Executive Committee
Presentation:
Prepay Financing Update
June 4, 2025
• 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
2 What is a Prepay?
▪ RFP and selection of providers for Prepays 4 & 5 March/April ▪ Discuss at April Board and further at May FAP and June Ex Comm before seeking Board Approval in June
▪ Staff will be seeking approval at June Ava Board and CCCFA Board meetings for two transactions
▪ Prepay #4 Morgan Stanley – plan to issue up to $1.25 billion prepay bonds late June or shortly after ▪ Prepay #5 Goldman Sachs – plan to issue up to $1.25 billion prepay bonds in August/September Prepay Planning Process
3 Green Bond Designation
What are 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 Beneficial Elements to a Prepay
5 • 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
6 • Out of Pocket Costs if a transaction does not materialize – 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.
– To the extent that MS does not provide the minimum discount Ava will have a right not to proceed in future repricing periods.
Minimum discount will likely be set at around 6-7%. Target initial discount is 8-10%. – 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 • Tax and Regulatory risk -changes to tax exempt financing rules or changes to RPS standards • Political and reputational risk associated with a transaction unwinding due to non-compliance to tax codes or other material contractual breach
Transaction Structure Prepays 1,2 & 3
7 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 $$
Transaction Structure-Proposed Prepays 4&5
8 Involved Parties to Prepay Transactions
9 Prepay Supplier/Bond Underwriter: Morgan Stanley/Goldman Sachs – Selected through solicitation issued November 2019/2025 Special Purpose Vehicle – entity created to enable funding recipient to differ from Prepay Supplier Funding Recipient: Large taxable organizations such as Insurance Companies and Banks Municipal Financial Advisor: PFM Financial Advisors LLC & PFM Swap Advisors LLC Counsel: Orrick, Herrington & Sutcliffe (Bond & Tax Counsel) | Chapman & Cutler LLP (Disclosure & Issuer’s Counsel) Bond Issuer: California Community Choice Financing Authority Custodian: Bank of New York
Commodity Swap Counterparty: Natixis, RBC, others
– RBC in 2021, Natixis was the swap counterparty in 2022, 2023 and selected for 2025 (lowest cost) Credit Rating Agency: Moody’s Investor Service Inc
Diversification Benefits Within Prepays
10 ▪ CCA prepays have primarily always been with the same supplier and funding recipient ▪ Diversifying suppliers and funding recipients can provide benefits and mitigate risk ▪ Diversifying the Energy Supplier reduces risk to Ava
• Ava has 3 prepays with Morgan Stanley and is planning Prepay 4 • By diversifying, Ava can better protect its risk to losing the discount, if the supplier becomes insolvent or other unforeseen supply concerns
• Staff proposing to use Goldman Sachs for the Prepay 5 to begin to diversify ▪ Investors seek to diversify their portfolio risk and will bid more aggressive with a new funding recipient
• May increase savings offered due to higher investor demand for the new funding recipient credit risk • Ava proposes utilizing this new structure for Prepay's 4&5 to access new funding counterparties • Will not increase risk to Ava
Potential Funding Recipients & CCA Experience
11 Firm Rating
Morgan Stanley & Co. A1
Deutsche Bank Baa1
Canadian Imperial Bank of
Commerce Aa2
Bank of Montreal Aa2
Athene Annuity and Life Company A1
Global Atlantic (Forethought Life
Ins. Co.) A2
Sumitomo Mitsui Banking
Corporation A1
Nomura Holdings Baa1
Pacific Life Aa3
Corebridge Financial (American
General Life Ins.) A2
New York Life Aaa
The Southern Company Baa1
Societe Generale Baa2
BNP Paribas, New York Branch Baa1
Recent Transactions Using New Structure
CPA/ CCCFA Series 2023C: Deutsche Bank
CPA / CCCFA Series 2023D: American General Life
Insurance Co.
3CE / CCCFA Series 2023F: National Bank of Canada
SMUD / NCEA Series 2024: Pacific Life Insurance
Company
CPA / CCCFA Series 2024B: Athene Annuity & Life Co.
PCE / CCCFA 2024C: American General Life Insurance Co.
Sonoma / CCCFA 2024G: Athene Annuity & Life Co
CPA/ CCCFA Series 2024H: New York Life
TID/ CVEA Series 2025A: Pacific Life Insurance Co.
VCE/ CCCFA Series 2025A: Athene Annuity & Life Co.
Documents Overview: Ava Signs
12 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/Goldman Sachs (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/Goldman Sachs (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 Custodial Bank
6. Cost Share Memorandum of Understanding (MOU)
– Details the cost share arrangement with MS/GS to cover rating agency and green bond designation fees and Ava responsibility to cover costs in place of CCCFA
Documents Overview: CCCFA Signs
13 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/Goldman Sachs, Custodian, and Bond Trustee Q&A- Discussion
14 Archive/Backup –Prior Meeting Info
15 Prepay Timeline :
16 March-April-May
o Prepay Supplier RFP – Selection late April – Morgan Stanley 1st , Goldman Sachs 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 Ex Comm & Seek Board Approval in June o Present at CCCFA Board for Approval
Late June-Early July-Aug/Sep (market depending)
o Marketing and Pricing Prepay Bonds
o Close first Prepay; TBD on second (most likely late Aug/Sep) • 2019 - Ava issued RFP for Prepay Services (Prepay
Provider)
• 2021 – Ava closes first-ever CCA energy prepay
bond transaction
Ava’s Prepay Experience:
17 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
18 -
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
19 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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