OHSUSA:764286936
February 23, 2017 Orrick, Herrington & Sutcliffe LLP
The Orrick Building
405 Howard Street
San Francisco, CA 94105-2669
+1 415 773 5700
orrick.com
Justin Cooper
E [email protected]
D +1 415 773 5908
F +1 415 773 5759
California Public Finance Authority
2999 Oak Road, Suite 710
Walnut Creek, CA 94597
Attn: Michael LaPierre
Re: California Public Finance Authority
The California Public Finance Auth ority (“CalPFA”) was formed pursuant to a Joint Exercise of Powers Agreement (the “Agreement”) between tw o original members, Kings County and the Housing Authority of Kings County (the “Charter Members”). In accordance with Section 12 of the Agreement, additional cities , counties and other local govern ment entities may, and have, joined CalPFA (each a Non-Charter Member or “Additional Member” and, together with the Charter Members, the “Members”). You have asked whether an Additional Member is exposed to liability by virtue of its d ecision to become a member of CalP FA and/or its approval of bonds proposed to be issued by CalPFA.
CalPFA is a political subdivision of the State of California created under the California Joint Powers Act (California Government Code Sec tion 6500 and following) (the “Act”) and the Agreement. Pursuant to the Act and the Agreement, CalPFA is authorized to issue revenue bonds and certificates of participation for the benefit of conduit borrowers.
In order to meet state law a nd policy requirements for the issuance of certain private activity bonds, CalPFA has adopted a policy to not issue bonds or other forms of indebtedness unless the governing body of an Additional Member (or Charter Member, as the case may be) in which the proposed project (the “Project ) is located approves the issu ance of bonds for the Project.
Furthermore, in the case of most tax-exempt obligations issued by CalPFA, Section 147(f) of the Internal Revenue Code of 1986 requires that the proposed financing be approved by a governmental unit having jurisdiction over the area in which the facility to be financed is located. A financing will be treated as having been approved by a governmental unit if “the applicable elected representati ve” of such governmental uni t approves such issue after a public hearing following reasonable public notice of such hearing. This is referred to as “TEFRA” approval.
OHSUSA:764286936
Pursuant to applicable state law, CalPFA policies, and the documents providing for the issuance of bonds by CalPFA, the bonds are issued as limi ted obligations of Cal PFA, not of any Charter Member or Additional Member, and are payable sole ly out of the revenues and receipts derived from the Project being financed and the loan(s) made by CalPFA to the borrower from proceeds of the bonds.
Specifically, Section 8 of the Agreement provides th at “[t]he Bonds, togeth er with the interest and premium, if any, thereon, shall not be deemed to constitute a debt of any Member or pledge of the faith and credit of the Members...Neither the Members nor…shall be oblig ated to pay the principal of, premium, if any, or interest on the Bonds, or other cost s incidental thereto…” (emphasis added). The Agreement also expressl y provides that CalPFA is a public entity separate and apart from the Members, and “[i] ts debts, liabilities and obligations do not constitute debts, liabilities or obligations of any Members.”1
Accordingly, bonds issued for any particular Pr oject will be indebtedne ss of CalPFA, and the Member in whose jurisdiction the Project is located will not be asked to approve or execute any of the financing documents. Moreover, the disclosure prepared for the bonds will not have any information regarding the Member and will not include the Memb er’s name, other than with respect to where the Project is located. The documents will, however, be made available for review by the Member’s staff upon request.
In order to further limit CalPFA’s financial liability and that of its Members, CalPFA requires that, in connection with the loan of bond proceeds to a borrower, such borrower must indemnify CalPFA and the applicable Member from all losses, damages, claims, actions, liabilities, costs and expenses of any conceiva ble nature, kind or char acter relating to the applicable bonds and Project. We call attention, however, to the fact that such obligation may be subject to bankruptcy, insolvency, reorganiza tion, arrangement and other laws relating to or affecting creditors’ rights, to the application of e quitable principles, to the exercise of judicial discretion in appropriate cases and to possible limitations on legal remedies.
1 See Cal. Government Code Section 6508.1. “…the debts, liabilities, an d obligations of the agency shall be debts, liabilities, and obligations of the parties to the agreement unless the agreement specifies otherwise.”
OHSUSA:764286936
Please do not hesitate to contact me if you have further questions with respect to this matter.
Sincerely yours,
/s/ Justin Cooper
Justin Cooper