SR-050995-6EFIN:CMD:kf\finance\admin\stfrpts\wwsurety.sr
Council Meeting• May 9, 1995 Santa Monica, California
MAY 0 g ~
STAFF REPORT
TO: Mayor and City Council
FROM: City Staff
SUBJECT: REPLACING RESERVE ACCOUNT FOR WASTEWATER ENTERPRISE
REVENUE BONDS {HYPERION PROJECT) 1993 REFUNDING SERIES
WITH SURETY BOND
INTRODUCTION
As a result of the City's continuing excellent credit rating and
demonstrated fiscal prudence, the City has the opportunity to enter
into an agreement with AMBAC Indemnity Corporation {AMBAC) far a
surety bond to replace the reserve account for the Wastewater
Enterprise Revenue Bonds {Hyper~.on Project} , 1993 Refunding Series.
By replacing the reserve account with a surety bond, approximately
$2.6 million currently being held in the reserve account can be
used to pay the City of Las Angeles for the City' s share of capital
improvements at the Hyperion Sewage Treatment facility. This
action also reduces the size of the next Wastewater Fund bond issue
by $2.6 million and correspondingly reduces the amount of the
associated wastewater rate increase which will be required to pay
for the annual debt service on the additional bonds.
This is to recommend that the City Manager be authorized to enter
into an agreement to obtain the surety band from AMBAC.
BACKGROUND
In November 1991, the City issued Wastewater Enterprise Revenue
Bands to begin to pay the City of Los Angeles the City's share
through FY 1.992-93 of various capital improvements at the Hyperion
Sewage Treatment facility. The improvements were directed by the
Federal government to reduce pollution into the ocean.
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A
Estimated total cost of the Hyperion capital improvements from FY
1993-94 through the year 2002-03 is $3.7 billion, with Santa
Monica's share being approximately $47,6 million. To complete
financing of Santa Monica's share of this Hyperion capital
upgrading, three additional series of wastewater bond issues are
contemplated: 1996, 199$, and 2000.
The City of Santa Mon~ca's 1991 bonds were refunded in 1993 to take
advantage of lower market interest rates. It was also economically
advantageous to insure the 1993 Bonds though AMBAC, so as to secure
a AAA rating thereby obtaining the lowest possible interest rates
then available for this type of bond.
The indenture {i.e. agreement between the City and the bond
trustee, Bank of America) far the 1993 Bonds required that a
reserve account of approximately $2.7 million be established. The
purpose of the reserve account is to set aside funds approximately
equal to the annual debt service payment to assure bond holders of
the City's commitment to annually pay in a timely manner principal
and interest on outstanding bands.
REPLACEMENT OF RESERVE ACCOUNT WITH SURETY BOND
AMBAC has agreed {see attached commitment} to replace the $2.~
million reserve account with a surety bond, as permitted under the
1993 Bond indenture.
A surety bond is AMBAC's promise to pay up to $2.7 million in
principal and interest on the City`s behalf in a timely manner to
bondholders in the event that the City cannot make these payments.
As evidence of AMBAC's continuing financial ability to fulfill this
promise, the major rating agencies have given AMBAC their haghest
rating of AAA.
Replacing the reserve account with a surety bond will not adversely
impact the City's credit ratings or the AAA rating on the 1993
Bonds
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By replacing the reserve account with a surety bond, $2.7 million
currently held in the reserve account will be transferred to the
improvement account by the bond trustee. Approximately $.1 million
will be required to purchase the surety bond and to pay for other
transaction costs. The resulting $2.6 million increase in the
improvement account will reduce the size of the next Wastewater
Bond issue, and reduce the size of the corresponding wastewater
rate increase required to pay the annual debt service on the next
issue of bonds.
BUDGET AND FINANCIAL IMPACT
Transaction costs associated with replacing the reserve account
with a surety bond will be paid from the bond improvement account
held by the trustee and the budgetary smpact can be absorbed within
the current Wastewater Division budget. These transaction costs
are:
Surety Bond Premium $ 67,241.00
(2 50 of Reserve Account)
Financial Adviser Fee 40,345.00
(1.5°s of Reserve Account)
Bond Counsel Fee 5,000.00
Total $112,5$6 00
Two other nationally recognized firms which provide surety bonds
were contacted: Financial Guaranty Insurance Ca. (FGIC), and
Municipal Bond Investors Assurance Corp. (MBA). Both indicated
that since they were not also insuring the 1993 Wastewater Bonds,
the cast of a surety bond would be from 3°s to 5~ of the amount of
the reserve account, As such, staff does not believe it would be
economically advantageous for the City to formally bid the cost of
the surety bond and recommends purchasing the surety bond from
AMBAC
The financial adviser and bond counsel fees are customary for this
type of transaction.
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RECOMMENDATION
It is recommended that the City Council approve the attached
resolution authorizing the City Manager to enter into an agreement
with AMBAC to replace the reserve account for the 1993 Wastewater
Enterprise Revenue Bonds with a surety bond.
Prepared by: Mike Dennis, Director of Finance
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•` I 2199- 5 JHH4t GH'~.r ~%~~/y~
~~ ,
GUARAN`T'Y AGREEMENT
by and between the
CITY OF SANTA MONICA
and
AMBAC INDEMNITY CORPORATION
Dated as of , 1995
ARTICLE I
DEFINITIONS; SURt;1~Y BOND
Section 1 01 Definitions
Section 1.OZ Surety Bond
Sechan 1 03 Premium
Section 104 Certain Other Expenses
ARTICLE II
REIMBURSEMENT OBLIGATIONS OF CITY AND SECURITY
THEREFOR
Section 2 01 Reimbursement for Payments Under the Surety Bond and Expenses
Section 2 02 Allocation of Payments . _ ... ._ _ .
Section 2 03 Security for Payments . .. ..
Section 204 Unconditional Obligation .. .. ..
ARTICLE III
EVENTS OF DEFAULT
Section 3 01 Events of Default
Section 3 02 Remedies
Section 4 01 Settlement
ARTICLE TV
StJ 1-1 CEMENT
ARTICLE V
MISCELLANEOUS
z
Z
2
.2
3
.. .3
3
... 3
5
... 5
6
Section 5 Ol Computations ... .......__ ..... .. b
Section 5 02. Exercise of Rights ...... .. .... .. .. 6
Section 5 03. Amendment and Waiver .. ..... ... .... .. .. 6
Section 504 Successors and Assigns ... .. ...... .. .... .............. .. b
Section 5 05 Other Sureties .... .. ...... .. .. .7
Section 5 Ob Signature on Bond.... .. ........ .. .... .... .. .......7
Section 5 07 Waiver. .._._ ... ..... .. .. ... ... 7
Section 5 08. Itiiohces, Requests, Demands ............. .. .... .... .. ........ 7
Section 5 09 Survival of Representations and Warranties ...... .................. .. 7
Section 510 Governing Law .. ... ............ ...... ..... .... ..... ... ............... 7
Section 5 11 Counterparts. .... .... ... .. ..... .. .. .7
... ... .
Section 5 12 5everability .... ....... .... _.... ... 8
ANNEX A - Surety Bond .. ... .... .... ... .. .... .. A-1
ANNEX B - Definitions ... .... .... ... .... B-1
ANNEX C - Commitment . ... .... .... ... ..... C-1
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GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT made and entered into as of , 1995 by
and betyveen the C1TY OF SANTA MONICA, a municipal corporation and charter city duly
organized and existing under and by virtue of the Constitution and laws of the State of
California {the "City") and AMBAC INDEMNITY CORPORATION {"A?vIBAC"}, a
Wisconsin-domiciled stock insurance company
WITNESSETH:
WHEREAS, the City owns and operates facilities for the collection of sewage, tivaste
and storm water, including drainage, and has certam rights in facilities far the treatment and
disposal of sewage and wastewater, including the Hyperion Treatment Plant,
WHEREAS, iri order to finance certain improvements to said facilities, the City issued
its VVaskewater Enterprise Revenue Bonds (Hyperion Protect), 1993 Refunding Series (the
'Bonds"), in the aggregate principal amount of $38,620,000,
WHEREAS, the Bonds were issued pursuant to an Indenture, dated as of November 1,
1991, by and between Bank of America l~Tational Trust and Savings Association, as Trustee (the
"Trustee") and the City, as supplemented by a First Supplemental Indenture, dated as of
December 1, 1993, by and between the Trustee and the City the (as so supplemented, the
"Indenture"),
WHEREAS, the Indenture provides that the City may, sub}ect to the requirements of the
Indenture, substitute a Bond Reserve Fund Policy (as defined in the Indenture) for amounts on
deposit in the 1993 Series Reserve Account established under the Indenture in order to satisfy
all or a portion of the Required Reserve (as defined in the Indenture) for the Bonds,
WHEREAS, the City has received from AMBAC a commitment to issue its reserve
surety band {the "Surety Bond") for the Bonds, substantially in the form set forth in Annex A to
this Agreement, guaranteeing certain payments by the City sub}ect ka the terms and limitations
of the Surety Bond,
WHEREAS, the Surety constitutes a Bond Reserve Fund Policy for purposes of the
Indenture, and
WHEREAS, to induce AMBAC to issue the Surety Bond, the City has agreed to pay the
premium for such Surety Bond and to reimburse AMBAC far all payments made by AMBAC
under the Surety Bond from Legally Available Funds, all as more fully set forth in this
Agreement,
NOW, THEREFDRE, in consideration of the premises and of the agreements herein
contained and of the execution of the Surety Bond, the City and AMBAC agree as fallotivs
ARTICLE I
DEhINITIONS; SUIT t'Y BOND
Section 1.fl1. Definitions. Except as otherwise expressly provided herein or unless the
context otherti~~ise requires, the terms which are capitalized herein shall have the meanings
specified m Annex B hereto
Section 1.02. Surety Band. (a) AVIBAC will issue the Surety Bond in accordance with
and subject to the terms and conditions of the Cornrrutment_
(b) The maximum liability of AMBAC under the Surety Bond and the coverage and term
thereof shall be subject to and limited by the Surety Bond Coverage and the terms and
conditions of the Surety Bond
(c} Payments made under the Surety Bond tivill reduce the Surety Bond Coverage to the
extent of that payment, provided that the Surety Bond Coverage shall be automatically
reinstated to the extent of the reimbursement of principal by the City of any payment made by
AMBAC AMBAC shall notify the Trustee in writing no later than the fifth (5th) day following
the reimbursement by the City that the Surety Band has been reinstated to the extent of such
reirribursement
Section 1.03 Premium. In consideration of AMBAC's issuing the Surety Bond, the City
shall pay or cause to be paid the premium set forth in the Commitment
Section 1.04. Certain Other Expenses. The City shall pay all reasonable fees and
disbursements of AMBAC's counsel related to any modification of this Agreement or the Surety
Band
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ARTICLE II
REIMBURSEMENT OBLIGATIONS OF QTY AND SECURITY THEREFOR
Section 2.01. Reimbursement for Payments Under the Surety Bond and Expenses. (a)
The Czt_y shall reimburse AMBAC, from Legally Available Funds ztiRthm the Reimbursement
Period, without demand or notice by AMBAC to tY+e City or any other person, to the extent of
each Surety Bond Payment rvith interest on each Surety Bond Payment from and including the
date made to the date of the reimbursement by the City at the Effectne Interest Rate The City
agrees that the City will pay AMBAC, from Legally Available Funds, monthly level principal
repayments (on or before the tenth day of each month) for each Surety Bond Payment, and
interest thereon, during the Reimbursement Penod To the extent that interest payments due
hereunder are not paid on a monthly basis, or are not paid as each principal repayment is
made, interest shall accrue on such unpaid amounts at a rate equal to the Effective Interest
Rate
(b) The City also agrees to reimburse A\riBAC, from Legally Available Funds, monthly
level repayments (on or before the tenth day of each month) during the Reimbursement Period
for all reasonable expenses incurred by AMBAC in connection with the Surety Bond and the
enforcement by AMBAC of the City's obligations under this Agreement together with interest on
all such expenses from and including the date tivhzch is 30 days from the date a statement for
such expenses is received by the City incurred to the date of payment at the rate set forth m
subsection {a} of this Section 2 Ol.
Section 2.02. Allocation of Payments. AMBAC and the City hereby agree that each
repayment of prmcipal recenred by AMBAC from or on behalf of the City as a reunbursement to
AiVIBAC as required by Section 2 01{a) hereof shall be applied to reinstate all or a portion of
the Surety Bond Coverage to the extent of such repayment Any interest payable pursuant to
Section 2 Ol (a) hereof shall not be applied to the reinstatement of any portion of the Surety
Bond Coverage
Section 2.03. Security far Payments: Instruments of Further Assurance. In order to
secure the Cit}''s obligations hereunder, the City hereby pledges to AMBAC the Legally
Available Funds, which pledge shall constitute a lien on such Legally Available Funds,
subordinate only to the pledge of and hen on Revenues and any other amounts held by the
Trustee m any fund or account established under the Indenture, as provided un Section 5 Ol of
the Indenture [The City agrees that ik will, from tune to tune, execute, acknowledge and deliver,
or cause to be executed, acknowledged and delivered, any and all financuig statements, if
applicable, and all other further instruments as may be required by law or as shall reasonably
be requested by AMBAC for the perfection of the security interest, if any, granted under this
Section 2 03 and for the preservation and protection of all rights of AMBAC under this Section
2 03 ]
Section 2.04. Unconditional Oblieation. So long as AMBAC iii not in default m its
obligations under the Surety Bond, the obligations of the City hereunder shall be absolute and
unconditional and shall be paid or performed strictly in accordance with this Agreement,
irrespective of
(a) any lack of validity or enforceability of, or any amendment or other modification of,
or waiver with respect to the Indenture or the Bonds,
(b) any exchange, release or nonperfection of any secunty interest in property securing
the Bands or this Agreement or any obligations hereunder,
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(c) any circumstances ~r;hich might othertivise constitute a defense available to, or
discharge of, the City with respect to the Bands,
(d} ~ti~hether or not such Bonds are contingent or matured, disputed or undisputed,
liquidated or unhquidated
Section 2.05. Availability of Records. The City shall, or shall cause the Trustee to, after
submission of a demand for payment ac provided in the Bond Surety, make available to
AIviBAC copies of all records relating to the funds and accounts maintained under the
Indenture
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ARTICLE III
EVENTS OF DEFAULT; REMEDIES
Section 3.01. v n f The folloitiRng events shall constrtute Events of Default
hereunder
{a} The City shall fail to pay to AMBAC any amount payable under Section 1 04 or
Section 2 Ol hereof and such failure shall have continued for a period m excess of the
Reiiribursement Period,
(b) Any material representation or tivarranty made by the City hereunder or under the
Indenture or any statement in the application for the Surety Bond or any report, certificate,
financial statement or other instrument provided in connection with the Commitment, the Surety
Bond or herewith shall have been materially false at the tune tivhen made;
(c) Except as otherwise provided in this Section 3 01, the City shaIl fail to perform any
of its other obligations hereunder, provided that such failure continues for more than thirty (30}
days after receipt by the City of notice of such failure to perform,
(d) The City shall (i) voluntarily commence any proceeding or file any petition seeking
relief under the United States Bankruptcy Code or any other Federal, state or foreign
bankruptcy, insolvency or similar law, (u) consent to the institution of, or fail to controvert in a
timely and appropriate manner, any such proceeding or the filing of any such petition, (iu)
apply for or consent to the appointment of a receiver, paying agent, custodian, sequestrator or
sirriilar official for the City or for a substantial part of its property, {iv) file an answer admitting
the material allegations of a petition filed against it in any such proceeding, (v) make a general
assignment for the benefit of creditors, (vi} become unable, admit in writing its inabihty or fail
generally to pay its debts as they become due or (vii) take action for the purpose of effecting
any of the foregoing, or
{e) An involuntary proceeding shall be commenced ar an involuntary petttian shall be
filed in a court of competent Jurisdiction seeking (i) relief in respect of the City, or of a
substantial part of its property, under the United States Bankruptcy Code or any other Federal,
state or foreign bankruptcy, insolvency or similar law or (ii) the appointment of a receiver,
paying agent, custodian, sequestrator or similar official for the City or for a substantial part of
its property, and such proceeding or petition shall continue undismissed for sixty (60} days or
an order or decree approving ar ordering any of the foregoing shall continue unstayed and in
effect for thirty (30) days
Section 3.02. Remedies. If an Event of Default shall occur and be continuing, then
AMBAC may take whatever action at law or m equity may appear necessary or desirable to
collect the amounts then due and thereafter to become due under this Agreement or any related
instrument and any obligation, agreement or covenant of the City under this Agreement,
provided, however, that AMBAC may not take any action (i) to direct or require acceleration ar
other early redemption of the Bonds or (n} which adversely affects the rights of the Owners. All
rights and remedies of AMBAC under this Section 3 02 are cumulative and the exercise of any
one remedy does not preclude the exercise of one or more of the other available remedies
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ARTICLE IV
SE'I'TLEl1iE1ti'T
Section 4.01. Settlement. AivIBAC shall have the exclusi~=e right to decide and determine
~ti-hether any claim, liability, suit or lodgment made or brought against AMBAC, the Citv or any
other party on the Surety Bond shall or shall not be paid, compromised, tested, defended, teed
or appealed, and AIviBAC's decision thereon, if made in good faith, shall be final and binding
upon Ehe City An itemized statement of payments made by Ay1BAC, certified by an officer of
Al~•1BAC, or the voucher or vouchers for such payments, shall be puma facie evidence of the
liability of the City, and if the City fails to reimburse AMBAC, pursuant to subsection (b) of
Section 2 01 hereof, upon the receipt of such statement of payments, mterest shall be computed
on such amount from the date of any payment made by AMBAC at the rate set forth in
subsection (a) of Section 2 Ql hereof
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ARTICLE V
MISCELLANEOUS
Section 5.D1. Computations. All computations or premium, interest and fees hereunder
shall be made on the basis of the actual number of days elapsed over a year of 3b0 days
Section 5.D2. Exercise of Rights. No failure or delay on the part of AMBAC to exercise
any right, power or privilege under this Agreement and no course of dealing between AMBAC
and the City or any other party shall operate as a waiver of any such right, power or privilege,
nor shall any single ar partial exercise of any such right, power or pnvrlege preclude any other or
further exercise thereof or the exercise of any other right, po~ver or pnv~lege The rights and
remedies herein expressly provrded are cumulatn~e and not exclusive of any rights or remedies
which AMBAC tivould otherwise have pursuant to law or equity No notrce to or demand on
any party m any case shall entitle such party to any other or further notice or demand in simnlar
or other circumstances, or constitute a ~ralver of the right of the other party to any other or
further action m any circumstances without notice or demand
Section 5.D3. Arnendrnent and Waiver. Any provision of this Agreement may be
amended, ~vaived, supplemented, discharged or tennuiated only wcth the prior written cansent
of the City and AMBAC. The City hereby agrees that upon the written request of the Trustee,
AMBAC may make or consenk to issue any substitute far the Surety Bond to cure any ambiguity
or formal defect or orrussion m the Surety Bond which does not materially change the terms of
the Surety Bond nor adversely affect the rights of the Owners, and this Agreement shall apply
to such substituted Surety Bond A1~iSAC agrees to deliver to the City and to the company or
companies, if any, rating the Bonds, a copy of such substituted Surety Bond
Section 5.04. Successors and Assigns: Descriptive Headiness. (a) Th1s Agreement shall
bind, and the benefits hereof shall inure to, the Caty and AMBAC and their respective
successors and assigns, provided, that the City may not transfer or assign any or aIl of its rights
and obligations hereunder ~v~thout the prior written cansent of AIVIBAC
(b? The descriptive headings of the various provisions of this Agreement are inserted for
convenience of reference only and shall not be deemed to affect the meaning or construction of
any of the provisions hereof
Section 5.05. Other Sureties. If AMBAC shall procure any other surety to reinsure the
Surety Bond, this Agreement shall inure to the benefit of such other surety, its successors and
assigns, so as to give to it a direct right of action against the City to enforce this Agreement, and
"AMBAC," wherever used herein, shall be deemed to include such reinsuring surety, as its
respective interests may appear.
Section 5.06. signature on Bond. The City's liability shall not be affected by its failure to
sign the Surety Bond nor by any claim that other indemnity or security was to have been
obtained pox by the release of any indemnity, nor the return or exchange of any collateral that
may have been obtained
Section 5.07. Waiver. The City waives any de€ense that this Agreement was executed
subsequent to the date of the Surety Bond, admitting and covenanting that such Surety Bond
was executed pursuant to the City's request and in reliance an the City's promise to execute this
Agreement
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Section 5.08. Notices. Requests. Demands. Except as othernv~se expressly provided
herein, all written notices, requests, demands or other communications to or upon the respective
parties hereto shall be deemed to have been given or made when actually received, or i:n the case
of telex or telecopier notice sent over a telex or a telecopier machzne otivned or operated by a
party hereto, when sent, addressed as specified belotiv or at such other address as either of the
parties hereto or the Trustee may hereafter specify in ~tin'ihng to the others
If to the City City of Santa Monica
1717 4th Street, Suite 250
Santa Monica, California 90401
Attention Mr. Charles M Dennis
City Controller/Director of Finance
If to the Trustee Bank of America I~Tational Trust
and Savings Association
Corporate Trust Department
333 So Beaudry Ave., 25th Flr, #8510
Los Angeles, California 90017
Attention Trust Officer
If to AMBAC AMBAC Indemnity Corporation
One State Street Plaza
17th Flaor
\ie~v York, Ne~v York 10004
Attention General Counsel
Section 5.09. Survival of Representations and Warranties. All representations,
warranties and obligations contained herein shall survive the execution and delivery of this
Agreement and the Surety Bond
Section 5. 10. Governing Law. This Agreement and the rights and obligations of the
parties under this Agreement shall be governed by and construed and interpreted in accordance
n4~ith the laws of the State
Section 5.11. Counterpazts. This Agreement may be executed in any number of copies
and by the different parties hereto on the same or separate counterparts, each of which shall be
deemed to be an original instrument Complete counterparts of this Agreement shall be lodged
~4~ith the City and AMBAC_
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Section 5.T2. Severability. In the event any provision of this Agreement shall be held
invalid or unenforceable by any court of competent lunsdiction, such holding shall not
invalidate or render unenforceable any other provision hereof
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this
Agreement to be duly executed and delivered as of the date first above ~vntten
(Seal}
ATTI=ST
Clance E Dykhouse, City Clerk
APPROVED AS TO FORM
f Y~~~~"`l/a' ~ 7 ~'~"mil - `~'
Alarsha Jones Nloutrae,
City Attorney
CITY OF SANTA MONICA
By
John Jahh, City Manager
AMBAC INDEMNiT'Y CORPORATION
$y
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ANNEX A
SURETY BOND
A-~
ANNEX B
DEFINI"110N5
For all purposes of this Agreement, except as otherwise expressly provided herein or
unless the context otherwise requires, all capitalized terms shall have the meaning as set out
belotiv
"Agreement" means the Guaranty Agreement, dated as of , 1995, by and
between the City and AMBAC, as the same may be modified or amended in accordance with
its terms
"AMBAC" means AMBAC Indemnity Corporation, aWisconsin-domiciled stock
insurance company, and its successors and assigns as provided herein
"Bonds" means the City of Santa Monica V1~'astewater Enterprise Revenue Bonds
(Hyperion Protect) 1993 Refunding Series
"City" means the City of Santa Monica, a municipal corporation and charter city duly
organized and existing under and by virtue of the Constitution and laws of the State
"Commitment" means the AMBAC Cornrnitment for Surety Bond m the farm attached
hereto as Annex C
"Effective Interest Rate" means the lesser of the Reimbursement Rate or the maximum
rate of interest permitted by then applicable law, provided, however, that the Effective Interest
Rate shall in no event be less than the mterest rate on the Bonds
"Event of Default" shall mean those events of default set forth in Section 3 01 of this
Agreement
"Indenture" means the Indenture, dated as of November 1, 1991, by and between Bank
of America National Trust and Savings Association, as Trustee and the City, as supplemented
by a Hirst Supplemental Indenture, dated as of December 1, 1993, by and between the Trustee
and the City, and as the same may from time to tune be further supplemented or amended by
any supplemental indenture delivered pursuant to the terms of the Indenture
"Legally Available Funds" means amounts available, pursuant to Section 5 03(c) of the
Indenture, to pay Policy Costs (as defined in the Indenture) Kith respect to the Surety Bond.
"owners" means the registered owner of any Bond as indicated in the books maintained
by the Trustee for such purpose The term "otivner" shall not include the City or any person or
entity whose obligation or obligations by agreement constitute the underlying security or source
of payment for the Bonds
"Reimbursement Period" means, with respect to a particular Surety Bond Payment or a
particular expense described in Section 2 Ql (b) hereof, the period commencing on the date that
is the first occurring tenth day of a month after such Surety Bond Payment or the statement for
such expense, as applicable, and ending 12 months following such tenth day of the month
"Reimbursemen# Rate" means Citibank's pnme rate plus two (2) percent per annum, as
of the date of such Surety Band Payment, said "pnme rate" being the rate of mterest announced
B-1
from time to time by Citibank, Netiv York, New York, as its prime rate The rate of interest shall
be calculated on the basis of a 360-day year
"State" means the State of Cahforn~a
"Surety Bond" means the surety bond Issued by AMBAC substantially ~n the form
attached to this Agreement as Annex A
"Surety Bond Coverage" means the amount avarlable at any particular time to be paid to
the Trustee under the terms of the Surety Bond, which amount shall never exceed [$2,689,650]
"Surety Band Payment" means an amount equal to the amount paid by AMBAC under
the Surety Bond pursuant to a demand for payment from the Trustee rendered pursuant to the
terms of the Surety Bond
"Trustee" means Bank of America National Trust and Savings Assoc~ahon, as trustee
under the Indenture, and any successor trustee thereto as pro~~ided Ln the Indenture
B-2
ANNEX C
COMMi1MENT
C-1
AMBAC,
:~:4iBAC lndernrutti~ Corporation
One State Street Plana
New York, tiTew York 10004
(212)668-0340 Fa_~ (212) X09-9190
AMBAC INDEMNITY CORPORATION -- COMMITMENT FOR SURETY BOND
Issuer; CITY OF SANTA MONICA, Cc~~itment N~~mher:
CALIFORNIA SB118QB
Date of Commitment:
March 22, 1995
Expirat~.on Date
June 20, 1995
Bonds: $2,650,000 Wastewater
Enterprise Revenue Bonds, (Hyperion
Project) 1993 Refunding Series, dated
December 1, 1993, maturing on January
I, 2022.
Base Rat~.ng
Agency Fee: $1,50Q.00
Premium: 2.5$ of the Debt
Service Reserve F'.u:d
Requirement.
AMBAC Indemnity Corporation ("AMBAC" or "AMBAC Indemnity"), A
Wisconsin Stock Insurance Company, hereby comets to issue a Surety
Bond (the "Comnut~nent"} relating to the Debt Serva.ce Reserve Flznd
for the above-described debt obligations (the "Bonds"),
substantially in the farm attached hereto, subject to the terms and
conditions conta~.ned herein or added hereto tsee conditions set
forth herein).
Ta extend this Commitment after the expiration date set forth
above, an oral (subsequently confirmed in writing) or written
request far renewal must be submitted to AMBAC at least one
business day prior to such expiration date. AMBAC reserves the
right to refuse to grant a renewal or may renew this Commitment
subject to additional terms and conditions.
The Surety Bond (the "Surety") shall be issued if the following
conditions are satisfied:
3
1. AMBAC shall. receive an opinion of counsel or a
certificate of an officer of the Issuer or ultimate
obligor stating that the information supplied to AMBAC in
order to obtain the Surety and the documents to be
executed and delivered in connection with the issuance
and sale of the Bonds do not contain any untrue or
misleading statement of a material fact and do not fail
to state a materia]. fact required to be stated therein or
necessary in order to make the information contained
therein not misleading.
2. No event shall occur which would permit any purchaser of
the Bonds, otherwise required, not to be required to
purchase the Bonds an the date scheduled far the issuance
and delivery thereof.
3. There shall be no material change in or affecting the
Bonds, the Issuer or ultimate obligor {including, but not
limited to, the security for the Bonds), the Official
Statement, if any {or any s1.m~Lar disclosure document),
including any financial statements therein contained, the
financing documents ar any legal opinions to be executed
and delivered in connection with the issuance and sale of
the Bonds, or any other information submitted to AI~AC in
order to obtain the Surety, from the descriptions thereof
provided to AMHAC at any time prior to the issuance of
the Bonds and there shall not have occurred or come t-o
the attention of the issuer or purchaser any material
change of fact or law adverse to the interests of AMSAC,
unless approved by AMBAC in writing.
4. The Bonds shall contain no reference to AMBAC or the
Surety except in the band legend to be provided by AMSAC
or athezwise as may be approved by AMBAC.
5. Unless expressly waived in whole or in part by AMBAC, the
financing documents shall contain a) the terms and
provisions provided in the A~3AC STANDARD PACKAGE
transmitted herewith, and b) any provisions or comments
given orally by Ai~AC.
5. No later than five {S) business days prior to closing,
AMBAC shall be provided with:
{a) proposed copies of all financing documents,
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{b} the proposed official statement {or any similar
disclosure document} and
{c} the proposed various legal opinions delivered in
connection with the issuance and sale of the Bonds,
including, wzthaut 11.mitation, the unqualified
approving opinion of bond counsel rendered by a law
firm acceptable to AMBAC. The form of bond
counsel's approving opinion must be acceptable to
AMHAC. The form of band counsel's approving opinion
shall indicate that the Issuer must comply with
certain covenants under and pursuant to the
Internal Revenue Cade of 1986, as amended and that
the Issuer has the Legal power to comply with such
covenants. AMBAC shall also be grovided with
executed copies of all financing documents,
including but not 1?m~.ted to a Guaranty Agreement,
in form and content acceptable to Ai~+IDAC, the
Official Statement {or any siza~.lar disclosure
document} and the various legal opinions rendered.
The executed opinion of bond counsel shall be
addressed to AMBAC or in lieu thereof, a letter
shall be provaded to AMBAC to the effect that AMSAC
may rely on such opinion as if it were addressed to
AMBAC and such letter shall be delivered with an
executed opinion.
{d} any provisions of the Purchase Contract or Bond
Purchase Agreement referencing AMBAC or the a.ssuer
of the Surety in general. If such provisions are
not received in a timely manner ar if provisions are
inserted in the Purchase Contract or Bond Purchase
Agreement without ANiBAC Indemnity's knowledge,
compliance with such provisions may not be passible.
{e} a letter from bond counsel or counsel to the
purchaser or otherwise from another counsel
acceptable to AMBAC to the effect that the financing
documents, the Official Statement (or any s~m~lar
disclosure document} and the various legal opinions
executed and delivered in connection with the
issuance and sale of the Bands, are substantially in
the forms previously subzaitted to AMSAC for review,
with only such amendments, modifications or
deletions as may be approved by AMBAC.
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(f} a copy of any insurance policy, surety bond,
guaranty or indemnification or any other policy,
contract or agreement which provides for payment of
all or any portion of the debt, the costs of
reconstruction, the loss of business income or in
any way secures, ensures or enhances the income
stream anticipated to pay the Bonds.
(g) A certified or cashier's check for or evidence of
wire transfer of an amount equal to the payment for
the Surety at the time of the issuance and delivery
of the Bonds. Wire transfer shall be used for any
payment for the Surety in an amount greater than
5100,000.
(h} the final debt service schedule.
7. AMBAC Indemnity must receive at least (5} business days
prior to closing an opinion addressed to AMSAG by counsel
acceptable to AMBAC that the Guaranty Agreement is a
legal, valid and binding obligation of the Obligor
thereof, enforceable in accordance with its terms.
8. Ai4+iHAC Indemnity must receive, at least five (5} business
days prior to closing, the escrow agreement, in form and
substance acceptable to AN~AC, for the complete
defeasance of the applicable Bonds (the "Qrior Bonds"}.
9. At least five (5} business days prior to closing, AMBAC
must receive certification by a nationally recognized
accounting fir~a that the securities invested are
sufficient to pay the prior bonds_
I0. AIvIDAC must receive an opinion of Counsel acceptable to
AMBAC that the Prior Bonds have been legally defeased.
11. Funds held by the Escrow Trustee for the payments of the
refunded bonds must be held as cash fully insured by or
the Federal Deposit Insurance Corporation or invested in
direct obligations of the United States of America.
12. AM9AC must receive, at least five (5} business days prior
to closing, a draft opinion of bond counsel or special
tax counsel acceptable to AMB~iC, addressed to AMBAC, a
telecopy of the executed opinion on the day of closing
(212-785-1178} and an executed original following
closing, to the effect that the refunding and escrow are
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in full compliance wath all applicable Federal and State
arbitrage regulations.
13_ AMBAC must receive, at least five t5) business days prior
to closing, draft opinaons of issuer's counsel and escrow
agent's counsel and a telecopy of the executed opinion on
the day of closing (212-785-1178} regarding the validity,
binding nature and enforceabilit of the escrow
agreement.
~~~
`~uth~ ed Officer
,,~2~
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