CITY OF GROVER BEACH
CITY COUNCIL STAFF REPORT
Agenda Item No. 10
Placement: Consent
Meeting Date: July 28, 2025
TO: Honorable Mayor and City Council
FROM: Matthew Bronson, City Manager
PREPARED BY: Kristin Eriksson, Assistant City Manager
Nick Szamet, Administrative Services Director
SUBJECT: Authorization of Financing and Contract Authority for Wastewater Revenue Bond
RECOMMENDATION
1) Adopt a Resolution of Intent appointing the City’s authorized representatives for purposes of preparing terms for private placement of wastewater revenue bonds; and 2) Adopt a Resolution of Reimbursement authorizing costs occurring up to 60 days prior to adoption of the resolution as reimbursable with bond proceeds; and 3) Authorize the City Manager to execute contingent contracts with authorized representatives for payment of services in bond financing activities.
BACKGROUND
As outlined in the Sewer System Financial Plan, the intended path to carry out sewer upgrade projects is financing through a private placement bond. The bond funds are guaranteed through the sewer rate structure adopted by the City Council at the June 9, 2025 Proposition 218 hearing.
Private placement bonds are a lower cost option for a smaller par value (total amount financed) consistent with the funding needs of the City’s sewer projects. Unlike public offerings, private placement bonds are offered to a select number of banks from which the City will pick the best available option. Benefits from using private placement bonds include cost savings on the credit rating process and the avoidance of the requirement to establish a debt reserve fund.
To move forward with the process, it is necessary for the Council to authorize consultants who will perform work on the City’s behalf. The Intent resolution will authorize A.M. Peché & Associates as municipal advisor, Piper Sandler & Co. as placement agent, and Kutak Rock, LLP as bond counsel. This is the same team which worked on the City’s prior water revenue bonds in 2020 and A.M. Peché & Associates have been advising Grover Beach on bond issuance since 2013.
Additionally, staff anticipate design costs will occur prior to the issuance of the bond. The Reimbursement Resolution will authorize the reimbursement of such costs from bond proceeds.
FISCAL IMPACT
There are no fiscal impacts resulting from adoption of the two Resolutions. The City’s authorized representatives will be paid on contingency which is factored into the cost of issuance and total debt obligation. Staff will return to the Council in September to present terms from the selected bidder for approval by the Council including annual debt service obligations to the Wastewater Fund for a total financing amount not to exceed $4.5 million. Pending such approval, staff will Staff Report: Financing and Contract Authority for Wastewater Revenue Bond Page 2 July 28, 2025
Multi-Year Goals
☐ Public Safety and Community Services ☐ Economic Development and Housing ☒ Community Infrastructure ☐ Financial and Organization Sustainability Council Priorities
☒ Water and Wastewater Infrastructure ☐ Community Engagement subsequently return to the Council this fall with an award of construction for the initial sewer upgrade project.
ALTERNATIVES
The Council has the following alternatives to consider:
1. Adopt a Resolution of Intent appointing the City’s authorized representatives for purposes of preparing terms for private placement of wastewater revenue bonds; and adopt a Resolution of Reimbursement authorizing costs occurring up to sixty days prior to adoption of the resolution as reimbursable with bond proceeds; and authorize the City Manager to execute contingent contracts with authorized representatives for payment of services in bond financing activities; or
2. Do not to adopt the Resolutions or provide contract authority and provide additional direction on how to proceed with financing activities for the funding of sewer capital projects.
PUBLIC NOTIFICATION
The agenda was posted in accordance with the Brown Act.
ATTACHMENTS
1. Resolution of Intent to Proceed
2. Resolution for Reimbursement
3. Service Contracts for Bond Issuance
4856-9645-4299.2
RESOLUTION NO. 25-__
RESOLUTION OF THE CITY OF GROVER BEACH, CALIFORNIA DIRECTING
STAFF TO PROCEED WITH PLANNING FOR THE ISSUANCE OF CERTAIN
OBLIGATIONS TO FINANCE CERTAIN WASTEWATER SYSTEM
IMPROVEMENTS AND APPOINTING A FINANCING TEAM IN CONNECTION
THEREWITH
WHEREAS, the City of Grover Beach (the “City”) is a municipal corporation duly organized and existing under the laws of the State of California; and WHEREAS, the City is authorized to sell and purchase its property to finance public capital improvements, including certain improvements to its wastewater system (the “Wastewater System Project”); and
WHEREAS, the City has expressed interest in the issuance of obligations, such as an installment purchase agreement, revenue bonds and/or certificates of participation (the “Obligations”) to finance the Wastewater System Project on either a private placement or public offering basis; and
WHEREAS, the City Council desires to direct staff to pursue the steps necessary to issue the Obligations, to appoint A. M. Peché & Associates LLC, as municipal advisor, Piper Sandler & Co., as placement agent or underwriter, and Kutak Rock LLP, as bond counsel, for the issuance of the Obligations.
NOW, THEREFORE, BE IT RESOLVED, DETERMINED AND ORDERED BY THE CITY OF GROVER BEACH AS FOLLOWS:
SECTION 1. Direction to Staff. The City Manager and Assistant City Manager and all other employees of City are hereby authorized and directed to take such actions as are necessary or appropriate to provide for the issuance of the Obligations on either a private placement or public offering basis, and, at such time as determined appropriate, to present to this City Council all resolutions and documents necessary in connection therewith. Nothing in this Resolution shall in any way commit the City to issue the Obligations, and the City is under no obligation to go forward with issuance of the Obligations unless satisfactory terms are presented to the City.
SECTION 2. Approval of Consultants. The City Council hereby appoints the firms of A.
M. Peché & Associates LLC, as municipal advisor, Piper Sandler & Co., as placement agent or underwriter, and Kutak Rock LLP, as bond counsel, in connection with the proposed issuance of the Obligations. The City Council hereby authorizes the City Manager and Assistant City Manager to execute and deliver an agreement with said firms for their respective services. Payment of fees and expenses with respect to such agreements shall be contingent upon the issuance of the Obligations.
SECTION 3. Other Acts. The officers and staff of the City are hereby authorized and directed, jointly and severally, to do any and all things, to execute and deliver any and all documents, which in consultation with the City Attorney and Kutak Rock LLP, bond counsel, they may deem necessary or advisable in order to effectuate the purposes of this Resolution, and any and all such actions previously taken by such Officers or staff members are hereby ratified and confirmed.
Attachment 1
-2-
4856-9645-4299.2
SECTION 4. Effective Date. This Resolution shall take effect upon adoption.
On motion by Council Member _____, seconded by Council Member ____, and on the following roll-call vote, to wit:
AYES: Council Members –
NOES: Council Members –
ABSENT: Council Members –
ABSTAIN: Council Members –
RECUSED: Council Members –
the foregoing Resolution was PASSED, APPROVED, and ADOPTED at a regular meeting of the City Council of the City of Grover Beach, California this 28th day of July 2025.
KASSI DEE, MAYOR
Attest:
WENDI B. SIMS, CITY CLERK
1 4866-4038-4154.2
RESOLUTION NO. 25-__
A RESOLUTION OF THE CITY OF GROVER BEACH, CALIFORNIA
DECLARING ITS OFFICIAL INTENT TO REIMBURSE ITSELF WITH THE
PROCEEDS OF ONE OR MORE TAX-EXEMPT FINANCINGS FOR CERTAIN EXPENDITURES UNDERTAKEN OR TO BE UNDERTAKEN BY THE CITY; IDENTIFYING SUCH EXPENDITURES; AND PROVIDING CERTAIN OTHER
MATTERS IN CONNECTION THEREWITH
WHEREAS, the City of Grover Beach (the “City”) is a municipal corporation duly organized and existing under the Constitution and laws of the State of California; and WHEREAS, the City Council of the City (the “City Council”) is the governing body of the City; and
WHEREAS, the City proposes to finance public capital improvements to the City’s wastewater system which will consist of pipe improvements, and upsizing of existing sewer mains (the “Project”); and
WHEREAS, the City Council currently intends and reasonably expects to participate in one or more tax-exempt financings that will include, in the aggregate, an amount which is currently estimated not to exceed $4,500,000 for the costs of the Project to reimburse the City for all or a portion of such expenditures paid or to be paid from legally available funds (which do not stem from a borrowing) subsequent to a period commencing 60 days prior to the date hereof and ending not later than 18 months after the later of the date such expenditures are paid or the placing in service of the Project (but in no event more than three years after the date of the original expenditure of such moneys); and
WHEREAS, Section 1.150-2 of the United States Treasury Regulations (the “Regulations”) provides that proceeds of tax-exempt bonds may be used to reimburse the issuer of such bonds for expenditures incurred prior to the issuance of the bonds for qualifying expenditures, which include the financing of capital improvements to the City’s wastewater system, subject to certain limitations, provided that the issuer adopts an “official intent” to reimburse itself (in which case reimbursement may be made for expenditures made after the date of the declaration of such official intent and during the sixty days immediately preceding such official intent); and
WHEREAS, the City Council hereby desires to declare its official intent, pursuant to § 1.150-2 of the Regulations, to reimburse the City for such expenditures with the proceeds of one or more tax-exempt financings;
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF GROVER BEACH DOES HEREBY RESOLVE, DETERMINE AND ORDER:
SECTION 1. Declaration of Official Intent. The City presently intends and reasonably expects to finance a portion of the Project with legally available funds not stemming from a borrowing.
SECTION 2. Dates of Expenditures. All of the expenditures covered by this Resolution were or will be paid on and after the date which is 60 days prior to the effective date of this Resolution.
Attachment 2
2 4866-4038-4154.2
SECTION 3. Tax-Exempt Financings. The City presently intends and reasonably expects to participate in one or more tax-exempt financings within 18 months of the date of the expenditure of moneys on the Project or the date upon which the Project is placed in service, whichever is later (but in no event more than three years after the date of the original expenditure of such moneys), and to allocate from such financing or financings an amount or amounts not to exceed amounts advanced for the Project from legally available funds to reimburse the City.
Section 4. Confirmation of Prior Acts. All prior acts and doings of the officials, agents and employees of the City which are in conformity with the purpose and intent of this Resolution, and in furtherance of the Project, shall be and the same hereby are in all respects ratified, approved and confirmed.
Section5. Effective Date of Resolution. This Resolution shall take effect immediately upon its passage.
On motion by Council Member _____, seconded by Council Member ____, and on the following roll-call vote, to wit:
AYES: Council Members –
NOES: Council Members –
ABSENT: Council Members –
ABSTAIN: Council Members –
RECUSED: Council Members –
the foregoing Resolution was PASSED, APPROVED, and ADOPTED at a regular meeting of the City Council of the City of Grover Beach, California this 28TH day of July 2025.
KASSI DEE, MAYOR
Attest:
WENDI B. SIMS, CITY CLERK
1 CONSULTING SERVICES AGREEMENT
This CONSULTING SERVICES AGREEMENT (the "Agreement") is made and entered into as of the 28th day of July 2025, ("Effective Date"), by and between the Grover Beach (the “City” or “Issuer") and A. M. Peché & Associates LLC (“Consultant" or “Peché & Associates LLC”) in regard to financing of the City’s Wastewater Project (the “Obligations”).
1. Employment. The Issuer hereby employs Peché & Associates LLC to perform, upon request of the Issuer, services set forth in the Scope of Services attached hereto.
2. Representations of Peché & Associates LLC. Peché & Associates LLC hereby represents the following:
A. Peché & Associates LLC has no interest, whether direct, indirect or contingent, in any property or contract arising from or affected by the issuance and sale of the Obligations, except as financial advisor to the Issuer under this Agreement. Peché & Associates LLC will not receive a fee from any source other than the Issuer for services connected with the actual issuance of the Obligations, except as may be disclosed in writing, and has no arrangement with respect thereto with any party other than the Issuer.
B. Peché & Associates LLC is an independent private business and is not a department or agency of the federal or California State governments or any other governmental entity.
Peché & Associates LLC is not an investment banker, investment advisor, underwriter, remarketing agent, broker or dealer in securities, or legal counsel, and will not function in any of those capacities hereunder.
3. Agreements of Peché & Associates LLC. Peché & Associates LLC hereby agrees as follows:
A. Peché & Associates LLC will provide, as requested by the Issuer, the services set forth in the Scope of Services attached hereto.
B. In providing such services, Peché & Associates LLC will make available the experience of its organization so as to represent the Issuer effectively.
4. Obligations Terms. The Obligations sale shall be subject to rates, terms, conditions and arrangements mutually agreeable to and negotiated between the Issuer and the buyer of the Obligations.
5. Compensation. The Issuer shall pay Peché & Associates LLC an amount of $40,000 upon the closing of the sale of Obligations. In addition, the Issuer shall reimburse Peché & Associates LLC’s actual and reasonable expenses for couriers, mailing, telephone, travel, data and research information, copying, conference call charges, and other out-of-pocket expenses incurred by or for Peché & Associates LLC in performance of its services hereunder since the start of work for this engagement. Expenses will include $75 per month beginning in the first month of the first meeting date during the course of this engagement to and including for the month of the closing of the Obligations. Mileage expenses will be billed at .70 per mile or the current prevailing IRS allowable reimbursement rate. However, no fee shall be payable to Peché & Associates LLC if the sale of the Obligations are not closed successfully; provided that, if the sale of the Obligations is terminated due to an exercise of early termination under Section 8 based upon the Issuer’s discretion, or based upon a decision to use other funding, Peché & Docusign Envelope ID: EAA5608F-3E39-4814-A4DB-D231F1A3C26E Attachment 3
Agreement for Services
2 Associates LLC shall be paid all expenses incurred and a fee proportionate to the work performed to the date of that determination.
6. Assignment. Peché & Associates LLC may assign this Agreement to a successor firm upon mutual agreement of Peché & Associates LLC and the City Manager. Peché & Associates LLC agrees to give notice of assignment to Issuer and upon receipt of such notice Issuer agrees to make all payments to the assignee designed in the assignment.
7. Entire Agreement; Amendments. All discussions, negotiations and prior agreements between the Issuer and Peché & Associates LLC are merged into this Agreement. This Agreement is the entire agreement between the parties respecting the subject matter hereof. This Agreement may be amended only in writing.
8. Term. This Agreement shall continue from month to month for the period reasonably necessary for the performance of the sale of the Obligations; provided, that either party hereto may terminate this Agreement for cause upon 15 day’s written notice to the other party.
9. Government Code. Peché & Associates LLC and its representatives are not public officials or participating in governmental decisions, as those terms are used in Section 87100 of the California Government Code. No actions or opinions necessary for the performance of Peché & Associates LLC’s duties under this Agreement will cause Peché & Associates LLC to be a “public official” or “participating in a governmental decision,” as those terms are used in Section 87100 of the California Government Code.
10. Information. The Issuer, its officials and staff, bond/special counsel, fiscal consultant, placement agent and others will be providing to Peché & Associates LLC various data, records, studies, computer printouts and other information and representations as to the facts relating to the Issuer and the Obligations. Peché & Associates LLC will be using and relying upon such data, records, studies, computer printouts and other information in the preparation of Peché & Associates LLC’s work products. Peché & Associates LLC shall not be obligated to establish or verify the accuracy or completeness of the information furnished to Peché & Associates LLC.
11. Standards. Peché & Associates LLC shall perform its services pursuant hereto in accordance with competent professional standards. The liability of Peché & Associates LLC to the Issuer for any breach of those professional standards arising out of or related to this Agreement or the services performed hereunder shall not exceed the fees paid or payable under this Agreement.
12. Insurance Requirement.
(a) Consultant shall obtain and maintain during the performance of any services under this Agreement the following insurance coverage issued by a company satisfactory to the City, unless the Chief Financial Officer, waives in writing, the requirement that Consultant obtain and maintain such insurance coverage.
1. Commercial general liability insurance including a contractual liability endorsement in an amount not less than $1,000,000 per occurrence limit and no less than $2,000,000 in the aggregate for bodily injury and property damage for each claimant for general liability;
2. Business automobile liability insurance in an amount not less than $1,000,000 combined single limit for bodily injury and property damage for each claimant for automobile liability; Docusign Envelope ID: EAA5608F-3E39-4814-A4DB-D231F1A3C26E Agreement for Services
3 3. Errors and omissions insurance to a minimum coverage of $1,000,000, with neither Consultant nor listed sub-consultants having less than $1,000,000 individually;
4. In the event that Consultant has any employees, Worker’s compensation insurance in compliance with the laws of the State of California, including employer’s liability insurance in an amount not less than $1,000,000 per claimant.
(b) Consultant shall, prior to performance of any services, file with the City a certificate of insurance, on an City approved form, certifying that the above insurance coverages shall remain in effect at all times during the term of this Agreement, or any extension thereof. (c) Consultant agrees that all insurance coverages shall be provided by a California admitted insurance carrier with an A.M. Best rating of A-7 or better and shall bear endorsements providing that the policies may not be canceled or modified without thirty (30) days’ prior written notice to the City.
City shall not approve or accept any endorsement if the endorsement contains “best effort” modifiers or if the insurer is relieved from the responsibility to give such notice. (d) Consultant agrees that the commercial general liability and business automobile liability insurance policies shall be endorsed to name City, its City Board, officers, and employees as additional insured and to provide that the coverage’s provided to City shall be primary and not contributing to or in excess of any existing City insurance coverage’s.
(e) All insurance standards applicable to Consultant shall also be applicable to Consultant’s subcontractors. Consultant may utilize subcontractors to prepare reports. Consultant agrees to maintain appropriate agreements with subcontractors and to provide proper evidence of coverage upon receipt of a written request from the City.
13. Governing Law. This Agreement shall be construed in accordance with the laws of the State of California.
14. Independent Contractor. Peché & Associates LLC’s relationship to Issuer is that of an independent contractor.
15. Additional Disclosures. Additional Disclosures required by Municipal Advisors are listed after the Scope of Services at the end of this Agreement and are part of this Agreement. As described in the Additional Disclosures, Consultant may utilize Del Rio Advisors, LLC as a subcontractor (the “Subcontractor”) from time to time for work performed under this Agreement and compensation for this firm will be paid for by the Consultant. Subcontractor is registered as a Municipal Advisor with the SEC and the MSRB and will provide additional disclosures, if any, to the City when required.
Docusign Envelope ID: EAA5608F-3E39-4814-A4DB-D231F1A3C26E Agreement for Services
4 IN WITNESS WHEREOF, this Agreement has been executed and delivered for and in the names and on behalf of the City and Peché & Associates LLC as of the date set forth below.
DATED: July 28, 2025
CITY OF GROVER BEACH
By:
Name: Kassi Dee
Title: Mayor
CITY OF GROVER BEACH
Signature Attested to
By:
Name: Wendi Sims
Title: City Clerk
CITY OF GROVER BEACH
Approved as to Legal Form and Effect
By:
Name: Robert Lomeli
Title: City Attorney
A. M. PECHÉ & ASSOCIATES LLC
Albert M. Peché, Manager
Docusign Envelope ID: EAA5608F-3E39-4814-A4DB-D231F1A3C26E Agreement for Financial Advisory Services
1 Grover Beach/A. M. Peché & Associates LLC
AGREEMENT FOR SERVICES
SCOPE OF SERVICES
In performing under this Agreement, Peché & Associates LLC shall, as and when requested by City, perform the following services.
When requested, Peché & Associates LLC will provide the following:
1. Review and discuss financing options, methods of sale and strategies with the Issuer’s officials and staff including Direct Placements and Public Sales of the Obligations.
2. Participate in calls between City staff, Bond Counsel, Placement Agent, Rate Consultant, and other financing participants. Organize calls with participants when requested.
3. If the Obligations are issued through a Public Sale, assist in the selection of a bond rating agency.
4. Develop a transactional budget with the Issuer.
5. Review the term sheet, lender RFP prepared by the Placement Agent, and legal documentation prepared by bond Counsel.
6. Meet with the Issuer’s governing body and Issuer committees, officers, professional staff and employees in authorizing and reviewing the structure of the Obligations, so as to achieve an effective result consistent with the policies, goals and objectives established by the Issuer.
7. Review financial and quantitative analyses provided by the City, Placement Agent, Rate Consultant, and other participants.
8. Discuss with the Issuer’s officials and staff the maturity and amortization schedules, redemption features, covenants, debt service reserve fund, and timing of the proposed offering and sales of the Obligations to assist in determining desirable results.
Docusign Envelope ID: EAA5608F-3E39-4814-A4DB-D231F1A3C26E Agreement for Financial Advisory Services
2 MUNICIPAL ADVISOR ADDITIONAL DISCLOSURES
Fiduciary Duty
Consultant is registered as a Municipal Advisor with the SEC and Municipal Securities Rulemaking Board (“MSRB”). As such, Consultant has a Fiduciary duty to the Issuer and must provide both a Duty of Care and Loyalty that entail the following:
Duty of Care
a) exercise due care in performing its municipal advisory activities; b) possess the degree of knowledge and expertise needed to provide the Issuer with informed advice;
c) make a reasonable inquiry as to the facts that are relevant to Issuer’s determination as to whether to proceed with a course of action or that form the basis for any advice provided to Issuer; and
d) undertake a reasonable investigation to determine that Consultant is not forming any recommendation on materially inaccurate or incomplete information; Consultant must have a reasonable basis for:
i. any advice provided to or on behalf of Issuer;
ii. any representations made in a certificate that it signs that will be reasonably foreseeably relied upon by Issuer, any other party involved in the municipal securities transaction or municipal financial product, or investors in the Issuer securities; and iii. any information provided to the Issuer or other parties involved in the municipal securities transaction when participating in the preparation of an official statement.
Duty of Loyalty
Consultant must deal honestly and with the utmost good faith with Issuer and act in Issuer’s best interests without regard to the financial or other interests of Consultant. Consultant will eliminate or provide full and fair disclosure (included herein) to Issuer about each material conflict of interest (as applicable). Consultant will not engage in municipal advisory activities with Issuer as a municipal entity, if it cannot manage or mitigate its conflicts in a manner that will permit it to act in Issuer’s best interests.
Conflicts of Interest and Other Matters Requiring Disclosures:
• As of the date of the Contract, there are no actual or potential conflicts of interest that Consultant is aware of that might impair its ability to render unbiased and competent advice or to fulfill its fiduciary duty. If Consultant becomes aware of any potential conflict of interest that arises after this disclosure, Consultant will disclose the detailed information in writing to Issuer in a timely manner.
16. The fee paid to Consultant increases the cost of investment to Issuer. The increased cost occurs from compensating Consultant for municipal advisory services provided.
Docusign Envelope ID: EAA5608F-3E39-4814-A4DB-D231F1A3C26E Agreement for Financial Advisory Services
3 17. Consultant may utilize Del Rio Advisors, LLC as a subcontractor (the “Subcontractor”) from time to time for work performed under this Agreement and compensation for this firm will be paid for by the Consultant. Subcontractor is registered as a Municipal Advisor with the SEC and the MSRB and will provide additional disclosures, if any, to the City when required.
18. Consultant does not act as principal in any of the transaction(s) related to this Contract.
19. During the term of the municipal advisory relationship, this Contract will be promptly amended or supplemented to reflect any material changes in or additions to the terms or information within this Contract and the revised writing will be promptly delivered to Issuer. • Consultant does not have any affiliate that provides any advice, service, or product to or on behalf of the client that is directly or indirectly related to the municipal advisory activities to be performed by Consultant;
• Consultant has not made any payments directly or indirectly to obtain or retain Issuer’s municipal advisory business;
• Consultant has not received any payments from third parties to enlist Consultant’s recommendation to Issuer of its services, any municipal securities transaction or any municipal finance product; • Consultant has not engaged in any fee-splitting arrangements involving Consultant and any provider of investments or services to Issuer;
• Consultant has a conflict of interest from compensation for municipal advisory activities to be performed, that is contingent on the size or closing of any transactions as to which Consultant is providing advice;
• Consultant does not have any other engagements or relationships that might impair Consultant ability either to render unbiased and competent advice to or on behalf of Issuer or to fulfill its fiduciary duty to Issuer, as applicable; and
• Consultant does not have any legal or disciplinary events that are material to Issuer’s evaluation of the municipal advisory or the integrity of its management or advisory personnel.
Legal Events and Disciplinary History
Consultant does not have any legal events and disciplinary history on their Form MA and Form MA-I, which includes information about any criminal actions, regulatory actions, investigations, terminations, judgments, liens, civil judicial actions, customer complaints, arbitrations and civil litigation. Issuer may electronically access Consultant’s most recent Forms MA and each most recent Forms MA-I filed with the Commission at the following website: www.sec.gov/edgar/searchedgar/companysearch.html.
There have been no material changes to a legal or disciplinary event disclosure on any Form MA or Form MA-I filed with the SEC.
Docusign Envelope ID: EAA5608F-3E39-4814-A4DB-D231F1A3C26E Agreement for Financial Advisory Services
4 Registration and Customer Complaints
Pursuant to Municipal Securities Rulemaking Board Rule G-10, on Investor and Municipal Advisory Client Education and Protection, Municipal Advisors are required to provide certain written information to their municipal entity and obligated person clients which include the following:
Consultant is currently registered as a Municipal Advisor with the U.S. Securities and Exchange Commission and the Municipal Securities Rulemaking Board.
Within the Municipal Securities Rulemaking Board (“MSRB”) website at www.msrb.org, Issuer may obtain the Municipal Advisory client brochure that is posted on the MSRB website. The brochure describes the protections that may be provided by the MSRB Rules along with how to file a complaint with financial regulatory authorities
Recommendations
If Consultant makes a recommendation of a municipal securities transaction or municipal financial product or if the review of a recommendation of another party is requested in writing by Issuer and is within the scope of the engagement, Consultant will determine, based on the information obtained through reasonable diligence of Consultant whether a municipal securities transaction or municipal financial product is suitable for Issuer. In addition, Consultant will inform Issuer of:
• the evaluation of the material risks, potential benefits, structure, and other characteristics of the recommendation;
• the basis upon which Consultant reasonably believes that the recommended municipal securities transaction or municipal financial product is, or is not, suitable for Issuer; and • whether Consultant has investigated or considered other reasonably feasible alternatives to the recommendation that might also or alternatively serve Issuer’s objectives.
If Issuer elects a course of action that is independent of or contrary to the advice provided by Consultant, Consultant is not required on that basis to disengage from Issuer.
Record Retention
Effective July 1, 2014, pursuant to the Securities and Exchange Commission (SEC) record retention regulations, Consultant are required to maintain in writing, all communication and created documents between Consultant and Issuer for five (5) years.
Docusign Envelope ID: EAA5608F-3E39-4814-A4DB-D231F1A3C26E 1 AGREEMENT FOR BOND COUNSEL SERVICES
THIS AGREEMENT (the “Agreement”) is made and entered into this 28th day of July, 2025, between the City of Grover Beach, whose address is 154 S. Eighth Street, Grover Beach, CA 93433 (the “City”) and Kutak Rock LLP (“Kutak”) whose address is 5 Park Plaza, Ste. 1500, Irvine, California 92614.
W I T N E S S E T H:
WHEREAS, the City proposes to finance the acquisition and construction of certain public improvements to its wastewater system for the benefit of the City (the “Project”); and WHEREAS, Kutak is specifically trained and experienced in the conduct of proceedings for accomplishing the financing of the Project through the preparation, sale and delivery of a tax-exempt installment purchase contract or other obligations for such purposes (the “Obligations”); and
NOW, THEREFORE, in consideration of the covenants and premises herein contained and other good and valuable consideration, the parties hereto agree as follows:
1. Duties. Kutak shall provide legal services in connection with the authorization, issuance, sale, execution and delivery of the Obligations (the “Transaction”). Such services shall include, but not be limited to, the following:
a. Reviewing California State law regarding the authority for the City to authorize and enter into the Obligations and reviewing all term sheets received from financial institutions for the Obligations.
b. Conferring and consulting with the City, the officers, administrative staff, financial advisor, underwriter, if any, placement agent, if any, and other representatives of the City in connection with the preparation and formulation of the Transaction. c. Preparation of the Resolution of Issuance, security documents and all other resolutions, agreements, notices and other documents necessary for the proper conduct and consummation of the Transaction.
d. A review of all financial documents for legal sufficiency. e. Preparation of an incumbency certificate, an arbitrage certificate, and any and all other closing documents required of the City to accompany delivery of the financing documents.
f. Attendance at and supervision of the closing and issuing the legal opinion of Kutak stating that the interest payments with respect to the Obligations is exempt from present federal and State income taxes, as the case may be, and approving in all respects the legality of all proceedings for the authorization, issuance, sale and delivery of the Obligations and other agreements relating to the Transaction.
2 g. Preparation of a transcript of the closing of the Transaction. h. Conferring and consulting with City officials and agents with regard to any problems which may arise prior to the maturity of the issuance. i. Providing any other necessary services, including ongoing monitoring of the Transaction after the sale of the Obligations and assistance to the City regarding the Transaction, generally expected of Kutak not listed above.
2. Compensation. For provision of the services to be rendered pursuant to this Agreement related to the execution and delivery or issuance of the Obligations, the City shall pay Kutak a fee of $40,000, plus out-of-pocket expenses incurred by it in the course of this engagement, such as reproduction and printing costs, word processing time, long distance telephone calls, travel and lodging at the request of the City and similar items (excluding any publication costs) in an amount not to exceed $1,200. Said fee is payable only upon issuance of the Obligations and shall be paid from proceeds thereof; provided however, if the City elects to terminate this Agreement prior to the issuance of the Obligations or if the Obligations are not issued, the City may pay Kutak all out-of-pocket expenses incurred by it in the course of this engagement and a fee proportionate to the services Kutak has performed commencing on the date of this Agreement to the date of termination of this Agreement or the date a determination is made that the City will not issued the Obligations. Such fee shall be determined by multiplying the number of hours Kutak actually and reasonably expends in completing the services outlined in this Agreement at the hourly rate of the attorney performing such services.
In the event Kutak is requested to perform additional work unrelated to the Transaction and outside of its normal and customary services as bond counsel, such as litigation or real estate, Kutak will be paid additional compensation therefor. In order to document such request, the City and Kutak shall enter into a separate legal agreement setting forth the scope of the additional work and services requested and the hourly rate or rates of the attorney or attorneys performing such services.
3. Assignment. This Agreement may be assigned by the City to any other issuer of the securities as may be necessary to consummate the Transaction, without the consent of but with notice to Kutak.
4. No Guarantees; Entire Agreement. Nothing in this Agreement and nothing in our statements to you should be construed as a guarantee or promise about the outcome of the Transaction or any phase thereof. We make no such guarantees or promises. Comments about the course or outcome of the Transaction or any phase thereof which we may make from time to time are expressions of opinion only. The written Agreement constitutes the entire Agreement between the parties hereto with respect to Kutak services and neither party has been induced to make or enter into this Agreement by reason or promise, agreement, representation, statement or warranty other than as herein contained.
5. Other Representation. Kutak may, from time to time, have clients with interests which may be potentially adverse to the City. Kutak reserves the right to represent said clients except on matters directly relating to the issuance and sale of the Obligations. We will disclose any such potential conflict to you and will seek a waiver of that conflict. We will of course work with you and our other clients to construct an appropriate ethical wall to protect the 3 confidences of all of our clients and to clearly separate our work in any such case. Although we are not asking for a waiver now since these conflicts may not emerge, we ask that you agree to give good faith consideration to our requests for any such waivers in the future. This will allow us to better serve all of our clients.
6. Work Product. Our files developed in the course of work undertaken pursuant to this Agreement are your property. We will release those files to you or to anyone else you designate upon your written request delivered to the attorney in charge of this matter. However, such a request will signify the end of this engagement if it is then still ongoing. You agree that we may, in our sole discretion, copy all or any portion of such files at your expense and retain such copies, and that we may have a reasonable period of time before releasing the documents to you or your designee in order to make the copies. We will from time to time send portions of your files that are not currently needed to an off-site storage facility. The cost of using this facility will be our sole expense. However, we are not the guarantor of the security of any off-site storage facility.
Accordingly, you agree that the firm will not be responsible for any damages which may occur as a result of the loss of any of your files which we store at an off-site storage facility. You also agree that we may, after the passage of two years without our having performed any work for you pursuant to this engagement, destroy the files of this engagement without further notice to you unless you have previously provided us with written instructions to forward the files to you or to another person you designate.
7. Insurance. We carry professional liability insurance which would cover the services we will be providing under the terms of this Agreement. That insurance is subject to a self-insured retention.
8. Litigation. If an action or proceeding is commenced to enforce this Agreement or any provision hereof, the prevailing party in such an action or proceeding shall be entitled to recover the reasonable amount of his, her or its fees and costs thereof, in addition to compensatory damages. For the purposes of enforcing this Agreement only, and as otherwise required by law, you agree that this Agreement may be disclosed to a court.
9. Notices. All notices, demands, requests, consents and approvals given, required or permitted to be given hereunder, shall be contained in writing and shall be deemed sufficiently given if sent by express delivery service or by registered or certified mail, postage prepaid and return receipt requested, addressed to the parties at the addresses set forth above or on any addendum or counterpart to this Agreement, or to such other address as the recipient shall have notified the sender of in writing. You agree to keep us currently informed of any change in your address or telephone numbers so that we may effectively communicate with you. We will also advise you promptly of any change in the firm's business address, electronic mail address, telephone or facsimile numbers.
10. California Law. This Agreement is made under and shall be construed in accordance with the substantive laws of the State of California, without reference to choice of law rules.
11. Counterparts. This Agreement may be executed in counterparts each of which shall be deemed an original but all of which shall constitute one and the same instrument. 4 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers and representatives thereto duly authorized, all as of the day and year first above written.
CITY OF GROVER BEACH
By: ______________________________
Title: Mayor
ATTEST:
By: ______________________________
Title: City Clerk
APPROVED AS TO LEGAL FORM AND
EFFECT:
By: ______________________________
Title: City Attorney
KUTAK ROCK LLP
By: ______________________________
Albert R. Reyes, a Partner
999 CORPORATE DRIVE, SUITE 100
LADERA RANCH, CA 92694
P 949-230-2939
Piper Sandler & Co.
Since 1895. Member SIPC and NYSE.
1 Kassi Dee, Mayor July 10, 2025
City of Grover Beach
154 South Eighth Street
Grover Beach, CA 93433
Re: Placement Agent Engagement Letter
City of Grover Beach 2025 Wastewater Project Financing (the “Securities”) Dear Ms. Dee:
This letter confirms the agreement (the “Agreement”) between Piper Sandler & Co. (“Piper Sandler” or “we” or “us”) and the City of Grover Beach (the “Issuer” or “you”) as follows:
1. Engagement. The Issuer engages Piper Sandler to act as its exclusive representative to assist you on a best efforts basis in placing the proposed private transaction (the “Transaction”) of the abovereferenced Securities. You acknowledge and agree that Piper Sandler’s engagement hereunder is not an agreement by Piper Sandler or any of its affiliates to underwrite, place or purchase the Securities or otherwise provide any financing to you. We may decline to participate in the Transaction if we reasonably determine that the Transaction has become impractical or undesirable. We accept this engagement upon the terms and conditions set forth in this agreement.
As currently contemplated, the Transaction will be a placement of the Securities with gross proceeds of approximately $4,170,000. You may in your discretion postpone, modify, abandon or terminate the Transaction prior to closing. Sale and delivery of the Securities by the Issuer and purchase by the purchasers will occur on the day of closing (“Closing Date”).
During the term of our engagement, we will as directed by you and as appropriate to the Transaction, provide the following services:
(a) consult with you in planning and implementing the Transaction; (b) assist you in reviewing any transaction materials (the “Transaction Materials”) we mutually agree are beneficial or necessary to the consummation of the Transaction; (c) assist you in preparing for due diligence conducted by potential investors; (d) identify potential investors and use our reasonable commercial efforts to assist in arranging sales of the Securities to investors;
(e) consult with you in structuring the investment; and (f) assist you in negotiating definitive documentation.
2. Fees and Expenses.
(a) For our services, you agree to pay us a selling commission of $40,000 plus travel expenses and CDIAC fee, payable by wire transfer of immediately available funds at closing. For avoidance of doubt, the fee shall not be payable in the event a closing of the Transaction does not occur.
3. Representations, Warranties and Agreements of the Issuer.
You represent and warrant to, and agree with us, that:
(a) the Securities will be sold by you in compliance with the requirements for exemptions from registration or qualification of, and otherwise in accordance with, all federal and state Securities laws and regulations;
999 CORPORATE DRIVE, SUITE 100
LADERA RANCH, CA 92694
P 949-230-2939
Piper Sandler & Co.
Since 1895. Member SIPC and NYSE.
2 (b) all financial projections that have or will be made available to Piper Sandler by you or any of your representatives in connection with the Transaction (the “Projections”) have been and will be prepared in good faith and will be based upon assumptions believed by you to be reasonable (it being understood that projections by their nature are inherently uncertain and no assurances are being given that the results reflected in the Projections will be achieved);
(c) you will make available to us and each purchaser such documents and other information which we and each purchaser reasonably deem (the “Transaction Materials”) appropriate and will provide access to your officers, directors, employees, accountants, counsel and other representatives and will provide each purchaser and us opportunities to ask questions and receive answers from these persons; it being understood that we and each purchaser will rely solely upon such information supplied by you and your representatives without assuming any responsibility for independent investigation or verification thereof; (d) you agree to be responsible for the accuracy and completeness of any Transaction Materials to the extent of federal securities laws applicable to the Transaction. You agree to notify us promptly of any material adverse changes, or development that may lead to any material adverse change, in your business, properties, operations, financial condition or prospects and concerning any statement contained in any Transaction Material, or in any other information provided to us, which is not accurate or which is incomplete or misleading in any material respect;
(e) On the Closing Date, you will deliver or cause to be delivered to the Placement Agent:
(1.) The Opinion of Bond Counsel to the Issuer, dated the Closing Date relating to:
(i) the validity of the Securities;
(ii) exemption from registration and qualification under federal and state securities law; and
(iii) the tax-exempt status of the Securities, together with a reliance letter from such counsel, dated the Closing Date and addressed to us and in a form acceptable to us.
4. Other Matters Relating to Our Engagement. You acknowledge that you have retained us solely to provide the services to you as set forth in this agreement. As placement agent, Piper Sandler may provide advice concerning the structure, timing, terms, and other similar matters concerning the Transaction. You acknowledge and agree that: (i) the primary role of Piper Sandler as a placement agent, is to place securities to investors in an arms-length commercial transaction and that Piper Sandler has financial and other interests that differ from your interests (ii) Piper Sandler is not acting as a municipal advisor, financial advisor or fiduciary to you or any other person or entity and has not assumed any advisory or fiduciary responsibility to you with respect to the transaction contemplated herein and the discussions, undertakings and proceedings leading thereto (irrespective of whether Piper Sandler has provided other services or is currently providing other services to you on other matters) (iii) the only obligations Piper Sandler has to you with respect to the transaction contemplated hereby expressly are set forth in this agreement and (iv) you have consulted your own legal, accounting, tax, financial and other advisors, as applicable, to the extent deemed appropriate in connection with the transaction contemplated herein.
5. Disclosure. Attached to this letter are regulatory disclosures required by the Securities and Exchange Commission and the Municipal Securities Rulemaking Board to be made by us at this time because of this engagement. We may be required to send you additional disclosures regarding the material financial characteristics and risks of such transaction or describing those 999 CORPORATE DRIVE, SUITE 100
LADERA RANCH, CA 92694
P 949-230-2939
Piper Sandler & Co.
Since 1895. Member SIPC and NYSE.
3 conflicts. At that time, we also will seek your acknowledgement of receipt of any such additional disclosures. It is our understanding that you have the authority to bind the Issuer by contract with us, and that you are not a party to any conflict of interest relating to the Securities. If our understanding is incorrect, please notify the undersigned immediately.
6. Termination. You or we may terminate our engagement under this agreement, with or without cause, upon ten days’ written notice to the other party. The fee, expense reimbursement, your representations, warranties and agreements and miscellaneous provisions of this agreement will survive any termination of our engagement under this agreement.
7. Section Headings. Section headings contained herein are for convenience of reference only and are not part of this agreement.
8. Amendment. This agreement may be amended only by a written instrument executed by each of the Parties. The terms of this agreement may be waived only by a written instrument executed by the party waiving compliance.
9. Entire Agreement. This agreement embodies the entire agreement and understanding between you and us and supersedes all prior agreements and understandings relating to the subject matter of this agreement.
10. No Assignment. This agreement has been made by the Issuer and Piper Sandler, and no other person shall acquire or have any right under or by virtue of this agreement.
11. Governing Law. This agreement, and all claims or causes of action (whether in contract or tort) that may be based upon, arise out of or relate to this agreement or the negotiation, execution or performance of this agreement, will be governed by and construed in accordance with the laws of New York. You and we hereby waive all right to trial by jury in any action, proceeding, or counterclaim (whether based upon contract, tort or otherwise) in connection with any dispute arising out of this agreement or any matters contemplated by this agreement.
12. Consent to Jurisdiction; Service of Process. The parties each hereby (a) submits to the jurisdiction of any state or federal court sitting in the County of New York, State of New York for the resolution of any claim or dispute with respect to or arising out of or relating to this agreement or the relationship between the parties (b) agrees that all claims with respect to such actions or proceedings may be heard and determined in such court, (c) waives the defense of an inconvenient forum, (d) agrees not to commence any action or proceeding relating to this agreement other than in a state or federal court sitting in the County of New York, State of New York and (e) agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Each party hereto irrevocably consents to service of process in the manner provided for notices in Section 16. Nothing in this agreement will affect the right of any party to this agreement to serve process in any other manner permitted by law.
13. Effectiveness. This agreement shall become effective upon its execution by duly authorized officials of all parties hereto and shall be valid and enforceable from and after the time of such execution.
14. Severability. In the event any provision of this agreement shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof. You and us will endeavor in good faith negotiations to replace the invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid or unenforceable provisions. 999 CORPORATE DRIVE, SUITE 100
LADERA RANCH, CA 92694
P 949-230-2939
Piper Sandler & Co.
Since 1895. Member SIPC and NYSE.
4 15. Counterparts. This agreement may be executed in several counterparts (including counterparts exchanged by email in PDF format), each of which shall be an original and all of which shall constitute but one and the same instrument.
16. Notices. Any notice required or permitted to be given under this agreement shall be given in writing and shall be effective from the date sent by registered or certified mail, by hand, facsimile or overnight courier to the addresses set forth on the first page of this agreement with a copy sent to the General Counsel of such Party.
17. THE PARTIES HEREBY IRREVOCABLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT.
Please confirm that the foregoing correctly and completely sets forth our understanding by signing and returning to us the enclosed duplicate of this engagement agreement.
Sincerely,
______________________________
Renee Vancho, Managing Director
Piper Sandler & Co.
Acknowledgement and Approval of Engagement
and Receipt of Appendix A Disclosures
________________________________
Kassi Dee, Mayor
City of Grover Beach
Date: ___________________________
Attested by:
________________________________
Wendy Sims, City Clerk
City of Grover Beach
Date: ___________________________
Approved as to legal form and effect:
______________________________
Robert Lomeli, Esq.
Lozano Smith
Date: ___________________________
999 CORPORATE DRIVE, SUITE 100
LADERA RANCH, CA 92694
P 949-230-2939
Piper Sandler & Co.
Since 1895. Member SIPC and NYSE.
5 Appendix A – G-17 Disclosure
Thank you for engaging Piper Sandler & Co. to serve as your placement agent. We are writing to provide you with certain disclosures relating to the captioned bond issue (Bonds), as required by Municipal Securities Rulemaking Board (MSRB) Rule G-17 as set forth in MSRB Notice 2019-20 (Nov. 8, 2019).1 .
Piper Sandler intends to serve as a placement agent respecting the Bonds and not as a financial advisor or municipal advisor to you. As part of our services as a placement agent, we may provide advice concerning the structure, timing, terms, and other similar matters concerning the issuance of the Bonds.
Standard Disclosures
Disclosures Concerning the Placement Agent Role:
MSRB Rule G-17 requires us to deal fairly at all times with both municipal issuers and investors.
Our primary role in this transaction is to facilitate the sale and purchase of municipal securities between you and one or more investors for which we will receive compensation. Unlike a municipal advisor, a placement agent does not have a fiduciary duty to the Issuer under the federal securities laws and is, therefore, not required by federal law to act in the best interests of the Issuer without regard to its own financial or other interests. The placement agents have a duty to purchase the Bonds from the Issuer at a fair and reasonable price but must balance that duty with their duty to sell the Bonds to investors at prices that are fair and reasonable.
In the event an official statement is prepared, the placement agent will review the official statement for the Bonds in accordance with, and a part of, their respective responsibilities to investors under the federal securities laws, as applied to the facts and circumstances of this transaction.2
Disclosures Concerning the Placement Agent’s Compensation:
The placement agent will be compensated by a fee that was negotiated and entered into in connection with the issuance of the Bonds. Payment or receipt of the placement agent fee will be contingent on the closing of the transaction and the amount of the fee may be based, in whole or in part, on a percentage of the principal amount of the Bonds. While this form of compensation is customary in the municipal securities market, it presents a conflict of interest since the placement agent may have an incentive to recommend to the Issuer a transaction that is unnecessary or to recommend that the size of the transaction be larger than is necessary.
If you or any other Issuer officials have any questions or concerns about these disclosures, please make those questions or concerns known immediately to the undersigned. In addition, you should consult with the Issuer’s own financial and/or municipal, legal, accounting, tax and other advisors, as applicable, to the extent you deem appropriate.
Please note that nothing in this letter should be viewed as a commitment by the placement agent to purchase or sell all the Bonds and any such commitment will only exist upon the execution of any bond purchase agreement or similar agreement and then only in accordance with the terms and conditions 1 Revised Interpretive Notice Concerning the Application of MSRB Rule G-17 to Underwriters of Municipal Securities (effective Mar. 31, 2021).
2 Under federal securities law, an issuer of securities has the primary responsibility for disclosure to investors. The review of the official statement by the underwriters is solely for purposes of satisfying the underwriters’ obligations under the federal securities laws and such review should not be construed by an issuer as a guarantee of the accuracy or completeness of the information in the official statement. 999 CORPORATE DRIVE, SUITE 100
LADERA RANCH, CA 92694
P 949-230-2939
Piper Sandler & Co.
Since 1895. Member SIPC and NYSE.
6 thereof.
You have been identified by the Issuer as a primary contact for the Issuer’s receipt of these disclosures, and that you are not a party to any disclosed conflict of interest relating to the subject transaction. If our understanding is incorrect, please notify the undersigned immediately. We are required to seek your acknowledgement that you have received this letter. Accordingly, please send me an email to that effect, or sign and return the enclosed copy of this letter to me at the address set forth above. Otherwise, an email read receipt from you or automatic response confirming that our email was opened by you will serve as an acknowledgment that you received these disclosures.
Depending on the structure of the transaction that the Issuer decides to pursue, or if additional actual or potential material conflicts are identified, we may be required to send you additional disclosures regarding the material financial characteristics and risks of such transaction and/or describing those conflicts. At that time, we also will seek your acknowledgement of receipt of any such additional disclosures. 2321 ROSECRANSE AVE, SUITE 3200
EL SEGUNDO, CA 90245
P 949-230-2939
Piper Sandler & Co.
Since 1895. Member SIPC and NYSE.
1 Appendix B – Fixed Rate Bonds
The following is a general description of the financial characteristics and security structures of fixed rate municipal bonds (“Fixed Rate Bonds”), as well as a general description of certain financial risks that are known to us and reasonably foreseeable at this time and that you should consider before deciding whether to issue Fixed Rate Bonds. If you have any questions or concerns about these disclosures, please make those questions or concerns known immediately to us. In addition, you should consult with your financial and/or municipal, legal, accounting, tax, and other advisors, as applicable, to the extent you deem appropriate.
Financial Characteristics
Maturity and Interest. Fixed Rate Bonds are interest-bearing debt securities issued by state and local governments, political subdivisions and agencies and authorities, whether for their benefit or as a conduit issuer for a nongovernmental entity. Maturity dates for Fixed Rate Bonds are fixed at the time of issuance and may include serial maturities (specified principal amounts are payable on the same date in each year until final maturity) or one or more term maturities (specified principal amounts are payable on each term maturity date) or a combination of serial and term maturities.
The final maturity date typically will range between 10 and 30 years from the date of issuance.
Interest on the Fixed Rate Bonds typically is paid semiannually at a stated fixed rate or rates for each maturity date.
Redemption. Fixed Rate Bonds may be subject to optional redemption, which allows you, at your option, to redeem some or all the bonds on a date prior to scheduled maturity, such as in connection with the issuance of refunding bonds to take advantage of lower interest rates. Fixed Rate Bonds will be subject to optional redemption only after the passage of a specified period, often approximately ten years from the date of issuance, and upon payment of the redemption price set forth in the bonds, which may include a redemption premium. You will be required to send out a notice of optional redemption to the holders of the bonds, usually not less than 30 days prior to the redemption date. Fixed Rate Bonds with term maturity dates also may be subject to mandatory sinking fund redemption, which requires you to redeem specified principal amounts of the bonds annually in advance of the term maturity date. The mandatory sinking fund redemption price is 100% of the principal amount of the bonds to be redeemed.
Security
Payment of principal of and interest on a municipal security, including Fixed Rate Bonds, may be backed by various types of pledges and forms of security, some of which are described below.
General Obligation Bonds. “General obligation (GO) bonds” are debt securities to which your full faith and credit is pledged to pay principal and interest. If you have taxing power, generally you will pledge to use your ad valorem (property) taxing power to pay principal and interest. The debt service on “unlimited tax” GO bonds are paid from ad valorem taxes which are not subject to state constitutional property tax millage limits, whereas “limited tax” GO Bonds are subject to such limits.
General obligation bonds constitute a debt and, depending on applicable state law, may require that you obtain approval by voters prior to issuance. In the event of default in required payments of interest or principal, the holders of general obligation bonds generally will have certain rights under state law to compel you to impose a tax levy.
Revenue Bonds. “Revenue bonds” are debt securities that are payable only from a specific source or sources of revenues. Revenue bonds are not a pledge of your full faith and credit, and you (or, if you are a conduit issuer, the obligor, as described in the following paragraph) are obligated to pay principal and interest on your revenue bonds only from the revenue source(s) specifically pledged to the bonds. Revenue bonds do not permit the bondholders to compel you to impose a tax levy for payment of debt service. Pledged revenues may be derived from operation of the financed project or system, grants or excise or other specified taxes. Generally, subject to state law or local charter requirements, you are not required to obtain voter approval prior to issuance of revenue bonds. If the specified source(s) of revenue become inadequate, a default in payment of principal or interest may occur. Various types of pledges of revenue may be used to secure interest and principal payments on revenue bonds. The nature of these pledges may differ widely based on state law, the type of issuer, the type of revenue stream and other factors.
Some revenue bonds (conduit revenue bonds) may be issued by a governmental issuer acting as a conduit for the benefit of a private sector entity or a 501(c)(3) organization (the obligor). Conduit revenue bonds commonly are issued for not-for-profit hospitals, educational institutions, single and multi-family housing, airports, industrial or economic development projects, and student loan programs, among other obligors. Principal and interest on conduit revenue bonds normally are paid exclusively from revenues pledged by the obligor. Unless otherwise specified under the terms of the bonds, you are not required to make payments of principal or interest if the obligor defaults.
The description above regarding “Security” is only a summary of certain possible security provisions for the bonds and is not intended as legal advice. You should consult with your bond counsel for further information regarding the security for the bonds.
Financial Risk Considerations
Certain risks may arise in connection with your issuance of Fixed Rate Bonds, including some or all the following (generally, the obligor, rather than the issuer, will bear these risks for conduit revenue bonds):
Issuer Default Risk. You may be in default if the funds pledged to secure your bonds are not enough to pay debt service on the bonds when due. The consequences of a default may be serious for you and, depending on applicable state law and the terms of the authorizing documents, the holders of the bonds, the trustee and any credit support provider may be able to exercise a range of available remedies against you. For example, if the bonds are secured by a general obligation pledge, you may be ordered by a court to raise taxes. Other budgetary adjustments also may be necessary to enable you to provide sufficient funds to pay debt service on the bonds. If the bonds are revenue bonds, you may be required to take steps to increase the available revenues that are pledged as security for the bonds. A default may negatively impact your credit ratings and may effectively limit your ability to publicly offer bonds or other securities at market interest rate levels. Further, if you are unable to provide sufficient funds to remedy the default, subject to applicable state law and the terms of the authorizing documents, you may find it necessary to consider available alternatives under state law, including (for some issuers) statemandated receivership or bankruptcy. A default also may occur if you are unable to comply with covenants or other provisions agreed to in connection with the issuance of the bonds.
This description is only a summary of issues relating to defaults and is not intended as legal advice.
You should consult with your bond counsel for further information regarding defaults and remedies.
Bonds payable from the general fund, particularly bonds without a defined revenue stream identified to pay debt service, reduce your flexibility to balance the general fund. Because a fixed debt service payment is required to be paid regardless of how your general fund is impacted by revenue losses or by increased expenses, you have less flexibility in the options available to you
in assuring a balanced budget for your general fund.
General Fund Obligations that are Project Based. Some general fund obligations are issued for projects which are expected to generate revenues that will pay for some or all of the debt service on the bonds. In the event the project does not generate the anticipated levels of revenues available for debt service, or, in the extreme case, does not create any revenue available for debt service, you may need to make payments from other available general fund revenues. This may force you to reduce other expenditures or to make difficult decisions about how to pay your debt service obligation while meeting other expenditure needs.
General Fund Obligations that are Subject to Annual Appropriation. Some general fund obligations require that debt service is subject to annual appropriation by your governing body. If your governing body decides not to appropriate payments for debt service, your credit ratings may be negatively impacted and you may be forced to pay a higher interest rate on future debt issuance or may be unable to access the market for future debt issuance.
For all bonds, a default may negatively impact your credit ratings and may effectively limit your ability to publicly offer bonds or other securities at market interest rate levels. Further, if you are unable to provide sufficient funds to remedy the default, subject to applicable state law and the terms of the authorizing documents, it may be necessary for you to consider available alternatives under state law, including (for some issuers) state-mandated receivership or bankruptcy. A default also may occur if you are unable to comply with covenants or other provisions agreed to in connection with the issuance of the bonds.
Redemption Risk. Your ability to redeem the bonds prior to maturity may be limited, depending on the terms of any optional redemption provisions. If interest rates decline, you may be unable to take advantage of the lower interest rates to reduce debt service.
Refinancing Risk. If your financing plan contemplates refinancing some or all the bonds at maturity (for example, if you have term maturities or if you choose a shorter final maturity than might otherwise be permitted under the applicable federal tax rules), market conditions or changes in law may limit or prevent you from refinancing those bonds when required.
Reinvestment Risk. You may have proceeds from the issuance of the bonds available to invest prior to the time that you are able to spend those proceeds for the authorized purpose. Depending on market conditions, you may not be able to invest those proceeds at or near the rate of interest that you are paying on the bonds, which is referred to as “negative arbitrage”.
Tax Compliance Risk. The issuance of tax-exempt bonds is subject to several requirements under the United States Internal Revenue Code, as enforced by the Internal Revenue Service (IRS). You must take certain steps and make certain representations prior to the issuance of tax-exempt bonds. You also must covenant to take certain additional actions after issuance of tax-exempt bonds. A breach of your representations or your failure to comply with certain tax-related covenants may cause the interest on bonds to become taxable retroactively to the date of issuance of the bonds, which may result in an increase in the interest rate that you pay on the bonds or the mandatory redemption of the bonds. The IRS also may audit you or your bonds, in some cases on a random basis and in other cases targeted to specific types of bond issues or tax concerns. If tax-exempt bonds are declared taxable, or if you are subject to audit, the market price of your bonds may be adversely affected. Further, your ability to issue other tax-exempt bonds also may be limited.
This description of tax compliance risks is not intended as legal advice and you should consult with your bond counsel regarding tax implications of issuing the bonds.