HomeMy WebLinkAboutB04 ArbCertB4
$4,125,000
TUSTIN PUBLIC FINANCING AUTHORITY
Water Revenue Bonds, Series 2024
(Subordinate Lien)
CERTIFICATE AS TO ARBITRAGE
I, the undersigned Treasurer of the Tustin Public Financing Authority, Orange County,
California (the "Authority"), being one of the officers of the Authority duly charged (by
resolution of the board of directors of the Authority), with others, with the responsibility of
issuing the Authority's $4,125,000 principal amount of Water Revenue Bonds, Series 2024
(Subordinate Lien) (the "Bonds"), dated as of the dated hereof, which Bonds are being issued
this date, hereby certify as follows:
(1) Purpose of Bonds. The Bonds are being issued pursuant to an Indenture of Trust,
dated as of February 1, 2024 (the "Indenture"), between the Authority and The Bank of New
York Mellon Trust Company, N.A., as trustee (the "Trustee"), in order to provide funds to
finance the acquisition and construction of certain improvements and facilities (the "Project") to
the municipal water enterprise (the "Enterprise") of the City of Tustin (the "City"), as more
particularly described in the Certificate Regarding Use of Proceeds, dated the date hereof and
included elsewhere in the transcript for the Bonds.
(2) Status of the Authority. The Authority constitutes a joint exercise of powers entity
created by City and the Tustin Community Redevelopment Agency. The City Council of the
City constitutes the governing body of the Authority and, by virtue of such fact, has the
inherent power to approve and to remove the governing body of the Authority. Based on the
above statements, the City directly controls the Authority and indirectly controls the Authority,
and the Authority thereby constitutes a controlled entity of the City and a subordinate entity of
the City. The Authority possesses the sovereign power of eminent domain and by reason of
such fact constitutes a political subdivision of the State of California and a governmental unit.
(3) Structure of the Financing. Pursuant to an Installment Sale Agreement, dated as of
February 1, 2024, between the Authority, as seller, and the City, as purchaser (the "Installment
Sale Agreement"), the Authority agrees to sell the Project to the City in consideration of the
payment by the City of Installment Payments having a total principal component of $4,125,000
(the "Installment Payments") and in an amount sufficient to pay debt service payments on the
Bonds, which Installment Payments will be paid by the City to the Trustee, as assignee of the
Authority under the Installment Sale Agreement.
(4) Statement of Expectations. On the basis of the facts and estimates in existence on the
date hereof, I reasonably expect the following with respect to the amount and use of gross
proceeds of the Bonds:
(a) Amount Received from Sale of Bonds. The Bonds were sold to Capital One Public
Funding, LLC (the "Purchaser"), at their face amount. Such amount will be remitted by
the Purchaser to the Trustee. Of said amount deposited with the Trustee, $125,000.00
will be deposited in the Costs of Issuance Fund and $4,000,000 will be deposited in the
Project Fund. Both funds are held by the Trustee. The net proceeds of the Bonds,
together with interest earnings thereon, except to the extent that said interest earnings
are required to be rebated to the federal government, will not exceed the amount
necessary for the governmental purposes of the Bonds, namely, the purpose set forth in
paragraph (1).
(b) No Aggregated Issues. No tax-exempt debt has been sold within fifteen (15)
days before or after the date the Bonds were sold that will be paid from substantially the
same source of funds as the Bonds (excluding guarantees from unrelated parties).
(c) Costs of Issuance Fund. The amount deposited in the Costs of Issuance Fund
($125,000.00) will be used for payment of legal fees, printing costs and other costs of
issuance of the Bonds and the Installment Sale Agreement and will be fully expended
promptly upon receipt of invoices. Amounts deposited in the Costs of Issuance Fund, if
invested, will be invested without yield restrictions. Interest earnings and gains
resulting from said investment will be retained in the Costs of Issuance Fund and used
for the purposes thereof. Amounts, if any, remaining in the Costs of Issuance Fund on
the earlier of May 14, 2024, or payment of costs of issuance in full will be deposited in
the Project Fund.
(d) Use of Project Fund; Reimbursement. The proceeds of the Bonds deposited in the
Project Fund will be used for the payment of costs of acquisition and construction of the
Project. No portion of the proceeds of the Bonds will be used for reimbursement of
expenditures paid by the Authority prior to the date hereof except for (i) expenditures
paid for costs of issuance of the Bonds, (ii) preliminary capital expenditures incurred
before commencement of acquisition or construction of the Project that do not exceed
twenty percent (2017o) of the issue price of the Bonds (see subparagraph (n) below), and
(iii) capital expenditures that (A) were paid no earlier than sixty (60) days before the
date of the adoption by the Authority of a declaration of intent to reimburse such
expenditures from the proceeds of obligations, and (B) are reimbursed no later than
eighteen (18) months after the later of the date the expenditure was paid or the date the
Project is placed in service (but no later than three (3) years after the expenditure is
paid). Proceeds (if any) used for reimbursement of expenditures will be deposited in the
general funds of the Authority and will not be used to replace funds of the Authority to
be used to refund debt of the Authority, to create a sinking or pledged fund for such
debt or the Bonds or otherwise to create replacement proceeds for such debt or for the
Bonds.
(e) Completion of Project; Investment of Project Fund; Capital Expenditures. The City,
or an entity thereof, has entered into a contract, or will enter into a contract within six
months, relating to a portion of the Project, which contract constitutes a substantial
binding obligation of the City to a third party and is in excess of five percent (5%) of the
"Net Sale Proceeds" of the Bonds (namely, an amount of proceeds of the Bonds equal to
the issue price of the Bonds, as referenced in subparagraph (n) below, as referenced in
subparagraph (a) above). The City will proceed with due diligence to complete the
Project and to spend the proceeds of the Bonds. Completion is expected by February 14,
2027. All expenditures from the Project Fund will be capital expenditures. Not less than
eighty-five percent (85%) of the Net Sale Proceeds will be spent within three (3) years of
the date hereof. Amounts deposited in the Project Fund will be invested without yield
restrictions for the period from the date hereof to the date that is three (3) years after the
date hereof unless earlier expended (the "3-year Temporary Period"). Interest earnings
and gains resulting from investment of the Project Fund will be retained in that fund
and used for the payment of costs of the Project. Proceeds of the Bonds and interest
earnings and gains on investment thereof, if any, remaining in the Project Fund
following the 3-year Temporary Period will be invested at a yield not in excess of the
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yield of the Bonds (see subparagraph (n) below) or yield reduction payments will be
made to the federal government with respect to such investment after the end of the 3-
year Temporary Period. Amounts, if any, remaining in the Project Fund upon
completion of the Project will be deposited in the Bond Fund, used for the payment of
debt service payments on the Bonds and applied as a credit against Installment
Payments.
(f) Pledge of Revenues; Debt Service Funds, The Authority has pledged certain
revenues (the "Revenues"), consisting primarily of Installment Payments, to the
payment of debt service on the Bonds. Upon receipt the Revenues will be deposited in
the Bond Fund and, when required for the payment of debt service on the Bonds will be
transferred to the Interest Account and the Principal Account within the Bond Fund.
Prepayments of Installment Payments will be used for redemption of the Bonds prior to
their maturity and will be deposited in the Redemption Fund. The Bond Fund and the
Interest Account and the Principal Account within the Bond Fund and the Redemption
Fund (together the "Debt Service Funds") have been established primarily to achieve a
proper matching of revenues (consisting primarily of Revenues and certain interest
earnings) and debt service due on the Bonds during each year that the Bonds are
outstanding. Amounts deposited in the Debt Service Funds will be spent within thirteen
(13) months of the date of deposit, and the Debt Service Funds will be depleted at least
once a year except for a reasonable carryover amount not in excess of the greater of
earnings on the Debt Service Funds durin the preceding bond year for the Bonds (see
subparagraph (n) below) or one -twelfth (112th) of debt service on the Bonds during the
preceding bond year for the Bonds. Amounts in the Debt Service Funds will be invested
without yield restrictions. Interest earnings and gains resulting such investment will be
retained or deposited in the Bonds Fund, used for the payment of debt service payments
on the Bonds and applied as a credit against Installment Payments.
(f) Pledge of Net Revenues. The City has pledged certain net revenues (the
"Pledged Net Revenues") of the Enterprise to the payment of the Installment Payments.
The City will withdraw Net Revenues from the City's existing water fund, established
and held by the City with respect to the Enterprise (the "Water Fund"), with pay certain
senior obligations and pay the same as Installment Payments to the Trustee on or before
each date that debt service is due on the Bonds and the Trustee will deposit Installment
Payments in the Bond Fund.
(g) Current Revenues and Net Revenues. Deposits in the Water Fund, as well as
transfers from the Water Fund to the Bond Fund and from the Bond Fund to the Interest
Account, the Principal Account and the Sinking Account within the Bond Fund, will be
made from current Pledged Net Revenues. Surplus Pledged Net Revenues will be
expended for lawful purposes of the City related to the Enterprise. Surplus Pledged Net
Revenues, if any, are not expected to be available for the payment of debt service on the
Bonds in the event of financial difficulties of the City or the Authority and, if invested,
will be invested without yield restrictions.
(h) No Other Pledged Amounts or Investment -Type Property. Except as described
herein, no amounts have been pledged to, or are reasonably expected to be used directly
or indirectly to pay, principal or interest on the Bonds, nor are there any amounts that
have been reserved or otherwise set aside such that there is a reasonable assurance that
such amounts will be available to pay principal or interest on the Bonds. In addition, the
Authority has not entered into, and does not reasonably expect to enter into, a hedge
contract primarily for the purpose of reducing the Authority's risk of interest rate
changes with respect to the Bonds.
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(i) No Negative Pledges. There are no amounts held under any agreement
requiring the maintenance of amounts at a particular level for the direct or indirect
benefit of the owners of the Bonds or any guarantor of the Bonds, excluding for this
purpose amounts in which the Authority may grant rights that are superior to the rights
of the owners of the Bonds or any guarantor of the Bonds and amounts that do not
exceed reasonable needs for which they are maintained and as to which the required
level is tested no more frequently than every six (6) months and that may be spent
without any substantial restriction other than a requirement to replenish the amount by
the next testing date.
(j) No Replacement Proceeds. There are no amounts that have a sufficiently direct
nexus to the Bonds, the Installment Sale Agreement or to the Project to conclude that the
amounts would have been used for the Project, for Installment Payments or for debt
service on the Bonds if the proceeds of the Bonds were not being used for those
purposes; and the term of the Bonds is not longer than reasonably necessary for the
Project in that the weighted average maturity of the Bonds does not exceed one hundred
twenty percent (120%) of the average reasonably expected economic life of the Project.
(k) No Improper Financial Advantage. The transaction contemplated herein does
not represent an exploitation of the difference between tax-exempt and taxable interest
rates to obtain a material financial advantage and does not overburden the tax-exempt
bond market in that the Authority is not issuing more bonds, issuing bonds earlier, or
allowing bonds to remain outstanding longer than is otherwise reasonably necessary to
accomplish the governmental purposes of the Bonds.
(1) Bond Year for the Bonds. The Authority hereby selects each period from April 2
through April 1 of the following calendar year as the bond year for the Bonds, except
that the first bond year will commence on the date hereof and the last bond year will
end on the date of payment of the Bonds in full.
(m) Rebate Requirement. The Authority has covenanted in the Indenture to comply
with requirements for rebate of excess investment earnings to the federal government to
the extent applicable and acknowledges that the first payment of excess investment
earnings, if any, is required to be rebated to the federal government no later than sixty
(60) days after the end of the fifth (5th) bond year for the Bonds.
(n) Yield of the Bonds. The yield of the Bonds is 4.818944%, determined on the
basis of regularly scheduled principal and interest payments on the Bonds, discounted
to $4,125,000, representing the issue price of the Bonds (being the face amount of the
Bonds). The Purchaser has represented that (i) it will hold its interest in the Bonds for its
own account, (ii) it does not reasonably expect to sell or otherwise transfer its interest in
the Bonds, (iii) it paid the price of $4,125,000 for the Bonds, and (iv) it will treat its
interest in the Bonds as an investment for federal income tax purposes.
(o) No Other Pledged Funds; No Swaps. Except as described herein, no funds have
been pledged to, or are or will be available for, payment of debt service on the Bonds
which have, or will be, invested, directly or indirectly, in securities, obligations, annuity
contracts or other investment -type property producing a yield in excess of the yield on
the Bonds, and no transaction has been, or will be, entered into, directly or indirectly, in
connection with the Bonds involving the swap of fixed rate obligations for variable rate
obligations or vice versa.
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(p) No Replacement. No portion of the proceeds of the Bonds will be used as a
substitute for other funds (replacement funds) which are otherwise available to be used
as a source for financing for any part of the cost of the Project or for the payment of debt
service on the Bonds and which have been, or will be, invested in securities, obligations,
annuity contracts or other investment -type property producing a yield in excess of the
yield of the Bonds.
(q) No Improper Financial Advantage. The transaction contemplated herein does
not represent an exploitation of the difference between tax-exempt and taxable interest
rates to gain a material financial advantage and will not increase the burden on the
market for tax-exempt obligations in that the Bonds are not being issued in an amount
greater than otherwise necessary nor are they being issued sooner, or to be outstanding
longer, than otherwise necessary.
(r) Private Activity. No users of the Project, other than state or local governmental
units, will use more than five percent of the Project, in the aggregate, on any basis other
than the same basis as the general public; and no persons, other than a state or local
governmental unit, will be users of more than five percent of the Project, in the
aggregate, as a result of (i) ownership, (ii) actual or beneficial use pursuant to a lease or a
management, service, incentive payment, research or output contract, or (iii) any other
similar arrangement, agreement or understanding, whether written or oral.
The Authority has not and will not enter into any arrangement that conveys to
any person, other than a state or local government unit, special legal entitlements to any
portion of the Project that is available for use by the general public. No person, other
than a state or local governmental unit, is receiving or will receive any special economic
benefit from use of any portion of the Project that is not available for use by the general
public.
The payment of more than five percent of the principal of or the interest on the
Bonds will not be, directly or indirectly (i) secured by any interest in (A) property used
or to be used in any activity carried on by any person other than a state or local
governmental unit or (B) payments in respect of such property or (ii) on a present value
basis, derived from payments (whether or not to the Authority) in respect of property, or
borrowed money, used or to be used in any activity carried on by any person other than
a state or local governmental unit.
(s) No Sale of the Project. Other than as provided in the next sentence, neither the
Project any portion thereof has been, is expected to be, or will be sold or otherwise
disposed of, in whole or in part, prior to the earlier of (i) the last date of the reasonably
expected economic life to the Authority of the property (determined on the date of
issuance of the Bonds) or (ii) the last maturity date of the Bonds. The Authority may
dispose of personal property in the ordinary course of an established government
program prior to the earlier of (i) the last date of the reasonably expected economic life
to the Authority of the property (determined on the date of issuance of the Bonds) or (ii)
the last maturity of the Bonds, provided: (A) the weighted average maturity of the
Bonds financing the personal property is not greater than 120 percent of the reasonably
expected actual use of that property for governmental purposes; (B) the Authority
reasonably expects on the issue date that the fair market value of that property on the
date of disposition will be not greater than 25 percent of its cost; (C) the property is no
longer suitable for its governmental purposes on the date of disposition; and (D) the
Authority deposits amounts received from the disposition in a commingled fund with
substantial tax or other governmental revenues and the Authority reasonably expects to
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spend the amounts on governmental programs within six months from the date of the
commingling. The Authority acknowledges that if Bond -financed property is sold or
otherwise disposed of in a manner contrary to the above, such sale or disposition may
constitute a "deliberate action" within the meaning of the relevant Treasury Regulations
that may require remedial actions to prevent the Bonds from becoming private activity
bonds. The Authority shall promptly contact Quint & Thimmig LLP or any other
nationally recognized firm of attorneys experienced in the field of municipal bonds
whose opinions are generally accepted by purchasers of municipal bonds if a sale or
other disposition of Bond -financed property is considered by the Authority.
(t) No Hedge Bonds. The Bonds do not constitute "hedge bonds" in that at least
eighty-five percent (8517o) of the proceeds of the Bonds will be used to carry out the
governmental purposes of the Bonds within three (3) years of the date hereof, and not
more than fifty percent (5011o) of the proceeds of the Bonds, if any, are invested in
investments having a substantially guaranteed yield for four (4) or more years.
(u) Future Events. The Authority acknowledges that any changes in facts or
expectations from those set forth herein may result in different yield restrictions or
rebate requirements from those set forth herein. The Authority shall promptly contact
Bond Counsel if such changes do occur.
(v) Permitted Changes; Opinion of Bond Counsel. Any restriction or covenant
contained herein need not be observed or may be changed if the Authority receives an
opinion of Bond Counsel to the effect that such nonobservance or change will not result
in the loss of any exemption for the purpose of federal income taxation to which interest
on the Bonds is otherwise entitled.
(5) Records. The Authority agrees to keep and retain or cause to be kept and retained
sufficient records to support the continued qualification of the Bonds as tax-exempt obligations
that comply with the provisions of the Indenture and the Installment Sale Agreement, to
demonstrate compliance with the covenants in the Indenture and the Installment Sale
Agreement. Such records shall include, but are not limited to, basic records relating to the
transaction (including the Indenture, the Installment Sale Agreement, this Certificate as to
Arbitrage and the Bond Counsel opinion); documentation evidencing the expenditure of Bond
proceeds; documentation evidencing the use of Bond -financed property by public and private
entities (i.e., copies of grant agreements, leases, management contracts and research
agreements); documentation evidencing all sources of payment or security for the Bonds; and
documentation pertaining to any investment of Bond proceeds (in particular information
described in the next paragraph and otherwise related to the purchase and sale of securities,
SLGs subscriptions, yield calculations for each class of investments, actual investment income
received from the investment of proceeds, guaranteed investment contracts and documentation
of any bidding procedure related thereto and any fees paid for the acquisition or management
of investments and any rebate calculations). Such records shall be kept for as long as the Bonds
are outstanding, plus the period ending three years after the latest of the final payment date of
the Bonds or the final payment date of any obligations or series of obligations issued to refund
directly or indirectly all or any portion of the Bonds.
The Authority agrees to keep and retain or cause to be kept and retained for the period
described below adequate records with respect to the investment of all proceeds of the Bonds
and any investment earnings thereon, and with respect to the investment of any funds pledged
to the payment of the Bonds (collectively, "Gross Proceeds"). Such records shall include:
I on
(i) purchase price;
(ii) purchase date;
(iii) type of investment;
(iv) accrued interest paid;
(v) interest rate;
(vi) principal amount;
(vii) maturity date;
(viii) interest payment date;
(ix) date of liquidation, and
(x) receipt upon liquidation.
If any investment becomes gross proceeds of the Bonds on a date other than the date
such investment is purchased, the records required to be kept shall include the fair market
value of such investment on the date it becomes gross proceeds of the Bonds. If any investment
is retained after the date the last Bond is retired, the records required to be kept shall include
the fair market value of such investment on the date the last Bond is retired. Amounts or
investments will be segregated whenever necessary to maintain these records.
(6) Monitoring of Compliance. From time to time, the chief financial officer of the
Authority will review, or cause to be reviewed, the Authority's compliance with the provisions
of this Certificate as to Arbitrage and with the Indenture and the Installment Sale Agreement
(the tax covenants related to the Bonds), and will, if applicable, present for Authority approval
and direction such actions as are necessary to remedy any noncompliance.
(7) No Adverse Ruling. The Authority has not received notice that its Certificate as to
Arbitrage may not be relied upon with respect to its own issues nor has it been advised that any
adverse action by the Commissioner of Internal Revenue is contemplated.
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On the basis of the foregoing, it is not expected that the proceeds of the Bonds will be
used in a manner that would cause the Bonds to be arbitrage bonds within the meaning of
section 148 of the Code and applicable regulations. To the best of my knowledge, information
and belief, the expectations herein expressed are reasonable and there are no facts or estimates,
other than those expressed herein, that would materially affect the expectations herein
expressed.
IN WITNESS WHEREOF, I have hereunto set my hand this 14th day of February, 2024.
�I
Jennifer King,
Treasurer
I, the undersigned Finance Director/Treasurer of the City of Tustin, California, do
hereby certify that I have read the foregoing Certificate as to Arbitrage and, to the best of my
knowledge, information and belief, the expectations therein expressed are reasonable and there
are no facts or estimates, other than those expressed therein, that would materially affect the
expectations therein expressed.
IN WITNESS WHEREOF, I have hereunto set my hand this 14th day of February, 2024.
Jennifer King,
Finance Director/Treasurer
In