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CITY OF SAN JOSE
RESOLUTION NO. ______
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
SAN JOSE AMENDING AND RESTATING RESOLUTION NO.
78382 PROVIDING FOR THE ALLOCATION OF
WASTEWATER SYSTEM REVENUES , THE PLEDGE OF
WASTEWATER NET SYSTEM REVENUES AND
ESTABLISHING COVENANTS TO SECURE THE PAYMENT
OF OBLIGATIONS PAYABLE FROM WASTEWATER NET
SYSTEM REVENUES
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ARTICLE I
DEFINITIONS
Section 1.01. Definitions........................................................................................................ 2
ARTICLE II
SYSTEM REVENUES
Section 2.01. Pledge of the Net System Revenues .............................................................. 12 Section 2.02. Allocation of System Revenues ..................................................................... 12 Section 2.03. Rate Stabilization Fund .................................................................................. 13 Section 2.04. Additional Obligations ................................................................................... 13
ARTICLE III
COVENANTS OF THE CITY
Section 3.01. Against Encumbrances................................................................................... 17 Section 3.02. Against Sale or Other Disposition of Property .............................................. 17 Section 3.03. Maintenance and Operation of the Wastewater System ................................ 17 Section 3.04. Amount of Rates and Charges ....................................................................... 17 Section 3.05. Payment of Claims ......................................................................................... 18 Section 3.06. Compliance with Contracts ............................................................................ 18 Section 3.07. Insurance ........................................................................................................ 18 Section 3.08. Accounting Records and Financial Statements.............................................. 18 Section 3.09. Payment of Taxes and Compliance with Governmental Regulations ........... 19 Section 3.10. Collection of Rates and Charges .................................................................... 19 Section 3.11. Eminent Domain and Insurance Proceeds ..................................................... 19 Section 3.12. Further Assurances......................................................................................... 19
ARTICLE IV
MISCELLANEOUS
Section 4.01. Benefits of Resolution Limited to Parties ...................................................... 19 Section 4.02. Amendments .................................................................................................. 20 NVF:RLT:KML
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Section 4.03. Discharge of Obligations ............................................................................... 20 Section 4.04. Successor Is Deemed Included in all References to Predecessor .................. 20 Section 4.05. Article and Section Headings, Gender and References ................................. 21 Section 4.06. Partial Invalidity............................................................................................. 21 Section 4.07. Amendment and Restatement of Original Master Resolution ....................... 21 Section 4.08. Effective Date ................................................................................................ 21 NVF:RLT:KML
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CITY OF SAN JOSE
RESOLUTION NO. _____
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN JOS E AMENDING AND RESTATING RESOLUTION NO. 78382 PROVIDING FOR
THE ALLOCATION OF WASTEWATER SYSTEM REVENUES , THE
PLEDGE OF WASTEWATER NET SYSTEM REVENUES AND
ESTABLISHING COVENANTS TO SECURE THE PAY MENT OF
OBLIGATIONS PAYABLE FROM WASTEWATER NET SYSTEM
REVENUES
WHEREAS, the City of San Jos é (the “City”) is empowered by its charter to own, operate and maintain systems, plants, buildings, works and other facilities for the collection, treatment and dis posal of sewage and wastewater, including sewage treatment and disposal plants and works and facilities in connection therewith; WHEREAS, pursuant to such authority, the City owns and operates a Sanitary Sewer Collection System (as defined herein);
WHEREAS, pursuant to such authority, on May 6, 1959, the City and the City of Santa Clara entered into that certain Agreement Between San Jose and Santa Clara Respecting Sewage Treatment Plant regarding the ownership, operation, maintenance and use of the Treatme nt Plant (as defined herein);
WHEREAS, the City has previously entered into Contracts (as defined herein) and expects to enter into additional Contracts, the obligations of the City under which will be payable from Net System Revenues (as defined herein);
WHEREAS, pursuant to Resolution No. 78382, adopted by the City Council on October 3, 2017 (the “Original Master Resolution”), the City provided for the allocation of System Revenues (as defined herein) and the pledge of Net System Revenues; and WHEREAS, pursuant to the Original Master Resolution, the City also establish ed covenants to secure the payment of Obligations (as defined herein) payable from Net System Revenues; and
WHEREAS, the City now desires to amend and restate the Original Master Resolution as provided in this Resolution; and
WHEREAS, pursuant to Section 4.02 of the Original Master Resolution , the Original Master Resolution and the rights and obligations of the City and the Owners of Obligations thereunder may be modified, amended or supplement ed with the written consent of the Owners of a majority in aggregate principal amount of Parity Obligations then Outstanding and the NVF:RLT:KML
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written consent of the Owners of a majority in aggregate principal amount of Subordinate Obligations then Outstanding; and
WHEREAS, th ere are currently no Parity Obligations Outstanding under the Original Master Resolution; and
WHEREAS, the amendment and restatement of the Original Master Indenture as provided in this Resolution shall not become effective until the City has re ceived the written consent of the Owners of a majority in aggregate principal of the Subordinate Obligations currently Outstanding;
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF SAN JOSE, AS FOLLOWS:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. Unless the context otherwise requires, the terms defined in this section shall for all purposes hereof and of any amendment hereof or supplement hereto and of any report or other document mentioned herein or therein have the meanings defined herein, all of the following definitions shall be equally applicable to both the singular and plural forms of any of the terms defined herein:
Accountant’s Report
“Accountant’s Report” means a report signed by an Independent Certified Public Accountant.
Accreted Value
“Accreted Value” means, with respect to any Capital Appreciation Obligation , the principal amount thereof plus the interest accrued thereon, compounded at the approximate interest rate thereon on each date specified therein. The Accreted Value of any Capital Appreciation Obligation at any date shall be the amounts set forth in the a ccreted value table for the Capital Appreciation Obligation as of such date, if such date is a compounding date, and if not, as of the immediately preceding compounding date.
Adjusted Net System Revenues
“Adjusted Net System Revenues” means, for any period, Net System Revenues for such period less: (1) to the extent included in the calculation of Net System Revenues for such period and taken into account in the calculation of Debt Service under subparagraph (h) of the definition thereof for such period, all Subsidy Payments received or expected to be received in such period; and (2) to the extent included in the calculation of Net System Revenues for such period and NVF:RLT:KML
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taken into account in the calcul ation of Debt Service under subparagraph (h) of the definition thereof for such period, payments received or expected to be received in such period from other users of the Treatment Plant for debt service related to the Treatment Plant payable b y other users of the Treatment Plant pursuant to any agreement entered into by such users.
Annual Debt Service
“Annual Debt Service” means, with respect to any Obligations and for any Fiscal Year, the aggregate amount of Debt Service on such Obligations becoming due and payable during such Fiscal Year.
Average Annual Debt Service
“Average Annual Debt Service” means with respect to any Obligations and as of any date of calculation, the quotient obtained by dividing (1) the sum of the Annual Debt Service on s uch Obligations for all Fiscal Years during the period commencing with the Fiscal Year in which such calculation is made (or, if appropriate, the first full Fiscal Year following the issuance or incurrence of such Obligations) and terminating in the last F iscal Year in which any Debt Service on such Obligations is due by (2) the number of such Fiscal Years.
Balloon Indebtedness
“Balloon Indebtedness” means, with respect to any Obligations twenty- five percent (25%) or more of the principal or other similar amount of which matures or becomes due on the same date or within a 12 -month period (with sinking fund payments deemed to be payments of matured principal), that portion of the principal or other similar amount of such Obligations which matures or becomes due on such date or within such 12-month period.
Capital Appreciation Obligation
“Capital Appreciation Obligation ” means any Obligation designated as such in the Contract providing for the creation of such Obligation and on which interest is compounded and paid at maturity or on prior redemption.
Capital Costs of the Wastewater System
“Capital Costs of the Wastewater System” means costs, or charges made therefor, for capital additions, replacement (except for capital expenditures for obtaining and installing equipment, accessories or appurtenances which are necessary during the service life of the Treatment Plant to maintain the capacity and performance for which the Treatment Plant was designed and constructed and do not constitute major rehabilitation needed as individual unit processes or other facilities near the end of their useful lives, structural rehabilitation, or Treatment Plant expansions or upgrades to meet future user demands), betterments, extensions or improvements to or retirements from the Wastewater System.
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City
“City” means the City of San Jos é, a municipal corporation, duly organized and existing under and by virtue of its charter and the Constitution of the State of California.
Code
“Code” means the Internal Revenue Code of 1986, as amended , and the r egulations thereunder and any successor to the Internal Revenue Code of 1986.
Consultant
“Consultant” means the consultant, consulting firm, engineer, architect, engineering firm, architectural firm, accountant or accounting firm retained by the City to perform acts or carry out the duties provided for such consultant hereunder.
Contracts
“Contracts” means the 2017 Contract and any other indenture, trust agreement, installment purchase agreement, lease, contract or other instrument or agreement (including any Hedge Agreement) designated as a “Contract” under this Resolution by the City, the payments under which are payable from the Net System Revenues.
Coverage Requirement
“Coverage Requirement” means, with respect to any specified period, an amou nt of Adjusted Net System Revenues for the specified period equal, in each case, to at least (1) 110% of the Debt Service on all Outstanding Parity Obligations for the specified period, (2) 100% of the Debt Service on all Outstanding Parity Obligations and Outstanding Subordinate Obligations for the specified period, and (3) 100% of all obligations of the City payable from Net System Revenues in the specified period.
Debt Service
“Debt Service,” when used with respect to any Obligations, means, for any peri od, the sum of (1) the interest payable during such period on such Obligations, (2) the principal or sinking fund payments to be paid with respect to such Obligations during such period, and ( 3) any other scheduled payments coming due on such Obligations in such period and not otherwise included in clause s (1) and (2) of this definition , all of which are to be computed on the assumption that no portion of such Obligations shall cease to be Outstanding during such period except by reason of the application of scheduled payments; provided that, for purposes of such computation:
(a) unless a different subsection of this definition applies for purposes of determining maturities or amortization, in determining the amount due in any period, payment shall be NVF:RLT:KML
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assumed to be made in accordance with any amortization schedule established for such Obligations, including any sinking fund payments or any scheduled redemption or payment of Obligations on the basis of Accreted Value, and for such purpose, the redemption payme nt or payment of Accreted Value shall be deemed a principal payment and interest that is compounded and paid as Accreted Value shall be deemed due on the scheduled redemption or payment date and any contingencies that may result in a request for earlier payment shall be disregarded; (b) Balloon Indebtedness may, at the option of the City, be treated as if it were to be amortized with substantially level debt service over a term of up to 40 years (which period shall be designated by the City), from the date of calculat ion, and the interest rate used for such computation shall be assumed by the City to be equal to (i) the interest rate in effect for such Balloon Indebtedness on the date of calculation, if the interest rate determination method in effect for such Balloon Indebtedness on the date of calculation provides for interest rate s that are fixed for at least 12 months from the date such interest rate s are determined or (ii) if the interest rate determination method in effect for such Balloon Indebtedness on the date of calculation provides for interest rates that are not fixed for at least 12 months from the date such interest rates are determined , the average of (x) the SIFMA Swap Index if the interest on such Balloon Indebtedness is excluded or expected to be exclu ded from gross income for federal income tax purposes or (y) the SOFR Index if the interest on such Balloon Indebtedness is included or expected to be included in gross income for federal income tax purposes, in each case over the 12 month period ending one month before the date of calculation (provided, however, that if any such index is no longer published, the interest rate to be used by the City for such computation shall be calculated based upon such similar index as is determined by the City); (c) if any Obligations bear, or if any Obligations proposed to be created will bear, interest at a variable interest rate for which a Hedge Agreement is not in place and the interest on which is excluded or expected to be excluded from gross income for federal in come tax purposes, the interest rate on such Obligations for periods when the actual interest rate cannot yet be determined shall be assumed to be equal to the average of the SIFMA Swap Index for the 12 month period ending one month before the date of calculation (provided, however, that if such index is no longer published, the interest rate on such Obligations shall be calculated based upon such similar index as is determined by the City);
(d) if any Obligations bear, or if any Obligations proposed to be created will bear, interest at a variable interest rate for which a Hedge Agreement is not in place and the interest on which is included or expected to be included in gross income for federal income tax purposes, the interest rate on such Obligations for periods when the actual interest rate cannot yet be determined shall be assumed to be equal to the average of the SOFR Index for the 12 month period ending one month before the date of calculation (provided, however, that if such index is no longer published, the interest rate on such Obligations shall be calculated based upon such similar index as is determined by the City);
(e) with respect to any Obligations bearing interest, or expected to bear interest, at a variable interest rate for which a Hedge Agr eement is in place providing for a synthetic fixed NVF:RLT:KML
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interest rate to maturity or for a specific term with respect to such Obligations, the interest rate on such Obligations shall be assumed to be the synthetic fixed interest rate specified in suc h Hedge Agreement for such term;
(f) with respect to any Obligations bearing interest, or expected to bear interest, at a fixed interest rate for which a Hedge Agreement is in place providing for a net variable interest rate with respect to such Obligation s for a spe cific term, the interest rate on such Obligations shall be assumed to be equal for such term to the sum of ( i) the fixed interest rate or rates to be paid on the Obligations, minus ( ii) the fixed interest rate or rates receivable by the City under such Hedge Agreement, plus (iii) the variable interest rate to be paid by the City under the Hedge Agreement, calculated, for periods in which the actual variable rate under the Hedge Agreement cannot be determined, at the average interest rate of the i ndex on which the Hedge Agreement is based, or, if not based on an identifiable index, then the average of (x) the SIFMA Swap Index if the interest on the related Obligations is excluded or expected to be excluded from gross income for federal income tax purposes or (y) the SOFR Index if the interest on the related Obligations is included or expected to be included in gross income for federal income tax purposes , in each case over the 12 month period ending one month before the date of calculation (provided, however, that if any such index is no longer published, the variable interest rate to be paid by the City under the Hedge Agreement shall be calculated based upon such similar index as is determined by the City);
(g) if any Obligations feature an option, on the par t of the owners or a requirement under the terms of such Obligations, to tender all or a portion of such Obligations to the City, or other fiduciary or agent, and to purchase such Obligations or portion thereof if properly presented, then for purposes of d etermining the amounts due in any period with respect to such Obligations, the options or obligations of the owners of such Obligations to tender the same for purchase or payment shall be ignored;
(h) payments on Obligations shall be excluded to the extent such payments are (1) to be paid from amounts on deposit with a trustee or other fiduciary in escrow specifically therefor , (2) paid or expected to be paid from payments received from other users of the Treatment Plant for debt service related to the Treatment Plant payable by other users of the Treatment Plant pursuant to any agreement entered into by such users , or (3) paid or expected to be paid from Subsidy Payments , and interest payments shall be excluded to the extent that such interest payments are to be paid from the proceeds of Obligations, including any investment earnings thereon, held by a t rustee or other fiduciary as capitalized interest specifically to pay such interest;
(i) with respect to Obligations for which a reserve fund is i n place, the calculation of Debt Service for such Obligations for any period shall be reduced by the amount of investment earnings on amounts on deposit in such reserve fund used or expected to be used to pay Debt Service on such Obligations during such period, as estimated by the City; NVF:RLT:KML
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(j) with respect to Obligations for which a reserve fund is in place, the amount on deposit in such reserve fund on any date of calculation of Debt Service shall be deducted from the amount due on the final maturity or due date of such Obligations if such amount on deposit in such reserve fund would be released at such maturity or due date and, to the extent the amount on deposit in such reserve fund is in excess of the amount due on the final maturity or due date of such Obligations, such excess shall be applied to the full amount due on each preceding payment date for such Obligations, in inverse order, until such amount on deposit in such reserve fund is exhausted;
(k) Reimbursement Obligations or potential Reimbursement Ob ligations shall be ignored; and
(l) payments or potential payments under Hedge Agreements may, at the option of the City, be ignored except as provided in clauses (e) and (f) of this definition.
Fiscal Year
“Fiscal Year” means the period beginning on July 1 of each year and ending on the next succeeding June 30, or any other twelve -month period selected and designated as the official Fiscal Year of the City.
Hedge Agreement
“Hedge Agreement ” means an interest rate swap, cap, collar, option, floor, forward, derivative, or other hedging agreement, arrangement, or security, however denominated, entered into between the City and a c ounterparty, in connection with or incidental to the issuance, incurrence, or carrying of Obligations, including an interest rate swap, cap, collar, option, floor, forward, derivative, or other hedging agreement, arrangement, or security entered into in advance of the issuance or incurrence of Obligations.
Independent Certified Public Accountant
“Independent Certified Public Accountant ” means an y firm of certified public accountants appointed by the City, and each of whom:
(1) is in fact independent and not under the domination of the City; (2) does not have a substantial financial interest, direct or indirect, in the operations of the City; and
(3) is not connected with the City as a council member, officer or employee of the City, but may be regularly retained to make reports to the City.
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Maintenance and Operation Costs
“Maintenance and Operation Costs” means the City’s reasonable and necessary costs of and charges for maintenance and operation of the Wastewater System, determined in accordance with generally accepted accounting principles, including (among other things) the City’s reasonable expenses of management, repair and other expenses nece ssary to maintain and preserve the Wastewater System in good repair and working order, reasonable amounts for administration, overhead, taxes (if any) and other similar costs; provided, however, that Maintenance and Operation Costs shall not incl ude (a) depreciation or obsolescence charges or reserves therefor ; (b) capital asset expenditures; (c) amortization of intangibles or other bookkeeping entries of a similar nature ; (d) interest charges and charges for the payment of bonded or other indebtedness; (e) losses from the sale, abandonment, reclassification, revaluation or other disposition of any properties of the Wastewater System ; (f) such property-items which are capitalized pursuant to then -existing accounting practices of the City; (g) Maintenance and Operation Costs payable from amounts identified in clause (e) of the definition of System Revenues; (h) Capital Costs of the Wastewater System ; or (i) any costs of or charges for or relating to the South Bay Water Recycling Program System . Maintenance an d Operation Costs shall also include (1) all fees, compensation or expenses required to be paid by the City pursuant to any Contract or other agreement relating to an Obligation, including fees, compensation or expenses of trustees, paying agents , credit enhancement providers, liquidity providers, hedge providers, remarketing agents or similar entities (for the avoidance of doubt, payments made under any such Contract that is or may be taken into account in connection with the calculation of Debt Service shall be excluded from Maintenance and Operation Costs and any payment owed pursuant to a Hedge Agreement by reason of an event of default under or termination of such Hedge Agreement shall be excluded from Maintenance and Operation Costs) and (2) Qualified Take or Pay Obligations.
Net Proceeds
“Net Proceeds” means, when used with respect to any insurance, self-insurance or condemnation award, the proceeds from such award remaining after payment of all expenses (including attorneys’ fees) incurred in the collection of such proceeds.
Net System Revenues
“Net System Revenues” means, for any period, the System Revenues for such period less Maintenance and Operation Costs for such period.
Obligations
“Obligations” means (1) the City’s obligation to make payments under the 2017 Contract and (2) any other obligation of the City payable from Net System Revenues as set forth in any other Contract and, as the context may require and without duplication, the portion of any obligation secured by such obligation of the City with the approval of the City.
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Outstanding
“Outstanding,” when used as of any particular time with respect to Obligations, means all Obligations theretofore created by the City, except ( 1) Obligations theretofore cancelled or terminated or surrendered f or cancellation or termination; ( 2) Obligations paid or deemed to be paid within the meaning of the Contract providing for the creation of such Obligations ; ( 3) Obligations owned or held by the City; and (4) Obligations in lieu of or in substitution for which other Obligations have been created pursuant to the terms of the Contract providing for the creation of such Obligations.
Owner
“Owner” means, with respect to any Obligations, the party entitled to receive payments of such Obligations as set out in the Contracts providing for the creation of such Obligations.
Parity Obligation Contracts
“Parity Obligation Contracts” means all Contracts pursuant to which Parity Obligations are created.
Parity Obligations
“Parity Obligations” means all Obligations designated as such in the Contract s creating such Obligations and which are created in accordance with Sections 2.04(b), (c) or (d) hereof.
Qualified Take or Pay Obligation
“Qualified Take or Pay Obligation” means the obligation of the City to make use of any facility, property or services, or some portion of the capacity thereof, or to pay therefor from System Revenues, or both, whether or not such facilities, properties or services are ever made available to the City for use.
Rate Stabilization Fund
“Rate Stabilization Fund” means the fund by that name maintained by the City pursuant to Section 2.03 hereof.
Reimbursement Obligations
“Reimbursement Obligations” means any obligation of the City to repay, from Net System Revenues , amounts provided by a credit enhanc ement provider or a liquidity f acility provider as credit or liquidity support relating to any Obligations.
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Sanitary Sewer Collection System
“Sanitary Sewer Collection System” means the whole and each and every part of the sanitary sewer collecti on and conveyance system of the City including the portion thereof existing on the date of this Resolution, and including all additions, betterments, extensions and improvements to such system or any part thereof and hereafter acquired or constructed but excluding the Treatment Plant.
SIFMA Swap Index
“SIFMA Swap Index” means, on any date, a rate determined on the basis of the seven- day high grade market index of tax -exempt variable rate demand obligations, as produced by Municipal Market Data and published or made a vailable by the Securities Industry & Financial Markets Association (“SIFMA”) or by any person acting in cooperation with or under the sponsorship of SIFMA and effective from such date.
SOFR Index
“SOFR Index” means the Secured Overnight Financing Rate rep orted on the website of the Federal Reserve Bank of New York, currently at http://www.newyorkfed.org, or such successor source for the Secured Overnight Financing Rate identified by the Federal Reserve Bank of New York, as administrator of the Secured Overnight Financing Rate, or a successor administrator of the Secured Overnight Financing Rate.
South Bay Water Recycling Program System
“South Bay Water Recycling Program System ” means those water reclamation facilities originally established in 1995 and purs uant to the National Pollutant Discharge Elimination System Permit for the Wastewater System , including the facilities to treat water produced directly from tertiary filters and chlorine contact tanks, and by the Silicon Valley Advanced Water Purification Center, and the conveyance system that delivers recycled water to customers of water retailers, including any portion of such facilities existing on the date of this Resolution, and including all additions, betterments, extensions and improvements to such facilities or system or any part thereof acquired or constructed after the date of this Resolution.
Subordinate Obligation Contracts
“Subordinate Obligation Contracts” means (1) the 2017 Contract and (2) all other Contracts pursuant to which Subordinate Obligations are created.
Subordinate Obligations
“Subordinate Obligations” means (1) the City’s obligation to make payments under the 2017 Contract and (2) all other Obligations designated as such in the Contract s creating such Obligations and created in accordance with Section 2.04(f) hereof.
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Subsidy Payments
“Subsidy Payments” means payments with respect to the principal or interest or other regularly scheduled payment due on an Obligation made by the United States Treasury or other entity to the City or a trustee or fiduciary pursuant to Section 54AA of the Code, Section 6431 of the Code, or Section 1400U-2 of the Code or any successor to or extension or replacement of any of such provisions of the Code, or pursuant to any other statutory or regulatory fra mework providing for a subsidy, reimbursement, grant or other payment from a governmental entity.
System Revenues
“System Revenues” means all income, rents, rates, fees, charges , subsidies and receipts derived by the City from the ownership and operation of the Wastewater System , determined in accordance with generally accepted accounting principles, including (1) sewer service and use charges imposed by the City with respect to the Wastewater System ; (2) connection charges imposed for the cost of connecting to the Treatment Plant to the extent lawfully available for the payment of Obligations ; (3) connection fees imposed for the cost of connecting to the Sanitary Sewer Collection System to the extent lawfully available for the payment of Obligatio ns; and (4) payments received from other users of the Treatment Plant for (i) Maintenance and Operation Costs of the Treatment Plant or (ii) debt service related to the Treatment Plant payable by other users of the Treatment Plant pursuant to any agreement entered into by such users, but excluding (a) refundable deposits made to establish credit, lease deposits and security deposits ; (b) the proceeds of any Obligations or indebtedness; ( c) insurance proceeds or condemnation awards; (d) grants to the City which are designated by the grantor for a specific purpose and are therefore not available to be treated as System Revenues; (e) payments by users of the Wastewater System made to cover Capital Costs of the Wastewater System; (f ) moneys received from the lev y of ad valorem taxes by the City ; and (g) all income, rents, rates, fees, charges, subsidies and receipts derived by the City from the ownership and operation of, or otherwise derived from or related to, the South Bay Water Recycling Program System . Syst em Revenues also includes all interest, profits or other income derived from the deposit or investment of any moneys in any fund or account established by the City for the deposit of System Revenues and all repayments of any loans made for customer retrofi ts required for connection to the Treatment Plant.
Notwithstanding the foregoing, there shall be deducted from current System Revenues any amounts transferred into the Rate Stabilization Fund from current System Revenues as provided in Section 2.03 hereof and there shall be added to current System Revenues any amounts transferred out of the Rate Stabilization Fund as provided in Section 2.03 hereof.
Treatment Plant
“Treatment Plant” means the existing “ San Jos é-Santa Clara Water Pollution Control Plant” currently known as the “San Jos é-Santa Clara Regional Wastewater Facility” and all improvements, additions and betterments thereto and extensions and rehabilitations thereof but excluding the South Bay Water Recycling Program System.
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Trustee
“Trustee” means any financial institution acting in its capacity as trustee or fiduciary with respect to any Obligations, and its successors and assigns. 2017 Contract
“2017 Contract” means the Subordinate Installment Purchase Contract , dated as of October 1, 2017, betwee n the City of San José Financing Authority and the City, as originally executed and as it may be amended from time to time in accordance with its terms.
Wastewater System
“Wastewater System” means, collectively, the Sanitary Sewer Collection System and the Treatment Plant.
Wastewater Treatment System Fund
“Wastewater Treatment System Fund ” means the existing enterprise fund established on the City’s books and records for the purpose, among others, of accounting for the System Revenues.
ARTICLE II
SYSTEM REVENUES
SECTION 2.01. Pledge of the Net System Revenues. The City hereby pledges the Net System Revenues to secure the payment of a ll Parity Obligations and Subordinate Obligations with the priorities set forth herein ; provided that out of Net System Revenues there may be apportioned such sums for such purposes as are expressly permitted by this Article II.
Such pledge shall constitute a first and exclusive lien on Net System Revenues . The City hereby represents and states that it has not previously granted any lien or charge on any of t he Net System Revenues that has not previously been discharged.
SECTION 2.02. A llocation of System Revenues.
(a) In order to carry out and effectuate the pledge contained in Section 2.01, the City agrees and covenants that all System Revenues shall be accounted for in th e Wastewater Treatment System Fund, which fund the City agrees and covenants to maintain on its books and records so long as any Parity Obligations or Subordinate Obligations remain Outstanding, and all System Revenues accounted for in the Wastewater Treatment System Fund shall be applied and used only in the following order as provided herein:
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(1) The City shall pay all Maintenance and Operation Cost s as they become due and payable and shall make such deposits to the Rate Stabilization Fund as it ma y determine from time to time in accordance with Section 2.03; (2) The City shall pay all payments that are Parity Obligations and make any deposits or transfers required to be made by the City pursuant to all Parity Obligation Contracts, in each case at the times and in the amounts required by each Parity Obligation Contract;
(3) The City shall pay all payments that are Subordinate Obligations and make any deposits or transfers required to be made by the City pursuant to all Subordinate Obligation Contracts, in ea ch case at the times and in the amounts required by each Subordinate Obligation Contract.
(b) As long as all payments required to be paid by the City pursuant to this section have been paid and all deposits or transfers required to be made by the City pursuant to this section have been made at the times and in the amounts required by this section, System Revenues accounted for in the Wastewater Treatment System Fund may be applied and used by the City for any lawful purpose.
SECTION 2.03. Rate Stabilization Fund . The City has previously established a fund denominated the Rate Stabilization Fund. From time to time the City may deposit into the Rate Stabilization Fund, from current System Revenues, such amounts as the City shall determine and the amount of available current System Rev enues shall be reduced by the amount so transferred. The City may also deposit amounts in the Rate Stabilization Fund from any lawfully available source other than current System Revenues and the amount of available current System Revenues shall not be reduced by the amounts so transferred. Amounts may be transferred from the Rate Stabilization Fund and deposited in the Wastewater Treatment System Fund, and any amounts so transferred shall be deemed System Revenues when so transferred.
Deposits to and tr ansfers from the Rate Stabilization Fund for each Fiscal Year shall be made within 270 days after the end of such Fiscal Year. All interest or other earnings upon amounts in the Rate Stabilization Fund may be withdrawn therefrom and accounted for as System Revenues.
SECTION 2.04. A
dditional Obligations.
(a) The City may not create or assume any obligations payable from the Net System Revenues the payments of which are senior or prior in right to the payment by the City of Parity Obligations hereunder.
(b) Without regard to S ection 2.04(c), the City may at any time create Parity Obligations that are Reimbursement Obligation s or create Parity Obligations under a Hedge Agreement provided that (1) the Obligation s to which such Reimbursement Obligations or Hedge Agreement relate are Parity Obligations or expected to be Parity Obligations, as the case may be , (2) there shall not have occurred and be continuing an “Event of Default” under the NVF:RLT:KML
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terms of any Parity Obligation Contract or Subordinate Obligation Contract that will not be cured in connection with the creation of such Parity Obligations and (3) the creation of such Parity Obligations will not constitute either an “Event of Default” under any Parity Obligation Contract or Subordinate Obligation Contract or an event which, with the giving of notice or the passage of time or both, would constitute an “Event of Default” under any Parity Obligation Contract or Subordinate Obligation Contract.
(c) After the initial creation of Parity Obligations hereunder, the City may at any time and from time to time create any other Parity Obligations, provided:
(1) There shall not have occurred and be continuing any “Event of D efault” under the terms of any Parity Obligation Contract or Subordinate Obligation Contract that will not be cured in connection with the creation of such additional Parity Obligations and the creation of such additional Parity Obligations will not constitute either an “Event of Default” under any Parity Obligation Contract or Subordinate Obligation Contract or an event which, with the giving of notice or the passage of time or both, would constitute an “Event of Default” under any Parity Obligation Contract or Subordinate Obligation Contract; and
(2) The City obtains or provides a certificate or certificates, prepared by the City or at the City’s option by a Consultant, showing that either:
(A) the Adjusted Net System Revenues for either the most recent Fiscal Year for which audited financial statements are available or any 12 consecutive calendar month period (selected by the Ci ty) during the 18 consecutive calendar month period ending immediately prior to the creation of such additional Parity Obligations were at least equal to the Coverage Requirement for the most recently completed Fiscal Year , including in the calculation of the Covera ge Requirement for this purpose the Average Annual Debt Service for the additional Parity Obligations to be created ; and for the purpose of providing such certificate or certificates, the City or the City’s Consultant, as applicable, may adjust the Adjusted Net System Revenues for such Fiscal Year or 12 calendar month period, as the case may be, to reflect:
(i) an allowance for Net System Revenues that would have been derived from each new connection to the Wastewater System, or any part thereof, that was made prior to the creation of such additional Parity Obligations but which was not in existence during all or any part of such Fiscal Year or 12 calendar month period under consideration, in an amount equal to the estimated additional Net System Reven ues that would have been derived from each such connection if it had been made prior to the beginning of such Fiscal Year or 12 calendar month period, NVF:RLT:KML
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(ii) an allowance for Net System Revenues that would have been derived from any increase in the rates, fees an d charges fixed and prescribed for use of the Wastewater System which became effective prior to the creation of such additional Parity Obligati ons but which was not in effect during all or any part of such Fiscal Year or 12 calendar month period, in an amount equal to the estimated additional Net System Revenues that would have been derived from such increase in rates, fees and charges if it had been in effect prior to the beginning of such Fiscal Year or 12 calendar month period; and
(iii) an allowance for Net S ystem Revenues that would have been derived from any increase in the amounts chargeable to other users of the Treatment Plant pursuant to any contract with those users, which increase became effective prior to the creation of such additional Parity Obligations but w hich was not in effect during all or any part of such Fiscal Year or 12 calendar month period, in an amount equal to the estimated additional Net System Revenues that would have been derived from such increase if it had been in effect prior to th e beginning of such Fiscal Year or 12 calendar month period; or
(B) the estimated Adjusted Net System Revenues for each of the five full Fiscal Years next following the earlier of (i) the end of the period during which interest on such additional Parity Obliga tions is to be capitalized or, if no interest is capitalized, the Fiscal Year in which such additional Parity Obligations are incurred, or (ii) the date on which substantially all projects financed with the proceeds of such additional Parity Obligations pl us all pro jects financed with all existing Parity Obligations are expected to commence operations, will be at least equal to the Coverage Requirement for each such Fiscal Year; and for the purpose of providing such certificate or certificates, the City or the City’s Consultant, as applicable, may adjust the foregoing estimated Adjusted Net System Revenues to reflect:
(i) an allowance for Net System Revenues that are estimated to be derived from any increase in the rates, fees and charges for use of the Wastewater System which have been adopted and which will be in effect during all or any portion of the period for which such estimates are provided;
(ii) an allowance for Net System Revenues that are estimated to be derived from new connections to the Wastewater System, or any part thereof, reasonably expected during all or any portion of the period for which such estimates are provided in an amount equal to the additional Net System Revenues that are estimated to be derived from such connections; and
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(iii) an allowance for N et System Revenues that are estimated to be derived from any increase in the amounts chargeable to other users of the Treatment Plant pursuant to any contract with those users, which increase will be in effect during all or any portion of the period for which such estimates are provided.
For purposes of clause (B) above, with respect to Maintenance and Operation Cost s, the City or the City’s Consultant, as applicable, shall use such assumptions (which shall be set forth in such certificate or certificates) as such be lieves to be reasonable, taking into account: (i) historical Maintenance and Operation Cost s, (ii) Maintenance and Operation Cost s associated with any additions, improvements or betterments to or extensions or rehabilitations of the Wastewater System to be financed with the proceeds of such additional Parity Obligations and any other new additions , improvements or betterments to or extensions or rehabilitations of the Wastewater System during the period for which such estimates are provided, and (iii) such other factors, including inflation and changing operations or policies, as the City or the City’s Consultant, as applicable, believes to be appropriate.
(d) Without regard to Section 2.04(c), the City may at any time create Parity Obligations for the purpose o f refunding, refinancing or prepaying any obligation payable from Net System Revenues (including the payment of any costs incurred in connection with such refunding, refinancing or prepayment and the creation of such Parity Obligations and the creation of reserve funds, if any, for such Parity Obligations) provided that (1) there shall not have occurred and be continuing an “Event of Default” under the terms of any Parity Obligation Contract or Subordinate Obligation Contract that will not be cur ed in conne ction with the creation of such Parity Obligations and ( 2) the creation of such Parity Obligations will not constitute either an “Event of Default” under any Parity Obligation Contract or Subordinate Obligation Contract or an event which, with t he giving of notice or the passage of time or both, would constitute an “Event of Default” under any Parity Obligation Contract or Subordinate Obligation Contract.
(e) Without regard to Section 2.04(c), the City may create the Subordinate Obligations evidenced by the 2017 Contract.
(f) Without regard to Section 2.04(c), the City may create additional Subordinate Obligations as long as t here shall not have occurred and be continuing an “ Event of Default ” under the terms of any Parity Obligation Contract or Subordinate Obligation Contract that will not be cured in connection with the creation of such Subordinate Obligations and the creation of such Subordinate Obligations will not constitute either an “Event of Default” under any Parity Obligation Contract or Subordinate Obligat ion Contract or an event which, with the giving of notice or the passage of time or both, would constitute an “Event of Default” under any Parity Obligation Contract or Subordinate Obligation Contract. (g) Nothing contained herein shall limit the ability of th e City to create obligations payable from the Net System Revenues on a basis that is subordinate in both payment and lien NVF:RLT:KML
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priority to the Subordinate Obligations as long as there shall not have occurred and be continuing an “Event of Default ” under the ter ms of any Parity Obligation Contract or Subordinate Obligation Contract that will not be cured in connection with the creation of such obligations and the creation of such obligations will not constitute either an “Event of Default” under any Pa rity Obligation Contract or Subordinate Obligation Contract or an event which, with the giving of notice or the passage of time or both, would constitute an “Event of Default” under any Parity Obligation Contract or Subordinate Obligation Contract.
ARTICLE III
COVENANTS OF THE CITY
SECTION 3.01. Against Encumbrances. The City will not hereafter make any pledge of or place any lien on the Net System Revenues having priority over or having parity with the pledge and lien on Net System Revenues created pursuant hereto except as pro vided herein; provided, that nothing contained herein shall limit the ability of the City to create obligations that are secured by a pledge, lien or other encumbrance on Net System Revenues that is subordinate to the pledge and lien on Net System Revenues created pursuant hereto.
SECTION 3.02. A gainst Sale or Other Disposition of Property. The City will not sell, lease or otherwise dispose or permit the sale, lease or disposition of the Wastewater System or any part thereof essential to the proper operation of the Wastewater Sys tem or to the maintenance of the System Revenues , except as provided herein. Further, except as provided herein, the City will not enter into any agreement or lease or permit any other party to enter into any agreement or lease which impairs th e operation of the Wastewater System or any part thereof necessary to secure adequate Net System Revenues for the payment of Parity Obligations and Subordinate Obligations or which would otherwise impair the System Revenues or the operation of the Wastewat er System . Notwithstanding the foregoing, any real or personal property which has become non- operative or which is not needed for the efficient and proper operation of the Wastewater System , or any material or equipment which has become worn out, as determined by the City, may be sold, leased or otherwise disposed of if such sale, lease or other disposition will not materially reduce the Net System Revenues.
SECTION 3.03. M aintenance and Operation of the Wastewater System . The City will maintain and preserve or cause to be maintained and preserved the Wastewater System in good repair and working order at all times and will operate or cause to be operated the Wastewater System in an efficient and economical manner and will pay all Maintenance and Operation Costs as they become due and payable.
SECTION 3.04. A mount of Rates and Charges.
(a) The City will fix and prescribe, or cause to be fixed and prescribed, rates and charges for the use of the Wastewater System in each Fiscal Year that are reasonably estimated to yield during each Fis cal Year Adjusted Net System Revenues for such Fiscal Year equal to at NVF:RLT:KML
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least the Coverage Requirement for such Fiscal Year. The City may make adjustments from time to time in such rates and charges and may make such classification thereof as it deems necessary but s hall not reduce the rates and charges then in effect unless the Adjusted Net System Revenues from such reduced rates and charges will at all times be sufficient to meet the requirements of this section.
(b) So long as the City has complied with its obligations set forth in subsection (a) of this Section 3.04, the failure of the Adjusted Net System Revenues for any Fiscal Year to be equal to at least the Coverage Requirement for such Fiscal Year shall not constitute a default by the City under this Resolution.
SECTION 3.05. Payment of Claims . The City will pay and discharge any and all lawful claims for labor, materials or supplies which, if unpaid, might become a lien on the Net System Revenues, but the City shall not be required to pay such claims if the validit y thereof shall be contested in good faith.
SECTION 3.06. C
ompliance with Contracts . The City will comply with, keep, observe and perform all agreements, conditions, covenants and terms, express or implied, required to be performed by it contained in all contracts for the use of the Wastewater System and all other contracts affecting or involving the Wastewater System to the extent that the City is a party thereto.
SECTION 3.07. I
nsurance. The City will procure and maintain or cause to be procured and maintained such insurance which it shall deem advisable or necessary to protect its interests, which insurance shall afford protection in such amounts and against such risks as are usually covered in connection with sanitary sewer collection and conveyance systems and wastewater system treatment plants similar to the Wa stewater System; provided that the City shall not be required to procure or maintain or cause to be procured or maintained any such insurance unless such insurance is commercially available at reasonable cost; and provid ed further that any such insurance may be maintained under a self -insurance program so long as such self-insurance is maintained in the amounts and manner usually maintained in connection with sanitary sewer collection and conveyance systems and wastewater treatment plants similar to the Wastewater System.
SECTION 3.08. A
ccounting Records and Financial Statements.
(a) The City will keep appropriate accounting records in which complete and correct entries shall be made of all transactions relating to the Wastewater Treatment System Fund, which records shall be available for inspection at reasonable hours and under reasonable conditions.
(b) The City will prepare (commencing with the Fiscal Year ending June 30, 2017), within two hundred and seventy (270) days after the end of each Fiscal Year, financial statements of the City (which shall include the Wastewater Treatment System Fund) or financial NVF:RLT:KML
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statements of the Wastewater Treatment System Fund, in either case for the preceding Fiscal Year and prepared in accordance with generally accepted accounting principles, together with an Accountant’s Report thereon.
SECTION 3.09. Payment of Taxes and Compliance with Governmental Regulations. The City will pay and discharge or cause to be paid and discharged all taxes, assessments and other governmental charges which may hereafter be lawfully imposed upon the Wastewater System or any part thereof or upon the System Revenues when the same shall become due. The City will duly observe and conform with all valid regulations and requirements of any governmental authority relative to the operation of the Wastewa ter System or any part thereof, but the City shall not be required to comply with any regulations or requirements so long as the validity or application thereof shall be contested in good faith.
SECTION 3.10. C
ollection of Rates and Charges . The City will have in effect or cause to be in effect at all times rules and regulations for the payment of bills for the use of the Wastewater System.
SECTION 3.11. E minent Domain and Insurance Proceeds. If all or any part of the Wastewater System shall be taken by eminent domain proceedings, or if the City receives any insurance proceeds resulting from a casualty loss to the Wastewater System, then the Net Proceeds thereof shall be applied to the replacement of the property or facilities s o taken or destroyed, unless the City determines that such property or facility is not necessary to the efficient or proper operation of the Wastewater System and therefore determines not to replace such property or facilities. Any Net Proceeds of such award not applied to replacement or remaining after such work has been completed shall be accounted for in the Wastewater Treatment System Fund and be available for other proper uses of funds accounted for in the Wastewater Treatment System Fund.
SECTION 3.12. F
urther Ass urances. The City will adopt, deliver, execute and make any and all further assurances, instruments and resolutions as may be reasonably necessary or proper to carry out the intention or to facilitate the performance hereof and for the better assuring and confirming the rights and benefits provided herein.
ARTICLE IV
MISCELLANEOUS
SECTION 4.01. Benefits of Resolution Limited to Parties . Nothing contained herein, expressed or implied, is intended to give to any person other than the City, any Trustee, any Owner of Obligations or the parties to any Contract s any right, remedy or claim under or pursuant hereto, and any agreement or covenant required herein to be performed by or on behalf of the City shall be for the sole and exclusive benefit of such other party.
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SECTION 4.02. Amendments.
(a) This Resolution and the rights and obligations of the City and Owners of Obligations hereunder may be modified, amended or supplemented with the written consent of the Owners of a majority in aggregate principal amount of Parity Obligations then Outstanding and the written consent of the Owners of a majority in aggregate principal amount of Subordinate Obligations then Outstanding. The written consent of the Owners of any Obligations may be effected (a) through a consent by the underwriter of such Obligatio ns or the underwriter of obligations secured by such Obligations at the time of the creation of such Obligations and (b) through a provision of a Contract providing for the creation of Obligations that deems (i) any Owners of such Obligations or the owners of obligations secured by such Obligations to consent for purposes of this Section 4.02 by virtue of their purchase of such Obligations or the obligations secured by such Obligations or (ii) any guarantor, credit enhancer, liquidity provider, or similar entity with respect to such Obligations or obligations secured by such Obligations to be the Owner of such Obligations for purposes of granting consent. (b) This Resolution and the rights and obligations of the City and the Owners of Obligations hereunder may also be modified, amended or supplemented at any time, without the written consents of any Owner of any Obligation, but only to the extent permitted by law, and only for any one or more of the following purposes:
(1) to add to the covenants and agreements of the City cont ained herein other covenants and agreements thereafter to be observed or to surrender any right or power herein reserved to or conferred upon the City;
(2) to make such provisions for the purpose of curing any ambiguity, inconsistency, or omission, or of curin g or correcting any defective provision, contained herein, or in regard to matters or questions arising hereunder , as the City may deem necessary or desirable, and which shall not materially and adversely affect the interests of the Owners of Outstanding Obligations; and
(3) for any other purpose that does not materially adversely affect the interests of the Owners of Outstanding Obligations.
SECTION 4.03. Discharge of Obligations. If the City shall pay or cause to be paid any Obligations in accordance with the terms of th e applicable Contract or if any Obligations shall be deemed to have been paid at the times and in the manner stipulated in the applicable Contract, then all agreements, covenants and other obligations of the City hereunder with respect to such O bligations shall thereupon cease, terminate and become void and be discharged and satisfied.
SECTION 4.04. S
uccessor Is Deemed Included in all References to Predecessor .
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presently vested in the City, and all agreements and covenants required hereby to be performed by or on behalf of the City shall bind and inure to the benefit of the successors thereof whether so expressed or not.
SECTION 4.05. Article and Section Headings, Gender and References . The headings or titles of the several articles and sections hereof and the table of contents appended hereto shall be solely for convenience of reference and shall not affect the meaning, construction or effect hereof, and words of any gender shall be deemed and construed to include all genders.
All references herein to “Articles,” “Sections” and other subdivisions or clauses are to the corresponding arti cles, secti ons, subdivisions or clauses hereof; and the words “hereby,” “herein,” “hereof,” “hereto,” “herewith” and other words of similar import refer to this Resolution as a whole and not to any particular article, section, subdivision or clause hereof.
SECTION 4.06. P
artial In validity. If any one or more of the agreements or covenants or portions thereof required hereby to be performed by or on the part of the City shall be contrary to law, then such agreement or agreements, such covenant or covenants or such portions thereof shall be null and void and shall be deemed separable from the remaining agreements and covenants or portions thereof and shall in no way affect the validity hereof.
SECTION 4.07. A
mendment and Restatement of Original Master Resolution . This Resolution amends and rest ates the Original Master Resolution (as defined in the recitals to this Resolution).
SECTION 4.08. E ffective Date. This Resolution shall take effect from and after the latest to occur of the following: (1) the adoption of this Resolution and (2) the City’s receipt of the written consent of the Owners of a majority in aggregate principal of the Subordinate Obligations currently Outstanding to the amendment and restatement of the Original Master Resolution as provided in this Resolution.
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ADOPTED this 15th day of November, 2022, by the following vote:
AYES:
NOES:
ABSENT:
DISQUALIFIED:
SAM LICCARDO
Mayor
ATTEST:
TONI J. TABER, CMC
City Clerk