Memorandum Agenda Item 10b 01/27,28/1999

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CWCB Parity Debt Policy • Currently, CWCB loan contracts include an additional debts provision that sets forth the conditions a borrower must meet to obtain the CWCB's consent to additional parity debt. (Parity debt means that the CWCB and a subsequent lender would share an equal claim to the borrower's assets. In the event of default, the two lenders would divide the available assets equally). At its November 1996 meeting, the CWCB adopted a parity debt policy, which did not exclude connection and tap fees in calculating net water system revenues. At its January 1998 meeting, the CWCB amended its parity debt policy and revised the parity lien test to exclude connection and tap fees from a borrower's net revenues. Staff had recommended the revision due to concerns about basing a consent to additional parity debt on a fluctuating source of income (tap fees) rather than on the more stable income produced by the sale of water to existing customers. As established at the January 1998 CWCB meeting, the CWCB will consent to parity status for a subsequent loan only if the borrower meets the following conditions: • The borrower is currently and at the time of the issuance of the parity debt in substantial compliance with all of the obligations of this contract, including, but not limited to, being current on the annual payments due under this contract and in the accumulation of all amounts then required to be accumulated in the borrower's debt service reserve fund; and . • The borrower provides to the CWCB a Parity Certificate from an independent certified public accountant certifying that, based on an analysis of the borrower's revenues, excluding tap and/or connection fees, for 12 consecutive months out of the 18 months immediately preceding the date of issuance of such parity debt, the borrower's revenues are sufficient to pay its annual operating and maintenance expenses, annual debt service on all outstanding indebtedness having a lien on the pledged revenues, including this loan, the annual debt service on the proposed indebtedness to be issued, and all required deposits to any reserve funds required by this contract or by the lender(s) of any indebtedness having a lien on the pledged revenues. The analysis of revenues shall be based on the borrower's current rate structure. C-kt4.--' We/ rted (-1-77 -b-k- 'i- - - ' /-- 6-9 L (41- .-___s l2- � orvv- set/, y ,-- (d9(t -if y.244 14 u -,/pilz -a,,_ „„±„,,, , ,,,, ..44.„11,.,_ ' Ct-- /5 17k.3 17,12 }'`L ,v itilK 4g tl) (Ail vi l' I ii -ow-} LiPiA41,104-3 f- 14--4 .