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. . Authority's standard loan contract contains a provision that allows any subsequent loans made to that borrower to have parity status, instead of junior status, if the borrower fulfills certain requirements. Consequently, our borrowers with existing loans from the Authority have obtained parity status for their CWCB loans by fulfilling the Authority's parity requirement:,. In addition to some of the CWCB loans having parity status with the Authority's loans, both the State of Colorado Department of Local Affairs (DOLAl and the U.S. Department of Agriculture Rural Development (RDI recently agreed to allow a junior CWCB loan to have parity status with their senior loans to a specific borrower. The process of obtaining parity status would require the borrower to demonstrate its financial capability as described below. If a borrower is financially sound and the CWCB is assured of repayment of its loan, there is no reason to prevent that borrower from borrowing additional funds to further improve its infrastructure. If a borrower cannot meet the requirements, the subsequent loan would not obtain parity status and the status of the CWCB's security interest would remain unchanged. Parity status would only be available to governmental entities such as a municipality or a district, since the loans that would be involved with parity status are made by lenders (Authority, DOLA, RD) that are making loans primarily to governmental entities. Lenders that make loans to private organizations and corporations have other recourses for dealing with a junior loan, such as charging a higher interest rate, and as yet there have been no requests Ifor a parity debt status from lenders dealing with private organizations and corporations. ~. From a policy standpoint, the provision of parity status is consistent with the Board's statutory mission of aiding in the conservation and utilization of the waters of the State by making it easier for our borrowers to obtain subsequent loans to further improve their water systems. In some instances such as a bond source for subsequent loans, the presence of a parity debt provision in the CWCB loan contract allows the bond issued loan to be at a lower interest rate. GUIDELINES FOR PARITY STATUS AND PARITY LIEN TEST To ensure that Construction Fund loans will be repaid, the following guidelines are proposed for offering borrowers parity debt status for their subsequent loans. The parity debt provision would be available to a borrower who is a governmental entity for a loan subsequent to its CWCB loan under the fOllowing conditions: it is in substantial compliance with the CWCB loan contract, including but not limited to, being current on its annual payments to CWCB and being current on its deposits to its CWCB debt service reserve fund - the subsequent loan is from a governmental lender it meets the Parity Lien Test Parity Lien Test. The Parity Lien Test would require a certification from an independent certified public accountant stating that, based on an analysis of the borrower's revenues lior 12 consecutive months out of the 18 preceding months, the revenues were sufficient to pay Page 2 of 3 " - ~