Prepay Financing Background
2. Green Bond Designation
3. Transaction Structure & Parties Involved
4. Beneficial Elements & Potential Risks
5. Documentation
6. Prepay Timeline
7. Q&A and Discussion
8. Archive/Backup – Prior Meeting Info
1. Ava’s Prepay Experience
2. Savings Realized
3. Planning/ Supplier Selection
2 • IRS Regulations allow for tax-exempt debt to be issued for the prepayment of electricity to serve load • Energy Prepays are complex transaction structures requiring at least three parties:
▪ Energy Recipient, e.g. Ava
▪ Prepaid Energy Provider/Supplier, e.g. Morgan Stanley, Goldman Sachs, RBC, etc. ▪ Bond Issuer, e.g. CCCFA, a Conduit Issuer
• Cost of funding with tax-exempt debt is lower than supplier would otherwise receive borrowing from taxable market or from using internal funding at their cost of capital • Energy supply agreement where buyer (Ava) commits to purchase the commodity over a term, receiving a discount to the market price – lowers Ava's costs on existing and future energy contracts ▪ Ava maintains energy contracts assigned from its portfolio into prepay structure through 30-year deal term • Bond investor risk is tied to the supplier and corporate guarantor to make debt service payments and redeem bonds if termination events occur or bankruptcy
Prepay Financing Background
3 What is a Prepay?
Green Bond Designation
Green Bonds
• Bonds offered to investors that have been designated as bonds that qualify as “Green Bonds” per ICMA’s Green Bond Principles in the eligible project category of renewable energy. • Targets the marketing of bonds to investors who are seeking investments that support carbon reduction efforts aligning with Ava’s core values
• Potential pricing benefits by driving demand for these investments that improve transaction economics
• Second Party Opinions (SPO) review the use of the proceeds and certifies through its opinion that the bonds adhere to the ICMA’s Green Bond Principles
Ava Green Bonds
• Ava’s three prior Prepay transactions were sold as Green Bonds • Ava intends to seek Green Bond designation for the upcoming prepay transactions. • Kestrel Verifiers will be engaged to review the use of proceeds and determine eligibility, and if qualified, Ava will use the Green designation
• Kestrel will issue a Second Party Opinion (SPO) to be included in the Offering Statement 4 Transaction Structure
5 Prepay Supplier
(Morgan Stanley)
Municipal
Conduit (CCCFA) LSE/CCA (Ava)
Existing PPA to
be Assigned
Non-Recourse
Tax-Exempt
Bonds
Existing PPA
Counterparty
Contract Price
Prepayment $$
Contract Price
Less Discount
MWhs + RECs MWhs + RECs
+ Debt Service
MWhs + RECs
Debt
Service
Bond
Proceeds
Commodity
Swap
Counterparty
Fixed $$ Fixed $$ Index $$ Index $$
Prepay Involved Parties
6 Prepay Supplier/Bond Underwriter: Morgan Stanley
– Selected through solicitation issued November 2019/2025 Municipal Financial Advisor: PFM Financial Advisors LLC & PFM Swap Advisors LLC – Selected through solicitation issued September 2020
Counsel: Orrick, Herrington & Sutcliffe (Bond & Tax Counsel) | Chapman & Cutler LLP (POS, Disclosure & Issuer’s Counsel)
– Both firms selected through solicitation issued June 2020 Bond Issuer: California Community Choice Financing Authority Ava membership approved by Board in April 2021, JPA formed June 2021; Founding Members are Ava, MCE, SVCE, 3CE
Custodian: Bank of New York
– PFM issued solicitation early July 2021
Commodity Swap Counterparty: Natixis, RBC, others
– RBC in 2021
– Natixis was the swap counterparty in 2022 and 2023
Credit Rating Agency: Moody’s Investor Service Inc
Beneficial Elements to a Prepay
7 • Power Contract Assignment:
• Existing renewable PPAs are assigned to the taxable Prepay Supplier. The LSE (i.e. the CCA). continues to take and pay for energy and attributes from the Prepay Supplier, delivered through the contract.
• All other terms of the PPA are unchanged
• Termination:
• If the prepay program terminates early, prepaid supplier fails to perform, or LSE (CCA) fails to perform, the LSE(CCA) forgoes the future savings and the assigned PPA contract is put back to the original LSE (CCA)
• Debt Issued by Conduit Issuer:
• Non-Recourse: Prepays utilize non-recourse municipal bonds and are not secured or guaranteed by the LSE. Rather the debt is recourse to the Prepay Supplier (i.e. the bank receiving the prepayment).
This significantly protects the LSE(CCA) and mitigates risk related to the payment of power contracts novated through the prepay.
• Off Balance sheet for LSE/CCA:
• Bonds are issued by a municipal bond conduit and arranged by the Prepay Supplier Potential Risks
8 • If a transaction does not materialize: Loss of some out-of-pocket costs and staff time – Consultants are primarily contingent on a successful deal, with the exception of certain rating agency and green bond designation fees
– Consultants are primarily paid from deal proceeds vs. Ava directly • Opportunity Cost of higher savings through the prepay transaction or alternative structure initiated at a different time.
– Initial discount Ava expects is in the 8-12% range, however the deal will have a minimum discount likely set at 6 or 7%.
– To the extent that MS does not provide the minimum discount Ava will have a right not to proceed in future repricing periods.
– Ava also has a right to shop the prepay provider if we view that the offered discounts are not at market • Load loss or inability to assign a PPA into the prepay due to contractual limitations would likely lead to remediation or remarketing activities and potentially result in the loss of the discount. ― Note that costs would not increase above contractual levels • Regulatory risks, such as reclassifying a long-term PPA as a short-term PPA making it ineligible for SB350 qualification or disruption to PCC1 bundled classification due to the assignment of PPA • Risks associated with a transaction unwinding due to tax rule non-compliance Documents Overview: Ava Signs
9 1. Power Supply Contract
– Sets forth terms for which CCA receives energy for 30-year term – Signed by Ava and CCCFA
2. Letter Agreement Regarding PPA Assignments
– Details the terms of the limited assignment of PPAs between Ava and 3rd party energy sellers – Signed by Ava and Morgan Stanley (Prepay Supplier)
3. Form of Limited Assignment
– Details the terms of the limited assignment of each energy PPA Ava assigns into prepay – Signed by Ava, the original PPA counterparty, and Morgan Stanley (Prepay Supplier)
4. Project Administration Agreement
– Sets out terms for CCA to act on behalf of the Issuer – Signed by Ava and CCCFA
5. PPA Payments Custodial Agreement
– Details cash flows between PPA Buyer (CCA), Prepay Supplier, and Custodian – Signed by Ava, Morgan Stanley, and BONY
6. Cost Share Memorandum of Understanding (MOU)
– Details the cost share arrangement with MS to cover rating agency and green bond designation fees and Ava responsibility to cover costs in place of CCCFA
Documents Overview: CCCFA Signs
10 1. Prepaid Agreement
– Details the flow of power and payments between the Prepay Supplier and the Issuer (CCCFA) – Terms are largely mirrored in the Power Supply Contract
2. Re-pricing Agreement
– Sets forth terms for remarketing and repricing for future bond repricing periods
3. Trust Indenture
– Sets forth terms of bond issuance and rights of bondholders – Details that all revenues relevant to transaction flow to and through conduit issuer (CCCFA)
4. Commodity Swap documents
– Docs pursuant to which the commodity price is hedged with a 3rd-party swap counterparty (to insulate transaction from market variations)
5. Parent Guarantee
– Guarantee of “due and punctual payment” from Prepay Supplier to conduit issuer (CCCFA) – Flows in favor of conduit issuer and swap counterparty, respectively
6. Front-End Custodial Agreement
– Outlines payment flows through the transaction, signed by CCCFA, Custodian, and Bond Trustee – Also a Back-End Custodial Agreement which is signed by Morgan Stanley, Custodian, and Bond Trustee Proposed Prepay Timeline :
11 March-April-May
o Prepay Supplier RFP – Selection late April – Morgan Stanley 1st , TBD on 2nd o Transaction Kickoff with full Financing team
o Analysis of Contracts/Volumes for Inclusion in Prepay o Deal structuring/Document and Disclosure drafting
May-June
o Discuss Further at May FAP and June ExComm & Seek Board Approval in June o Present at CCCFA Board for Approval
Late June-Early July (market depending)
o Marketing and Pricing Prepay Bonds
o Close Transaction
Q&A- Discussion
12 Archive/Backup –Prior Meeting Info
13 • 2019 - Ava issued RFP for Prepay Services (Prepay
Provider)
• 2021 – Ava closes first-ever CCA energy prepay
bond transaction
Ava’s Prepay Experience:
14 Timeline of Ava Prepay Activity: Structural Innovations Ava Employed • Short-term bridge PPA & forward energy price curve
to size prepays provides flexibility on timing to
market
• Master Custodian Agreement optimizes use of PPAs
• Monthly Tracking / Annual Settlement reduces
operational burden
• Morgan Stanley partnered with Ava on innovations
• 2024 - Ava amended prepays to maximize savings
and optimize operations
Ava’s Prepays to Date
Prepay Date Closed Provider/Supplier Bond Size
1 9/23/21 Morgan Stanley $1.20B
2 7/12/22 Morgan Stanley $0.93B
3 8/16/23 Morgan Stanley $0.99B
Ava is part of a list of leading CCAs
that have issued energy prepay bonds:
• Ava Community Energy
• Clean Power Alliance (CPA)
• Silicon Valley Clean Energy (SVCE)
• Peninsula Clean Energy (PCE)
• Marin Clean Energy (MCE)
• Sonoma Clean Power (SCE)
• Valley Clean Energy (VCE)
Ava’s Prepay Savings Through ‘24 Total $21.7M
15 -
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
4,500,000
Q1 '22 Q2 '22 Q3 '22 Q4 '22 Q1 '23 Q2 '23 Q3 '23 Q4 '23 Q1 '24 Q2 '24 Q3 '24 Q4 '24 Quarterly Savings by Prepay
Prepay #1 Prepay #2 Prepay #3
Transaction Planning & Supplier Selection
16 Staff is planning for at least 1 and possibly 2 transactions in 2025 and may seek approval for both simultaneously
❖ In, 2024, CPA received approvals for 3 simultaneously and entered the market at separate times successfully
Supplier Selection:
❖ All 3 Ava prepays were with Morgan Stanley as the prepay supplier ❖ Last RFP was in 2019, refresh sent out in late March; currently evaluating 4 responses ❖ There are merits to both diversification and to continuing with similar provider ❖ Consideration for splitting into two deals to optimize/de-risk execution Thank you!
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