Exempt Properties
Certain properties are exempt from the Special Tax in accordance with the Rate and Method. In addition, the Law provides that properties or entities of the state, federal or local government are exempt from the Special Tax; provided, however, that property within the District acquired by a public entity through a negotiated transaction, or by gift or devise, that is not otherwise exempt from the Special Tax, will continue to be subject to the Special Tax. It is possible that property acquired by a public entity following a tax sale or foreclosure based upon failure to pay taxes could become exempt from the Special Tax. In addition, the Law provides that if property 47 subject to the Special Tax is acquired by a public entity through eminent domain proceedings, the obligation to pay the Special Tax with respect to that property, for outstanding 2025 Bonds, is to be treated as if it were a special assessment. The constitutionality and operation of these provisions of the Law have not been tested. See “SECURITY FOR THE 2025 BONDS — Special Taxes.”
In particular, insofar as the Law requires payment of the Special Tax by a federal entity acquiring property within the District, it may be unconstitutional. See “SPECIAL RISK FACTORS — FDIC/Federal Government Interests in Properties.” If for any reason property within the District becomes exempt from taxation by reason of ownership by a nontaxable entity such as the federal government or another public agency, subject to the limitation of the Maximum Special Taxes, the Special Tax will be reallocated to the remaining taxable properties within the District. This would result in the owners of such property paying a greater amount of the Special Taxes and could have an adverse impact upon the timely payment of the Special Taxes. Moreover, if a substantial portion of land within the District becomes exempt from the Special Taxes because of public ownership, or otherwise, the maximum rate that could be levied upon the remaining acreage might not be sufficient to pay principal of and interest on the 2025 Bonds when due and a default would occur with respect to the payment of such principal and interest.
The Law further provides that no other properties or entities are exempt from the Special Tax unless the properties or entities are expressly exempted in a resolution of consideration to levy a new special tax or to alter the rate or method of apportionment of an existing special tax.
Parity Taxes and Special Assessments
The Special Taxes and any penalties thereon will constitute liens against the Taxable Property in the District until they are paid. Such lien on a parcel of Taxable Property is on a parity with all special taxes and special assessments levied by other agencies and is coequal to and independent of the lien for general property taxes regardless of when they are imposed upon such taxable parcel. The Special Taxes have priority over all existing and future private liens imposed on the property. The Special Taxes and the special taxes levied by the City for CFD 2022 2 have the same lien priority with respect to the Taxable Property. See “THE DEVELOPMENT AND THE DISTRICT — Direct and Overlapping Governmental Obligations” for a description of existing overlapping liens on the Taxable Property.
The City has no control over the ability of other entities and districts to issue indebtedness secured by special taxes or assessments payable from all or a portion of the Taxable Property within the District subject to the levy of Special Taxes. In addition, the landowners within the District may, without the consent or knowledge of the City, petition other public agencies to issue public indebtedness secured by special taxes or assessments, and any such special taxes or assessments may have a lien on such property on a parity with the Special Taxes.
The imposition of additional indebtedness could reduce the willingness and the ability of the property owners within the District to pay the Special Taxes when due.
Insufficiency of Special Taxes
In order to pay debt service on the 2025 Bonds, it is necessary that the Special Taxes levied against Taxable Property within the District be paid in a timely manner. The City has established the Reserve Fund in an amount equal to the Reserve Requirement to pay debt service on the 2025 Bonds and any Parity Bonds that may be issued in the future to the extent Special Taxes are not paid on time and other funds are not available. See “SECURITY FOR THE 2025 BONDS — Reserve Fund” and Appendix C — “Summary of the Fiscal Agent Agreement – Funds and Accounts – Reserve Fund.” Under the Fiscal Agent Agreement, the City has covenanted to maintain in the Reserve Fund an amount equal to the Reserve Requirement; subject, however, to the limitation that the City may not levy the Special Tax in any Fiscal Year at a rate in excess of the Maximum Special Taxes rates permitted under the Rate and Method. Consequently, if a delinquency occurs, the City may be unable to replenish the Reserve Fund to the Reserve Requirement due to the limitation of the Maximum Special Tax rates.
If such defaults were to continue in successive years, the Reserve Fund could be depleted and a default on the 48 2025 Bonds would occur if proceeds of a foreclosure sale did not yield a sufficient amount to pay the delinquent Special Taxes.
The City has made certain covenants regarding the institution of foreclosure proceedings to sell any property with delinquent Special Taxes in order to obtain funds to pay debt service on the 2025 Bonds. See “SECURITY FOR THE 2025 BONDS — Covenant for Superior Court Foreclosure.” If foreclosure proceedings were ever instituted, any mortgage or deed of trust holder could, but would not be required to, advance the amount of delinquent Special Taxes to protect its security interest.
Potential Early Redemption of Bonds from Special Tax Prepayments Property owners within the District are permitted to prepay their Special Taxes at any time. Any such prepayments will be used to redeem outstanding 2025 Bonds on the next Interest Payment Date for which timely notice may be given under the Fiscal Agent Agreement following the receipt of the Special Tax prepayment. Any resulting redemption of 2025 Bonds that were purchased at a price greater than par could reduce the otherwise expected yield on such 2025 Bonds. The City cannot predict whether and if so when Special Tax prepayments will occur in the future. See “THE 2025 BONDS — Redemption – Mandatory Redemption from Special Tax Prepayments.”
Tax Delinquencies
Under provisions of the Law, the Special Taxes, from which funds necessary for the payment of principal of, and interest on, the 2025 Bonds are derived, are being billed to the Taxable Property within the District on the regular property tax bills sent to owners of the parcels. Such Special Tax installments are due and payable, and bear the same penalties and interest for non-payment, as do regular property tax installments. Special Tax installment payments cannot be made separately from property tax payments. Therefore, the unwillingness or inability of a property owner to pay regular property tax bills as evidenced by property tax delinquencies may also indicate an unwillingness or inability to make regular property tax payments and Special Tax installment payments in the future. See “SECURITY FOR THE 2025 BONDS — Reserve Fund” and “-Covenant for Superior Court Foreclosure” for a discussion of the provisions which apply, and procedures which the District is obligated to follow under the Fiscal Agent Agreement, in the event of delinquency in the payment of Special Tax installments.
Bankruptcy Delays
The payment of the Special Tax and the ability of the City to commence a superior court action to foreclose the lien of a delinquent unpaid Special Tax, as discussed in “SECURITY FOR THE 2025 BONDS — Covenant for Superior Court Foreclosure,” may be limited by bankruptcy, insolvency or other laws generally affecting creditors’ rights or by the laws of the State of California relating to judicial foreclosure. Any legal opinion to be delivered concurrently with the delivery of the 2025 Bonds (including Bond Counsel’s approving legal opinion) will be qualified as to the enforceability of the various legal instruments by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors’ rights, by the application of equitable principles and by the exercise of judicial discretion in appropriate cases.
Although bankruptcy proceedings would not cause the Special Taxes to become extinguished, bankruptcy of a property owner or any other person claiming an interest in the property could result in a delay in superior court foreclosure proceedings and could result in the possibility of Special Tax installments not being paid in part or in full. Such a delay would increase the likelihood of a delay or default in payment of the principal of and interest on the 2025 Bonds.
Proceeds of Foreclosure Sales
Pursuant to the Law, in the event of any delinquency in the payment of any Special Tax, the City Council, as the legislative body of the District, may order that the Special Taxes be collected by a superior court action to foreclose the lien within specified time limits. The City has covenanted in the Fiscal Agent Agreement that it will, 49 under certain circumstances, commence such a foreclosure action. See “SECURITY FOR THE 2025 BONDS — Covenant for Superior Court Foreclosure.”
No assurances can be given that a parcel of Taxable Property in the District that would be subject to a judicial foreclosure sale for delinquent Special Taxes will be sold or, if sold, that the proceeds of such sale will be sufficient to pay the delinquent Special Tax installment. Although the Law authorizes the City to cause such an action to be commenced and diligently pursued to completion, the Law does not specify any obligation of the City with regard to purchasing or otherwise acquiring any lot or parcel of property sold at the foreclosure sale in any such action if there is no other purchaser at such sale and the City has not in any way agreed nor does it expect to be such a bidder.
In a foreclosure proceeding, a judgment debtor (i.e., the property owner) has 140 days from the date of service of the notice of levy in which to redeem the property to be sold and may have other redemption rights afforded by law. If a judgment debtor fails to so redeem and the property is sold, such property owner’s only remedy is an action to set aside the sale, which must be brought within 90 days of the date of sale if the purchaser at the sale was the judgment creditor. If a foreclosure sale is thereby set aside, the judgment is revived and the judgment creditor is entitled to interest on the revived judgment as if the sale had not been made.
If foreclosure proceedings were ever instituted, any holder of a mortgage or deed of trust on the affected property could, but would not be required to, advance the amount of tie delinquent Special Tax installment to protect its security interest.
In the event such superior court foreclosure or foreclosures are necessary, there could be a delay in principal and interest payments to the owners of the 2025 Bonds pending prosecution of the foreclosure proceedings and receipt by the District of the proceeds of the foreclosure sale, if any. Judicial foreclosure actions are subject to the normal delays associated with court cases and may be further slowed by bankruptcy actions and other factors beyond the control of the City, including delay due to crowded local court calendars or legal tactics and, in any event could take several years to complete. In particular, bankruptcy proceedings involving the Master Developer or any other owner of a parcel of Taxable Property in the District could cause a delay, reduction or elimination in the flow of Special Tax Revenues to the Fiscal Agent. See “SPECIAL RISK FACTORS — Bankruptcy Delays.”
Natural Disasters and Potential Drought Conditions
The value of the Taxable Property in the future can be adversely affected by a variety of natural occurrences, particularly those that may affect infrastructure and other public improvements and private improvements on the Taxable Property and the continued habitability and enjoyment of such private improvements. Such occurrences include, without limitation, wildfire, earthquakes and floods.
In addition to possible earthquakes and flooding, other natural disasters could occur and could result in damage to improvements of varying seriousness. The damage may entail significant repair or replacement costs and that repair or replacement may never occur either because of the cost, or because repair or replacement will not facilitate habitability or other use, or because other considerations preclude such repair or replacement. Under any of these circumstances, the value of the Taxable Property may well depreciate or disappear.
The City has an adopted Local Hazard Mitigation Plan (an “LHMP”), currently being updated, that covers a wide range of hazards affecting property in the City, including earthquakes, floods, dam failure and inundation, wildfires and brush fires, transportation accidents and hazardous material spills, drought, severe weather and power/utility failure. The LHMP describes these hazards and lays out how the City and other local partners can work to either reduce hazards or to help address their impacts when disasters occur. Having an LHMP in place helps direct City resources appropriately and qualifies the City for federal disaster relief. The LHMP can be found on the City’s website, which website is not included in this Limited Offering Memorandum by reason of this reference.
50 Hazardous Substances
The presence of hazardous substances on a parcel may result in a reduction in the value of a parcel. In general, the owners and operators of a parcel may be required by law to remedy conditions of the parcel relating to releases or threatened releases of hazardous substances. The Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as “CERCLA” or the “Superfund Act,” is the most well-known and widely applicable of these laws, but California laws with regard to hazardous substances are also stringent and similar. Under many of these laws, the owner or operator is obligated to remedy a hazardous substance condition of property whether or not the owner or operator has anything to do with creating or handling the hazardous substance. The effect, therefore, should any of the Taxable Property be affected by a hazardous substance, is to reduce the marketability and value of the parcel by the costs of remedying the condition, because the purchaser, upon becoming owner, will become obligated to remedy the condition just as is the seller.
Cybersecurity
The City has adopted cybersecurity policies. The City, however, is reliant on other entities and service providers in connection with the administration of the District and the 2025 Bonds, including without limitation the Special Tax Consultant, the County tax collector for the levy and collection of Special Taxes and the Fiscal Agent. No assurance can be given that the City and these other entities will not be affected by cyber threats and attacks in a manner that may affect the 2025 Bond owners.
Disclosure to Future Purchasers
The willingness or ability of an owner of a parcel to pay the Special Tax, even if the value of the property is sufficient to justify payment, may be affected by whether or not the owner was given due notice of the Special Tax authorization at the time the owner purchased the parcel, was informed of the amount of the Special Tax on the parcel should the Special Tax be levied at the maximum tax rate and, at the time of such a levy, has the ability to pay it as well as pay other expenses and obligations. The City has caused an Amended and Restated Notice of Special Tax Lien to be recorded in the Office of the Recorder for the County against the Taxable Property in the District. Although title companies normally refer to such notices in title reports, there can be no guarantee that such reference will be made or, if made, that a prospective purchaser or lender will consider such Special Tax obligation when purchasing a Taxable Property within the District or lending money thereon, as applicable.
California Civil Code Section 1102.6b requires that, in the case of transfers, the seller must at least make a good faith effort to notify the prospective purchaser of the special tax lien in a format prescribed by statute.
Failure by an owner of the property to comply with the above requirements, or failure by a purchaser or lessor to consider or understand the nature and existence of the Special Tax, could adversely affect the willingness and ability of the purchaser or lessor to pay the Special Tax when due.
FDIC/Federal Government Interests in Properties
General. The ability of the City to foreclose the lien of delinquent unpaid Special Tax installments may be limited with regard to properties in which the Federal Deposit Insurance Corporation (the “FDIC”), the Drug Enforcement Agency, the Internal Revenue Service, or other federal agency has or obtains an interest.
Federal courts have held that, based on the supremacy clause of the United States Constitution, in the absence of Congressional intent to the contrary, a state or local agency cannot foreclose to collect delinquent taxes or assessments if foreclosure would impair the federal government interest. The supremacy clause of the United States Constitution reads as follows: “This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, anything in the Constitution or Laws of any State to the contrary notwithstanding.” This means that, unless Congress has otherwise provided, if a federal governmental entity owns a parcel that is subject to Special Taxes within the 51 District but does not pay taxes and assessments levied on the parcel (including Special Taxes), the applicable state and local governments cannot foreclose on the parcel to collect the delinquent taxes and assessments.
Moreover, unless Congress has otherwise provided, if the federal government has a mortgage interest in the parcel and the District wishes to foreclose on the parcel as a result of delinquent Special Taxes, the property cannot be sold at a foreclosure sale unless it can be sold for an amount sufficient to pay delinquent taxes and assessments on a parity with the Special Taxes and preserve the federal government’s mortgage interest. In Rust v. Johnson (9th Circuit; 1979) 597 F.2d 174, the United States Court of Appeal, Ninth Circuit held that the Federal National Mortgage Association (“FNMA”) is a federal instrumentality for purposes of this doctrine, and not a private entity, and that, as a result, an exercise of state power over a mortgage interest held by FNMA constitutes an exercise of state power over property of the United States.
The City has not undertaken to determine whether any federal governmental entity currently has, or is likely to acquire, any interest (including a mortgage interest) in any of the parcels subject to the Special Taxes within the District, and therefore expresses no view concerning the likelihood that the risks described above will materialize while the 2025 Bonds are outstanding.
FDIC. In the event that any financial institution making any loan which is secured by real property within the District is taken over by the FDIC, and prior thereto or thereafter the loan or loans go into default, resulting in ownership of the property by the FDIC, then the ability of the City to collect interest and penalties specified by State law and to foreclose the lien of delinquent unpaid Special Taxes may be limited.
The FDIC’s policy statement regarding the payment of state and local real property taxes (the “Policy Statement”) provides that property owned by the FDIC is subject to state and local real property taxes only if those taxes are assessed according to the property’s value, and that the FDIC is immune from real property taxes assessed on any basis other than property value. According to the Policy Statement, the FDIC will pay its property tax obligations when they become due and payable and will pay claims for delinquent property taxes as promptly as is consistent with sound business practice and the orderly administration of the institution’s affairs, unless abandonment of the FDIC’s interest in the property is appropriate. The FDIC will pay claims for interest on delinquent property taxes owed at the rate provided under state law, to the extent the interest payment obligation is secured by a valid lien. The FDIC will not pay any amounts in the nature of fines or penalties and will not pay nor recognize liens for such amounts. If any property taxes (including interest) on FDIC-owned property are secured by a valid lien (in effect before the property became owned by the FDIC), the FDIC will pay those claims.
The Policy Statement further provides that no property of the FDIC is subject to levy, attachment, garnishment, foreclosure or sale without the FDIC’s consent. In addition, the FDIC will not permit a lien or security interest held by the FDIC to be eliminated by foreclosure without the FDIC’s consent.
The Policy Statement states that the FDIC generally will not pay non-ad valorem taxes, including special assessments, on property in which it has a fee interest unless the amount of tax is fixed at the time that the FDIC acquires its fee interest in the property, nor will it recognize the validity of any lien to the extent it purports to secure the payment of any such amounts. Special taxes imposed under the Law and a special tax formula which determines the special tax due each year are specifically identified in the Policy Statement as being imposed each year and therefore covered by the FDIC’s federal immunity. The Ninth Circuit has issued a ruling on August 28, 2001 in which it determined that the FDIC, as a federal agency, is exempt from Mello-Roos special taxes.
The City is unable to predict what effect the application of the Policy Statement would have in the event of a delinquency in the payment of Special Taxes on a parcel within the District in which the FDIC has or obtains an interest, although prohibiting the lien of the Special Taxes to be extinguished at a judicial foreclosure sale could reduce or eliminate the number of persons willing to purchase a parcel at a foreclosure sale. Such an outcome could cause a draw on the Reserve Fund and perhaps, ultimately, if enough property were to become owned by the FDIC, a default in payment on the 2025 Bonds.
52 No Acceleration Provision
The 2025 Bonds and the Fiscal Agent Agreement do not contain a provision allowing for the acceleration of the 2025 Bonds in the event of a payment default or other default under the terms of the 2025 Bonds or the Fiscal Agent Agreement or in the event interest on the 2025 Bonds becomes included in gross income for federal income tax purposes.
Taxability Risk
As discussed herein under the caption “TAX MATTERS,” interest on the 2025 Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date the 2025 Bonds were issued, as a result of future acts or omissions of the City in violation of its covenants in the Fiscal Agent Agreement. There is no provision in the 2025 Bonds or the Fiscal Agent Agreement for special redemption or acceleration or for the payment of additional interest should such an event of taxability occur, and the 2025 Bonds will remain outstanding until maturity or until redeemed under one of the redemption provisions contained in the Fiscal Agent Agreement.
In addition, as discussed under the caption “TAX MATTERS,” Congress is or may be considering in the future legislative proposals, including some that carry retroactive effective dates, that, if enacted, would alter or eliminate the exclusion from gross income for federal income tax purposes of interest on municipal bonds, such as the 2025 Bonds. Prospective purchasers of the 2025 Bonds should consult their own tax advisors regarding any pending or proposed federal tax legislation. The City can provide no assurance that federal tax law will not change while the 2025 Bonds are outstanding or that any such changes will not adversely affect the exclusion of interest on the 2025 Bonds from gross income for federal income tax purposes. If the exclusion of interest on the 2025 Bonds from gross income for federal income tax purposes were amended or eliminated, it is likely that the market price for the 2025 Bonds would be adversely impacted.
Limitations on Transfers of 2025 Bonds
Transfers of the 2025 bonds are limited to “qualified institutional buyers” within the meaning of the rule 144a of the securities act. In making an investment decision, purchasers must rely on their own examination of the district and the terms of the 2025 bonds, including the merits and risks involved. Additionally, the Fiscal Agent Agreement contains additional conditions which must be satisfied in order to transfer the bonds. See, “THE 2025 BONDS - Transfer or Exchange of 2025 Bonds,” herein Enforceability of Remedies
The remedies available to the Fiscal Agent and the registered owners of the 2025 Bonds upon a default under the Fiscal Agent Agreement or any other document described in this Limited Offering Memorandum are in many respects dependent upon regulatory and judicial actions that are often subject to discretion and delay. Under existing law and judicial decisions, the remedies provided for under such documents may not be readily available or may be limited. Any legal opinions to be delivered concurrently with the issuance of the 2025 Bonds will be qualified to the extent that the enforceability of the legal documents with respect to the 2025 Bonds is subject to limitations imposed by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally and by equitable remedies and proceedings generally.
Judicial remedies, such as foreclosure and enforcement of covenants, are subject to exercise of judicial discretion. A California court may not strictly apply certain remedies or enforce certain covenants if it concludes that application or enforcement would be unreasonable under the circumstances and it may delay the application of such remedies and enforcement.
53 No Secondary Market
No representation is made concerning any secondary market for the 2025 Bonds. There can be no assurance that any secondary market will develop for the 2025 Bonds. Investors should understand the long-term and economic aspects of an investment in the 2025 Bonds and should assume that they will have to bear the economic risks of their investment to maturity. An investment in the 2025 Bonds may be unsuitable for any investor not able to hold the 2025 Bonds to maturity.
Proposition 218
An initiative measure entitled the “Right to Vote on Taxes Act” (the “Initiative”) was approved by the voters of the State at the November 5, 1996 general election. The Initiative added Article XIIIC and Article XIIID to the California Constitution. According to the “Title and Summary” of the Initiative prepared by the California Attorney General, the Initiative limits “the authority of local governments to impose taxes and property-related assessments, fees and charges.” Provisions of the Initiative have been and will continue to be interpreted by the courts. The Initiative could potentially impact the Special Taxes otherwise available to the District to pay the principal of and interest on the 2025 Bonds as described below.
Among other things, Section 3 of Article XIIIC states, “…the initiative power shall not be prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge.” The Law provides for a procedure, which includes notice, hearing, protest and voting requirements to alter the rate and method of apportionment of an existing special tax. However, the Law prohibits a legislative body from adopting any resolution to reduce the rate of any special tax or terminate the levy of any special tax pledged to repay any debt incurred pursuant to the Law unless such legislative body determines that the reduction or termination of the special tax would not interfere with the timely retirement of that debt. On July 1, 1997, the Governor of the State signed a bill into law enacting Government Code Section 5854, which states that:
Section 3 of Article XIIIC of the California Constitution, as adopted at the November 5, 1996, general election, shall not be construed to mean that any owner or beneficial owner of a municipal security, purchased before or after that date, assumes the risk of, or in any way consents to, any action by initiative measure that constitutes an impairment of contractual rights protected by Section 10 of Article I of the United States Constitution.
Accordingly, although the matter is not free from doubt, it is likely that Article XIIIC has not conferred on the voters the power to repeal or reduce the Special Taxes if such reduction would interfere with the timely retirement of the 2025 Bonds.
It may be possible, however, for voters or the City Council acting as the legislative body of the District to reduce the Special Taxes in a manner that does not interfere with the timely repayment of the 2025 Bonds, but which does reduce the maximum amount of Special Taxes that may be levied in any year below the existing levels.
Furthermore, no assurance can be given with respect to the future levy of the Special Taxes in amounts greater than the amount necessary for the timely retirement of the 2025 Bonds. Therefore, no assurance can be given with respect to the levy of Special Taxes for Administrative Expenses (as defined in the Fiscal Agent Agreement).
Nevertheless, the City has covenanted that it will not consent to, or conduct proceedings with respect to, a reduction in the maximum Special Taxes that may be levied in the District below an amount, for any fiscal year, equal to 110% of the aggregate of the debt service due on the 2025 Bonds in such fiscal year, plus a reasonable estimate of Administrative Expenses for such fiscal year. However, no assurance can be given as to the enforceability of the foregoing covenant.
The interpretation and application of Article XIIIC and Article XIIID will ultimately be determined by the courts with respect to a number of the matters discussed above, and it is not possible at this time to predict with certainty the outcome of such determination or the timeliness of any remedy afforded by the courts. See “ — Enforceability of Remedies.”
54 Future Measures and Initiatives; Initiative 1935
From time to time constitutional initiatives or other initiative measures may be adopted by California voters. The adoption of any such initiative might place limitations on the ability of the State or any political subdivision thereof, including the City, to increase revenues or to increase appropriations, or might affect the ability of the Developer to develop the Taxable Property within the District or the City to collect the Special Tax.
One such proposed voter initiative, titled “The Taxpayer Protection and Government Accountability Act” (“Initiative 1935”) has been determined to be eligible for the November 2024 Statewide general election and, unless withdrawn by its proponent prior to June 27, 2024, will be certified as qualified for the ballot in such election. Initiative 1935 would, among other things, amend the State Constitution to impose additional requirements for the imposition of taxes by State and local governments, such as requirements that the title and summary and ballot label or question for each tax measure identify the type, amount or rate, duration, and use of revenue of the tax. Additionally, Initiative 1935 would provide that any tax imposed after January 1, 2022, not in compliance with its requirements is void 12 months after the effective date of Initiative 1935 unless subsequently reenacted in accordance therewith. If adopted, the scope and impact of Initiative 1935 would be subject to future judicial interpretation. The City is unable to predict how Initiative 1935, if adopted, might be interpreted by the courts, and there can be no assurance that any such interpretation would not have an adverse impact on the City’s ability to levy and collect the Special Taxes.
As described above under the caption “THE DEVELOPMENT AND THE DISTRICT — History of the District” at the election held on October 24, 2022, the Master Developer, as the sole qualified elector of the District, voted to approve the measure to levy the Special Tax. In connection with such election, the Master Developer, as such sole qualified elector, waived legal requirements pertaining to the conduct of the landowner election including the ballot requirements that Initiative 1935, if enacted, would impose.
IRS Audit of Tax-Exempt Bond Issues
The Internal Revenue Service has initiated an expanded program for the auditing of tax-exempt bond issues, including both random and targeted audits. It is possible that the 2025 Bonds will be selected for audit by the Internal Revenue Service. It is also possible that the market value of the 2025 Bonds might be affected as a result of such an audit of the 2025 Bonds (or by an audit of similar bonds).
TAX MATTERS
In the opinion of Best Best & Krieger LLP, Riverside, California, Bond Counsel, under existing statutes, regulations, rulings and judicial decisions, interest on the 2025 Bonds is excluded from gross income for federal income tax purposes. In the further opinion of Bond Counsel, interest on the 2025 Bonds is exempt from State of California personal income tax. Interest on the 2025 Bonds is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations; however, for tax years beginning after December 31, 2022, interest on the 2025 Bonds is taken into account in determining the annual adjusted financial statement income of certain corporations for the purpose of computing the alternative minimum tax imposed on certain corporations.
Bond Counsel’s opinion as to the exclusion from gross income for federal income tax purposes of interest on the 2025 Bonds is based upon certain representations of fact and certifications made by the City, the Underwriter and others and is subject to the condition that the City complies with all requirements of the Internal Revenue Code of 1986, as amended (the “Code”) that must be satisfied subsequent to the issuance of the 2025 Bonds to assure that interest on the 2025 Bonds will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest on the 2025 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the 2025 Bonds.
The City has covenanted to comply with all such requirements. 55 Should the interest on the 2025 Bonds become includable in gross income for federal income tax purposes, the 2025 Bonds are not subject to early redemption as a result of such occurrence and will remain outstanding until maturity or until otherwise redeemed in accordance with the Fiscal Agent Agreement.
Current and future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the 2025 Bonds to be subject, directly or indirectly, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent 2025 Bond Owners from realizing the full current benefit of the tax status of such interest. Legislative proposals are announced from time to time which generally would limit the exclusion from gross income of interest on obligations like the 2025 Bonds to some extent for taxpayers who are individuals and whose income is subject to higher marginal income tax rates. Other proposals have been made that could significantly reduce the benefit of, or otherwise affect, the exclusion from gross income of interest on obligations like the 2025 Bonds. The introduction or enactment of any such legislative proposals, clarification of the Code or court decisions may also affect, perhaps significantly, the market price for, or marketability of, the 2025 Bonds. Prospective purchasers of the 2025 Bonds should consult their own tax advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation, and regarding the impact of future legislation, regulations or litigation, as to which Bond Counsel expresses no opinion.
Bond Counsel’s opinion may be affected by action taken (or not taken) or events occurring (or not occurring) after the date of issuance of the 2025 Bonds. Bond Counsel has not undertaken to determine, or to inform any person, whether any such action or events are taken or do occur, or whether such actions or events may adversely affect the value or tax treatment of a 2025 Bond, and Bond Counsel expresses no opinion with respect thereto.
The Internal Revenue Service (the “IRS”) has initiated an expanded program for auditing tax-exempt bond issues, including both random and targeted audits. It is possible that the 2025 Bonds will be selected for audit by the IRS. It is also possible that the market value of the 2025 Bonds might be affected as a result of such an audit (or by an audit of similar bonds).
Although Bond Counsel has rendered an opinion that interest on the 2025 Bonds is excluded from gross income for federal income tax purposes provided the City continues to comply with certain requirements of the Code, the accrual or receipt of interest on the 2025 Bonds may otherwise affect the tax liability of the recipient.
The extent of these other tax consequences will depend upon the recipient’s particular tax status and other items of income or deductions. Bond Counsel expresses no opinion regarding any such consequences. Accordingly, all potential purchasers should consult their tax advisors before purchasing any of the 2025 Bonds.
A copy of the proposed form of opinion of Bond Counsel is attached hereto as Appendix D.
LEGAL MATTERS
Concurrent with the issuance of the 2025 Bonds, Best Best & Krieger LLP, Riverside, California, Bond Counsel, will render its opinion substantially in the form set forth in Appendix D to this Limited Offering Memorandum. Best Best & Krieger LLP also is acting as Disclosure Counsel to the City with respect to the 2025 Bonds. Certain legal matters will be passed upon for the City by the City Attorney. Certain legal matters related to the 2025 Bonds will be passed upon for the Underwriter by Stradling Yocca Carlson & Rauth, LLC, Newport Beach, California. Payment of the fees and expenses of Bond and Disclosure Counsel, and of Underwriter’s Counsel, is contingent on the issuance of the 2025 Bonds.
MUNICIPAL ADVISOR
The City has retained Harrell & Company Advisors, LLC, Orange, California, as municipal advisor (the “Municipal Advisor”) in connection with the offering of the 2025 Bonds. All financial and other information presented in this Limited Offering Memorandum has been provided by the City and others from their records.
Unless otherwise footnoted, the Municipal Advisor takes no responsibility for the accuracy or completeness of 56 the data provided by the City or others and has not undertaken to make an independent verification or does not assume responsibility for the accuracy, completeness, or fairness of the information contained in this Limited Offering Memorandum. The Municipal Advisor has assisted the City with the structure, timing and terms for the sale of the 2025 Bonds. The Municipal Advisor provides municipal advisory services only and does not engage in the underwriting, marketing, or trading of municipal securities or other negotiable instruments. The fee of the Municipal Advisor is contingent upon the successful closing of the 2025 Bonds.
NO RATING
The City has not made, and does not intend to make, any application to any rating agency for the assignment of a rating to the 2025 Bonds.
LITIGATION
The City. The City is not aware of any pending or threatened litigation challenging the validity of the 2025 Bonds, the Special Taxes securing the 2025 Bonds, or any action taken by the City in connection with the formation of the District, the levying of the Special Taxes or the issuance of the 2025 Bonds.
The District. See “SPECIAL RISK FACTORS — Litigation Affecting the Development of Property in the District” for a description of a lawsuit that seeks to delay the development of the Property in the District.
UNDERWRITING
The 2025 Bonds are being purchased through negotiation by Hilltop Securities Inc. (the “Underwriter”).
The Bond Purchase Agreement for the 2025 Bonds provides that the Underwriter will purchase all of the 2025 Bonds, if any are purchased. The Underwriter agreed to purchase the 2025 Bonds at a price of $____________ (which is equal to the par amount of the 2025 Bonds, less an underwriter’s discount of $____________). The initial public offering price of the 2025 Bonds set forth on the cover page may be changed by the Underwriter.
The Underwriter may offer and sell the 2025 Bonds to certain dealers and others at prices lower than the public offering price set forth on the cover page hereof.
CONTINUING DISCLOSURE
The City
The City has covenanted in a Continuing Disclosure Agreement for the benefit of the Owners of the 2025 Bonds to provide certain annual financial information and operating data, and to provide notices of the occurrence of certain enumerated events. The City agreed in its certificate to file, or cause to be filed, with the MSRB such report and notices. See Appendix E — “Form of Continuing Disclosure Agreement of the City” for the complete text of the City’s Continuing Disclosure Agreement. The covenants of the City have been made in order to assist the Underwriter in complying with the Rule.
During the past five years the City has complied in all material respects with its previous continuing disclosure undertakings pursuant to Rule 15c2-12(b)(5) promulgated under the Securities and Exchange Act of 1934, as amended.
The Master Developer
The Master Developer has agreed for the benefit of the owners of the 2025 Bonds in a Continuing Disclosure Agreement – Master Developer to provide certain information on an annual and a semiannual basis, and notice of the occurrence of certain events with respect to it and the property in the District it owns.
Nevertheless, the Underwriter does not consider the Master Developer to be an “obligated person” for purposes of the Rule. The complete text of the Form of Continuing Disclosure Agreement – Master Developer is set forth in Appendix F. The Master Developer’s obligation to provide continuing annual, semiannual and event disclosure 57 will terminate for and after the fiscal year in which the property that it owns in the District is responsible for less than 20% of the then annual Special Tax levy in the District, or with respect to certain property in the District if the Master Developer’s disclosure obligations with the respect to property transferred to another entity.
The Master Developer has represented that it has not had any prior continuing disclosure undertakings.
Remedies for Failures to Comply
A failure by the City or the Master Developer to comply with its respective continuing disclosure obligations will not constitute a default under the Fiscal Agent Agreement. However, the Continuing Disclosure Agreements provide that, in the event of a failure of the City or the Master Developer, as applicable, to comply with any provision of their respective Continuing Disclosure Agreement, any 2025 Bond owner, any Beneficial Owner of the 2025 Bonds or the Underwriter may seek specific performance by court order to cause it to comply with its obligations under its respective Continuing Disclosure Agreement.
MISCELLANEOUS
Included herein are brief summaries of certain documents and reports, which summaries do not purport to be complete or definitive, and reference is made to such documents and reports for full and complete statements of the contents thereof. Any statements in this Limited Offering Memorandum involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Limited Offering Memorandum is not to be construed as a contract or agreement between the City or the District and the purchasers or Owners of any of the 2025 Bonds.
58 The execution and delivery of this Limited Offering Memorandum has been duly authorized by the City Council.
CITY OF PALMDALE, CALIFORNIA for and on
behalf of the CITY OF PALMDALE COMMUNITY
FACILITIES DISTRICT NO. 2022-3 (RITTER RANCH
PHASE 1 PUBLIC FACILITIES)
By:
Ronda Perez,
City Manager
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APPENDIX A
GENERAL, ECONOMIC AND DEMOGRAPHIC INFORMATION
RELATING TO THE CITY AND THE COUNTY
The information in this Appendix A is presented as general background data. The 2025 Bonds are payable solely from the Special Tax Revenues and amounts held in certain funds and accounts under the Fiscal Agent Agreement, as described in the text of this Limited Offering Memorandum.
Although reasonable efforts have been made to include up-to-date information in this Appendix A, some of the information is not current due to delays in reporting of information by various sources. It should not be assumed that the trends indicated by the following data would continue beyond the specific periods reflected herein.
Introduction
City of Palmdale . The City of Palmdale (the “City”) was incorporated on August 24, 1962 and became a charter City in November 2009. The City is located 60 miles north of the City of Los Angeles and is situated in the high desert at an elevation of 2,600 feet. Palmdale is part of a twin-city complex with its northern neighbor Lancaster and together they are the principal cities within the Antelope Valley region. Affordable housing in the Antelope Valley Regin has led to a dramatic spike in the population in recent decades.
The urbanized centers of Palmdale and Los Angeles are separated by the San Gabriel mountain range, which is about 40 miles (64 km) wide. The Antelope Valley Freeway (SR 14) is the major north–south highway connecting Palmdale to Los Angeles and Mojave.
The most important industry for Palmdale is the aerospace industry. The City has been the site of research, development, final assembly, flight testing and/or servicing/modifications of aircraft and spacecraft as varied as the Space Shuttle and B-2 Spirit. USAF Plant 42 is home to major operations of Boeing, Lockheed Martin and its famed Skunk Works, and Northrop Grumman.
Los Angeles County. The County was established by an act of the State Legislature on February 18, 1850 as one of California’s original 27 counties. Located in the southern portion of the State, the County covers 4,083 square miles. With a population of over 10 million, its population is the largest of any county in the nation. The County’s economy is larger than that of 43 states and all but 20 countries. The County serves as the central trade district for the western United States and the gateway to the Asian economies, as it has evolved into a leader in international commerce and investments.
Population
The table below summarizes population of the City, the County, and the State of California for the last five years.
CITY OF PALMDALE, LOS ANGELES COUNTY, and CALIFORNIA
Population
Year
City of
Palmdale
Los Angeles
County
State of
California
2020 156,910 10,135,614 39,648,392
2021 168,845 9,942,011 39,286,510
2022 167,015 9,834,503 39,078,674
2023 165,917 9,761,210 38,940,231
2024 166,055 9,824,091 39,128,162
Source: California Department of Finance, Demographic Research Unit.
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Employment
The following table summarizes historical employment and unemployment for the County, the State, and the United States:
LOS ANGELES COUNTY, CALIFORNIA, and UNITED STATES
Civilian Labor Force, Employment, and Unemployment
(Annual Averages)
Unemployment
Year Area Labor Force Employment Unemployment Rate (1)
2019 Los Angeles County 5,121,600 4,894,300 227,300 4.4 California 19,411,600 18,627,400 784,200 4.0
United States 163,539,000 157,538,000 6,001,000 3.7
2020 Los Angeles County 4,921,500 4,291,700 629,800 12.8 California 18,821,200 16,913,100 1,908,100 10.1
United States 160,742,000 147,795,000 12,947,000 8.1
2021 Los Angeles County 4,994,100 4,548,900 445,200 8.9 California 18,923,200 17,541,900 1,381,200 7.3
United States 161,204,000 152,581,000 8,623,000 5.3
2022 Los Angeles County 4,984,800 4,739,900 244,900 4.9 California 19,252,000 18,440,900 811,100 4.2
United States 164,287,000 158,291,000 5,996,000 3.6
2023 Los Angeles County 5,015,600 4,763,600 252,000 5.0 California 19,308,300 18,388,300 920,000 4.8
United States 167,116,000 161,037,000 6,080,000 3.6
(1) The unemployment rate is computed from unrounded data; therefore, it may differ from rates computed from rounded figures available in this table.
Source: U.S. Department of Labor – Bureau of Labor Statistics, California Employment Development Department and California Employment Development Department, Labor Market Division.
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Major Employers in the Antelope Valley and Major Industries in the County The table below sets forth the ten largest employers in the Antelope Valley in 2023.
ANTELOPE VALLEY
2023 Major Employers
Employer
No. of
Employees
% of
Total
Northrop Grumman 7,000 6.34%
Lockeed Martin 3,750 4.33
Antelope Valley Union High School District 3,089 3.56
Palmdale School District 2,100 2.42
Antelope Valley Mall 1,800 2.08
Palmdale Regional Medical Center 1,200 1.38
Palmdale Walmart 800 0.92
Robertson’s Ready Mix Concrete 500 0.58
Palmdale Auto Mall 410 0.47
Granite Construction 400 0.46
Total Top 10 21,049 22.54%
Source: City of Palmdale 2022-23 ACFR.
The table below sets forth the ten largest industries by employment in Los Angeles County in 2023.
LOS ANGELES COUNTY
2023 Major Industries
Industry
No. of
Employees
% of
Total
Educational & Health Services 916,300 19.74%
Trade, Transportation and Utilities 839,700 18.09
Professional & Business Services 677,100 14.59
Government 583,200 12.57
Leisure & Hospitality 554,300 11.94
Manufacturing 320,000 6.89
Information 220,600 4.75
Financial Activities 215,700 4.65
Other Services 158,000 3.40
Construction 150,100 3.23
Total Top 10 Industries 4,635,000 99.85
All Other Industries 6,900 0.14
Total All Industries 4,641,900 100.00%
Source: Los Angeles County 2022-23 ACFR.
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Construction Activity
The following table reflects the five-year history of building permit valuation for the City:
CITY OF PALMDALE
Building Activity and Valuation
(Dollars in Thousands)
2019 2020 2021 2022 2023
Residential $ 23,292,628 $ 61,895,362 $ 51,157,141 $ 84,987,753 $ 45,045,100 Nonresidential 21,548,566 19,417,778 14,768,335 12,302,406 18,762,305 Total Valuation 53,741 81,313,140 65,925,476 97,290,160 63,807,405 No. of New Dwelling Units:
Single Dwelling 72 244 185 261 181
Multi-Dwelling 80 95 101 151 70
Total New Units 152 339 286 412 251
Source: City of Palmdale.
Per Capita Income
The following table summarizes the per capita personal income for the City, the County, the State, and the nation for the past five years.
CITY OF PALMDALE, LOS ANGELES COUNTY,
STATE OF CALIFORNIA AND UNITED STATES
Per Capita Personal Income
2019 2020 2021 2022 2023
City of Palmdale(1) $ 22,962 $ 54,307 $ 25,895 $ 31,026 $ 29,891 Los Angeles County(2) 62,573 67,383 73,385 74,142 --(3) California 64,219 70,098 76,882 76,941 81,255
United States 55,566 59,123 64,460 66,244 69,810
(1) U.S. Census Bureau, American Community Survey.
(2) Department of Commerce, Bureau of Economic Analysis. (3) Data not available.
Source: Nielsen, Inc. and Claritas LLC.
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APPENDIX B
SECOND AMENDED AND RESTATED
RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES
FOR CITY OF PALMDALE
COMMUNITY FACILITIES DISTRICT NO. 2022-3
(RITTER RANCH PHASE 1 PUBLIC FACILITIES)
A Special Tax, as hereinafter defined, shall be levied and collected in the City of Palmdale Community Facilities District No. 2022-3 (Ritter Ranch Phase 1 Public Facilities) (“CFD No. 2022-3”) each Fiscal Year commencing in Fiscal Year 2023/24, in an amount determined by the application of the procedures below. All Taxable Property, as hereinafter defined, unless exempted by law or by the provisions hereof, shall be taxed for the purposes, to the extent and in the manner herein provided.
A. DEFINITIONS
The terms hereinafter set forth have the following meaning:
“Accessory Dwelling Unit” or “ADU”means all Assessor’s Parcels of Residential Property for which a building permit(s) has been issued for an “Accessory Dwelling Unit” as defined in California Government Code Section 65852.2(j)(1), as may be amended from time to time, that is accessory to a primary Unit.
The ADU may be located on the same Assessor’s Parcel as the primary Unit that is the primary Unit or on a separate Assessor’s Parcel. For purposes of clarification, where an ADU and primary Unit are on the same Assessor’s Parcel, the ADU located on such Assessor’s Parcel is considered a separate Unit from the primary Unit on such Assessor’s Parcel for purposes of the Special Tax. Should an Assessor’s Parcel contain only an ADU, such Assessor’s Parcel will be taxed as an ADU Unit only. “Acre” or “Acreage” means the land area of an Assessor’s Parcel as shown on an Assessor’s Parcel Map. In the event that the Assessor’s Parcel Map shows no acreage, the Acreage for any Assessor’s Parcel may be determined by the CFD Administrator based upon, in the CFD Administrator’s discretion, the applicable condominium plan, final map, parcel map, Assessor’s Data or by using available spatial data and GIS.
“Act” means the Mello-Roos Community Facilities Act of 1982, as amended, being Chapter 2.5 of Part 1, Division 2 of Title 5 of the Government Code of the State. “Administrative Expenses” means the actual or reasonably estimated costs directly related to the administration of CFD No. 2022-3 including, but not limited to, the following: the costs of any paying agents/fiscal agents/trustees related to CFD No. 2022-3 Bond payments (including the fees and expenses of related counsel); the costs of computing the Annual Special Tax Requirement, the Special Taxes and of preparing the collection schedules for the Special Taxes; the costs of collecting the Special Taxes, including any charges levied by the County Auditor’s Office, County Tax Collector’s Office or County Treasurer’s Office; the costs of the City or designee in complying with the disclosure requirements associated with applicable federal and state securities laws, or otherwise related to CFD No. 2022-3 or CFD No. 2022-3 Bonds; the City’s annual administration fees and third party expenses; costs of responding to public inquiries regarding the Special Taxes; the costs of the City or designee related to an appeal of the Special Tax or interpretation of this Rate and Method of Apportionment of Special Taxes; amounts needed to pay any required arbitrage rebate to the federal government related to CFD No. 2022- 3 Bonds; the costs associated with the release of funds from any escrow account; and the costs of commencing and pursuing to completion any foreclosure action arising from delinquent Special Taxes in B-2
CFD No. 2022-3. Administrative Expenses shall also include amounts estimated or advanced by the City or CFD No. 2022-3 for any other administrative purposes of CFD No. 2022-3. “Annual Special Tax Requirement” means that amount required in any Fiscal Year for CFD No. 2022- 3 to (1) pay Debt Service on all Outstanding CFD No. 2022-3 Bonds due in the Debt Year that commences in such Fiscal Year; (2) pay debt service on bonds expected to be issued by CFD No. 2022-3 due in the Debt Year that commences in such Fiscal Year; (3) Administrative Expenses; (4) provide any amount required to establish or replenish a reserve fund in connection with any CFD No. 2022-3 Bonds; (5) provide an amount equal to reasonably anticipated Special Tax delinquencies based on the delinquency rate for Special Taxes levied in the previous Fiscal Year as determined by the CFD Administrator, as limited by the Act, and without duplicating any amounts described in clauses (3) or (4). The amounts referred to in clauses (1) through (5) of the preceding sentence may be reduced in any Fiscal Year (in the City's sole discretion) by (i) surplus balances in funds and accounts for CFD No. 2022-3 Bonds to the extent that such balances are available to apply against Debt Service pursuant to the Indenture, (ii) proceeds from the collection of penalties associated with delinquent Special Tax, and (iii) any other revenues available to pay Debt Service on the Outstanding CFD No. 2022-3 Bonds or other indebtedness as determined by the CFD Administrator.
“Assessor’s Data” means the property characteristic data compiled and maintained by the County Assessor for each Assessor’s Parcel, including, but not limited to, Assessor’s Parcel Number, Acreage, Building Square Footage, Lot Square Footage and Units.
“Assessor’s Parcel” or “Parcel” means a lot or parcel shown in an Assessor’s Parcel Map with an assigned Assessor’s Parcel Number.
“Assessor’s Parcel Map” means an official map of the County Assessor designating parcels by Assessor’s Parcel Number.
“Assessor’s Parcel Number” or “APN” means, with respect to an Assessor’s Parcel, that number assigned to such Assessor’s Parcel by the County for purposes of identification. “Assigned Special Tax” means the Assigned Special Tax determined in accordance with Section C below, that can be levied in any Fiscal Year on any Assessor’s Parcel of Taxable Property. “Backup Special Tax”means the Backup Special Tax applicable to each Assessor’s Parcel of Developed Property, as determined in accordance with the applicable subsection of Section C below. “Building Permit” means a permit issued by the City for new construction of a residential or non- residential building on an Assessor’s Parcel.
“Building Square Feet” or “BSF” means all of the square footage of living area within the perimeter of a residential structure, not including any carport, walkway, garage, overhang, patio, enclosed patio, or similar area. The determination of Building Square Feet shall be made by reference to the building permit(s) issued for such residential dwelling unit. In the event that the building permit does not show Building Square Feet, other records of the City or Assessor’s Data shall be used as determined by the CFD Administrator.
“CFD Administrator” means an official of the City, or designee thereof, responsible for determining the Annual Special Tax Requirement, and otherwise providing for the levy and collection of the Special Taxes.
“CFD No. 2022-3” means City of Palmdale Community Facilities District No. 2022-3 (Ritter Ranch Phase 1 Public Facilities), established by the City Council pursuant to the Act.
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“CFD No. 2022-3 Bonds” means bonds or other Debt (as defined in section 53317 of the Act), whether in one or more series, issued or assumed by or on behalf of the City for CFD No. 2022-3 under the Act, and secured by pledge of the Special Taxes.
“City” means the City of Palmdale, California.
“City Council” means the City Council of the City, acting as the legislative body of CFD No. 2022-3. “County” means the County of Los Angeles, California.
“Debt Service” means for each Debt Year, the total amount of principal and interest due on any Outstanding CFD No. 2022-3 Bonds.
“Debt Year” means the twelve (12) month period ending on the second debt service payment date of each calendar year.
“Developed Property” means, in any Fiscal Year, all Taxable Property in CFD No. 2022-3 for which a Building Permit for new construction was issued by the City prior to March 1 of the preceding Fiscal Year.
“Exempt Property” means all property located within the boundaries of CFD No. 2022-3 which is exempt from the Special Tax pursuant to Section E below. “Final Map Property”means, in any Fiscal Year, all Taxable Property, exclusive of Developed Property, Taxable Property Owner Association Property, and Taxable Public Property, for which a Final Subdivision Map has recorded prior to January 1 of the preceding Fiscal Year. “Final Subdivision Map” means a final subdivision map, parcel map or lot line adjustment, approved by the City pursuant to the Subdivision Map Act (California Government Code Section 66410 et seq.) or recordation of a condominium plan pursuant to California Civil Code 4285, that creates individual lots for which Building Permits may be issued without further subdivision of such property. “Fiscal Year” means the period starting July 1 and ending on the following June 30. “GIS” or “Geographic Information System” means a system designed to capture, store, manipulate, analyze, manage, and present spatial or geographic data. “Indenture” means the indenture, fiscal agent agreement, resolution, or other instrument pursuant to which CFD No. 2022-3 Bonds are issued, as modified, amended, and/or supplemented from time to time, and any instrument replacing or supplementing the same. “Land Use Class” means any of the classes listed in Table 1. “Lot Square Feet” or “LSF” means, for any Assessor’s Parcel, the Acreage divided by 43,560. “Maximum Special Tax” means the Maximum Special Tax, determined in accordance with Section C below, that can be levied in any Fiscal Year on any Assessor’s Parcel of Taxable Property. “Non-Residential Property” means, in any Fiscal Year all Assessor’s Parcels of Developed Property for which a building permit(s) was issued for a structure intended for non-residential use. “Open Space Property” means property within the boundaries of CFD No. 2022-3 which (i) has been designated with specific boundaries and Acreage on a final subdivision map as open space, (ii) has been irrevocably offered for dedication as open space to the federal government, the State, the County, the City, or any other public agency, or (iii) is encumbered by an easement or other restriction required by the City limiting the use of such property to open space.
B-4
“Outstanding CFD No. 2022-3 Bonds” means all CFD No. 2022-3 Bonds which are outstanding under and in accordance with the provisions of the Indenture. “Property Owner’s Association” or “POA” means any duly constituted property owner’s association.
As used in this definition, a Property Owner’s Association includes any home-owner’s association, condominium owner’s association, master or sub-association or non-residential owner’s association. “Property Owner’s Association Property”means any property within the boundaries of CFD No. 2022- 3 which is (a) owned by a Property Owner’s Association or (b) designated with specific boundaries and acreage on a final subdivision map as Property Owner Association Property. “Proportionately” means, for Developed Property, that the ratio of the actual Special Tax levy to the Assigned Special Tax or the Backup Special Tax is equal. For Final Map Property, “Proportionately” means that the ratio of the actual Special Tax Levy to the Assigned Special Tax or the Backup Special Tax is equal. For Undeveloped Property, “Proportionately” means that the ratio of the actual Special Tax levy per Acre to the Maximum Special Tax per Acre is equal. “Public Property” means any property within the boundaries of CFD No. 2022-3 which (i) is owned by a public agency, (ii) has been irrevocably offered for dedication to a public agency, or (iii) is designated with specific boundaries and Acreage on a final subdivision map as property which will be owned by a public agency. For purposes of this definition, a public agency includes the federal government, the State, the County, the City, school districts, or any other governmental agency. “Rate and Method of Apportionment” means this Second Amended and Restated Rate and Method of Apportionment of Special Taxes for CFD No. 2022-3.
“Residential Property” means all Assessor’s Parcels of Developed Property for which a Building Permit has been issued for purposes of constructing one or more residential Units. “Ritter Ranch Specific Plan” means Specific Plan 89-02 approved by the City on March 3, 1992 by Ordinance No. 964, as amended on October 11, 1995 by Ordinance No. 1076 (Specific Plan Amendment 95-1-RR).
“Single Family Residential Attached Property” means all Assessor’s Parcels of Residential Property for which a building permit(s) has been issued for (i) an attached residential structure or (ii) property with a single family attached designation according to the Ritter Ranch Specific Plan including detached and paired townhomes.
“Single Family Residential Detached Property” means all Assessor’s Parcels of Residential Property for which a building permit(s) has been issued for a detached residential structure intended as a single primary Unit.
“Special Tax(es)” means the special tax or special taxes to be levied in each Fiscal Year on each Assessor’s Parcel of Taxable Property within CFD No. 2022-3 to fund the Annual Special Tax Requirement.
“State” means the State of California.
“Taxable Property” means all the Assessor’s Parcels within the boundaries of CFD No. 2022-3 that are not exempt from the Special Tax pursuant to law or Section E below. “Taxable Property Owner Association Property” means all Assessors Parcels of Property Owner Association Property that are not exempt pursuant to Section E herein.
B-5
“Taxable Public Property” means all Assessors Parcels of Public Property that are not exempt pursuant to Section E herein.
“Tract” means the reference to a unique number that identifies a particular tentative or Final Subdivision Map.
“Trustee” means the trustee or fiscal agent or paying agent acting as such under the applicable Indenture. “Undeveloped Property” means, for each Fiscal Year, all Taxable Property not classified as Developed Property, Final Map Property, Taxable Property Owner Association Property, or Taxable Public Property. “Unit” means (i) for Single Family Residential Attached Property, an individual single family attached residential unit or property with a single family attached designation according to the Ritter Ranch Specific Plan, (ii) for Single Family Residential Detached Property, an individual single family detached residential unit. The number of Units assigned to each Assessor’s Parcel may be determined by (i) referencing Assessor’s Data, (ii) site surveys and physical unit counts, and/or (iii) other research by the CFD Administrator.
“Welfare Exempt Property” means, in any Fiscal Year, all Parcels within the boundaries of CFD No. 2022-3 that (a) have been granted a welfare exemption by the County under subdivision (g) of Section 214 of the Revenue and Taxation Code indicated in the Assessor’s Data finalized as of January 1 of the previous Fiscal Year, and (b) are exempt from the Special Tax pursuant to Section 53340(c) of the Act.
Pursuant to Section 53340(c) of the Act, after the issuance of the first series of CFD No. 2022-3 Bonds, as applicable, any Assessor’s Parcels that received a welfare exemption under subdivision (g) of Section 214 of the Revenue and Taxation Code shall not be classified as Welfare Exempt Property and will be subject to the Special Tax.
B. ASSIGNMENT TO LAND USE CATEGORIES
Each Fiscal Year, the CFD Administrator shall determine the Assessor’s Parcel Numbers for all Taxable Property within CFD No. 2022-3 for the then-current Fiscal Year. To the extent a Parcel or Parcels of Taxable Property are subdivided, consolidated, or otherwise reconfigured, the Maximum Special Tax shall be assigned to the new Assessor’s Parcels Numbers pursuant to Section C. The CFD Administrator shall also determine: (i) which Parcels are Developed Property, Final Map Property, Undeveloped Property, Taxable Property Owner Association Property and Taxable Public Property; (ii) the number of Units or Acreage each Parcel contains; (iii) the property type, i.e., Single Family Residential Attached Property, Single Family Residential Detached Property, Accessory Dwelling Unit, Non-Residential Property, etc.; (iv) the Tract where the Assessor’s Parcel is located; and (v) the Annual Special Tax Requirement for the Fiscal Year. The Assigned Special Tax for Single Family Residential Attached Property shall be based on the number of Units on such Assessor’s Parcel and the Building Square Feet of the Units located on such Assessor’s Parcel and, if applicable, on the Tract where the Assessor’s Parcel is located. The Assigned Special Tax for Single Family Detached Property shall be based on the number of Units on such Assessor’s Parcel, the Building Square Feet of the Units located on such Assessor’s Parcel, the Lot Square Feet of such Assessor’s Parcel, and, if applicable, the Tract where the Assessor’s Parcel is located. The Assigned Special Tax for Non-Residential Property, Taxable Property Owner Association Property and Taxable Public Property shall be based on the Acreage of the Assessor’s Parcel and, if applicable, the Tract where the Assessor’s Parcel is located.
C. MAXIMUM SPECIAL TAX RATES
1. Developed Property
B-6
The Maximum Special Tax for each Assessor’s Parcel of Developed Property shall be the greater of (i) the amount derived by application of the Assigned Special Tax or (ii) the amount derived by application of the Backup Special Tax.
a. Assigned Special Tax
The Assigned Special Tax for each Assessor’s Parcel of Developed Property is shown in Table
1. TABLE 1
ASSIGNED SPECIAL TAX FOR DEVELOPED PROPERTY
FISCAL YEAR 2025/26
Land
Use
Class Description
Building Square
Feet Lot Square Feet Assigned Special
Tax
1-A Single Family Attached Property >= 1,900 BSF N/A $2,692.56 per Unit 2-A Single Family Attached Property < 1,900 BSF N/A $2,140.10 per Unit 1-B Single Family Detached
Property >= 2,600 BSF <= 5,999 LSF $3,519.67 per Unit
2-B Single Family Detached
Property =2,300 - < 2,600 BSF <= 5,999 LSF $3,172.18 per Unit 3-B Single Family Detached
Property < 2,300 BSF <= 5,999 LSF $2,758.10 per Unit
1-C Single Family Detached
Property >= 3,300 BSF > 5,999 - = 6,999
LSF $4,253.16 per Unit
2-C Single Family Detached
Property =3,000 - < 3,300 BSF > 5,999 - = 6,999
LSF $3,977.45 per Unit
3-C Single Family Detached
Property < 3,000 BSF > 5,999 - = 6,999
LSF $3,563.37 per Unit
1-D Single Family Detached
Property >= 3,300 BSF > 6,999 LSF $4,597.53 per Unit
2-D Single Family Detached
Property < 3,300 BSF > 6,999 LSF $4,037.79 per Unit
1-E Accessory Dwelling Unit N/A N/A See below
2-E Non-Residential Property N/A N/A $23,441.25 per
Acre
The Assigned Special Tax for an Accessory Dwelling Unit shall be calculated as a percentage of the Assigned Special Tax for the primary Unit the ADU is accessory to, based on Building Square Footage. For example, if a primary Unit in Land Use Class 1-A of 2,000 BSF has an ADU of 800 BSF, the Assigned Special Tax for the ADU shall be calculated by the following steps:
1. 800 BSF / 2,000 BSF = 0.40 or 40%
$2,692.56 Assigned Special Tax per Unit x 40% = $1,077.02 Assigned Special Tax for such ADU
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b. Backup Special Tax
The Fiscal Year 2025/26 aggregate Backup Special Tax attributable to property within a Final Subdivision Map will equal $23,441.25 multiplied by the Acreage of all Taxable Property located within such Final Subdivision Map, excluding Acreage associated with current or expected Taxable Public Property and Taxable Property Owner Association Property.
The Backup Special Tax for each Assessor’s Parcel of Residential Property in a Final Subdivision Map shall be computed by dividing the aggregate Backup Special Tax attributable to all Assessor’s Parcels of Taxable Property for which building permits for residential construction have or may be issued, as determined in the preceding paragraph, by the number of such Assessor’s Parcels (i.e., the number of residential lots).
Notwithstanding the foregoing, if all or any portion of a Final Subdivision Map is subsequently changed or modified, then the Backup Special Tax for each Assessor’s Parcel of Residential Property in such Final Subdivision Map, or the portion thereof that is changed or modified, shall be a rate per Acre calculated as follows:
1. Determine the total Backup Special Taxes anticipated to apply to the changed or modified portion of the Final Subdivision Map prior to the change or modification.
2. Divide the amount determined pursuant to paragraph 1 above by the total Acreage of Residential Property excluding Taxable Public Property and Taxable Property Owner Association Property which is ultimately expected to exist in such changed or modified Final Subdivision Map area, as reasonably determined by the CFD Administrator.
The result is the Backup Special Tax per Acre which shall be applicable to all Assessor's Parcels of Residential Property in such changed or modified Final Subdivision Map. c. Increase in the Assigned Special Tax and Backup Special Tax On each July 1, commencing on July 1, 2026 and ending on 2038/39, the Assigned Special Tax and the Backup Special Tax for Developed Property and Final Map Property shall be increased by an amount equal to two percent (2%) of the amount in effect for the previous Fiscal Year. d. Multiple Land Use Classes
In some instances, an Assessor’s Parcel of Developed Property may contain more than one Land Use Class. The Special Tax levied on an Assessor’s Parcel shall be the sum of the Special Tax for all Land Use Classes located on that Assessor’s Parcel.
2. Final Map Property, Undeveloped Property, Taxable Property Owner Association Property, and Taxable Public Property
a. Maximum Special Tax
The Maximum Special Tax for each Assessor’s Parcel of Final Map Property, Undeveloped Property, Taxable Property Owner Association Property, and Taxable Public Property shall be $23,441.25 per Acre in Fiscal Year 2025/26.
b. Increase in the Maximum Special Tax
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On each July 1, commencing on July 1, 2026 and ending on 2038/39, the Maximum Special Tax for Final Map Property, Undeveloped Property, Taxable Property Owner Association Property, and Taxable Public Property shall be increased by an amount equal to two percent (2%) of the amount in effect for the previous Fiscal Year.
D. METHOD OF APPORTIONMENT OF THE SPECIAL TAXES
Commencing with Fiscal Year 2025/26 and for each following Fiscal Year, the CFD Administrator shall determine the Annual Special Tax Requirement and shall levy the Special Tax until the amount of the Special Tax levied equals the Annual Special Tax Requirement. The Special Tax shall be levied each Fiscal Year as follows:
First: The Special Tax shall be levied Proportionately on each Assessor's Parcel of Developed Property at a rate up to 100% of the applicable Assigned Special Tax to satisfy the Annual Special Tax Requirement.
Second: If additional monies are needed to satisfy the Annual Special Tax Requirement after the first step has been completed, the Special Tax shall be levied Proportionately on each Assessor’s Parcel of Final Map Property at a rate up to 100% of the Maximum Special Tax for Final Map Property to satisfy the Annual Special Tax Requirement.
Third: If additional monies are needed to satisfy the Annual Special Tax Requirement after the second step has been completed, the Special Tax shall be levied Proportionately on each Assessor’s Parcel of Undeveloped Property at a rate up to 100% of the Maximum Special Tax for Undeveloped Property to satisfy the Annual Special Tax Requirement.
Fourth: If additional monies are needed to satisfy the Annual Special Tax Requirement after the first three steps have been completed, then the levy of the Special Tax on each Assessor’s Parcel of Developed Property whose Maximum Special Tax is determined through the application of the Backup Special Tax shall be increased in equal percentages from the applicable Assigned Special Tax up to 100% of the Maximum Special Tax for each such Assessor’s Parcel to satisfy the Annual Special Tax Requirement.
Fifth: If additional monies are needed to satisfy the Annual Special Tax Requirement after the first four steps have been completed, the Special Tax shall be levied on each Assessor’s Parcel of Taxable Property Owner Association Property at a rate up to 100% of the Maximum Special Tax for Taxable Property Owner Association Property to satisfy the Annual Special Tax Requirement.
Sixth: If additional monies are needed to satisfy the Annual Special Tax Requirement after the first five steps have been completed, then the Special Tax shall be levied Proportionately on all Taxable Public Property at a rate up to 100% of the Maximum Special Tax for Taxable Public Property to satisfy the Annual Special Tax Requirement.
E. EXEMPTIONS
1. No Special Tax shall be levied on up to 35.20 Acres of Property Owner Association Property, and up to 120.70 Acres of Public Property. Tax-exempt status will be assigned by the CFD Administrator in the chronological order in which property becomes Property Owner Association Property, or Public Property.
2. Property Owner Association Property, that is not exempt from the Special Tax under this section, or pursuant to the Act, shall be classified as Taxable Property Owner Association Property. Taxable Property Owner Association Property shall be subject to the levy of the Special Tax and shall be taxed B-9
Proportionately as part of the fifth step in Section D above, at up to 100% of the applicable Maximum Special Tax for Taxable Property Owner Association Property.
3. Public Property, that is not exempt from the Special Tax under this section, or pursuant to the Act, shall be classified as Taxable Public Property. Taxable Public Property shall be subject to the levy of the Special Tax and shall be taxed Proportionately as part of the sixth step in Section D above, at up to 100% of the applicable Maximum Special Tax for Taxable Public Property.
4. No Special Tax shall be levied on any Assessor’s Parcel in any Fiscal Year in which such Assessor’s Parcel is classified as Welfare Exempt Property.
F. APPEAL OF SPECIAL TAX LEVY
Any property owner may file a written appeal of the Special Tax with the CFD Administrator claiming that the amount or application of the Special Tax is not correct with respect to one or more specific Assessor’s Parcels. The appeal must be filed not later than one calendar year after having paid the Special Tax that is disputed, and the appellant must be current in all payments of the Special Taxes theretofore levied on the Assessor’s Parcel(s). In addition, during the term of the appeal process, all Special Tax levied must be paid for the subject Assessor’s Parcel(s) prior to delinquency.
The appeal must specify the reasons why the appellant claims the Special Tax is in error. The CFD Administrator shall review the appeal, meet with the appellant if the CFD Administrator deems necessary, and advise the appellant of its determination.
If the property owner disagrees with the CFD Administrator’s decision relative to the appeal, the owner may then file a written appeal with the City Council whose subsequent decision shall be final and binding on all interested parties. If the decision of the CFD Administrator or subsequent decision by the City requires the Special Tax to be modified or changed in favor of the property owner, then an adjustment shall be made to credit future Special Taxes.
This procedure shall be exclusive and its exhaustion by any property owner shall be a condition precedent to filing any legal action by such owner.
G. INTERPRETATION OF RATE AND METHOD OF APPORTIONMENT
The City may, by resolution or ordinance, interpret, clarify and/or revise this Rate and Method of Apportionment to correct any inconsistency, vagueness, or ambiguity as it relates to the Special Taxes, method of apportionment, classification of Assessor’s Parcels, or any definition used herein, as long as once CFD No. 2022-3 Bonds have been issued such correction does not materially adversely affect the levy and collection of Special Taxes on any Assessor’s Parcel needed to repay the CFD No. 2022-3 Bonds.
In addition, the interpretation and application of any section of this document shall be at the CFD Administrator’s discretion.
H. MANNER OF COLLECTION
The Special Taxes shall be collected in the same manner and at the same time as ordinary ad valorem property taxes, provided, that the CFD Administrator may directly bill the Special Tax, may collect the Special Tax at a different time or in a different manner if needed to meet the financial obligations of CFD No. 2022-3. The City may covenant to foreclose and may actually foreclose or cause an action for foreclosure to be prosecuted in respect of Assessor's Parcels of Taxable Property that are delinquent in the payment of the Special Tax.
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I. PREPAYMENT OF SPECIAL TAX
The following definitions apply to this Section I:
“Authorized Facilities” means the public facilities authorized to be financed, in whole or in part, by CFD No. 2022-3.
“Buildout” means the state of maximum development of CFD No. 2022-3 and any property annexed thereto, based on plans and anticipated development.
“CFD Public Facilities Cost" means $68,048,940 for CFD No. 2022-3, expressed in 2024 dollars, which shall increase by the annual percentage change in the Construction Inflation Index on July 1, 2025 and on each July 1 thereafter, or such lower number as (i) shall be determined by the CFD Administrator as sufficient to provide the public facilities to be provided by CFD No. 2022-3 under the authorized bonding program for CFD No. 2022-3, or (ii) shall be determined by the City Council concurrently with a covenant that it will not issue any more Bonds to be supported by Special Taxes levied under this Rate and Method of Apportionment as described in Section D.
“Construction Inflation Index” means the annual percentage change in the Engineering News-Record Building Cost Index for the City of Los Angeles, measured as of the calendar year which ends in the previous Fiscal Year, but not less than zero percent. In the event this index ceases to be published, the Construction Inflation Index shall be another index as determined by the City that is reasonably comparable to the Engineering News-Record Building Cost Index for the City of Los Angeles. “Future Facilities Costs” means, as of the date of prepayment, the CFD Public Facilities Costs minus the proceeds of any Previously Issued CFD No. 2022-3 Bonds which were, at the time of issuance, available to the City for Authorized Facilities.
“Previously Issued CFD No. 2022-3 Bonds” means all Outstanding CFD No. 2022-3 Bonds that have been issued by CFD No. 2022-3 prior to the date of prepayment.
1. Prepayment in Full
The Special Tax obligation of an Assessor's Parcel of Developed Property, Taxable Public Property, Final Map Property, or Undeveloped Property for which a Building Permit has been issued, may be prepaid and permanently satisfied as described herein; provided that there are no delinquent installments of the Special Tax with respect to such Assessor's Parcel at the time of prepayment. An owner of an Assessor's Parcel intending to prepay the Special Tax obligation shall provide the CFD Administrator with written notice of intent to prepay. Within 45 days of receipt of such written notice, the CFD Administrator shall notify such owner of the prepayment amount for such Assessor's Parcel. Prepayment must be made not less than 75 days prior to the next occurring date that notice of redemption of Outstanding CFD No. 2022-3 Bonds, if any.
Proceeds of such prepayment may be given to the Trustee pursuant to the Indenture. If a prepayment is made prior to the issuance of CFD No. 2022-3 Bonds, the Redemption Premium, Interest Amount, Reserve Fund Credit and Capitalized Interest Credit as calculated below, shall be zero. The CFD Administrator may charge the property owner requesting a prepayment calculation a fee for providing this service.
The Special Tax Prepayment Amount (defined below) shall be calculated as summarized below (capitalized terms as defined below):
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Bond Redemption Amount
Plus Future Facilities Amount
plus Redemption Premium
plus Interest Amount
plus Administrative Fees and Expenses
less Reserve Fund Credit
less Capitalized Interest Credit
Total: equals Special Tax Prepayment Amount
As of the proposed date of prepayment, the Special Tax Prepayment Amount (defined below) shall be calculated by the CFD Administrator as follows:
Step Number:
1. Confirm that no Special Tax delinquency apply to such Assessor’s Parcel, and if delinquencies are applicable compute all amounts due, including interest and penalties.
2. For Assessor’s Parcels of Developed Property and Taxable Public Property compute the Assigned Special Tax and Backup Special Tax. For Assessor’s Parcels of Final Map Property, and Undeveloped Property to be prepaid, compute the Assigned Special Tax and Backup Special Tax for that Assessor’s Parcel as though it was already designated as Developed Property, based upon the building permits issued for that Assessor’s Parcel.
3. a. Divide the Assigned Special Tax computed pursuant to Step 2 by the total estimated Assigned Special Tax for CFD No. 2022-3 based on the Developed Property Special Tax which could be charged in the current Fiscal Year on all expected development through Buildout of CFD No. 2022-3.
b. Divide the Backup Special Tax computed pursuant to Step 2 by the total estimated Backup Special Tax for CFD No. 2022-3 based on the Developed Property Special Tax which could be charged in the current Fiscal Year on all expected development through Buildout of CFD No. 2022-3.
c. Determine which quotient computed pursuant to Step 3.a or 3.b is larger (the “Maximum Special Tax Percentage”).
4. Multiply the Maximum Special Tax Percentage by the Outstanding CFD No. 2022-3 Bonds to compute the principal amount of Outstanding CFD No. 2022-3 Bonds to be redeemed (the “Bond Redemption Amount”).
5. Compute the Future Facilities Costs.
6. Multiply the Maximum Special Tax Percentage by the total Future Facilities Costs to compute the Future Facilities amount to be prepaid (the “Future Facilities Amount”).
7. Multiply the Bond Redemption Amount computed pursuant to Step 4 by the applicable redemption premium, if any, on the Outstanding CFD No. 2022-3 Bonds to be redeemed (the "Redemption Premium") determined by reference to the Indenture.
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8. Compute the amount needed to pay interest on the Bond Redemption Amount from the first bond interest and/or principal payment date following the current Fiscal Year until the earliest redemption date for the Outstanding CFD No. 2022-3 Bonds (the “Interest Amount”).
9. Verify the administrative fees and expenses, including the costs of computation of the prepayment, the costs to invest the prepayment proceeds, the costs of redeeming the Outstanding CFD No. 2022-3 Bonds, and the costs of recording any notices to evidence the prepayment and the redemption (the “Administrative Fees and Expenses”).
10. If reserve funds for the Outstanding CFD No. 2022-3 Bonds held under the Indenture, if any, are at or above 100% of the then reserve requirement (as required by the Indenture) on the prepayment date, a reserve fund credit shall be calculated as a reduction in the applicable reserve requirement for the Outstanding CFD No. 2022-3 Bonds to be redeemed pursuant to the prepayment (the “Reserve Fund Credit” ). No Reserve Fund Credit shall be granted if reserve funds are below 100% of the applicable reserve requirement on the prepayment date or if the Reserve Fund is satisfied by a credit instrument rather than cash funded.
11. If any capitalized interest for the Outstanding CFD No. 2022-3 Bonds will not have been expended at the time of the first interest and/or principal payment following the current Fiscal Year, a capitalized interest credit shall be calculated by multiplying the Maximum Special Tax Percentage by the expected balance in the capitalized interest fund after such first interest and/or principal payment (the “Capitalized Interest Credit”).
12. The Special Tax prepayment is equal to the sum of the amounts computed pursuant to Steps 4, 6, 7, 8 and 9 less the amount computed pursuant to Steps 10 and 11 (the “Prepayment Amount”).
13. From the Prepayment Amount, the amounts computed pursuant to Step 6 shall be used by the City to pay for Future Facilities Costs. The amounts computed pursuant to Steps 4, 6, 7 and 8 shall be deposited into the appropriate fund as established under the Indenture and be used to redeem Outstanding CFD No. 2022-3 Bonds or make Debt Service payments. The amount computed pursuant to Step 9 shall be retained by the City for the payment of Administrative Fees and Expenses.
The Special Tax Prepayment Amount may be sufficient to redeem other than a $5,000 increment of Outstanding CFD No. 2022-3 Bonds. In such cases, the increment above $5,000 or integral multiple thereof will be retained in the appropriate fund established under the Indenture to be used with the next prepayment of Outstanding CFD No. 2022-3 Bonds or to make Debt Service payments.
Current year Special Taxes that are not yet paid will remain outstanding and will be collected in the manner billed. With respect to any Assessor's Parcel that is prepaid, the CFD Administrator shall cause a suitable notice to be recorded in compliance with the Act to indicate the prepayment of the Special Tax and the obligation of such Assessor's Parcel satisfied.
Notwithstanding the foregoing, no prepayment will be allowed unless the Maximum Special Tax that may be levied on Taxable Property both prior to and after the proposed prepayment is at least 1.1 times the maximum annual Debt Service on all Outstanding CFD No. 2022-3 Bonds plus annual Administrative Expenses, as reasonably estimated by the CFD Administrator.
2. Prepayment in Part
The Special Tax may be partially prepaid, provided that a partial prepayment may be made only after all authorized CFD No. 2022-3 Bonds have been issued and only for Assessor’s Parcels of Developed B-13
Property, Final Map Property, Taxable Public Property and Undeveloped Property for which a Building Permit has been issued and only if there are no delinquent Annual Special Taxes with respect to such Assessor's Parcel at the time of partial prepayment. The amount of the prepayment shall be calculated as in Section I.1; except that a partial prepayment shall be calculated by the CFD Administrator according to the following formula:
PP = PE x F.
These terms have the following meaning:
PP = the partial prepayment
PE = the Special Tax Prepayment Amount calculated according to Section I.1 F = the Maximum Special Tax Percentage
The Special Tax partial prepayment amount must be sufficient to redeem at least a $5,000 increment of Bonds.
The owner of any Assessor’s Parcel who desires such partial prepayment shall notify the CFD Administrator of such owner’s intent to partially prepay the Special Tax and the percentage by which the Special Tax shall be prepaid. The CFD Administrator shall provide the owner with a statement of the amount required for the partial prepayment of the Special Tax for an Assessor’s Parcel within 45 days of the request and may charge a fee for providing this service. With respect to any Assessor’s Parcel that is partially prepaid, the CFD Administrator shall (i) distribute the prepayment funds remitted according to Section I.1, and (ii) indicate in the records of CFD No. 2022-3 that there has been a partial prepayment of the Special Tax and that a portion of the Special Tax with respect to such Assessor’s Parcel, equal to the outstanding percentage (1.00 - F) of the remaining Maximum Special Tax, shall continue to be levied on such Assessor’s Parcel pursuant to Section D.
J. SPECIAL TAX REDUCTION
The following definitions apply to this Section J:
“Issuance Date” means the date a bond purchase contract related to the sale of the CFD No. 2022-3 Bonds is entered into between the purchaser of the CFD No. 2022-3 Bonds and CFD No. 2022-3. “Plan Type” means a discrete residential plan type (generally consisting of residential dwelling units that share a common product type (e.g., detached, condominium) and that have nearly identical amounts of living area) that is constructed or expected to be constructed within CFD No. 2022-3 as identified in the Price Point Study.
“Price Point Consultant” means any consultant or firm of such consultants selected by the City that (a) has substantial experience in performing price point studies for residential units within community facilities districts or otherwise estimating or confirming pricing for residential units in community facilities districts, (b) has recognized expertise in analyzing economic and real estate data that relates to the pricing of residential units in community facilities districts, (c) is in fact independent and not under the control of CFD No. 2022-3 or the City, (d) does not have any substantial interest, direct or indirect, with or in (i) CFD 2022-3, (ii) the City, (iii) any owner of real property in CFD No. 2022-3, or (iv) any real property in CFD No. 2022-3, and (e) is not connected with CFD No. 2022-3 or the City as an officer or employee thereof, but who may be regularly retained to make reports to CFD No. 2022-3 or the City. “Price Point Study” means a price point study or a letter updating a previous price point study prepared by the Price Point Consultant which (a) sets forth the Plan Types constructed or expected to be constructed B-14
within CFD No. 2022-3, (b) sets forth the estimated number of constructed and expected residential dwelling units for each Plan Type, (c) sets forth such Price Point Consultant’s estimate of the Price Point for each Plan Type and (d) uses a date for establishing such Price Points that is no earlier than 30 days and no later than 180 days prior to the date the Price Point Study is delivered to the CFD Administrator pursuant to Section C herein.
“Total Effective Tax Rate” means, for a Plan Type, the quotient of (a) the Total Tax Burden for such Plan Type divided by (b) the Price Point for such Plan Type, converted to a percentage. “Total Tax Burden” means, for any Unit of Single Family Residential Property, the sum of the Assigned Special Tax, together with ad valorem property taxes, special assessments, special taxes for any overlapping community facilities district, and any other taxes, fees and charges, and excluding services charges such as sewer and trash, which are collected by the County via property tax bills and which are payable from and secured by the property, assuming such Unit of Single Family Residential Property has been completed, sold and subject to such levies and impositions.
Special Tax Reduction Calculation
Prior to the issuance of the first series of CFD No. 2022-3 Bonds, the following steps shall be taken for each Land Use Class of Residential Property in CFD No. 2022-3:
A. Mandatory Calculation Based on Price Point Study:
1. At least 30 days prior to the expected Issuance Date of the first series of CFD No. 2022-3 Bonds, CFD No. 2022-3 shall cause a Price Point Study to be delivered to the CFD Administrator.
2. As soon as practicable after receipt of the Price Point Study, the CFD Administrator shall calculate the Total Tax Burden and Total Effective Tax Rate for each Plan Type.
3. Separately, for each Land Use Class of Residential Property, the CFD Administrator shall determine whether or not the Total Effective Tax Rate for all Plan Types in a Land Use Class is less than or equal to 2.00%.
a. If the Total Effective Tax Rate for all Plan Types in a Lands Use Class is less than or equal to 2.00%, then there shall be no change in the Assigned Special Tax for such Land Use Class.
b. If the Total Effective Tax Rate for any Plan Type in a Land Use Class is greater than 2.00%, the CFD Administrator shall calculate a revised Assigned Special Tax for such Land Use Class which revised Assigned Special Tax shall be the highest amount (rounded to the nearest whole dollar) that will not cause the Total Effective Tax Rate for any Plan Type in such Land Use Class to exceed 2.00%.
c. For each Land Use Class group (i.e., A, B, C or D) as shown in Table 1, if the revised Assigned Special Tax amounts result in a situation in which the Assigned Special Tax for a particular Land Use Class of Residential Property would be less than the Assigned Special Tax for the numerical Land Use Class of Residential Property directly above it for such Land B-15
Use Class (e.g., the Assigned Special Tax for Land Use Class 1-B is less than the Assigned Special Tax for Land Use Class 2-B), then the Assigned Special Tax for the higher numbered Land Use Class shall be revised to be equal to the Assigned Special Tax for the lower numbered Land Use Class (i.e., the Assigned Special Tax for Land Use Class 2-B shall be revised to be equal to the updated Assigned Special Tax for Land Use Class 1-B).
4. If the Assigned Special Tax for any Land Use Class is revised pursuant to step 3.b. or 3.c. above, the CFD Administrator shall calculate a revised Backup Special Tax for all property. The revised Backup Special Tax per Acre shall be an amount (rounded to the nearest whole dollar) equal to the Backup Special Tax per Acre as set forth in Section C above, reduced by a percentage equal to the weighted average percentage reduction in the Assigned Special Taxes for all Land Use Classes of Residential Property resulting from the calculations in steps 3.a. through 3.c. above.
The weighted average percentage will be calculated by taking the sum of the products of the number of units constructed or expected to be constructed in each Land Use Class multiplied by the percentage change in the Assigned Special Tax (pursuant to step 3.b. or 3.c. above) for each Land Use Class (or 0 for Land Use Classes that are not changing). This amount is then divided by the total number of units constructed or expected to be constructed and converted to a percentage.
5. If the Assigned Special Tax for any Land Use Class is revised pursuant to step 3.b. or 3.c. above, the CFD Administrator shall prepare and execute a Certificate of Reduction in Special Taxes substantially in the form of Attachment A hereto and shall deliver such Certificate of Reduction in Special Taxes to CFD No. 2022-3. The Certificate of Reduction in Special Taxes shall be completed for all Land Use Classes and shall set forth, as applicable, either (i) the reduced Assigned Special Tax for a Land Use Class as calculated pursuant to step 3.b. or 3.c., or (ii) the Assigned Special Tax as identified in Table 1 in Section C for a Land Use Class that was not revised as determined pursuant to step 3.a.; as well as either (i) the revised Backup Special Tax as calculated pursuant to step 4, or (ii) the Backup Special Tax as identified in in Section C.1.(b) that was not revised as determined pursuant to step 4.
6. If the Issuance Date of the first series of CFD No. 2022-3 Bonds is within 120 days of the date of receipt of the Price Point Study by the CFD Administrator, CFD No. 2022-3 shall execute the acknowledgement on such Certificate of Reduction in Special Taxes, dated as of the closing date of such Bonds, and upon the closing of such first series of Bonds, the Assigned Special Tax for each Land Use Class and the Backup Special Tax shall be, for all purposes, as set forth in such Certificate of Reduction in Special Taxes. If the Issuance Date of the first series of Bonds is not within 120 days of the date of receipt of the Price Point Study by the CFD Administrator, such Certificate of Reduction in Special Taxes shall not be acknowledged by CFD No. 2022-3 and shall, as of such date, be void and of no further force and effect. In such case, if subsequently a first series of CFD No. 2022-3 Bonds is expected to be issued, at least 30 days prior to the expected Issuance Date of such first series of CFD No. 2022-3 Bonds, the CFD Administrator shall cause a new Price Point Study to be delivered to the CFD Administrator and, following such delivery, steps 2 through 5 of this section shall be performed based on such new Price Point Study.
7. As soon as practicable after the execution by CFD No. 2022-3 of the acknowledgement on the Certificate of Reduction in Special Taxes, CFD No. 2022-3 shall cause to be recorded in the records of the County Recorder an Amended Notice of Special Tax Lien for CFD No. 2022-3 B-16
reflecting the Assigned Special Taxes and the Backup Special Tax set forth in such Certificate of Reduction in Special Taxes.
8. If the Assigned Special Tax is not required to be changed for any Land Use Class based on the calculations performed under step 3 above, there shall be no reduction in the Maximum Special Tax, and no Certificate of Reduction in Special Taxes shall be required. However, the CFD Administrator shall prepare and deliver to CFD No. 2022-3 a Certificate of No Reduction in Special Taxes substantially in the form of Attachment B hereto dated as of the closing date of the first series of Bonds that states that the calculations required pursuant to this Section J have been made and that no changes to the Maximum Special Tax are necessary.
9. CFD No. 2022-3 and the CFD Administrator shall take no further actions under this Section J.A. upon the earlier to occur of the following: (i) the execution of the acknowledgement by CFD No. 2022-3 on a Certificate of Reduction in Special Taxes pursuant to step A.6.; or (ii) the delivery by the CFD Administrator of a Certificate of No Reduction in Special Taxes pursuant to step A.8.
B. Optional Reduction at Property Owner Request:
1. Notwithstanding the foregoing, prior to the issuance of the first series of CFD No. 2022-3 Bonds, upon the request of the property owner, the CFD Administrator may reduce the Assigned Special Tax as shown in Table 1 and Maximum Special Tax on a Tract-by-Tract basis to an amount or amounts as requested by the property owner.
2. As soon as practicable after the execution by CFD No. 2022-3 of the acknowledgement on the Certificate of Reduction in Special Taxes, CFD No. 2022-3 shall cause to be recorded in the records of the County Recorder an Amended Notice of Special Tax Lien for CFD No. 2022-3 reflecting the Assigned Special Taxes and the Backup Special Tax set forth in such Certificate of Reduction in Special Taxes.
3. CFD No. 2022-3 and the CFD Administrator shall take no further actions under this Section J.B. upon the issuance of the first series of CFD No. 2022-3 Bonds.
K. TERM
The Special Tax shall be levied and collected as needed to fund the Annual Special Tax Requirement for up to 60 years from the initial levy of the Special Tax. In any event no Special Tax shall be levied for CFD. No. 2022-3 after the 2083/84 Fiscal Year.
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ATTACHMENT A
CERTIFICATE OF REDUCTION IN SPECIAL TAXES
COMMUNITY FACILITIES DISTRICT NO. 2022-3
1. Pursuant to Section J of the Rate and Method of Apportionment of Special Taxes attached to the Notice of Special Tax Lien recorded in the Official Records of the County of Los Angeles as Document No. on the day of , 20__, the CFD Administrator hereby reduces the Maximum Special Tax for Developed Property for [certain or all] Land Use Classes within CFD No. 2022-3.
2. The calculations made pursuant to Section J were based upon a Price Point Study that was received by the CFD Administrator on _________________ and/or a request of the property owner that was received by the CFD Administrator on ____________________________. 3 . Table A-1 below shows the Assigned Special Tax for each Land Use Class for all Tracts or a specific Tract after such reduction:
Table A-1
Reduced Assigned Special Taxes for Developed Property
Tract No. _________
Fiscal Year __________
Land Use
Class Description Building Square Feet Lot Square Feet
Assigned
Special Tax
1-A Single Family Attached Property >= 1,900 BSF N/A $____ per unit 2-A Single Family Attached Property < 1,900 BSF N/A $____ per unit 1-B Single Family Detached Property >= 2,600 BSF <= 5,999 LSF $____ per unit 2-B Single Family Detached Property =2,300 - < 2,600 BSF <= 5,999 LSF $____ per unit 3-B Single Family Detached Property < 2,300 BSF <= 5,999 LSF $____ per unit 1-C Single Family Detached Property >= 3,300 BSF > 5,999 - = 6,999 LSF $____ per unit
2-C Single Family Detached Property =3,000 - < 3,300 BSF > 5,999 - = 6,999 LSF $____ per unit
3-C Single Family Detached Property < 3,000 BSF > 5,999 - = 6,999 LSF $____ per unit
1-D Single Family Detached Property >= 3,300 BSF > 6,999 LSF $____ per unit 2-D Single Family Detached Property < 3,300 BSF > 6,999 LSF $____ per unit 1-E Accessory Dwelling Unit N/A N/A See Below
2-E Non-Residential Property N/A N/A $____ per Acre
The Assigned Special Tax for an Accessory Dwelling Unit shall be calculated as a percentage of the Assigned Special Tax for the primary Unit the ADU is accessory to, based on Building Square Footage. For example, if a primary Unit in Land Use Class 1-A of 2,000 BSF has an ADU of 800 BSF, the Assigned Special Tax for the ADU shall be calculated by the following steps:
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a. 800 BSF / 2,000 BSF = 0.40 or 40%
b. $______Assigned Special Tax per Unit x 40% = $________ Assigned Special Tax for such ADU
4. The Backup Special Tax for each Assessor’s Parcel of Developed Property in CFD No. 2022-3 shall be equal to $______ after such reduction.
5. The Maximum Special Tax for each Assessor’s Parcel of Final Map Property and Undeveloped Property in CFD No. 2022-3 shall be $________ per Acre.
6. Upon execution of the certificate by the City, the CFD Administrator shall cause an amended notice of special tax lien for CFD No. 2022-3 to be recorded reflecting the modifications set forth herein.
7. By execution hereof, the undersigned acknowledges, on behalf of the City and CFD No. 2022- 3, receipt of this certificate and modification of the Rate and Method of Apportionment of Special Taxes as set forth in this certificate.
Submitted
CFD ADMINISTRATOR
By: Date: ___________________
Community Facilities District No. 2022-3 of the City of Palmdale By: Date as of : _____________
[closing date of Bonds]
B-19
ATTACHMENT B
CERTIFICATE OF NO REDUCTION IN SPECIAL TAXES
COMMUNITY FACILITIES DISTRICT NO. 2022-3
1. All calculations required pursuant to Section J of the Rate and Method of Apportionment have been made based upon a Price Point Study that was received by the CFD Administrator on _________________ and/or a request of the property owner that was received on ______________________________.
2. Total Effective Tax Rate for all Plan Types in all Land Use Classes in all Zones is less than or equal to
2.00%.
3. The Maximum Special Tax for Developed Property within CFD No. 2022-3, including the Assigned Special Taxes set forth in Sections C.1.(a) and the Backup Special Tax set forth in Section C.1.(b) of the Rate and Method of Apportionment, shall remain in effect and not be reduced.
Submitted
CFD ADMINISTRATOR
By: Date as of: _______
[closing date of Bonds]
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APPENDIX C
SUMMARY OF THE FISCAL AGENT AGREEMENT
The following is a summary of certain provisions of the Fiscal Agent Agreement not otherwise described in the text of this Limited Offering Memorandum. This summary does not purport to be comprehensive or definitive and is subject to all of the complete terms and provisions of the Fiscal Agent Agreement, to which reference is hereby made.
Definitions
“Acquisition Agreement” means the Acquisition Agreement No. A-8174, dated as of November 1, 2022, between the City and RdR Development Holdings, LLC, as amended by Supplement No. 1 to Acquisition Agreement (A-8174), dated as of February 1, 2025, between the City and RdR Development Holdings, LLC, and as it may be further amended or supplemented in accordance with its terms. “Administrative Expenses” means any or all of the following: the fees and expenses of the Fiscal Agent (including any fees or expenses of its counsel), the expenses of the City in carrying out its duties under the Fiscal Agent Agreement (including, but not limited to, the levying and collection of the Special Taxes, and the foreclosure of the liens of delinquent Special Taxes) including the fees and expenses of its counsel, an allocable share of the salaries of City staff related thereto and a proportionate amount of City general administrative overhead related thereto, any amounts paid by the City from its general funds pursuant to the Fiscal Agent Agreement, any amounts paid or payable to any persons or entities (including but not limited to any Tax Consultant) employed by the City in connection with the discharge of any of the City’s obligations under the Fiscal Agent Agreement (including, but not limited to, the calculation of the levy of the Special Taxes, foreclosures with respect to delinquent taxes and expenses of the City and/or the District in connection with any bankruptcy proceedings involving parcel(s) in the District with delinquent Special Taxes, and the calculation of amounts subject to rebate to the United States), , and all other costs and expenses of the City or the Fiscal Agent incurred in connection with the discharge of their respective duties under the Fiscal Agent Agreement or in connection with the 2025 Bonds and, in the case of the City, in any way related to the administration of the Bonds or the District. Administrative Expenses will include any such expenses incurred in prior years but not yet paid.
“Administrative Expense Fund” means the fund by that name established by the Fiscal Agent Agreement. “Affiliate” means, any Person that, directly or indirectly, controls, is controlled by, or is under common control with, another Person. For the purpose of this definition, “control” means having direct or indirect power to direct or cause the direction of the management or policies of a non-natural Person (including the right to veto policy decisions), whether through the ownership of voting interests, by agreement, or otherwise. “Agreement” means the Fiscal Agent Agreement, as it may be amended or supplemented from time to time by any Supplemental Agreement adopted pursuant to the provisions of the Fiscal Agent Agreement. “Annual Debt Service” means, for each Bond Year, the sum of (i) the interest due on the Outstanding Bonds in such Bond Year, assuming that the Outstanding Bonds are retired as scheduled (including by reason of the provisions of the Fiscal Agent Agreement) providing for mandatory sinking payments), and (ii) the principal amount of the Outstanding Bonds due in such Bond Year (including any mandatory sinking payment due in such Bond Year pursuant to the Fiscal Agent Agreement).
“Auditor” means the auditor/controller of the County, as such other official at the County who is responsible for preparing property tax bills.
“Authorized Denominations” means: (a) with respect to the 2025 Bonds: (i) until such time as the requirements of Section 2.06(B)(ii) have been satisfied, $250,000 or any integral multiple of $5,000 in excess thereof, except that one 2025 Bond may be in the principal amount of the portion of the then Outstanding principal amount of the 2025 Bonds not divisible by $250,000; and (ii) from and after the requirements of Section 2.06(B)(ii) have been satisfied, $100,000 or any integral multiple of $5,000 in excess thereof, except that one 2025 Bond may be in the principal amount C-2
of the portion of the then Outstanding principal amount of the 2025 Bonds not divisible by $100,000; and (b) with respect to any series of Parity Bonds, the denominations specified in the Supplemental Agreement providing for the issuance of such series of Parity Bonds.
“Authorized Officer” means the Mayor, the City Manager, the Director of Operations, the Director of Finance, the City Clerk, or any other officer or employee of the City authorized by the City Council of the City or by an Authorized Officer to undertake the action referenced in the Fiscal Agent Agreement as required to be undertaken by an Authorized Officer.
“Bond Counsel” means any attorney or other firm of attorneys acceptable to the City and nationally recognized for expertise in rendering opinions as to the legality and tax-exempt status of securities issued by public entities. “Bond Fund” means the fund by that name established by the Fiscal Agent Agreement. “Bond Year” means the one-year period beginning on September 2 in each year and ending on September 1 in the following year except that the first Bond Year will begin on the Closing Date and end on September 1, 2025. “Bonds” means, collectively, the 2025 Bonds, and, if the context requires, any Parity Bonds, at any time Outstanding under the Fiscal Agent Agreement or any Supplemental Agreement. “Business Day” means any day other than (i) a Saturday or a Sunday, or (ii) a day on which banking institutions in the state in which the Principal Office is located are authorized or obligated by law or executive order to be closed. “Capitalized Interest Account” means the account by that name established under the Fiscal Agent Agreement. “CDIAC” means the California Debt and Investment Advisory Commission of the office of the State Treasurer of the State or any successor agency or bureau thereto. “CFD 93-1” means the City of Palmdale Community Facilities District No. 93-1 (Ritter Ranch). “CFD 93-1 Funds” means the funds held in the Improvement Fund under the 1995 Fiscal Agent Agreement deposited to the 1995 Account of the Improvement Fund pursuant to the Fiscal Agent Agreement. “City” means the City of Palmdale, California.
“Closing Date” means the date upon which there is a physical delivery of the 2025 Bonds in exchange for the amount representing the purchase price of the 2025 Bonds by the Original Purchaser. “Code” means the Internal Revenue Code of 1986 as in effect on the date of issuance of the 2025 Bonds or (except as otherwise referenced in the Fiscal Agent Agreement) as it may be amended to apply to obligations issued on the date of issuance of the 2025 Bonds, together with applicable temporary and final regulations promulgated, and applicable official public guidance published, under the Code. “Continuing Disclosure Agreement” means the Continuing Disclosure Agreement, dated as of ____________ 1, 2025, executed by the City and NBS as the initial Dissemination Agent, as originally executed and as it may be amended from time to time in accordance with the terms thereof. “Costs of Issuance” means items of expense payable or reimbursable directly or indirectly by the City and related to the authorization, sale and issuance of the 2025 Bonds, which items of expense will include, but not be limited to, printing costs, costs of reproducing and binding documents, closing costs, filing and recording fees, initial fees and charges of the Fiscal Agent including its first annual administration fee, fees and expenses of Fiscal Agent’s counsel, expenses incurred by the City in connection with the issuance of the 2025 Bonds and the transfer of the CFD 93-1 Funds to the Fiscal Agent, special tax consultant fees and expenses, municipal advisor fees and expenses, Bond (underwriter’s) discount, appraisal fees, legal fees and charges, including bond counsel and disclosure counsel, charges for execution, transportation and safekeeping of the 2025 Bonds and other costs, charges and fees in connection with the foregoing.
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“Cost of Issuance Fund” means the fund by that name established by the Fiscal Agent Agreement. “County” means the County of Los Angeles, California.
“DTC” means The Depository Trust Company, New York, New York, and its successors and assigns. “Debt Service” means the scheduled amount of interest and amortization of principal (including principal payable by reason of the mandatory sinking payment provisions of the Fiscal Agent Agreement) on the Bonds and the scheduled amount of interest and amortization of principal payable on any Parity Bonds during the period of computation, excluding amounts scheduled during such period which relate to principal which has been retired before the beginning of such period.
“Depository” means (a) initially, DTC, and (b) any other Securities Depository acting as Depository pursuant to the Fiscal Agent Agreement.
“District” means the City of Palmdale Community Facilities District No. 2022-3 (Ritter Ranch Phase 1 Public Facilities), formed pursuant to the Law and the Resolution of Formation. “District Value” means the market value as determined by reference to (i) an appraisal performed within three (3) months of, as applicable, (a) the date of issuance of any proposed Parity Bonds, or (b) a change in the transfer restrictions and Authorized Denominations of the 2025 Bonds, in each case by an MAI appraiser (the “Appraiser”) selected by the City, of the parcels of real property in the District subject to the levy of the Special Taxes and not delinquent in the payment of any Special Taxes then due and owing, including with respect to such nondelinquent parcels the value of the then existing improvements and any facilities to be constructed or acquired with any amounts then on deposit in the Improvement Fund and with the proceeds of any proposed series of Parity Bonds, or (ii), in the alternative, as to some or all of the parcels, the assessed value of any such nondelinquent parcels and improvements thereon as shown on the then current County real property tax roll available to the Finance Director. Neither the City nor the Finance Director will be liable to the Owners, the Original Purchaser or any other person or entity in respect of any appraisal provided for purposes of this definition or by reason of any exercise of discretion made by any Appraiser pursuant to this definition.
“Fair Market Value” means the price at which a willing buyer would purchase the investment from a willing seller in a bona fide, arm’s length transaction (determined as of the date the contract to purchase or sell the investment becomes binding) if the investment is traded on an established securities market (within the meaning of section 1273 of the Code) and, otherwise, the term “Fair Market Value” means the acquisition price in a bona fide arm’s length transaction (as referenced above) if (i) the investment is a certificate of deposit that is acquired in accordance with applicable regulations under the Code, (ii) the investment is an agreement with specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated interest rate (for example, a guaranteed investment contract, a forward supply contract or other investment agreement) that is acquired in accordance with applicable regulations under the Code, or (iii) the investment is a United States Treasury Security--State and Local Government Series that is acquired in accordance with applicable regulations of the United States Bureau of Public Debt. “Federal Securities” means any of the following which are non-callable and which at the time of investment are legal investments under the laws of the State for funds held by the Fiscal Agent:
(i) direct general obligations of the United States of America (including obligations issued or held in book entry form on the books of the United States Department of the Treasury) and obligations, the payment of principal of and interest on which are directly or indirectly guaranteed by the United States of America, including, without limitation, such of the foregoing which are commonly referred to as “stripped” obligations and coupons; or
(ii) any of the following obligations of the following agencies of the United States of America: (a) direct obligations of the Export-Import Bank, (b) certificates of beneficial ownership issued by the Farmers Home Administration, (c) participation certificates issued by the General Services Administration, (d) mortgage-backed bonds or pass-through obligations issued and guaranteed by the Government National C-4
Mortgage Association, (e) project notes issued by the United States Department of Housing and Urban Development, and (f) public housing notes and bonds guaranteed by the United States of America. “Finance Director” means the Director of Operations of the City or any person otherwise acting as the chief financial officer of the City, or such person’s written designee. “Fiscal Agent” means the Fiscal Agent appointed by the City and acting as an independent fiscal agent with the duties and powers provided in the Fiscal Agent Agreement, its successors and assigns, and any other corporation, bank or association which may at any time be substituted in its place, as provided in the Fiscal Agent Agreement. “Fiscal Year” means the twelve-month period extending from July 1 in a calendar year to June 30 of the succeeding year, both dates inclusive.
“Improvement Fund” means the fund by that name established pursuant to the Fiscal Agent Agreement. “Independent Financial Consultant” means any consultant or firm of such consultants appointed by the City or any Authorized Officer, and who, or each of whom: (i) is judged by the person or entity that approved them to have experience in matters relating to the issuance and/or administration of bonds under the Law; (ii) is in fact independent and not under the domination of the City; (iii) does not have any substantial interest, direct or indirect, with or in the City, or any owner of real property in the District, or any real property in the District; and (iv) is not connected with the City as an officer or employee of the City, but who may be regularly retained to make reports to the City. “Information Services” means the Electronic Municipal Market Access System (referred to as “EMMA”), a facility of the Municipal Securities Rulemaking Board, (at http://emma.msrb.org); and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such services providing information with respect to called bonds as the City may designate in an Officer’s Certificate delivered to the Fiscal Agent.
“Interest Payment Dates” means March 1 and September 1 of each year, commencing September 1, 2025. “Law” means the Mello-Roos Community Facilities Act of 1982, constituting Section 53311 et seq. of the California Government Code.
“Maximum Annual Debt Service” means the largest Annual Debt Service for the then current Bond Year and any Bond Year after the calculation is made through the final scheduled maturity date for any Outstanding Bonds. “Minimum Administrative Expense Requirement” means (a) for Fiscal Year 2024-2025, $100,000.00; and (b) for each Fiscal Year after Fiscal Year 2024-2025, an amount equal to 102%of the Minimum Administrative Expense Requirement in effect for the immediately preceding Fiscal Year. “Moodys” means Moody’s Investors Service, New York, New York, or its successors. “1995 Account” means the 1995 Account within the Improvement Fund established pursuant to the Fiscal Agent Agreement.
“1995 Fiscal Agent Agreement” means the Amended and Restated Fiscal Agent Agreement (A-4261), dated as of March 1, 2014, between the City, for and on behalf of CFD 93-1, and U.S. Bank Trust Company, National Association, formerly U.S. Bank National Association, as fiscal agent, as amended and in effect on the Closing Date. “Officer’s Certificate” means a written certificate of the City signed by an Authorized Officer of the City. “Ordinance” means Ordinance No. 1597, adopted by the City Council of the City on October 24, 2022, and any other ordinance of the City levying the Special Taxes. “Original Purchaser” means the first purchaser of the 2025 Bonds from the City, being Hilltop Securities Inc.
C-5
“Outstanding”, when used as of any particular time with reference to Bonds, means (subject to the provisions of the Fiscal Agent Agreement) all Bonds except: (i) Bonds theretofore canceled by the Fiscal Agent or surrendered to the Fiscal Agent for cancellation; (ii) Bonds paid or deemed to have been paid within the meaning of the Fiscal Agent Agreement; and (iii) Bonds in lieu of or in substitution for which other Bonds will have been authorized, executed, issued and delivered by the City pursuant to the Fiscal Agent Agreement or any Supplemental Agreement. “Owner” or “Bondowner” means any person who will be the registered owner of any Outstanding Bond. “Parity Bonds” means bonds issued by the City for the District payable and secured on a parity with any then Outstanding Bonds, pursuant to the Fiscal Agent Agreement. “Participating Underwriter” will have the meaning ascribed thereto in the Continuing Disclosure Agreement. “Permitted Investments” means the following, but only to the extent that the same are acquired at Fair Market Value and are otherwise legal investments for funds of the City:
(a) Federal Securities.
(b) Registered state warrants or treasury notes or bonds of the State, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by the State or by a department, board, agency, or authority of the State, which are rated in one of the two highest short-term or long-term rating categories by either Moody’s or S&P, and which have a maximum term to maturity not to exceed three years.
(c) Time certificates of deposit or negotiable certificates of deposit issued by a state or nationally chartered bank or trust company, or a state or federal savings and loan association which may include the Fiscal Agent and its affiliates; provided, that the certificates of deposit will be one or more of the following:
continuously and fully insured by the Federal Deposit Insurance Corporation and/or continuously and fully secured by securities described in subdivision (a) or (b) of the definition of Permitted Investments which will have a market value, as determined on a marked-to-market basis calculated at least weekly, and exclusive of accrued interest, or not less than 102 percent of the principal amount of the certificates on deposit. (d) Commercial paper which at the time of purchase is rated in one of the two highest rating categories as provided by either Moody’s or S&P (without regard to refinement or gradation), which commercial paper is limited to issuing corporations that are organized and operating within the United States of America and that have total assets in excess of five hundred million dollars ($500,000,000) and that have an “A” or higher rating for the issuer’s debentures, other than commercial paper, by either Moody’s or S&P, provided that purchases of eligible commercial paper may not exceed 180 days’ maturity nor represent more than 10 percent of the outstanding commercial paper of an issuing corporation. Purchases of commercial paper may not exceed 20 percent of the total amount invested pursuant to the definition of Permitted Investments. (e) A repurchase agreement with a state or nationally charted bank or trust company or a national banking association or government bond dealer reporting to, trading with, and recognized as a primary dealer by the Federal Reserve Bank of New York, provided that all of the following conditions are satisfied: (1) the agreement is secured by any one or more of the securities described in subdivision (a) of the definition of Permitted Investments, (2) the underlying securities are required by the repurchase agreement to be held by a bank, trust company, or primary dealer having a combined capital and surplus of at least one hundred million dollars ($100,000,000) and which is independent of the issuer of the repurchase agreement, and (3) the underlying securities are maintained at a market value, as determined on a marked-to-market basis calculated at least weekly, of not less than 103 percent of the amount so invested. (f) An investment agreement or guaranteed investment contract with, or guaranteed by, a financial institution the long-term unsecured obligations of which are rated Aa2 and “AA” or better, respectively, by Moody’s and S&P at the time of initial investment. The investment agreement will be subject to a downgrade provision with at least the following requirements: (1) the agreement will provide that within five business days after the financial institution’s long-term unsecured credit rating has been withdrawn, suspended, other C-6
than because of general withdrawal or suspension by Moody’s or S&P from the practice of rating that debt, or reduced below “AA-” by S&P or below “Aa3” by Moody’s (these events are called “rating downgrades”) the financial institution will give notice to the City and, within the five-day period, and for as long as the rating downgrade is in effect, will deliver in the name of the City or the Fiscal Agent to the City or the Fiscal Agent Federal Securities allowed as investments under subdivision (a) of the definition of Permitted Investments with aggregate current market value equal to at least 105 percent of the principal amount of the investment agreement invested with the financial institution at that time, and will deliver additional allowed federal securities as needed to maintain an aggregate current market value equal to at least 105 percent of the principal amount of the investment agreement within three days after each evaluation date, which will be at least weekly, and (2) the agreement will provide that, if the financial institution’s long-term unsecured credit rating is reduced below “A3” by Moody’s or below “A-” by S&P, the Fiscal Agent or the City may, upon not more than five business days’ written notice to the financial institution, withdraw the investment agreement, with accrued but unpaid interest thereon to the date, and terminate the agreement (g) The Local Agency Investment Fund of the State.
(h) Investments in a money market mutual fund (including any funds of the Fiscal Agent or its affiliates and including any funds for which the Fiscal Agent or its affiliates provides investment advisory or other management services) rated in the highest rating category (without regard to plus (+) or minus (-) designations) by Moody’s or S&P.
(i) Money market deposit accounts, time deposits and certificates of deposits, issued by commercial banks (including those of the Fiscal Agent, its parent and its affiliates), savings and loan associations or mutual savings banks whose short-term obligations of which are rated on the date of purchase “A-2” or better by S&P and “P-2” by Moody’s.
(j) Any other lawful investment for City funds.
“Person” means an individual, corporation, limited liability company, firm, association, partnership, trust or other legal entity or group of entities.
“Phase 1 Interim Agreement” means the Phase 1 Interim Agreement – Ritter Ranch Development (A-7796), dated April 20, 2022, among RdR Development Holdings, LLC, PHCC and the City. “PHCC” means PHCC LLC (d/b/a Preston Hollow Community Capital), a Delaware limited liability company, and any successor thereto.
“Principal Office” means the corporate trust office of the Fiscal Agent as identified pursuant to the Fiscal Agent Agreement; provided, however, for the purpose of maintenance of the Registration Books and surrender of Bonds for payment, transfer or exchange such term means the office at which the Fiscal Agent conducts its corporate agency business, or such other or additional offices as may be designated by the Fiscal Agent. “Project” means the facilities eligible to be funded by the District, as specified by the Resolution of Formation. “Qualified Institutional Buyer” has the meaning given such term in Rule 144A of the Securities Act. “Rate and Method of Apportionment” means the Rate and Method of Apportionment of Special Tax for the District, as approved by proceedings pursuant to the Resolution of Consideration, and as it may be amended from time to time in accordance with the provisions of the Law.
“Record Date” means the fifteenth (15th) day of the month next preceding the month of the applicable Interest Payment Date, whether or not such fifteenth (15th) day is a Business Day. “Refunding Bonds” means bonds issued by the City for the District the net proceeds of which are used to refund all or a portion of the then Outstanding Bonds; provided that the debt service on the Refunding Bonds in any C-7
Bond Year is not in excess of the debt service on the Bonds being refunded, and the final maturity of the Refunding Bonds is not later than the final maturity of the Bonds being refunded. “Registration Books” means the records maintained by the Fiscal Agent pursuant to the Fiscal Agent Agreement for the registration and transfer of ownership of the Bonds. “Regulations” means temporary and permanent regulations promulgated under the Code. “Reserve Fund” means the fund by that name established pursuant to the Fiscal Agent Agreement. “Reserve Requirement” means, as of any date of calculation, an amount equal to one-half of the least of (i) the then Maximum Annual Debt Service, (ii) one hundred twenty-five percent (125%) of the then average Annual Debt Service, or (iii) ten percent (10%) of the initial principal amount of the Bonds. “Resolution” means Resolution No. CC 2024-___, adopted by the City Council of the City on November 20, 2024, authorizing the issuance of the 2025 Bonds.
“Resolution of Consideration” means Resolution No. CC 2024-081, adopted by the City Council of the City on November 6, 2024.
“Resolution of Formation” means Resolution No. CC 2022-109, adopted by the City Council of the City on October 24, 2022.
“S&P” means S&P Global Ratings, a Standard & Poor’s Financial Services LLC business, New York, New York, or its successors.
“Securities Act” means the United States Securities Act of 1933, as amended and in effect from time to time. “Securities Depositories” means The Depository Trust Company, 55 Water Street, 1SL, New York, New York 10041-0099, Fax (212) 855-7232; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other securities depositories as the City may designate in an Officer’s Certificate delivered to the Fiscal Agent.
“Special Tax Fund” means the fund by that name established by the Fiscal Agent Agreement. “Special Tax Prepayments” means the proceeds of any prepayments of Special Taxes received by the City, as calculated pursuant to the Rate and Method of Apportionment, less any administrative fees or penalties collected as part of any such prepayment.
“Special Tax Prepayments Account” means the account by that name within the Bond Fund established by the Fiscal Agent Agreement.
“Special Tax Revenues” means the proceeds of the Special Taxes received by the City, including any scheduled payments and any prepayments thereof, interest and penalties thereon and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes up to the amount of said lien, but will not include interest and penalties, if any, collected with the Special Taxes that are in excess of the rate of interest payable on the Bonds. “Special Taxes” means the special tax levied within the District pursuant to the Law, the Ordinance and the Fiscal Agent Agreement.
“State” means the State of California.
“Supplemental Agreement” means an agreement the execution of which is authorized by a resolution which has been duly adopted by the City under the Law and which agreement is amendatory of or supplemental to the Fiscal Agent Agreement, but only if and to the extent that such agreement is specifically authorized under the Fiscal Agent Agreement.
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“Tax Consultant” means NBS, or another independent financial or tax consultant retained by the City for the purpose of computing the Special Taxes.
“2025 Bonds” means the City of Palmdale Community Facilities District No. 2022-3 (Ritter Ranch Phase 1 Public Facilities) 2025 Special Tax Bonds, issued and Outstanding under the Fiscal Agent Agreement.
Pledge of Special Tax Revenues
The Bonds are secured by a first pledge of all of the Special Tax Revenues (other than the Special Tax Revenues to be retained by the City or deposited to the Administrative Expense Fund pursuant to the Fiscal Agent Agreement), and all moneys deposited in the Bond Fund, the Reserve Fund and, until disbursed as provided in the Fiscal Agent Agreement, in the Special Tax Fund. The Special Tax Revenues and all moneys deposited into said funds (except as otherwise provided in the Fiscal Agent Agreement) are dedicated in the Fiscal Agent Agreement to the payment of the principal of, and interest and any premium on, the Bonds as provided therein and in the Law until all of the Bonds have been paid and retired or until moneys or Federal Securities have been set aside irrevocably for that purpose in accordance with the Fiscal Agent Agreement.
Amounts in the Improvement Fund, the Administrative Expense Fund, the Costs of Issuance Fund and the Special Tax Revenues to be retained by the City or deposited to the Administrative Expense Fund pursuant to the Fiscal Agent Agreement or deposited to the Improvement Fund pursuant to the Fiscal Agent Agreement, are not pledged to the repayment of the Bonds. The facilities financed by the District are not in any way pledged to pay the debt service on the Bonds. Any proceeds of the sale, condemnation or destruction of any facilities financed by the District are not pledged to pay the debt service on the Bonds and are free and clear of any lien or obligation imposed under the Fiscal Agent Agreement.
Funds and Accounts
Improvement Fund. There is established under the Fiscal Agent Agreement a separate fund to be held by the Fiscal Agent, the Improvement Fund, and within the Improvement Fund a 1995 Account. A deposit will be made to the Improvement Fund from the proceeds of the 2025 Bonds, and shall be made to the 1995 Account as required by the Fiscal Agent Agreement. Moneys in the Improvement Fund and the 1995 Account will be held by the Fiscal Agent for the benefit of the City and will be disbursed for the payment or reimbursement of costs of the Project. Moneys in the Improvement Fund are not pledged as security for the 2025 Bonds.
Disbursements from the Improvement Fund will be made by the Fiscal Agent upon receipt of an Officer’s Certificate which must: (i) set forth the amount required to be disbursed, the purpose for which the disbursement is to be made and the person to which the disbursement is to be paid; and (ii) certify that the disbursement is for amounts owing by the City under the Acquisition Agreement or otherwise for a purpose eligible to be funded with the amount to be so disbursed, and in any event that no portion of the amount then being requested to be disbursed was set forth in any Officer’s Certificate previously filed requesting disbursement.
Disbursements shall be made by the Fiscal Agent from the 1995 Account upon receipt of an Officer’s Certificate which shall: (i) set forth the amount required to be disbursed, the purpose for which the disbursement is to be made and the person to which the disbursement is to be paid; and (ii) certify that the disbursement is pursuant to and in accordance with the provisions of the Phase 1 Interim Agreement, and that no portion of the amount then being requested to be disbursed was set forth in any Officer’s Certificate previously filed requesting disbursements.
Moneys in the Improvement Fund and the 1995 Account will be invested and deposited in accordance with the Fiscal Agent Agreement. Interest earnings and profits from the investment and deposit of amounts in the Improvement Fund and the 1995 Account will be retained in the Improvement Fund and the 1995 Account, respectively, to be used for the purposes thereof.
Upon the filing of an Officer’s Certificate stating that the portion of the Project to be financed and any other expenses to be paid from the Improvement Fund have been completed and paid, respectively, the Fiscal Agent shall C-9
transfer the amount, if any, remaining in the Improvement Fund to the Bond Fund for application to the payment of principal of and interest on the Bonds and the Improvement Fund will be closed.
Upon the filing of an Officer’s Certificate stating that the work described in Exhibit 1, Exhibit 2 and Exhibit 3 to the Phase 1 Interim Agreement has been completed and paid for, the Fiscal Agent shall transfer the amount, if any, remaining in the 1995 Account to the City to be used by the City for costs related to CFD 93-1, or otherwise authorized to be funded by CFD 93 1.
Special Tax Fund. There is established under the Fiscal Agent Agreement as a separate fund to be held by the Fiscal Agent, the Special Tax Fund. There will be deposited to the Special Tax Fund all Special Tax Revenues received by the City, which the City is obligated to transfer, as soon as practicable following receipt by the City, to the Fiscal Agent. In addition, the Fiscal Agent will deposit in the Special Tax Fund amounts to be transferred thereto pursuant to The Fiscal Agent Agreement.
Notwithstanding the foregoing,
(i) with respect to the first Special Tax Revenues collected by the City in any Fiscal Year in the amount of the Minimum Administrative Expense Requirement for such Fiscal Year; first, the City may retain all or any portion thereof, and not remit the same to the Fiscal Agent, to the extent the City determines that it needs said amount to pay Administrative Expenses of the City (and the City will so use such amount to pay Administrative Expenses); and second, any remaining portion of such amount will be separately identified by the City and will be deposited by the Fiscal Agent in the Administrative Expense Fund; (ii) any Special Tax Revenues constituting the collection of delinquencies in payment of Special Taxes will be separately identified by the City and will be deposited by the Fiscal Agent first, in the Bond Fund to the extent needed to pay any past due debt service on the Bonds; second, to the Reserve Fund to the extent needed to increase the amount then on deposit in the Reserve Fund up to the then Reserve Requirement; and third, to the Special Tax Fund for use as described in the Fiscal Agent Agreement; and (iii) any proceeds of Special Tax Prepayments will be separately identified by the City and will be deposited by the Fiscal Agent as follows (as directed in writing by the Finance Director): (a) that portion of any Special Tax Prepayment constituting the CFD Public Facilities Costs (as defined in Section I of the Rate and Method of Apportionment) will be deposited by the Fiscal Agent to the Improvement Fund so long as the Improvement Fund has not theretofore been closed pursuant to the Fiscal Agent Agreement, and if the Improvement Fund has been closed, then such amount will be retained by the City to be used to pay Project costs; and (b) any remaining portion of any Special Tax Prepayment will be deposited by the Fiscal Agent in the Special Tax Prepayments Account established pursuant to the Fiscal Agent Agreement.
Moneys in the Special Tax Fund will be held by the Fiscal Agent for the benefit of the City and the Owners of the Bonds, will be disbursed as provided below and, pending and disbursement, will be subject to a lien in favor of the Owners of the Bonds and the City.
From time to time as needed to pay the obligations of the District, but no later than the Business Day before each Interest Payment Date or date for optional redemption of the Bonds, the Fiscal Agent will withdraw from the Special Tax Fund and transfer the following amounts in the following order of priority (i) to the Bond Fund an amount, taking into account any amounts then on deposit in the Bond Fund and any expected transfers from the Improvement Fund, the Special Tax Fund, the Reserve Fund, the Special Prepayments Account and the Capitalized Interest Account to the Bond Fund pursuant to the Fiscal Agent Agreement, such that the amount in the Bond Fund equals the principal (including any sinking payment, or principal due pursuant to optional or special tax prepayment redemptions), premium, if any, and interest due on the Bonds on the next Interest Payment Date or date for optional redemption of the Bonds, as applicable, and (ii) to the Reserve Fund an amount, taking into account amounts then on deposit in the Reserve Fund, such that the amount in the Reserve Fund is equal to the Reserve Requirement; provided that no such transfers will exceed the amount then available to be transferred from the Special Tax Fund.
In addition to the foregoing, if in any Fiscal Year there are sufficient funds in the Special Tax Fund to make the foregoing transfers to the Bond Fund and the Reserve Fund in respect of the Interest Payment Dates occurring in C-10
the Bond Year that commences in such Fiscal Year, the Finance Director may direct the Fiscal Agent to transfer, from time to time, any amount in the Special Tax Fund in excess of the amount needed to make transfers to the Bond Fund and the Reserve Fund referred to in the prior paragraph, to the Administrative Expense Fund, if the Finance Director determines that monies are needed to pay Administrative Expenses in excess of the amount then on deposit in the Administrative Expense Fund.
Moneys in the Special Tax Fund will be invested in accordance with the Fiscal Agent Agreement. Interest earnings and profits resulting from investment of amounts in the Special Tax Fund will be retained in the Special Tax Fund to be used for the purposes thereof.
Administrative Expense Fund. There is established under the Fiscal Agent Agreement as a separate fund to be held by the Fiscal Agent, the Administrative Expense Fund, to the credit of which deposits will be made as required by the Fiscal Agent Agreement. Moneys in the Administrative Expense Fund are to be held by the Fiscal Agent for the benefit of the City, and will be disbursed as provided in the Fiscal Agent Agreement. Moneys in this fund are not pledged as security for the 2025 Bonds.
Amounts in the Administrative Expense Fund will be withdrawn by the Fiscal Agent and paid to the City or its order upon receipt by the Fiscal Agent of an Officer’s Certificate stating the amount to be withdrawn, that such amount is to be used to pay an Administrative Expense, and the nature of such Administrative Expense.
Annually, on the last day of each Fiscal Year commencing with the last day of Fiscal Year 2024-25, the Fiscal Agent will withdraw any amounts then remaining in the Administrative Expense Fund in excess of $25,000.00 that have not otherwise been allocated to pay Administrative Expenses incurred but not yet paid, and which are not otherwise encumbered, and transfer such amounts to the Special Tax Fund.
Moneys in the Administrative Expense Fund will be invested in accordance with the Fiscal Agent Agreement.
Interest earnings and profits resulting from said investment will be retained in the Administrative Expense Fund to be used for the purposes of such fund.
Costs of Issuance Fund. There is established under the Fiscal Agent Agreement as a separate fund to be held by the Fiscal Agent, the Costs of Issuance Fund, to the credit of which a deposit will be made as required by the Fiscal Agent Agreement. Moneys in the Costs of Issuance Fund will be held by the Fiscal Agent and will be disbursed as provided in the Fiscal Agent Agreement. Moneys in this fund are not pledged as security for the 2025 Bonds.
Amounts in the Costs of Issuance Fund will be disbursed from time to time to pay Costs of Issuance, as set forth in a requisition containing respective amounts to be paid to the designated payees, signed by an Authorized Officer and delivered to the Fiscal Agent concurrently with the delivery of the 2025 Bonds. The Fiscal Agent will pay all Costs of Issuance upon receipt of an invoice from any such payee which requests payment in an amount which is less than or equal to the amount set forth with respect to such payee in such requisition, or upon receipt of an Officer’s Certificate requesting payment of a Cost of Issuance not listed on the initial requisition delivered to the Fiscal Agent on the Closing Date. Each such Officer’s Certificate will be sufficient evidence to the Fiscal Agent of the facts stated therein and the Fiscal Agent will have no duty to confirm the accuracy of such facts. The Fiscal Agent will maintain the Cost of Issuance Fund for a period of 90 days from the Closing Date and then will transfer any moneys remaining therein, including any investment earnings thereon, to the Improvement Fund, and following such transfer the Fiscal Agent will close the Cost of Issuance Fund.
Moneys in the Cost of Issuance Fund will be invested in accordance with the Fiscal Agent Agreement. Interest earnings and profits resulting from said investment will be retained by the Fiscal Agent in the Cost of Issuance Fund to be used for the purposes of such fund.
Bond Fund. There is established under the Fiscal Agent Agreement as a separate fund to be held by the Fiscal Agent, the Bond Fund to the credit of which deposits will be made as required by the Fiscal Agent Agreement, and any other amounts required to be deposited therein by the Fiscal Agent Agreement or the Law. There are also separate accounts created in the Bond Fund held by the Fiscal Agent, consisting of (i) the Capitalized Interest Account and (ii) the Special Tax Prepayments Account. Moneys in the Bond Fund and the accounts therein will be held by the Fiscal Agent for the benefit of the Owners of the Bonds, will be disbursed for the payment of the principal of, and interest and C-11
any premium on, the Bonds as provided below, and, pending such disbursement, will be subject to a lien in favor of the Owners of the Bonds.
On each Interest Payment Date and on each date of optional redemption of the Bonds, and following any transfers required pursuant to the Fiscal Agent Agreement in connection with such Interest Payment Date or optional redemption date, the Fiscal Agent will withdraw from the Bond Fund and pay to the Owners of the Bonds the principal of, and interest and any premium, then due and payable on the Bonds, including any amounts due on the Bonds by reason of the sinking payments set forth in the Fiscal Agent Agreement, or a redemption of the Bonds required by the Fiscal Agent Agreement, such payments to be made in the priority listed in the second succeeding paragraph.
Notwithstanding the foregoing, amounts in the Bond Fund as a result of a transfer described in clause (ii) of the second paragraph under “Special Tax Fund” above will be immediately disbursed by the Fiscal Agent to pay past due amounts owing on the Bonds.
In the event that amounts in the Bond Fund are insufficient for the purpose set forth in the preceding sentence, the Fiscal Agent will withdraw from the Reserve Fund to the extent of any funds therein amounts to cover the amount of such Bond Fund insufficiency. Amounts so withdrawn from the Reserve Fund will be deposited by the Fiscal Agent in the Bond Fund.
If, after the foregoing transfers, there are insufficient funds in the Bond Fund to make the payments provided for in the Fiscal Agent Agreement, the Fiscal Agent will apply the available funds first to the payment of interest on the Bonds, then to the payment of principal due on the Bonds including principal due by reason of sinking payments.
Each such payment will be made ratably to the Owners of the Bonds based on the then Outstanding principal amount of the Bonds, if there are insufficient funds to make the corresponding payment for all of the then Outstanding Bonds.
Any sinking payment not made as scheduled will be added to the sinking payment to be made on the next sinking payment date.
Moneys in the Special Tax Prepayments Account will be transferred by the Fiscal Agent to the Bond Fund on the next date for which notice of redemption of Bonds can timely be given by the Fiscal Agent under the Fiscal Agent Agreement, and will be used (together with any amounts transferred pursuant to the Reserve Fund provisions of the Fiscal Agent Agreement) to redeem Bonds on the redemption date selected in accordance with the Fiscal Agent Agreement.
All moneys in the Capitalized Interest Account will be transferred to the Bond Fund (a) on the Business Day prior to September 1, 2024, March 1, 2025 and September 1, 2025 in the amount necessary to pay the Debt Service due on the 2025 Bonds on each immediately succeeding Interest Payment Date, and (b) on the Business Day prior to March 1, 2026 any then remaining amount in the Capitalized Interest Account. When no amounts remain on deposit in the Capitalized Interest Account, the Capitalized Interest Account will be closed.
Moneys in the Bond Fund and the Special Tax Prepayments Account and the Capitalized Interest Account will be invested in accordance with the Fiscal Agent Agreement. Interest earnings and profits resulting from investment of amounts in the Bond Fund and the Special Tax Prepayments Account and the Capitalized Interest Account will be retained in the Bond Fund and the Special Tax Prepayments Account and the Capitalized Interest Account, respectively, to be used for the purposes of such fund and accounts as applicable.
Reserve Fund. There is established under the Fiscal Agent Agreement as a separate fund to be held by the Fiscal Agent, the Reserve Fund to the credit of which a deposit will be made on the Closing Date as required by the Fiscal Agent Agreement, which deposits, in the aggregate, will be equal to the initial Reserve Requirement, and deposits will be made as provided in the Fiscal Agent Agreement. Moneys in the Reserve Fund will be held by the Fiscal Agent for the benefit of the Owners of the Bonds as a reserve for the payment of principal of, and interest and any premium on, the Bonds and will be subject to a lien in favor of the Owners of the Bonds.
Except as otherwise provided in the Fiscal Agent Agreement, all amounts deposited in the Reserve Fund will be used and withdrawn by the Fiscal Agent solely for the purpose of making transfers to the Bond Fund in the event of any deficiency at any time in the Bond Fund of the amount then required for payment of the principal of, and interest and any premium on, the Bonds or, in accordance with the provisions of the Fiscal Agent Agreement, for the purpose of redeeming Bonds from the Bond Fund.
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Whenever, on the Business Day before any Interest Payment Date, or on any other date at the request of an Authorized Officer, the amount in the Reserve Fund exceeds the Reserve Requirement, the Fiscal Agent will provide written notice to the City of the amount of the excess and will transfer an amount equal to the excess from the Reserve Fund to the Bond Fund to be used for the payment of interest on the Bonds on the next Interest Payment Date in accordance with the Fiscal Agent Agreement.
Amounts in the Reserve Fund will be withdrawn, at the written request of an Authorized Officer, for purposes of making payment to the federal government to comply with the Fiscal Agent Agreement.
Whenever the balance in the Reserve Fund exceeds the amount required to redeem or pay the Outstanding Bonds, including interest accrued to the date of payment or redemption and premium, if any, due upon redemption, the Fiscal Agent will transfer the amount in the Reserve Fund to the Bond Fund to be applied, on the next succeeding Interest Payment Date for which notice of redemption can timely be given to the payment and redemption, in accordance with the Fiscal Agent Agreement, of all of the Outstanding Bonds. In the event that the amount so transferred from the Reserve Fund to the Bond Fund exceeds the amount required to pay and redeem the Outstanding Bonds, the balance in the Reserve Fund will be transferred to the City to be used for any lawful purpose under the Law. Notwithstanding the foregoing, no amounts will be transferred from the Reserve Fund pursuant to the Fiscal Agent Agreement until after (i) the calculation, of any amounts due to the federal government following payment of the Bonds and withdrawal of any such amount under the Fiscal Agent Agreement for purposes of making such payment to the federal government, and (ii) payment of any fees and expenses due to the Fiscal Agent.
Whenever Special Taxes are prepaid and Bonds are to be redeemed with the proceeds of such prepayment pursuant to the Fiscal Agent Agreement, an amount equal to the “Reserve Fund Credit,” as described in and computed pursuant to Section I of the Rate and Method of Apportionment (as such amount is confirmed by the Finance Director to the Fiscal Agent) will be transferred on the Business Day prior to the redemption date by the Fiscal Agent to the Bond Fund to be applied to the redemption of the Bonds pursuant to the Fiscal Agent Agreement.
Moneys in the Reserve Fund will be invested in accordance with the Fiscal Agent Agreement. One Business Day before each Interest Payment Date, interest earnings and profits resulting from said investment will be transferred by the Fiscal Agent to the Bond Fund to be used by the Fiscal Agent for the purposes of such fund, but any such transfer will be made only to the extent that following such transfer the amount on deposit in the Reserve Fund equals the then Reserve Requirement.
Certain Covenants of the City
The City will punctually pay or cause to be paid the principal of and interest and any premium on, the Bonds when and as due in strict conformity with the terms of the Fiscal Agent Agreement and any Supplemental Agreement, and it will faithfully observe and perform all of the conditions, covenants and requirements of the Fiscal Agent Agreement and all Supplemental Agreements and of the Bonds.
The Bonds are limited obligations of the City on behalf of the District and are payable solely from and secured solely by the Special Tax Revenues and the amounts in the Bond Fund (including the Capitalized Interest Account and the Special Tax Prepayments Account therein), the Reserve Fund and the Special Tax Fund created under the Fiscal Agent Agreement.
In order to prevent any accumulation of claims for interest after maturity, the City will not, directly or indirectly, extend or consent to the extension of the time for the payment of any claim for interest on any of the Bonds and will not, directly or indirectly, be a party to the approval of any such arrangement by purchasing or funding said claims for interest or in any other manner. In case any such claim for interest will be extended or funded, whether or not with the consent of the City, such claim for interest so extended or funded will not be entitled, in case of default under the Fiscal Agent Agreement, to the benefits of the Fiscal Agent Agreement, except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest which will not have been so extended or funded.
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The City will not encumber, pledge or place any charge or lien upon any of the Special Tax Revenues or other amounts pledged to the Bonds superior to or on a parity with the pledge and lien created in the Fiscal Agent Agreement for the benefit of the Bonds, except as permitted by the Fiscal Agent Agreement.
The City will keep, or cause to be kept, proper books of record and accounts, separate from all other records and accounts of the City, in which complete and correct entries will be made of all transactions relating to the Special Tax Revenues. Such books of record and accounts will at all times during City business hours and following reasonable prior written notice be subject to the inspection of the Owners of not less than ten percent (10%) of the principal amount of the Bonds then Outstanding, or their representatives duly authorized in writing.
The City will preserve and protect the security of the Bonds and the rights of the Owners and will warrant and defend their rights against all claims and demands of all persons. From and after the delivery of any of the Bonds by the City, the Bonds will be incontestable by the City.
The City will comply with all applicable provisions of the Law in administering the District; provided that the City will have no obligation to advance any of its own funds for any purpose whatsoever under the Fiscal Agent Agreement.
The City will comply with and carry out all of the provisions of the Continuing Disclosure Agreement.
Notwithstanding any other provision of the Fiscal Agent Agreement, failure of the City to comply with the Continuing Disclosure Agreement will not be considered a default on the Bonds or a breach of any other provision of the Fiscal Agent Agreement; however the Participating Underwriter or any 2025 Bondholder may take such actions as may be necessary and appropriate to compel performance by the City of its obligations under the Continuing Disclosure Agreement, including seeking mandate or specific performance by court order.
The City will not take any action or permit or suffer any action to be taken if the result of the same would be to cause any of the 2025 Bonds to be “federally guaranteed” within the meaning of section 149(b) of the Code.
The City will comply with all requirements of the Law so as to assure the timely collection of Special Tax Revenues, including without limitation, the enforcement of delinquent Special Taxes.
On or about July 1 of each year, the Fiscal Agent will provide the Finance Director with a notice stating the amounts then on deposit in the Bond Fund and the accounts therein and the Reserve Fund. The receipt of such notice by the Finance Director will in no way affect the obligations of the City under the following three paragraphs. Upon receipt of such notice, the Finance Director will communicate with the Auditor or other appropriate official of the County to ascertain the relevant parcels on which the Special Taxes are to be levied, taking into account any parcel splits during the preceding and then current year. In computing the amount of Special Taxes to be levied, the City will take into account funds available in the Bond Fund and the accounts therein and the Special Tax Fund to make the payment of debt service on the Bonds due on the Interest Payment Dates occurring in the next calendar year, along with any transfers of investment earnings on amounts in the Reserve Fund pursuant to the Fiscal Agent Agreement to the Bond Fund expected to occur on such Interest Payment Date.
The City will effect the levy of the Special Taxes from time to time during each Fiscal Year in accordance with the Ordinance and the Rate and Method of Apportionment. Specifically, the City will compute the amount of Special Taxes to be so levied each Fiscal Year before the final date on which the Auditor will accept the transmission of the Special Tax amounts for the parcels within the District for inclusion on the next secured or unsecured, as applicable, real property tax roll. Upon the completion of the computation of the amounts of the levy, the City will prepare or cause to be prepared, and will transmit to the Auditor, such data as the Auditor requires to include the levy of the Special Taxes on the next real property tax roll. The Special Taxes so levied will be payable and be collected in the same manner and at the same time and in the same installment as the taxes on property levied on the tax roll are payable, and have the same priority, become delinquent at the same times and in the same proportionate amounts and bear the same proportionate penalties and interest after delinquency as do the general ad valorem taxes levied on the County tax roll.
In the event that the City determines to levy all or a portion of the Special Taxes by means of direct billing of the property owners within the District, and to the extent permitted by the Ordinance, the City will, not less than forty- five (45) days prior to the first Interest Payment Date for which the levy is being made, send bills to the property owners C-14
in the District for Special Taxes necessary to meet the financial obligations of the District due on the Interest Payment Dates for which the levy is being made, said bills to specify that the amounts so levied will be due and payable in two equal installments with each installment due not less than thirty (30) days prior to the related Interest Payment Date and each installment will be delinquent if not paid when due.
In any event, the City will fix and levy the amount of Special Taxes within the District required for the timely payment of principal of and interest on any Outstanding Bonds becoming due and payable, including any necessary replenishment of the Reserve Fund to the amount of the then Reserve Requirement and an amount estimated to be sufficient to pay the Administrative Expenses, and will take into account any prepayments of Special Taxes theretofore received by the City. The Special Taxes so levied will not exceed the maximum amounts as provided in the Rate and Method of Apportionment.
The Finance Director is authorized in the Fiscal Agent Agreement to employ consultants to assist in computing the levy of the Special Taxes under the Fiscal Agent Agreement and any reconciliation of amounts levied to amounts received. The fees and expenses of such consultants and the costs and expenses of the Finance Director (including a charge for City staff time) in conducting its duties under the Fiscal Agent Agreement will be an Administrative Expense under the Fiscal Agent Agreement.
The City will adopt, make, execute and deliver any and all such further resolutions, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of the Fiscal Agent Agreement, and for the better assuring and confirming unto the Owners of the rights and benefits provided in the Fiscal Agent Agreement.
The City will not take or permit or suffer to be taken by the Fiscal Agent or otherwise, any action with respect to the proceeds of the 2025 Bonds which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the date of issuance of the 2025 Bonds would have caused the 2025 Bonds to be “arbitrage bonds” within the meaning of section 148 of the Code.
The City will take all actions necessary to assure the exclusion of interest on the 2025 Bonds from the gross income of the owners of the 2025 Bonds to the same extent as such interest is permitted to be excluded from gross income under the Code as in effect on the date of issuance of the 2025 Bonds.
The City will order, and cause to be commenced and thereafter diligently prosecute to judgment (unless such delinquency is theretofore brought current), an action in the superior court to foreclose the lien of any Special Tax or installment thereof not paid when due as provided in the following paragraph. The Finance Director will notify legal counsel of any such delinquency of which it is aware, and such legal counsel will commence, or cause to be commenced, such proceedings.
Except as expressly permitted by the Fiscal Agent Agreement, the City will not issue any additional bonds secured by (A) a pledge of Special Taxes on a parity with or senior to the pledge thereof under the Fiscal Agent Agreement; or (B) any amounts in any funds or accounts established under the Fiscal Agent Agreement.
In determining the yield of the 2025 Bonds to comply with the Fiscal Agent Agreement, the City will take into account redemption (including premium, if any) in advance of maturity based on the reasonable expectations of the City, as of the Closing Date, regarding prepayments of Special Taxes and use of prepayments for redemption of the 2025 Bonds, without regard to whether or not prepayments are received or 2025 Bonds redeemed.
The City will assure that the proceeds of the 2025 Bonds are not so used as to cause the 2025 Bonds to satisfy the private business tests of section 141(b) of the Code or the private loan financing test of section 141(c) of the Code.
The City covenants and agrees in the Fiscal Agent Agreement to not consent or conduct proceedings with respect to a reduction in the maximum Special Taxes that may be levied in the District below an amount, for any Fiscal Year, equal to 110% of the aggregate of the debt service due on the Bonds in such Fiscal Year, plus a reasonable estimate of Administrative Expenses for such Fiscal Year. The Fiscal Agent Agreement acknowledges that Bondowners are purchasing the Bonds in reliance on the foregoing covenant, and that said covenant is necessary to assure the full and timely payment of the Bonds.
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The following requirements will apply to the 2025 Bonds, in addition to those requirements under the Fiscal Agent Agreement:
(A) Annual Reporting. Not later than October 30 of each calendar year, beginning with the October 30, 2024, and in each calendar year thereafter until the October 30 following the final maturity of the Bonds, the City will cause the information required by Government Code Section 53359.5(b) to be supplied to CDIAC.
The annual reporting will be made using such form or forms as may be prescribed by CDIAC.
No later than January 31 of each calendar year, commencing with January 1, 2026, the City agrees to provide to CDIAC the annual report information required by Section 8855(k)(1) of the California Government Code. Such annual report will be made using such form or forms as may be prescribed by CDIAC.
Additionally, no later than January 31 of each calendar year, commencing with January 31, 2026, the City agrees to provide to the California State Controller, Division of Accounting and Reporting, the annual report information required by Section 12463.2 of the California Government Code. (B) Other Reporting. If at any time the Fiscal Agent fails to pay principal and interest due on any scheduled payment date for the Bonds, or if funds are withdrawn from the Reserve Fund to pay principal and interest on the Bonds, the Fiscal Agent will notify the City of such failure or withdrawal in writing. The City will notify CDIAC and the Original Purchaser of such failure or withdrawal within 10 days of such failure or withdrawal, and the City will provide notice under the Continuing Disclosure Agreement of such event as required thereunder.
(C) Special Tax Reporting. The Finance Director will file, or cause to be filed, a report with the City no later than January 1, 2026, and at least once a year thereafter, which annual report will contain: (i) the amount of Special Taxes collected and expended with respect to the District, (ii) the amount of Bond proceeds collected and expended with respect to the District, and (iii) the status of the Project. It is acknowledged that the Special Tax Fund and the Special Tax Prepayments Account are the accounts into which Special Taxes collected on the District will be deposited for purposes of Section 50075.1(c) of the California Government Code, and the funds and accounts listed in the Fiscal Agent Agreement are the funds and accounts into which Bond proceeds will be deposited for purposes of Section 53410(c) of the California Government Code, and the annual report described in the preceding sentence is intended to satisfy the requirements of Sections 50075.1(d), 50075.3(d) and 53411 of the California Government Code. (D) Amendment. The reporting requirements of the Fiscal Agent Agreement will be amended from time to time, without action by the City or the Fiscal Agent (i) with respect to subparagraphs (A) and (B) above, to reflect any amendments to Section 53359.5(b) or Section 53359.5(c) of the California Government Code, or Section 8855(k)(1) or Section 12463.2 of the California Government Code, and (ii) with respect to subparagraph (C) above, to reflect any amendments to Section 50075.1, 50075.3, 53410 or 53411 of the California Government Code. Notwithstanding the foregoing, any such amendment will not, in itself, affect the City’s obligations under the Continuing Disclosure Agreement. The City will notify the Fiscal Agent in writing of any such amendments which affect the reporting obligations of the Fiscal Agent under the Fiscal Agent Agreement.
(E) No Liability. None of the City and its officers, agents and employees (including but not limited to the Finance Director), or the Fiscal Agent, will be liable for any inadvertent error in reporting the information required by the Fiscal Agent Agreement.
The Finance Director will provide, or cause to be provided, copies of any reports prepared pursuant to the above described provisions to any Bondowner upon the written request of a Bondowner and payment by the person requesting the information of the cost of the City to produce such information and pay any postage or other delivery cost to provide the same, as determined by the Finance Director. The term “Bondowner” for purposes of the foregoing will include any beneficial owner of the Bonds.
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The City covenants not to exercise any rights it may have under the Law to waive delinquency and redemption penalties related to the Special Taxes or to declare Special Tax penalties amnesty program if to do so would materially and adversely affect the interests of the Owners of the Bonds. The City further covenants not to permit the tender of Bonds in payment of any Special Taxes except upon receipt of a certificate of an Independent Financial Consultant that to accept such tender will not result in the City having insufficient Special Tax Revenues to pay the principal of and interest on the Bonds that will remain Outstanding following such tender.
The City will not bid at a foreclosure sale of property in respect of delinquent Special Taxes unless it expressly agrees to take the property subject to the lien for Special Taxes imposed by the District and that the Special Taxes levied on the property are payable while the City owns the property.
Deposit and Investment of Moneys in Funds
Moneys in any fund or account created or established by the Fiscal Agent Agreement and held by the Fiscal Agent will be invested by the Fiscal Agent in Permitted Investments, as directed pursuant to an Officer’s Certificate in writing (including facsimile transmission) filed with the Fiscal Agent (such Officer’s Certificate to specify the particular investment in Permitted Investments to be made) at least two (2) Business Days in advance of the making of such investments. The Officer’s Certificate will contain a certification to the Fiscal Agent that the investments being directed are Permitted Investments as required under the Fiscal Agent Agreement. In the absence of any such Officer’s Certificate, the Fiscal Agent will invest any such moneys in Permitted Investments described in clause (h) of the definition thereof; provided, however, that any such investment will be made by the Fiscal Agent only if, prior to the date on which such investment is to be made, the Fiscal Agent will have received an Officer’s Certificate specifying a specific money market fund into which the funds will be invested and, if no such Officer’s Certificate is so received, the Fiscal Agent will hold such moneys uninvested.
Moneys in any fund or account created or established by the Fiscal Agent Agreement and held by the City will be invested by the City in any lawful investments that the City may make or in any Permitted Investment, which in any event by their terms mature prior to the date on which such moneys are required to be paid out under the Fiscal Agent Agreement. Obligations purchased as an investment of moneys in any fund will be deemed to be part of such fund or account, subject, however, to the requirements of the Fiscal Agent Agreement for transfer of interest earnings and profits resulting from investment of amounts in funds and accounts. Whenever in the Fiscal Agent Agreement any moneys are required to be transferred by the City to the Fiscal Agent, such transfer may be accomplished by transferring a like amount of Permitted Investments.
The Fiscal Agent or the Finance Director may act as principal or agent in the acquisition or disposition of any investment, and all investments may be made through the Fiscal Agent’s investment department or that of its affiliates.
The Fiscal Agent or its affiliates may act as sponsor, agent manager or depository with regard to any Permitted Investment. Neither the Fiscal Agent nor the Finance Director will incur any liability for any losses, fees, taxes or other charges arising from any investment, reinvestment or liquidation actions taken pursuant to the applicable provisions of the Fiscal Agent Agreement.
Except as otherwise provided in the next sentence, the City will direct or make investments under the Fiscal Agent Agreement such that all investments of amounts deposited in any fund or account created by or pursuant to the Fiscal Agent Agreement, or otherwise containing gross proceeds of the Bonds (within the meaning of section 148 of the Code) will be acquired, disposed of, and valued (as of the date that valuation is required by the Fiscal Agent Agreement or the Code) at Fair Market Value. The City will direct or make investments under the Fiscal Agent Agreement such that investments in funds or accounts (or portions thereof) that are subject to a yield restriction under applicable provisions of the Code and (unless valuation is undertaken at least annually) investments in the Reserve Fund will be valued at their present value (within the meaning of section 148 of the Code). The Fiscal Agent will have no duty in connection with the determination of the Fair Market Value of any investment other than to follow: (A) its normal practices in the purchase, sale and determining the value of Permitted Investments; and (B) the investment directions of the City.
Investments in any and all funds and accounts may be commingled in a separate fund or funds for purposes of making, holding and disposing of investments, notwithstanding provisions in the Fiscal Agent Agreement for transfer to or holding in or to the credit of particular funds or accounts of amounts received or held by the Fiscal Agent or the C-17
Finance Director under the Fiscal Agent Agreement, provided that the Fiscal Agent or the Finance Director, as applicable, will at all times account for such investments strictly in accordance with the funds and accounts to which they are credited and otherwise as provided in the Fiscal Agent Agreement.
The Fiscal Agent will sell or present for redemption, any investment security whenever it will be necessary to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund or account to which such investment security is credited and neither the Fiscal Agent nor the Finance Director will be liable or responsible for any loss resulting from the acquisition or disposition of such investment security in accordance with the Fiscal Agent Agreement.
Rebate of Excess Investment Earnings to the United States The City will take any and all actions necessary to assure compliance with section 148(f) of the Code, relating to the rebate of excess investment earnings, if any, to the federal government, to the extent that such section is applicable to the 2025 Bonds.
The City will direct the Fiscal Agent to withdraw such amounts from the Reserve Fund as necessary to make any required rebate payments, and pay such amounts to the federal government as required by the Code and the Regulations. In the event of any shortfall in amounts available to make such payments, the City will make such payment from any amounts available in the Administrative Expense Fund or from any other lawfully available funds of the District. Any fees or expenses incurred by the City under or pursuant to the foregoing provisions of the Fiscal Agent Agreement are Administrative Expenses.
In order to provide for the administration of the actions described in the preceding paragraph, the Finance Director may provide for the employment of independent attorneys, accountants and consultants compensated on such reasonable basis as the Finance Director may deem appropriate and in addition, and without limitation of the provisions of the Fiscal Agent Agreement, the Finance Director may rely conclusively upon and be fully protected from all liability in relying upon the opinions, determinations, calculations and advice of such agents, attorneys and consultants employed under the Fiscal Agent Agreement.
The Fiscal Agent may rely conclusively and is fully protected from all liability in relying upon the City’s determinations, calculations, directions, determinations, opinions and certifications required by the Fiscal Agent Agreement calculations or for the adequacy or accuracy of any rebate report. The Fiscal Agent is not responsible for calculating rebate amounts or for the adequacy or correctness of any rebate report. The Trustee will be deemed to have conclusively complied with the provisions of the Fiscal Agent Agreement and any other agreement relating to the Bonds regarding calculation and payment of rebate if it follows the directions of the City, and it will have no independent duty to review or enforce the City’s compliance with such rebate requirements. Except to the extent expressly provided in the Fiscal Agent Agreement, the Fiscal Agent will in no instance be responsible or liable for the tax treatment of the Bonds, the City’s compliance with the Code, or any other tax consequences in connection with the Bonds.
Liability of City
The City will not incur any responsibility in respect of the Bonds or the Fiscal Agent Agreement other than in connection with the duties or obligations explicitly in the Fiscal Agent Agreement or in the Bonds assigned to or imposed upon it. The City will not be liable in connection with the performance of its duties under the Fiscal Agent Agreement, except for its own negligence or willful default. The City will not be bound to ascertain or inquire as to the performance or observance of any of the terms, conditions covenants or agreements of the Fiscal Agent in the Fiscal Agent Agreement or of any of the documents executed by the Fiscal Agent in connection with the Bonds, or as to the existence of a default or event of default thereunder.
In the absence of bad faith, the City, including the Finance Director, may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the City and conforming to the requirements of the Fiscal Agent Agreement. The City, including the Finance Director, will not be liable for any error of judgment made in good faith unless it will be proved that it was negligent in ascertaining the pertinent facts.
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No provision of the Fiscal Agent Agreement will require the City to expend or risk its own general funds or otherwise incur any financial liability (other than with respect to the Special Tax Revenues) in the performance of any of its obligations under the Fiscal Agent Agreement, or in the exercise of any of its rights or powers, if it will have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.
The City may rely and will be protected in acting or refraining from acting upon any notice, resolution, request, consent, order, certificate, report, warrant, bond or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or proper parties. The City may consult with counsel, who may be the City Attorney, with regard to legal questions, and the opinion of such counsel will be full and complete authorization and protection in respect of any action taken or suffered by it under the Fiscal Agent Agreement in good faith and in accordance therewith.
The City will not be bound to recognize any person as the Owner of a Bond unless and until such Bond is submitted for inspection, if required, and his title thereto satisfactory established, if disputed.
Whenever in the administration of its duties under the Fiscal Agent Agreement the City will deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action under the Fiscal Agent Agreement, such matter (unless other evidence in respect thereof be specifically prescribed in the Fiscal Agent Agreement) may, in the absence of willful misconduct on the part of the City, be deemed to be conclusively proved and established by a certificate of the Fiscal Agent or other appropriate agent or consultant, and such certificate will be full warrant to the City for any action taken or suffered under the provisions of the Fiscal Agent Agreement or any Supplemental Agreement upon the faith thereof, but in its discretion the City may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as to it may seem reasonable.
In order to perform its duties and obligations under the Fiscal Agent Agreement, the City and/or the Finance Director may employ such persons or entities as it deems necessary or advisable. The City will not be liable for any of the acts or omissions of such persons or entities employed by it in good faith under the Fiscal Agent Agreement, and will be entitled to rely, and will be fully protected in doing so, upon the opinions, calculations, determinations and directions of such persons or entities.
Fiscal Agent
U.S. Bank Trust Company, National Association, at its designated corporate trust office in Los Angeles, California is appointed Fiscal Agent and paying agent for the Bonds. The Fiscal Agent undertakes to perform such duties, and only such duties, as are specifically set forth in the Fiscal Agent Agreement, and no implied covenants or obligations will be read into the Fiscal Agent Agreement against the Fiscal Agent.
Any corporation, bank or association into which the Fiscal Agent may be merged or converted or with which it may be consolidated or any company or association resulting from any merger, conversion or consolidation to which it will be a party or any company or association to which the Fiscal Agent may sell or transfer all or substantially all of its corporate trust business, provided such company or association will be eligible under the following paragraph of this Section, will be the successor to such Fiscal Agent without the execution or filing of any paper or any further act, anything in the Fiscal Agent Agreement to the contrary notwithstanding. The Fiscal Agent will give the Finance Director written notice of any such succession under the Fiscal Agent Agreement.
The City may remove the Fiscal Agent initially appointed, and any successor thereto, and may appoint a successor or successors thereto, but any such successor will be a bank, association or trust company having a combined capital (exclusive of borrowed capital) and surplus of at least Fifty Million Dollars ($50,000,000), and subject to supervision or examination by federal or state authority. If such bank, association or trust company publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purposes of the Fiscal Agent Agreement, the combined capital and surplus of such bank, association or trust company will be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published.
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The Fiscal Agent may at any time resign by giving written notice to the City and by giving to the Owners notice by mail of such resignation. Upon receiving notice of such resignation, the City will promptly appoint a successor Fiscal Agent by an instrument in writing. Any resignation or removal of the Fiscal Agent will become effective only upon acceptance of appointment by the successor Fiscal Agent. Upon such acceptance, the successor Fiscal Agent will be vested with all rights and powers of its predecessor under the Fiscal Agent Agreement without any further act.
If no appointment of a successor Fiscal Agent will be made pursuant to the foregoing provisions of the Fiscal Agent Agreement within forty-five (45) days after the Fiscal Agent will have given to the City written notice or after a vacancy in the office of the Fiscal Agent (at the expense of the City) will have occurred by reason of its inability to act, the Fiscal Agent or any Bondowner may apply to any court of competent jurisdiction to appoint a successor Fiscal Agent. Said court may thereupon, after such notice, if any, as such court may deem proper, appoint a successor Fiscal Agent.
If, by reason of the judgment of any court, or reasonable agency, the Fiscal Agent is rendered unable to perform its duties under the Fiscal Agent Agreement, all such duties and all of the rights and powers of the Fiscal Agent under the Fiscal Agent Agreement will be assumed by and vest in the Finance Director for the benefit of the Owners. The City covenants for the direct benefit of the Owners that its Finance Director in such case will be vested with all of the rights and powers of the Fiscal Agent under the Fiscal Agent Agreement, and will assume all of the responsibilities and perform all of the duties of the Fiscal Agent under the Fiscal Agent Agreement, in trust for the benefit of the Owners of the Bonds. In such event, the Finance Director may designate a successor Fiscal Agent qualified to act as Fiscal Agent under the Fiscal Agent Agreement.
The recitals of facts, covenants and agreements in the Fiscal Agent Agreement and in the Bonds contained will be taken as statements, covenants and agreements of the City, and the Fiscal Agent assumes no responsibility for the correctness of the same, or makes any representations as to the validity or sufficiency of the Fiscal Agent Agreement or of the Bonds, or will incur any responsibility in respect thereof, other than in connection with the duties or obligations in the Fiscal Agent Agreement or in the Bonds assigned to or imposed upon it. The Fiscal Agent will not be liable in connection with the performance of its duties under the Fiscal Agent Agreement, except for its own negligence or willful misconduct. The Fiscal Agent assumes no responsibility or liability for any information, statement or recital in any offering memorandum or other disclosure material prepared or distributed with respect to the issuance of the Bonds.
In the absence of negligence or willful misconduct on its part, the Fiscal Agent may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Fiscal Agent and conforming to the requirements of the Fiscal Agent Agreement; but in the case of any such certificates or opinions by which any provisions of the Fiscal Agent Agreement are specifically required to be furnished to the Fiscal Agent, the Fiscal Agent will be under a duty to examine the same to determine whether or not they conform to the requirements of the Fiscal Agent Agreement (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein). Except as provided above in this paragraph, Fiscal Agent may conclusively rely and will be fully protected and will incur no liability in acting or proceeding, or in not acting or not proceeding, in good faith, reasonably and in accordance with the terms of the Fiscal Agent Agreement, upon any resolution, order, notice, request, requisition, Officer’s Certificate, consent or waiver, certificate, statement, affidavit, or other paper or document which it will in good faith reasonably believe to be genuine and to have been adopted or signed by the proper person or to have been prepared and furnished pursuant to any provision of the Fiscal Agent Agreement, and the Fiscal Agent will not be under any duty to make any investigation or inquiry as to any statements contained or matters referred to in any such instrument.
The Fiscal Agent will not be liable for any error of judgment made in good faith by a responsible officer unless it will be proved that the Fiscal Agent was negligent in ascertaining the pertinent facts.
No provision of the Fiscal Agent Agreement will require the Fiscal Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties under the Fiscal Agent Agreement, or in the exercise of any of its rights or powers.
The Fiscal Agent, in its individual or other capacity, may become the owner of the Bonds or otherwise deal with the City or the District with the same rights it would have if it were not the Fiscal Agent.
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The Fiscal Agent will have no duty or obligation whatsoever to enforce the collection of Special Taxes or other funds to be deposited with it under the Fiscal Agent Agreement, or as to the correctness of any amounts received, and its liability will be limited to the proper accounting for such funds as it will actually receive.
The Fiscal Agent may consult with counsel of its selection, who may be counsel of or to the City, with regard to legal questions, and the advice and opinion of such counsel will be full and complete authorization and protection in respect of any action taken, omitted or suffered by it under the Fiscal Agent Agreement in good faith and in accordance therewith.
In order to perform its duties and obligations under the Fiscal Agent Agreement, the Fiscal Agent may employ such persons or entities as it deems necessary or advisable. The Fiscal Agent will not be liable for any of the acts or omissions or misconduct or negligence of such persons or entities employed by it in good faith under the Fiscal Agent Agreement, and will be entitled to rely, and will be fully protected in doing so, upon the opinions, calculations, determinations and directions of such persons or entities.
The Fiscal Agent agrees to accept and act upon instructions or directions pursuant to the Fiscal Agent Agreement sent by unsecured e-mail, facsimile transmission or other similar unsecured electronic methods; provided, however, that the Fiscal Agent will have received an incumbency certificate listing persons designated to give such instructions or directions and containing specimen signatures of such designated persons, which such incumbency certificate will be amended and replaced whenever a person is to be added or deleted from the listing. If the City elects to give the Fiscal Agent e-mail or facsimile instructions (or instructions by a similar electronic method) and the Fiscal Agent in its discretion elects to act upon such instructions, the Fiscal Agent’s reasonable understanding of such instructions will be deemed controlling. The Fiscal Agent will not be liable for any losses, costs or expenses arising directly or indirectly from the Fiscal Agent’s reliance upon and compliance with such instructions notwithstanding such instructions conflict or are inconsistent with a subsequent written instruction. The City agrees to assume (i) all risks arising out of the use of such electronic methods to submit instructions and directions to the Fiscal Agent, including without limitation the risk of interception and misuse by third parties; (ii) that it is fully informed of the protections and risks associated with the various methods of transmitting instructions to the Fiscal Agent and that there may be more secure methods of transmitting instructions than the method(s) selected by the such party; and (iii) that the security procedures (if any) to be followed in connection with its transmission of instructions provide to it a commercially reasonable degree of protection in light of its particular needs and circumstances.
The Fiscal Agent will be under no obligation to exercise any of the rights or powers vested in it by the Fiscal Agent Agreement at the request or direction of any of the Owners pursuant to the Fiscal Agent Agreement, unless such Owners shall have offered to the Fiscal Agent security or indemnity reasonably satisfactory to the Fiscal Agent against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. The permissive rights of the Fiscal Agent enumerated in the Fiscal Agent Agreement will not be construed as duties. In no event will the Fiscal Agent be responsible or liable for special, indirect, punitive or consequential loss or damage of any kind whatsoever (including, but not limited to, loss of profit) irrespective of whether the Fiscal Agent has been advised of the likelihood of such loss or damage and regardless of the form of action.
The Fiscal Agent will not be considered in breach of or in default in its obligations under the Fiscal Agent Agreement or progress in respect thereto in the event of delay (“unavoidable delay”) in the performance of such obligations due, directly or indirectly, to unforeseeable causes beyond its control and without its own fault or negligence, including, but not limited to, acts of God or of the public enemy or terrorists, acts of a government, fires, floods, pandemics, epidemics, recognized public emergencies, quarantine restrictions, strikes, work stoppages, freight embargoes, earthquakes, explosion, mob violence, riot, war, civil or military disturbances, nuclear or natural catastrophes, inability to procure or general sabotage or rationing of labor, equipment, facilities, sources of energy, material or supplies in the open market, malicious mischief, condemnation, and unusually severe weather or delays of suppliers or subcontractors due to such causes, interruptions, loss or malfunctions of utilities, communications or computer (software and hardware) services, and hacking, cyber-attacks, or other use or infiltration of the Fiscal Agent’s technological infrastructure exceeding authorized access or any similar event and/or occurrences beyond the control of the Fiscal Agent.
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Delivery of any reports, information and documents to the Fiscal Agent is for informational purposes only and the Fiscal Agent’s receipt of such does not constitute constructive notice of any information contained therein or determinable from information contained therein, including the City’s or District’s compliance with any of its covenants under the Fiscal Agent Agreement. The Fiscal Agent has no duty to review or make independent investigation with respect to any of the foregoing received by the Fiscal Agent, and will hold the same solely as repository.
The Fiscal Agent is not bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Fiscal Agent, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Fiscal Agent determines to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the City, personally or by agent or attorney at the sole cost of the City and will incur no liability or additional liability of any kind by reason of such inquiry or investigation.
The Fiscal Agent will not be deemed to have notice of any default or event of default unless a responsible officer of the Trustee has actual knowledge thereof. The Fiscal Agent is not required to give any bond or surety in respect of the performance of its powers and duties under the Fiscal Agent Agreement.
The Fiscal Agent will provide to the City such information relating to the Bonds and the funds and accounts maintained by the Fiscal Agent under the Fiscal Agent Agreement as the City will reasonably request, including but not limited to periodic cash transaction statements which include detail for all investment transactions effected by the Fiscal Agent or brokers selected by the City. Upon the City’s election, such statements will be delivered via the Fiscal Agent’s online service and upon electing such service, paper statements will be provided only upon request.
The Fiscal Agent will keep, or cause to be kept, proper books of record and accounts, separate from all other records and accounts of the Fiscal Agent, in which complete and correct entries will be made of all transactions relating to the expenditure of amounts disbursed from the Improvement Fund, the Special Tax Fund, the Bond Fund, the Special Tax Prepayments Account, the Capitalized Interest Account, the Reserve Fund, the Administrative Expense Fund and the Costs of Issuance Fund. Such books of record and accounts will upon reasonable prior notice at all times during business hours be subject to the inspection of the City and the Owners of not less than ten percent (10%) of the principal amount of the Bonds then Outstanding, or their representatives duly authorized in writing.
The Fiscal Agent may conclusively rely and will be fully protected in acting or refraining from acting upon any notice, resolution, request, requisition, Officer’s Certificate, consent, order, certificate, report, warrant, Bond or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or proper parties.
The Fiscal Agent will not be bound to recognize any person as the Owner of a Bond unless and until such Bond is submitted for inspection, if required, and his title thereto satisfactorily established, if disputed.
Whenever in the administration of its duties under the Fiscal Agent Agreement the Fiscal Agent will deem it necessary or desirable that a matter be proved or established prior to taking, omitting or suffering any action under the Fiscal Agent Agreement, such matter (unless other evidence in respect thereof be specifically prescribed in the Fiscal Agent Agreement) may, in the absence of willful misconduct on the part of the Fiscal Agent, be deemed to be conclusively proved and established by a certificate of the City or District, as applicable, and such certificate will be full warrant to the Fiscal Agent for any action taken or suffered under the provisions of the Fiscal Agent Agreement or any Supplemental Agreement upon the faith thereof, but in its discretion the Fiscal Agent may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as to it may seem reasonable.
The City will pay to the Fiscal Agent from time to time, promptly upon written request, such compensation as agreed to in writing from time to time for all services rendered as Fiscal Agent under the Fiscal Agent Agreement, and also all reasonable expenses, charges, counsel fees and expenses and other disbursements, including those of their attorneys, agents and employees, incurred in and about the performance of their powers and duties under the Fiscal Agent Agreement, but the Fiscal Agent will not have a lien therefor on any funds at any time held by it under the Fiscal Agent Agreement. The City further agrees, to the extent permitted by applicable law, to indemnify and save the Fiscal Agent, its officers, employees, directors and agents harmless against any liabilities, losses, claims, damages, taxes or C-22
expenses which it may incur in or arising out of the exercise and performance of its powers and duties under the Fiscal Agent Agreement (including legal fees and expenses) or in connection with the acceptance or administration of the trust or trusts under the Fiscal Agent Agreement which are not due to its negligence or willful misconduct. The obligation of the City under this Section will survive resignation or removal of the Fiscal Agent under the Fiscal Agent Agreement and payment of the Bonds and discharge of the Fiscal Agent Agreement, but any monetary obligation of the City arising under this Section will be limited solely to amounts on deposit in the Administrative Expense Fund.
Modification or Amendment of the Fiscal Agent Agreement The Fiscal Agent Agreement and the rights and obligations of the City and of the Owners of the Bonds may be modified or amended at any time by a Supplemental Agreement pursuant to the affirmative vote at a meeting of Owners, or with the written consent without a meeting, of the Owners of at least sixty percent (60%) in aggregate principal amount of the Bonds then Outstanding, exclusive of Bonds disqualified as provided in the Fiscal Agent Agreement. No such modification or amendment will (i) extend the maturity of any Bond or reduce the interest rate thereon, or otherwise alter or impair the obligation of the City to pay the principal of, and the interest and any premium on, any Bond, without the express consent of the Owner of such Bond, or (ii) permit the creation by the City of any pledge or lien upon the Special Taxes superior to or on a parity with the pledge and lien created for the benefit of the Bonds (except as otherwise permitted by the Law, the laws of the State or the Fiscal Agent Agreement), or reduce the percentage of Bonds required for the amendment of the Fiscal Agent Agreement, without the express consent of the Owners of all of the then Outstanding Bonds. Any such amendment may not modify any of the rights or obligations of the Fiscal Agent without its written consent.
The Fiscal Agent Agreement and the rights and obligations of the City and of the Owners may also be modified or amended at any time by a Supplemental Agreement, without the consent of any Owners, only to the extent permitted by law and only for any one or more of the following purposes:
(A) to add to the covenants and agreements of the City in the Fiscal Agent Agreement contained, other covenants and agreements thereafter to be observed, or to limit or surrender any right or power reserved to or conferred upon the City in the Fiscal Agent Agreement; (B) to make modifications not adversely affecting any Outstanding Bonds in any material respect; (C) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained in the Fiscal Agent Agreement, or in regard to questions arising under the Fiscal Agent Agreement, as the City may deem necessary or desirable and not inconsistent with the Fiscal Agent Agreement, and which will not adversely affect the rights of the Owners of the Bonds; (D) to make such additions, deletions or modifications as may be necessary or desirable to assure the exclusion from gross income, for purposes of federal income taxation, of interest on the 2025 Bonds; and (E) in connection with the issuance of Parity Bonds under and pursuant to the Fiscal Agent Agreement.
The Fiscal Agent will not be obligated to enter into any Supplemental Agreement authorized by the Fiscal Agent Agreement which affects the Fiscal Agent’s rights, duties or immunities under the Fiscal Agent Agreement or otherwise with respect to the Bonds or any agreements related thereto. The Fiscal Agent may request and will be fully protected in relying upon, an opinion of Bond Counsel that any proposed Supplemental Agreement complies with the applicable requirements of the Fiscal Agent Agreement.
The City may at any time call a meeting of the Owners. In such event the City is authorized to fix the time and place of said meeting and to provide for the giving of notice thereof, and to fix and adopt rules and regulations for the conduct of said meeting.
The City and the Fiscal Agent may at any time adopt a Supplemental Agreement amending the provisions of the Bonds or of the Fiscal Agent Agreement or any Supplemental Agreement, to the extent that such amendment is permitted by the Fiscal Agent Agreement, to take effect when and as provided below. The City or the Fiscal Agent C-23
may obtain an opinion of Bond Counsel that such Supplemental Agreement complies with the provisions of the Fiscal Agent Agreement, and the City and Fiscal Agent may rely conclusively upon such opinion. A copy of such Supplemental Agreement, together with a request to Owners for their consent thereto, will be mailed by first class mail, by the Fiscal Agent to each Owner of Bonds Outstanding, but failure to mail copies of such Supplemental Agreement and request will not affect the validity of the Supplemental Agreement when assented to as provided in the Fiscal Agent Agreement.
Such Supplemental Agreement will not become effective unless there will be filed with the Fiscal Agent the written consents of the Owners of at least sixty percent (60%) in aggregate principal amount of the Bonds then Outstanding (exclusive of Bonds disqualified as provided in the Fiscal Agent Agreement) and a notice will have been mailed as provided in the Fiscal Agent Agreement. Each such consent will be effective only if accompanied by proof of ownership of the Bonds for which such consent is given. Any such consent will be binding upon the Owner of the Bonds giving such consent and on any subsequent Owner (whether or not such subsequent Owner has notice thereof) unless such consent is revoked in writing by the Owner giving such consent or a subsequent Owner by filing such revocation with the Fiscal Agent prior to the date when the notice provided for in the Fiscal Agent Agreement has been mailed.
After the Owners of the required percentage of Bonds will have filed their consents to the Supplemental Agreement, the City will mail a notice to the Owners in the manner provided in the Fiscal Agent Agreement for the mailing of the Supplemental Agreement, stating in substance that the Supplemental Agreement has been consented to by the Owners of the required percentage of Bonds and will be effective as provided in the Fiscal Agent Agreement (but failure to mail copies of said notice will not affect the validity of the Supplemental Agreement or consents thereto).
Proof of the mailing of such notice will be filed with the Fiscal Agent. The Supplemental Agreement will become effective upon the filing with the Fiscal Agent of the proof of mailing of such notice, and the Supplemental Agreement will be deemed conclusively binding (except as otherwise specifically provided in the Fiscal Agent Agreement) upon the City and the Owners of all Bonds at the expiration of sixty (60) days after such filing, except in the event of a final decree of a court of competent jurisdiction setting aside such consent in a legal action or equitable proceeding for such purpose commenced within such sixty-day period.
From and after the time any Supplemental Agreement becomes effective, the Fiscal Agent Agreement will be deemed to be modified and amended in accordance therewith, the respective rights, duties and obligations under the Fiscal Agent Agreement of the City and all Owners of Bonds Outstanding will thereafter be determined, exercised and enforced under the Fiscal Agent Agreement subject in all respects to such modifications and amendments, and all the terms and conditions of any such Supplemental Agreement will be deemed to be part of the terms and conditions of the Fiscal Agent Agreement for any and all purposes.
Discharge of Agreement
The City will have the option to pay and discharge the entire indebtedness on all or any portion of the Bonds Outstanding in any one or more of the following ways:
(A) by well and truly paying or causing to be paid the principal of, and interest and any premium on, such Bonds Outstanding, as and when the same become due and payable; (B) by depositing with the Fiscal Agent, in trust, at or before maturity, money which, together with the amounts then on deposit in the funds and accounts provided for in the Fiscal Agent Agreement is fully sufficient to pay such Bonds Outstanding, including all principal, interest and redemption premiums; or (C) by irrevocably depositing with the Fiscal Agent, in trust, cash and Federal Securities in such amount as the City will determine as confirmed by Bond Counsel, an Independent Financial Consultant or an independent certified public accountant will, together with the interest to accrue thereon and moneys then on deposit in the fund and accounts provided for in the Fiscal Agent Agreement, be fully sufficient to pay and discharge the indebtedness on such Bonds (including all principal, interest and redemption premiums) at or before their respective maturity dates.
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If the City will have taken any of the actions specified in (A), (B) or (C) above, and if such Bonds are to be redeemed prior to the maturity thereof notice of such redemption will have been given as in the Fiscal Agent Agreement provided or provision satisfactory to the Fiscal Agent will have been made for the giving of such notice, then, at the election of the City, and notwithstanding that any Bonds will not have been surrendered for payment, the pledge of the Special Taxes and other funds provided for in the Fiscal Agent Agreement and all other obligations of the City under the Fiscal Agent Agreement with respect to such Bonds Outstanding will cease and terminate. Notice of such election will be filed with the Fiscal Agent. Notwithstanding the foregoing, the obligations of the City to pay or cause to be paid to the Owners of the Bonds not so surrendered and paid all sums due thereon, to pay all amounts owing to the Fiscal Agent pursuant to the Fiscal Agent Agreement, and otherwise to assure that no action is taken or failed to be taken if such action or failure adversely affects the exclusion of interest on the Bonds from gross income for federal income tax purposes, will continue in any event.
Upon compliance by the City with the foregoing with respect to all Bonds Outstanding, any funds held by the Fiscal Agent after payment of all fees and expenses of the Fiscal Agent, which are not required for the purposes of the preceding paragraph, will be paid over to the City and any Special Taxes thereafter received by the City will not be remitted to the Fiscal Agent but will be retained by the City to be used for any purpose permitted under the Law.
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APPENDIX D
FORM OF OPINION OF BOND COUNSEL
[Closing Date]
City Council
City of Palmdale
Re: $____________ City of Palmdale Community Facilities District No. 2022-3 (Ritter Ranch Phase 1 Public Facilities) 2025 Special Tax Bonds
Ladies and Gentlemen:
We have acted as bond counsel in connection with the issuance by City of Palmdale (the “City”) Community Facilities District No. 2022-3 (Ritter Ranch Phase 1 Public Facilities) (the “District”), of $______________ City of Palmdale Community Facilities District No. 2022-3 (Ritter Ranch Phase 1 Public Facilities) 2025 Special Tax Bonds (the “Bonds”). The Bonds are issued pursuant to the provisions of the Mello- Roos Community Facilities Act of 1982, as amended, being Chapter 2.5 (commencing with Section 53311) of Part 1 of Division 2 of Title 5 of the Government Code of the State of California (the “Act”), a resolution adopted by the City Council on November 20, 2024 (the “Resolution”), and a Fiscal Agent Agreement No. A-8586, dated as of __________________________, 2024 between the City and U.S. Bank Trust Company, National Association, as fiscal agent (the “Agreement”).
We have examined the Act, the Resolution, the Agreement, and certified copies of the proceedings taken for the issuance and sale of the Bonds. As to questions of fact which are material to our opinions, we have relied upon the representations of the City contained in the Agreement, and in certificates of its authorized officers which have been delivered to us for the purpose of supplying such facts, without having undertaken to verify the accuracy of any such representations by independent investigation.
Based upon such examination, we are of the opinion, as of the date hereof, that the proceedings referred to above have been taken in accordance with the laws and the Constitution of the State of California, and that the Bonds, having been issued in duly authorized form and executed by the proper officials and delivered to and paid for by the purchaser thereof, and the Agreement, having been duly authorized and executed by the proper officials, constitute the legally valid and binding obligations of the District enforceable in accordance with their terms subject to the qualifications specified below. Except where funds are otherwise available, as may be permitted by law, the Bonds are payable, as to both principal and interest, solely from certain special taxes to be levied and collected within the District and other funds available therefor held under the Agreement.
The Internal Revenue Code of 1986, as amended (the “Code”), sets forth certain investment, rebate and related requirements which must be met subsequent to the issuance and delivery of the Bonds for the interest on the Bonds to be and remain exempt from federal income taxation. Noncompliance with such requirements could cause the interest on the Bonds to be subject to federal income taxation retroactive to the date of issuance of the Bonds. Pursuant to the Agreement, the City has covenanted to comply with the requirements of the Code and applicable regulations promulgated thereunder.
We are of the opinion that, under existing statutes, regulations, rulings and court decisions, and assuming compliance by the City with the aforementioned covenants, the interest on the Bonds is excluded from gross income for purposes of federal income taxation and that interest on the Bonds is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals; however, for tax years beginning after December 31, 2022, interest on the Bonds is taken into account in determining the annual adjusted D-2
financial statement income of certain corporations for the purpose of computing the alternative minimum tax imposed on certain corporations.
We are further of the opinion that interest on the Bonds is exempt from State of California personal income tax.
Although interest on the Bonds is excluded from gross income for purposes of federal income taxation, the accrual or receipt of interest on the Bonds may otherwise affect the federal income tax liability of the recipient.
The extent of these tax consequences will depend on the recipient's particular tax status or other items of income or deduction. We express no opinion regarding any such consequences.
The opinions expressed herein may be affected by actions which may be taken (or not taken) or events which may occur (or not occur) after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events are taken or occur or are not taken or do not occur.
The rights of the owners of the Bonds and the enforceability of the Bonds and the Agreement, may be subject to bankruptcy, insolvency, moratorium and other similar laws affecting creditors’ rights heretofore or hereafter enacted, and their enforcement may be subject to the exercise of judicial discretion in accordance with general principles of equity.
Respectfully submitted,
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APPENDIX E
FORM OF CONTINUING DISCLOSURE AGREEMENT OF THE CITY
THIS CONTINUING DISCLOSURE AGREEMENT (the “Disclosure Agreement”), dated as of ____________ 1, 2025, is by and between NBS, as dissemination agent (the “Dissemination Agent”), and the City of Palmdale, California (the “City”).
R E C I T A L S :
WHEREAS, the City has issued, for and on behalf of the City of Palmdale Community Facilities District No. 2022-3 (Ritter Ranch Phase 1 Public Facilities) (the “District”), its City of Palmdale Community Facilities District No. 2022-3 (Ritter Ranch Phase 1 Public Facilities), 2025 Special Tax Bonds (the “Bonds”) in the initial principal amount of $____________; and
WHEREAS, the Bonds have been issued pursuant to a Fiscal Agent Agreement, dated as of ____________ 1, 2025, by and between U.S. Bank Trust Company, National Association, as fiscal agent (the “Fiscal Agent”), and the City, for and on behalf of the District (the “Fiscal Agent Agreement”); and WHEREAS, this Disclosure Agreement is being executed and delivered by the City and the Dissemination Agent for the benefit of the owners and beneficial owners of the Bonds and in order to assist the underwriter of the Bonds in complying with S.E.C. Rule 15c2-12(b)(5).
A G R E E M E N T :
NOW, THEREFORE, for and in consideration of the premises and mutual covenants herein contained, and for other consideration the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
Section 1. Definitions. In addition to the definitions of capitalized terms set forth in Sections 1.03 of the Fiscal Agent Agreement, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section or in the Recitals above, the following terms shall have the following meanings when used in this Disclosure Agreement:
“Annual Report” means any Annual Report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement.
“Beneficial Owner” shall mean any person who (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bond (including persons holding any Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bond for federal income tax purposes.
“Disclosure Representative” means the Director of Operations of the City, or the Director’s designee, or such other officer or employee as the City shall designate as the Disclosure Representative hereunder in writing to the Dissemination Agent from time to time.
“Dissemination Agent” means NBS, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation.
“EMMA” or “ Electronic Municipal Market Acces s” means the centralized on-line repository for documents to be filed with the MSRB, such as official statements and disclosure information relating to municipal bonds, notes and other securities as issued by state and local governments. “Limited Offering Memorandum” means the Limited Offering Memorandum, dated ______________, 2025, relating to the Bonds.
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“MSRB” means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule, or any other repository of disclosure information which may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future. “Participating Underwriter” means Hilltop Securities Inc., the original underwriter of the Bonds required to comply with the Rule in connection with offering of the Bonds. “Rule” means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. “Significant Event” means any of the events listed in Section 5(a) of this Disclosure Agreement.
Section 2. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the City and the Dissemination Agent for the benefit of the owners and Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with the Rule.
Section 3. Provision of Annual Reports.
(a) Delivery of Annual Report . The City shall, or shall cause the Dissemination Agent to, not later than the March 31 occurring after the end of each fiscal year of the City, commencing with the report for the 2024-25 fiscal year, which is due not later than March 31, 2026, file with EMMA, in a readable PDF or other electronic format as prescribed by the MSRB, an Annual Report that is consistent with the requirements of Section 4 of this Disclosure Agreement. The Annual Report may be submitted as a single document or as separate documents comprising a package and may cross-reference other information as provided in Section 4 of this Disclosure Agreement; provided that any audited financial statements of the City may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are not available by that date. (b) Change of Fiscal Year . If the City’s fiscal year changes, it shall give notice of such change in the same manner as for a Significant Event under Section 5(b), and subsequent Annual Report filings shall be made no later than seven months after the end of such new fiscal year end. (c) Delivery of Annual Report to Dissemination Agent . Not later than fifteen (15) Business Days prior to the date specified in subsection (a) (or, if applicable, subsection (b) of this Section 3 for providing the Annual Report to EMMA), the City shall provide the Annual Report to the Dissemination Agent (if other than the City). If by such date, the Dissemination Agent has not received a copy of the Annual Report, the Dissemination Agent shall notify the City. (d) Report of Non-Compliance. If the City is the Dissemination Agent and is unable to file an Annual Report by the date required in subsection (a) (or, if applicable, subsection (b)) of this Section 3, the City in a timely manner shall send a notice to EMMA substantially in the form attached hereto as Exhibit A. If the City is not the Dissemination Agent and is unable to provide an Annual Report to the Dissemination Agent by the date required in subsection (c) of this Section 3, the Dissemination Agent in a timely manner shall send a notice to EMMA in substantially the form attached hereto as Exhibit A.
(e) Annual Compliance Certification. The Dissemination Agent shall, if the Dissemination Agent is other than the City, file a report with the City certifying that the Annual Report has been filed with EMMA pursuant to Section 3 of this Disclosure Agreement, stating the date it was so provided and filed.
Section 4 . Content of Annual Reports. (a) Financial Statements. The Annual Report for each fiscal year commencing with the Annual Report for the 2023-24 fiscal year, shall contain or incorporate by reference audited financial statements of the City for the most recently completed fiscal year, prepared in accordance generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the City’s audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the audited financial statements shall be filed in the same manner as the Annual Report when they become available.
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(b) Other Annual Information. The Annual Report for each fiscal year commencing with fiscal year 2024-25 shall also include the following information:
(i) The principal amount of Bonds and any Parity Bonds Outstanding as of the September 30 next preceding the date of the Annual Report.
(ii) The balance in the Reserve Fund, and a statement of the Reserve Requirement, as of the September 30 next preceding the date of the Annual Report.
(iii) The balance in the Improvement Fund, if any, as of the September 30 next preceding the date of the Annual Report.
(iv) A table similar to Table 6 in the Limited Offering Memorandum (which shows Value-to-Lien by County Assessor’s Parcel number) substituting the most recent County Assessed Values, except that the City may aggregate the APNs property owners that individually own property allocated less than one and one-half percent (1.5%) of the outstanding principal of the Bonds. (v) A Table similar to Table 5 in the Limited Offering Memorandum, but showing for each County Assessor’s Parcel of Taxable Property in the District the County Assessor’s Parcel number, the acreage of the parcel, the then classification of the parcel under the Rate and Method of Apportionment (e.g. Developed Property, Final Map Property, Undeveloped Property, Taxable Property Owner Association Property or Taxable Public Property), the then current fiscal year Maximum Special Tax, the percentage of the then current fiscal year’s aggregate Maximum Special Tax for all Taxable Property and the parcel’s pro rata share of the then outstanding Bonds. Notwithstanding the foregoing, the City make group together APNs for parcels with less than 1.5% of the current year’s Maximum Special Tax levy for the District with the same classification under the Rate and Method.
(vi) A table similar to the following using the most recent available County Assessor’s values or appraised values of the parcels in the District:
Ownership
No. of
Parcels
Assessed/
Appraised
Value
Projected Next
Fiscal Year
Levy
Projected
Percentage of
Next Fiscal
Year Levy
Allocable
Principal
of the
2025 Bonds
Aggregate
Value to
Lien Ratio
(vii) A table setting forth the annual aggregate Special Tax levy in the District for the most recent two Fiscal Years, and the number of parcels with delinquent Special Taxes, and the amount and percentage of the overall Special Tax levy for the delinquent parcels, and an update of prior years’ delinquencies as of a date not more than ninety (90) days prior to the date of the Annual Report. (viii) The status of foreclosure proceedings for any parcels within the District on which the Special Taxes are levied and a summary or the results of any foreclosure sales, or other collection efforts with respect to delinquent Special Taxes, as of the September 30 next preceding the date of the Annual Report. (ix) The identity of any property owner representing more than five percent (5%) of the annual Special Tax levy who is delinquent in payment of such Special Taxes, as shown on the assessment roll of the City Assessor last equalized prior to the September 30 next preceding the date of the Annual Report, the number of parcels so delinquent, and the total dollar amount of all such delinquencies. (x) The most recent annual information required to be provided to the California Debt and Investment Advisory Commission pursuant to Section 5.19(A) of the Fiscal Agent Agreement.
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(c) Cross References. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities, which are available to the public on EMMA. The City shall clearly identify each such other document so included by reference.
If the document included by reference is a final official statement, it must be available from EMMA. (d) Further Information . In addition to any of the information expressly required to be provided under paragraph (b) of this Section 4, the City shall provide such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading.
Section 5. Reporting of Significant Events.
(a) The City shall, or shall cause the Dissemination Agent (if not the City) to, give notice of the occurrence of any of the following events with respect to the Bonds:
(i) Principal and interest payment delinquencies;
(ii) Non–payment related defaults, if material;
(iii) Unscheduled draws on debt service reserves reflecting financial difficulties; (iv) Unscheduled draws on credit enhancements reflecting financial difficulties; (v) Substitution of credit or liquidity providers, or their failure to perform; (vi) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701–TEB) or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax status of the security;
(vii) Modifications to rights of security holders, if material; (viii) Bond calls, if material, and tender offers;
(ix) Defeasances;
(x) Release, substitution, or sale of property securing repayment of the securities, if material; (xi) Rating changes;
(xii) Bankruptcy, insolvency, receivership or similar event of the obligated person; (xiii) The consummation of a merger, consolidation, or acquisition involving the obligated person, or the sale of all or substantially all of the assets of the obligated person (other than in the ordinary course of business), the entry into a definitive agreement to undertake such an action, or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; (xiv) Appointment of a successor or additional trustee or the change of name of a trustee, if material;
(xv) The incurrence of a financial obligation of the obligated person, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation of the obligated person, any of which affect security holders, if material; or (xvi) A default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a financial obligation of the obligated person, any of which reflect financial difficulties.
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(b) Whenever the City obtains knowledge of the occurrence of a Significant Event, the City shall, or shall cause the Dissemination Agent (if not the City) to, file a notice of such occurrence with the MSRB, in an electronic format as prescribed by the MSRB, in a timely manner not in excess of 10 business days after the occurrence of the Significant Event. Notwithstanding the foregoing, notice of Significant Events described in subsection (a)(viii) above need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to owners of affected Bonds under the Fiscal Agent Agreement. (c) The City acknowledges that the events described in subparagraphs (a)(ii), (a)(vii), (a)(viii) (if the event is a bond call), (a)(x), (a)(xiii), (a)(xiv) and (a)(xv) of this Section 5 contain the qualifier “if material.” The City shall cause a notice to be filed as set forth in paragraph (b) above with respect to any such event only to the extent that the City determines the event’s occurrence is material for purposes of U.S. federal securities law. The City intends that the words used in paragraphs (xv) and (xvi) and the definition of “financial obligation” to have the meanings ascribed thereto in SEC Release No. 34-83885 (August 20, 2018). (d) For purposes of this Disclosure Agreement, any event described in paragraph (a)(xii) above is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the City in a proceeding under the United States Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the City, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the City.
Section 6. Identifying Information for Filings with EMMA. All documents provided to EMMA under this Disclosure Agreement shall be accompanied by identifying information as prescribed by the MSRB.
Section 7. Termination of Reporting Obligation. The City’s obligations under this Disclosure Agreement shall terminate upon the defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the City shall give notice of such termination in the same manner as for a Significant Event under Section 5(b).
Section 8. Dissemination Agent.
(a) Appointment of Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement and may discharge any such agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be NBS.
If the Dissemination Agent is not the City, the Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the City pursuant to this Disclosure Agreement. It is understood and agreed that any information that the Dissemination Agent may be instructed to file with EMMA shall be prepared and provided to it by the City. The Dissemination Agent has undertaken no responsibility with respect to the content of any reports, notices or disclosures provided to it under this Disclosure Agreement and has no liability to any person, including any Bond owner, with respect to any such reports, notices or disclosures. The fact that the Dissemination Agent or any affiliate thereof may have any fiduciary or banking relationship with the City shall not be construed to mean that the Dissemination Agent has actual knowledge of any event or condition, except as may be provided by written notice from the City.
(b) Compensation of Dissemination Agent. The Dissemination Agent shall be paid compensation by the City for its services provided hereunder as agreed to between the Dissemination Agent and the City from time to time and all expenses, legal fees and expenses and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder, with payment to be made from any lawful funds of the District. The Dissemination Agent shall not be deemed to be acting in any fiduciary capacity for the City, the owners of the Bonds, the Beneficial Owners, or any other party. The Dissemination Agent may rely, and shall be protected in acting or refraining from acting, upon E-6
any written direction from the City or a written opinion of nationally recognized bond counsel. The Dissemination Agent may at any time resign by giving written notice of such resignation to the City. The Dissemination Agent shall not be liable hereunder except for its negligence or willful misconduct. (c) Responsibilities of Dissemination Agent. In addition of the filing obligations of the Dissemination Agent set forth in Sections 3(e) and 5, the Dissemination Agent shall be obligated, and hereby agrees, to provide a request to the City to compile the information required for its Annual Report at least 30 days prior to the date such information is to be provided to the Dissemination Agent pursuant to subsection (c) of Section 3. The failure to provide or receive any such request shall not affect the obligations of the City under Section 3.
Section 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the City may amend this Disclosure Agreement (and the Dissemination Agent shall agree to any amendment so requested by the City that does not impose any greater duties or risk of liability on the Dissemination Agent), and any provision of this Disclosure Agreement may be waived, provided that all of the following conditions are satisfied:
(a) Change in Circumstances. If the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a) or (b), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Bonds, or the type of business conducted.
(b) Compliance as of Issue Date . The undertaking, as amended or taking into account such waiver, would, in the opinion of a nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances. (c) Consent of Holders; Non-impairment Opinion. The amendment or waiver either (i) is approved by the Bond owners in the same manner as provided in the Fiscal Agent Agreement for amendments to the Fiscal Agent Agreement with the consent of Bond owners, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Bond owners or Beneficial Owners.
If this Disclosure Agreement is amended or any provision of this Disclosure Agreement is waived, the City shall describe such amendment or waiver in the next following Annual Report and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the City. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Significant Event under Section 5(b), and (ii) the Annual Report for the year in which the change is made should present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles.
Section 10. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Significant Event, in addition to that which is required by this Disclosure Agreement. If the City chooses to include any information in any Annual Report or notice of occurrence of a Significant Event in addition to that which is specifically required by this Disclosure Agreement, the City shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report or future notice of occurrence of a Significant Event.
Section 11. Default. In the event of a failure of the City to comply with any provision of this Disclosure Agreement, any Bond owner, any Beneficial Owner, the Fiscal Agent or the Participating Underwriter may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Disclosure Agreement. The sole remedy under this Disclosure Agreement in the event of any failure of the City to comply with this Disclosure Agreement shall be an action to compel performance.
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Section 12. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the City, the Fiscal Agent, the Dissemination Agent, the Participating Underwriter and the owners and the Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity.
Section 13. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Disclosure Agreement as of the date first above written.
CITY OF PALMDALE, CALIFORNIA
By:
Its:
NBS, as Dissemination Agent
By:
Its:
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EXHIBIT A
NOTICE OF FAILURE TO FILE ANNUAL REPORT
Name of Obligor: City of Palmdale, California
Name of Bond Issue: City of Palmdale Community Facilities District No. 2022-3 (Ritter Ranch Phase 1 Public Facilities), 2025 Special Tax Bonds
Date of Issuance: ______________, 2025
NOTICE IS HEREBY GIVEN that the Obligor has not provided an Annual Report with respect to the above- named Bonds as required by Section 5.08 of the Fiscal Agent Agreement, dated as of ____________ 1, 2025, between the Obligor and U.S. Bank Trust Company, National Association, as fiscal agent. The Obligor anticipates that the Annual Report will be filed by ____________________.
Date:
By: NBS, as Dissemination Agent
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APPENDIX F
FORM OF CONTINUING DISCLOSURE AGREEMENT – MASTER DEVELOPER This Continuing Disclosure Agreement – Master Developer (the “Disclosure Agreement”) dated as of ____________ 1, 2025, is executed and delivered by RdR Development Holdings, LLC, a Delaware limited liability company (the “Master Developer”), and NBS, as dissemination agent (the “Dissemination Agent”), in connection with the issuance by the City of Palmdale, California (the “City”), for and on behalf of the City of Palmdale Community Facilities District No. 2022-3 (Ritter Ranch Phase 1 Public Facilities) (the “District”), of its City of Palmdale Community Facilities District No. 2022-3 (Ritter Ranch Phase 1 Public Facilities) 2025 Special Tax Bonds (the “Bonds”). The Bonds are being issued pursuant to a Fiscal Agent Agreement, dated as of ____________ 1, 2025, by and between U.S. Bank Trust Company, National Association, as fiscal agent (the “Fiscal Agent”), and the City, for and on behalf of the District (the “Fiscal Agent Agreement”).
The Master Developer covenants and agrees as follows:
SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the Master Developer for the benefit of the Bondowners and Beneficial Owners.
SECTION 2. Definitions. In addition to the definitions set forth in Section 1.03 of the Fiscal Agent Agreement, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings when used herein:
“Affiliate” means, any person directly (or indirectly through one or more intermediaries) and currently under managerial control of the Master Developer, and about whom information could be material to potential investors in their investment decision regarding the Bonds, including without limitation information relevant to the development of the Property or the Master Developer’s ability to pay Special Taxes levied and to be levied on the Property. “Annual Report” means any Annual Report provided by the Master Developer pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement. “Beneficial Owner” means any person who (a) has or shares the power, directly or indirectly, to make investment decisions concerning ownership of the Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bond for federal income tax purposes.
“Business Day” means any day other than (a) a Saturday or a Sunday or (b) a day which is a federal or State of California holiday.
“Disclosure Representative” means the ______________ of ______________, or such person’s designee, or such other officer or employee as the Master Developer shall designate in writing to the Dissemination Agent and the City from time to time.
“Dissemination Agent” means NBS, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the Master Developer and which has filed with the Master Developer, the Fiscal Agent and the City a written acceptance of such designation. “District” means the City of Palmdale Community Facilities District No. 2022-3 (Ritter Ranch Phase 1 Public Facilities).
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“EMMA” means the Electronic Municipal Market Access system of the MSRB, currently located at http://emma.msrb.org.
“Limited Offering Memorandum” means the Limited Offering Memorandum, dated ______________, 2025, relating to the Bonds.
“Master Developer Improvements” means those improvements being constructed by the Master Developer in the District or constructed by or on behalf of the Master Developer. “MSRB” means the Municipal Securities Rulemaking Board. “Participating Underwriter” means Hilltop Securities Inc., the original underwriter of the Bonds. “Person” means any natural person, corporation, partnership, firm, association, Government Authority or any other Person whether acting in an individual fiduciary, or other capacity. “Property” means the real property within the boundaries of the District that is owned by the Master Developer or any Affiliate, as of the date that a respective Annual Report, Semiannual Report or Significant Event disclosure is provided.
“Rule” means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. “Semiannual Report” means any report to be provided by the Master Developer on or prior to December 15 of each year pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement. “Significant Event” means any of the events listed in Section 5(a) of this Disclosure Agreement.
SECTION 3. Provision of Annual Reports and Semiannual Reports. (a) The Master Developer shall, or shall cause the Dissemination Agent to, not later than June 15 of each year, commencing June 15, 2026, provide to EMMA an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. If, in any year, June 15 does not fall on a Business Day, then such deadline shall be extended to the following Business Day. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Agreement.
In addition, the Master Developer shall, or shall cause the Dissemination Agent to, not later than December 15 of each year, commencing December 15, 2025, provide to EMMA a Semiannual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. If, in any year, December 15 does not fall on a Business Day, then such deadline shall be extended to the following Business Day. (b) Not later than fifteen (15) calendar days prior to the date specified in subsection (a) for providing the Annual Report and Semiannual Report to EMMA, the Master Developer shall provide the Annual Report or the Semiannual Report, as applicable, to the Dissemination Agent or shall provide notification to the Dissemination Agent that the Master Developer is preparing, or causing to be prepared, the Annual Report or the Semiannual Report, as applicable, and the date which the Annual Report or the Semiannual Report, as applicable, is expected to be available. If by such date, the Dissemination Agent has not received a copy of the Annual Report or the Semiannual Report, as applicable, or notification as described in the preceding sentence, the Dissemination Agent shall notify the Master Developer of such failure to receive the report. (c) If the Dissemination Agent is unable to provide an Annual Report or Semiannual Report to EMMA by the date required in subsection (a) or to verify that an Annual Report or Semiannual Report has been provided F-3
to EMMA by the date required in subsection (a), the Dissemination Agent shall send in a timely manner a notice to EMMA in a form that is accepted by EMMA.
(d) Dissemination Agent shall:
(i) determine each year prior to the date for providing the Annual Report and the Semiannual Report the name and address of EMMA; and
(ii) promptly file a report with the Master Developer and the City certifying that the Annual Report or the Semiannual Report, as applicable, has been provided pursuant to this Disclosure Agreement, stating the date it was provided to EMMA.
(e) Notwithstanding any other provision of this Disclosure Agreement, any of the required filings hereunder shall be made in accordance with the MSRB’s EMMA system or in another manner approved under the Rule.
SECTION 4. Content of Annual Report and Semiannual Report. (a) The Master Developer’s Annual Report and Semiannual Report shall contain or include by reference the information which is available as of the date of the filing of the Annual Report or the Semiannual Report, as applicable, relating to the following:
1. To the extent different from what is disclosed in the Limited Offering Memorandum or in a prior Annual Report or Semiannual Report, a discussion of any change in the sources of funds to finance the development of the Property, and whether any material defaults exist under any contractual arrangement related to such financing.
2. A summary of development activity conducted by the Master Developer or any Affiliate with respect to the Property since the later of the date of issuance of the Bonds or the date of the last Annual Report or Semiannual Report.
3. Any parcels of Property in the District sold to entities that are not Affiliates, the date of the sales and the identity of the buyer(s) and the acreage and County Assessor’s parcel numbers of the property so sold, since the later of the date of issuance of the Bonds or the date of the last Annual Report or Semiannual Report.
4. The number of homes under construction (and the expected completion date or dates of the homes under construction), the number of completed homes and the number of homes on the Property for which sales to homebuyers have closed, all since the date of the issuance of the Bonds or the date of the last Annual Report or Semiannual Report.
5. Any major legislative, administrative and judicial challenges known to the Master Developer to or affecting the development of the Property or the time for construction of any homes or townhomes to be constructed on the Property by the Master Developer or any Affiliate.
6. Information regarding any failure by the Master Developer or any of its Affiliates to pay any real property taxes (including Special Taxes) levied on any Property.
7. Any material changes in the status of the litigation described in the Limited Offering Memorandum affecting the development of the Property. until such litigation has been dismissed.
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(b) In addition to any of the information expressly required to be provided under paragraph (a) above, the Master Developer shall provide such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading. (c) Any and all of the items listed above may be included by specific reference to other documents, including official statements of debt issues which have been submitted to EMMA or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the MSRB. The Master Developer shall clearly identify each such other document so included by reference.
SECTION 5. Reporting of Significant Events.
(a) So long as the Master Developer’s obligations under this Disclosure Agreement have not terminated pursuant to Section 7 below, the Master Developer shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material under clauses (b) and (c) in a timely manner within 10 Business Days after the Master Developer obtains knowledge of the occurrence of any of the following events:
1. Failure by the Master Developer or any Affiliate to pay any real property taxes, special taxes or assessments levied on the Property prior to the delinquency date therefor.
2. Damage to or destruction of any of the Master Developer Improvements which has a material adverse effect on the value of the Property.
3. Material default by the Master Developer or any Affiliate of the Master Developer on any loan or line of credit with respect to the acquisition of the Property or the construction financing of the Master Developer Improvements.
4. Material default by the Master Developer or any Affiliate of the Master Developer on any loan or line of credit secured by the Property.
5. The filing of any proceedings with respect to the Master Developer, in which the Master Developer may be adjudicated as bankrupt or discharged from any or all of its respective debts or obligations or granted an extension of time to pay debts or a reorganization or readjustment of debts.
6. The filing of any proceedings with respect to an Affiliate of the Master Developer, in which such Affiliate of the Master Developer may be adjudicated as bankrupt or discharged from any or all of its respective debts or obligations or granted an extension of time to pay debts or a reorganization or readjustment of debts if such adjudication could materially adversely affect the completion of the Master Developer Improvements or the development of the Property (including the payment of Special Taxes).
7. The filing of any lawsuit against the Master Developer or any of its Affiliates (with service of process on the Master Developer or its Affiliates having occurred) which, in the reasonable judgment of the Master Developer, if successful, will (i) materially adversely affect the completion of the Master Developer Improvements, or (ii) materially adversely affect the financial condition of the Master Developer or its Affiliates in a manner that would materially adversely affect the completion of the Master Developer Improvements.
8. A sale or transfer of all or substantially all of the Master Developer’s assets or a sale of a majority of the membership interests of the Master Developer. (b) Whenever the Master Developer obtains knowledge of the occurrence of a Significant Event occurs under Section 5(a), subsection (2), (3), (4), (6) or (7), the Master Developer shall as soon as possible determine if F-5
such event would be material under applicable federal securities laws. The Dissemination Agent shall have no responsibility to determine the materiality of any of the Significant Events. (c) If an event described in Section 5(a), subsection (1), (5) or (8) occurs, or if the Master Developer determines that knowledge of the occurrence of an event described in Section 5(a), subsection (2), (3), (4), (6) or (7) would be material under applicable federal securities laws, the Master Developer shall file in a timely manner within 10 Business Days after the Master Developer obtains knowledge of the occurrence of the respective event a notice of such occurrence with EMMA or with the Dissemination Agent which shall then distribute such notice to EMMA in a timely manner within the 10 Business Day period, with a copy to the City and to the Participating Underwriter.
SECTION 6. Format for Filings with MSRB. Any report or filing with the MSRB pursuant to this Disclosure Agreement must be submitted in electronic format, accompanied by such identifying information as is prescribed by the MSRB.
SECTION 7. Termination of Reporting Obligation. The Master Developer’s obligations under this Disclosure Agreement shall terminate upon the earliest to occur of the following events:
(a) the legal defeasance, prior redemption or payment in full of all of the Bonds, or (b) if on any date the Master Developer and its Affiliates in the aggregate own property within the District subject to less than twenty percent (20%) of the then annual Special Taxes levied on property in the District, or
(c) with respect to Property transferred to another Person, the assumption of the Master Developer’s obligations under this Disclosure Agreement with respect to such Property in accordance with Section 13 below.
If such termination occurs prior to the final maturity of the Bonds, the Master Developer shall give notice of such termination in the same manner as for an Annual Report hereunder.
SECTION 8. Dissemination Agent. The initial Dissemination Agent under this Disclosure Agreement shall be NBS. The Dissemination Agent shall not be responsible in any manner for the form or content of any notice or report prepared by the Master Developer pursuant to this Disclosure Agreement. The Dissemination Agent may resign by providing (i) thirty days written notice to the Master Developer and the City and (ii) upon appointment of a new Dissemination Agent hereunder.
SECTION 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Master Developer may amend this Disclosure Agreement, and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied:
(a) If the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5, it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of the Master Developer with respect to the Bonds, or the type of business conducted;
(b) The amendment or waiver either (i) is approved by the Bondowners in the same manner as provided in the Fiscal Agent Agreement for amendments to the Fiscal Agent Agreement with the consent of Bondowners, or (ii) does not, in the opinion of nationally recognized bond counsel addressed to the City and the Fiscal Agent, materially impair the interests of the Bondowners or Beneficial Owners of the Bonds; and
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(c) The Master Developer, or the Dissemination Agent, shall have delivered copies of the amendment and any opinions delivered under (b) and (c) above to the City.
If the financial information or operating data to be provided in an Annual Report or Semiannual Report is amended pursuant to the provisions of this Disclosure Agreement, the Master Developer shall describe such amendment in the next Annual Report or Semiannual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type of financial information or operating data being presented by the Master Developer.
SECTION 10. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Master Developer from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report, Semiannual Report or notice of occurrence of a Significant Event, in addition to that which is required by this Disclosure Agreement. If the Master Developer chooses to include any information in any Annual Report, Semiannual Report or notice of occurrence of a Significant Event in addition to that which is specifically required by this Disclosure Agreement, the Master Developer shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report, Semiannual Report or notice of occurrence of a Significant Event.
The Master Developer acknowledges and understands that other state and federal laws, including but not limited to the Securities Act of 1933 and Rule 10b-5 promulgated under the Securities Exchange Act of 1934, may apply to the Master Developer, and that under some circumstances compliance with this Disclosure Agreement, without additional disclosures or other action, may not fully discharge all duties and obligations of the Master Developer under such laws.
SECTION 11. Default. In the event of a failure of the Master Developer to comply with any provision of this Disclosure Agreement, the Participating Underwriter or any Bondowner or Beneficial Owner of the Bonds may, take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Master Developer or the Dissemination Agent to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Fiscal Agent Agreement, and the sole remedy under this Disclosure Agreement in the event of any failure of the Master Developer to comply with this Disclosure Agreement shall be an action to compel performance.
SECTION 12. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement and the Master Developer agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which they may incur arising out of or in the exercise or performance of their powers and duties hereunder, including the costs and expenses (including attorneys’ fees) of defending against any claim of liability, but excluding losses, expenses and liabilities due to the Dissemination Agent’s or its officers’, directors’, employees’ or agents’ negligence or willful misconduct, or its failure to perform its duties hereunder. The Dissemination Agent shall be paid by the City, from available funds of the District, for the performance of its duties hereunder in accordance with the Dissemination Agent’s schedule of fees, as amended from time to time. The Dissemination Agent shall not be deemed to be acting in any fiduciary capacity for the Master Developer, the Participating Underwriter, Bondowners or Beneficial Owners or any other party. The Dissemination Agent may rely and shall be protected in acting or refraining from acting upon a direction from the Master Developer or an opinion of nationally recognized bond counsel. The obligations of the Master Developer under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. No person shall have any right to commence any action against the Dissemination Agent seeking any remedy other than to compel specific performance of this Disclosure Agreement. The Dissemination Agent may conclusively rely upon the Annual Reports and Semiannual Reports provided to it by the Master Developer as constituting an Annual Report or Semiannual Report, as applicable, required of the Master Developer in accordance with this Disclosure Agreement and shall have no duty or obligation to review any such Annual Report or Semiannual F-7
Report. The Dissemination Agent shall have no duty to prepare any Annual Report or Semiannual Report nor shall the Dissemination Agent be responsible for filing any Annual Report or Semiannual Report not provided to it by the Master Developer in a timely manner in a form suitable for filing with the Repository. Any company succeeding to all or substantially all of the Dissemination Agent’s corporate trust business shall be the successor to the Dissemination Agent hereunder without the execution or filing of any paper or any further act.
SECTION 13. Reporting Obligation of Master Developer’s Transferees. If a portion of the Property owned by the Master Developer is conveyed to a Person, the obligations of the Master Developer hereunder with respect to the property conveyed may be assumed by such Person and the Master Developer’s obligations hereunder with respect to the property conveyed will be terminated. In order to effect such assumption, such Person shall enter into an assumption agreement containing terms substantially similar to this Disclosure Agreement or as otherwise satisfactory to the City and the Participating Underwriter. However, such Person shall not be required to enter into an assumption agreement if they are already a party to a continuing disclosure agreement containing terms substantially similar to this Disclosure Agreement with respect to the Bonds, and under which the property conveyed to such Person will become subject to future reporting.
SECTION 14. Master Developer as Independent Contractor. In performing under this Disclosure Agreement, it is understood that the Master Developer is an independent contractor and not an agent of the City or the District.
SECTION 15. Notices. Notices should be sent in writing by regular mail or overnight mail to the following addresses. The following information may be conclusively relied upon until changed in writing.
Master Developer and Disclosure
Representative:
RdR Development Holdings, LLC
2121 North Pearl Street, Suite 600
Dallas, TX 75201
Attention: General Counsel
Dissemination Agent: NBS Financial Services
32605 Temecula Parkway, Suite 100
Temecula, CA 92592
Attention: Sara Mares
Fiscal Agent: U.S. Bank Trust Company, National Association One California Street, Suite 1000
San Francisco, CA 94111
Attention: Corporate Trust
Participating Underwriter: Hilltop Securities Inc.
717 N. Harwood Street, Suite 3400
Dallas, TX 75201
Attention: Public Finance
City or District: City of Palmdale
38300 Sierra Highway, Suite D
Palmdale, CA 93550
Attention: Director of Operations
SECTION 16. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Master Developer, the City, the Dissemination Agent, the Fiscal Agent, the Participating Underwriter and Bondowners and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity.
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SECTION 17. Assignability. The Master Developer shall not assign this Disclosure Agreement or any right or obligation hereunder except to the extent permitted to do so under the provisions of Section 13 hereof.
The Dissemination Agent may, with prior written notice to the Master Developer and the City, assign this Disclosure Agreement and the Dissemination Agent’s rights and obligations hereunder to a successor Dissemination Agent.
SECTION 18. Severability. In case any one or more of the provisions contained herein shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision hereof.
SECTION 19. Governing Law. The validity, interpretation and performance of this Disclosure Agreement shall be governed by the laws of the State of California applicable to contracts made and performed in California.
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SECTION 20. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.
RdR Development Holdings, LLC, a Delaware limited
liability company
By: PHCC LLC
(d/b/ a Preston Hollow Community Capital), its
sole member
By:
Name:
Its:
NBS, as Dissemination Agent
By:
Its:
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APPENDIX G
DTC AND THE BOOK-ENTRY ONLY SYSTEM
The information in this Appendix G has been provided by The Depository Trust Company (“DTC”), New York, NY, for use in securities offering documents, and the City does not take responsibility for the accuracy or completeness thereof.
The City of Palmdale, as issuer of the 2025 Bonds (the “Issuer”) and the Fiscal Agent cannot and do not give any assurances that DTC, Direct Participants or Indirect Participants will distribute to the Beneficial Owners either (a) payments of interest, principal or premium, if any, with respect to the 2025 Bonds or (b) certificates representing ownership interest in or other confirmation of ownership interest in the 2025 Bonds, or that they will so do on a timely basis or that DTC, DTC Direct Participants or DTC Indirect Participants mill act in the manner described in this Limited Offering Memorandum.
The following description of DTC, the procedures and record keeping with respect to beneficial ownership interests in the 2025 Bonds, payment of principal, interest and other payments on the 2025 Bonds to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interest in the 2025 Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, no representations can be made concerning these matters and neither the DTC Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be.
Neither the Issuer nor the fiscal agent or paying agent appointed with respect to the 2025 Bonds (the “Agent”) take any responsibility for the information contained in this Appendix.
No assurances can be given that DTC, Direct Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the 2025 Bonds, (b) certificates representing ownership interest in or other confirmation or ownership interest in the 2025 Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the 2025 Bonds, or that they will so do on a timely basis, or that DTC, Direct Participants or DTC Indirect Participants will act in the manner described in this Appendix. The current “Rules” applicable to DTC are on file with the Securities and Exchange Commission and the current “Procedures” of DTC to be followed in dealing with DTC Participants are on file with DTC.
1. The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the 2025 Bonds (the “Securities”). The Securities will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Security certificate will be issued for each issue of the Securities, each in the aggregate principal amount of such issue, and will be deposited with DTC.
2. DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor’s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. The information contained on this Internet site is not incorporated herein by reference.
3. Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC’s records. The ownership interest of each actual purchaser of each Security (“Beneficial F-2
Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Securities are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners.
Beneficial Owners will not receive certificates representing their ownership interests in Securities, except in the event that use of the book-entry system for the Securities is discontinued.
4. To facilitate subsequent transfers, all Securities deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Securities with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Securities; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Securities are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.
5. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Securities may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Securities, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of Securities may wish to ascertain that the nominee holding the Securities for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.
6. Redemption notices shall be sent to DTC. If less than all of the Securities within an issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.
THE AGENT, AS LONG AS A BOOK-ENTRY-ONLY SYSTEM IS USED FOR THE 2025 BONDS, WILL SEND ANY NOTICE OF REDEMPTION OR OTHER NOTICES ONLY TO CEDE & CO., OR ITS SUCCESSOR AS DTC’S PARTNERSHIP NOMINEE. ANY FAILURE OF CEDE & CO., OR ITS SUCCESSOR AS DTC’S PARTNERSHIP
NOMINEE TO ADVISE ANY PARTICIPANT, OR OF ANY PARTICIPANT TO NOTIFY ANY BENEFICIAL OWNER
OF ANY NOTICE AND ITS CONTENT OR EFFECT WILL NOT AFFECT THE VALIDITY OR SUFFICIENCY OF THE PROCEEDINGS RELATING TO THE REDEMPTION OF THE 2025 BONDS CALLED FOR REDEMPTION OR OF ANY OTHER ACTION PREMISED ON SUCH NOTICE.
7. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Securities unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy).
8. Redemption proceeds, distributions, and dividend payments on the Securities will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from Issuer or Agent, on the payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, Agent, or Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of Issuer or Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.
9. DTC may discontinue providing its services as depository with respect to the Securities at any time by giving reasonable notice to Issuer or Agent. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered.
10. The Issuer may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered to DTC.
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11. The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that the Issuer and the Agent believe to be reliable, but the Issuer and the Agent take no responsibility for the accuracy thereof.
12. THE DISTRICT, THE ISSUER, THE AGENT AND THE UNDERWRITER CANNOT AND DO NOT GIVE
ANY ASSURANCES THAT DTC, THE PARTICIPANTS OR OTHERS WILL DISTRIBUTE PAYMENTS OF PRINCIPAL, INTEREST OR PREMIUM, IF ANY, WITH RESPECT TO THE 2025 BONDS PAID TO DTC OR ITS
NOMINEE AS THE REGISTERED OWNER, OR WILL DISTRIBUTE ANY REDEMPTION NOTICES OR OTHER
NOTICES, TO THE BENEFICIAL OWNERS, OR THAT THEY WILL DO SO ON A TIMELY BASIS OR WILL SERVE AND ACT IN THE MANNER DESCRIBED IN THIS LIMITED OFFERING MEMORANDUM. THE DISTRICT, THE
ISSUER, THE AGENT AND THE UNDERWRITER ARE NOT RESPONSIBLE OR LIABLE FOR THE FAILURE OF
DTC OR ANY PARTICIPANT TO MAKE ANY PAYMENT OR GIVE ANY NOTICE TO A BENEFICIAL OWNER WITH RESPECT TO THE 2025 BONDS OR AN ERROR OR DELAY RELATING THERETO.