PRELIMINARY OFFICIAL STATEMENT DATED SEPTEMBER 15, 2016 NEW ISSUE RATING: S&P: “AA” BOOK-ENTRY ONLY (See “RATING”) In the opinion of Bond Counsel, under existing federal law and assuming compliance with applicable requirements of the Internal Revenue Code of 1986, as amended (the “Code”), that must be satisfied subsequent to the issue date of the Bonds, (i) interest on the Bonds (except any Bond for any period during which it is held by a “substantial user” of the Project or a “related person” within the meaning of Section 147(a) of the Code) is excluded from gross income for federal income tax purposes, and (ii) interest on the Bonds is not treated as an item of tax preference for purposes of the federal alternative minimum tax applicable to individuals and corporations and is not included in adjusted current earnings of corporations for purposes of the federal alternative minimum tax. However, interest on the Bonds received by certain S corporations may be subject to tax, and interest on the Bonds received by foreign corporations with United States branches may be subject to a foreign branch profits tax. Receipt of interest on the Bonds may have other federal tax consequences for certain taxpayers. See “TAX MATTERS.” HOUSING AUTHORITY OF THE CITY OF SEATTLE $6,860,000* $15,380,000* REVENUE BONDS, SERIES 2016A REVENUE BONDS, SERIES 2016B (NEWHOLLY PHASE I PROJECT) (NEWHOLLY PHASE I PROJECT) Dated: Date of Initial Delivery Due: October 1 or April 1, as shown on inside cover The Housing Authority of the City of Seattle (the “Authority”) is issuing its Revenue Bonds, Series 2016A (NewHolly Phase I Project) (the “2016A Bonds”) in the aggregate principal amount of $6,860,000*, and its Revenue Bonds, Series 2016B (NewHolly Phase I Project) (the “2016B Bonds” and, together with the 2016A Bonds, the “Bonds”) in the aggregate principal amount of $15,380,000*, pursuant to a Trust Indenture (the “Indenture”) to be dated the Date of Issue, by and between the Authority and U.S. Bank National Association, as trustee (the “Trustee”), as fully registered bonds which initially will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). DTC will act as initial securities depository for the Bonds. Purchases of interests in the Bonds will be made in book-entry form only in denominations of $5,000 and integral multiples thereof within a maturity of each series. Purchasers will not receive certificates representing their interest in the Bonds purchased, except as described herein. Interest on the Bonds is payable semiannually on April 1 and October 1 of each year, commencing April 1, 2017, until maturity or prior redemption, whichever occurs first. As long as the Bonds are registered in the name of DTC or its nominee, principal of, premium, if any, and interest on the Bonds will be paid by the Trustee to DTC, which will remit such principal, premium, if any, and interest to its
not be sold, nor may offers to buy be accepted, prior to the time the Official Statement is participants for subsequent disbursement to the purchasers of interests in the Bonds. See Appendix D – “DTC’S BOOK-ENTRY ONLY SYSTEM.” The Bonds are subject to acceleration of maturity and optional, mandatory and extraordinary mandatory redemption prior to maturity at the redemption prices and under the circumstances described herein. See “THE BONDS – Redemption of the Bonds” and APPENDIX A – “DEFINITIONS OF CERTAIN TERMS; SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL DOCUMENTS – SUMMARY OF CERTAIN PROVISIONS OF INDENTURE.” The Authority will use the proceeds of the Bonds to make a loan to NewHolly Phase I LLLP (the “Borrower”), a Washington limited liability limited urisdiction. urisdiction. j partnership of which the Authority is the sole general partner, pursuant to a Loan Agreement to be dated the Date of Issue (the “Loan Agreement”) for the purpose of providing funds with which to: (1) finance a portion of the cost of acquiring and rehabilitating a 305-unit affordable rental housing such y project, known as NewHolly Phase I in the City of Seattle, Washington; (2) fund a debt service reserve for the 2016A Bonds; and (3) pay certain costs of issuing the Bonds. See “PLAN OF FINANCE.” The Borrower will make payments under the Loan Agreement (“Loan Payments”) from certain revenues and receipts available from the Project. Payment of the principal of and interest on the Bonds is secured by (1) Loan Payments, (2) a leasehold deed of trust granting the Trustee a security interest in the Borrower’s interest in the Project, and (3) a pledge of the Authority’s General Revenues. The 2016A Bonds are also secured by the Debt Service Reserve Account. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS.” THE BONDS ARE SPECIAL OBLIGATIONS OF THE AUTHORITY. THE BONDS DO NOT CONSTITUTE A DEBT OF THE CITY OF SEATTLE, THE STATE OF WASHINGTON OR ANY POLITICAL SUBDIVISION THEREOF. NEITHER THE CITY OF SEATTLE, THE STATE OF WASHINGTON NOR ANY POLITICAL SUBDIVISION THEREOF, EXCEPT THE AUTHORITY, BUT ONLY FROM THE SOURCES SET FORTH IN THE INDENTURE, SHALL BE LIABLE FOR PAYMENT OF THE BONDS. THE AUTHORITY HAS NO TAXING POWER. This cover page contains only a brief description of the Bonds. It is not intended to be a summary of material information with respect to the Bonds. ualification under the securities laws of an of laws securities ualificationthe under
q Investors must read the entire Official Statement to obtain information necessary to make an informed investment decision regarding the Bonds. There are risks associated with purchase of the Bonds. For a discussion of certain of these risks, see “CERTAIN BONDOWNERS’ RISKS.” The Bonds are offered when, as and if issued by the Authority and received by the Underwriters, subject to prior sale, and to the approval of validity and certain other legal matters by Foster Pepper PLLC, Seattle, Washington, Bond Counsel. In connection with the issuance and sale of the Bonds, istration or istration g certain legal matters will be passed on for the Authority by Foster Pepper PLLC, special counsel to the Authority in its capacity as issuer of the Bonds and general partner of the Borrower. It is expected that the Bonds will be available for delivery in New York, New York through the facilities of DTC, or to the Trustee on behalf of DTC by Fast Automated Securities Transfer (FAST), on or about October 6, 2016. rior to rior re
p
* Preliminary, subject to change.
This Preliminary Official Statement and the information contained herein are subject to completion and amendment. The Bonds may delivered in final form. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or a solicitation of an offer to buy, nor unlawful sale be or would solicitation offer, shall there be any sale of the Bonds, in any jurisdiction in which such
MATURITY SCHEDULE*
HOUSING AUTHORITY OF THE CITY OF SEATTLE $6,860,000*
REVENUE BONDS, SERIES 2016A (NewHolly Phase I Project)
Maturity Date Principal Interest CUSIP (October 1) * Amounts* Rates Prices Yields Numbers† 2017 $155,000 2018 160,000 2019 160,000 2020 165,000 2021 165,000 2022 170,000 2023 170,000 2024 175,000 2025 180,000 2026 180,000
$995,000* ____% Term Bond due October 1, 2031* Price ____% Yield ____% CUSIP No. ____†
$1,170,000* ____% Term Bond due October 1, 2036* Price ____% Yield ____% CUSIP No. ____†
$1,375,000* ____% Term Bond due October 1, 2041* Price ____% Yield ____% CUSIP No. ____†
$1,640,000* ____% Term Bond due October 1, 2046* Price ____% Yield ____% CUSIP No. ____†
HOUSING AUTHORITY OF THE CITY OF SEATTLE $15,380,000*
REVENUE BONDS, SERIES 2016B (NewHolly Phase I Project)
Maturity Date Principal Interest CUSIP (April 1) * Amount* Rate Price Yield Number† 2019 $15,380,000
* Preliminary, subject to change.
† Copyright, American Bankers Association. CUSIP data herein are provided by CUSIP Global Services, managed on behalf of the American Bankers Association by Standard & Poor’s. The CUSIP numbers listed above are being provided solely for the convenience of bondholders and the Authority makes no representation with respect to such numbers or undertakes any responsibility for their accuracy. The CUSIP numbers are subject to being changed after the issuance of the Bonds.
Each party listed below has provided the information under the caption or captions following its name. Each party is responsible only for the information provided under the captions following its name, unless otherwise stated.
DTC Appendix D – “DTC’s BOOK-ENTRY-ONLY SYSTEM”
Trustee “THE TRUSTEE”
Underwriters “UNDERWRITING” and the fourth paragraph below All other information set forth herein has been obtained from the Authority and other sources identified herein that are believed to be reliable, but such other information is not guaranteed as to accuracy or completeness and is not to be construed as a representation by the Authority or the Underwriters. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Authority or the other parties listed above since the date of this Official Statement. No broker, dealer, salesperson or other person has been authorized by the Authority or the Underwriters to give any information or to make any representations with respect to the Bonds other than as contained in this Official Statement and, if given or made, such information or representations must not be relied upon as having been authorized by Authority or the Underwriters. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any offer, solicitation or sale of the Bonds, by any person in any jurisdiction in which such offer, solicitation or sale is not authorized or in which the person making such offer, solicitation or sale is not qualified to do so or to any person to whom it is unlawful to make such offer, solicitation or sale. The information set forth herein has been obtained from sources which are believed to be reliable, but is not guaranteed as to accuracy or completeness, and it is not to be construed as a representation by, the Underwriters. Certain statements contained in this Official Statement do not reflect historical facts, but rather are forecasts and “forward- looking statements.” No assurance can be given that the future results discussed herein will be achieved, and actual results may differ materially from the forecasts described herein. In this respect, the words “estimate,” “forecast,” “project,” “anticipate,” “expect,” “intend,” “believe” and other similar expressions are intended to identify forward-looking statements. The forward-looking statements in this Official Statement are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by such statements. All estimates, projections, forecasts, assumptions and other forward-looking statements are expressly qualified in their entirety by the cautionary statements set forth in this Official Statement. The Authority specifically disclaims any obligation to update any forward- looking statements to reflect occurrences or unanticipated events or circumstances after the date of this Official Statement, except as otherwise expressly provided in “Continuing Disclosure – Undertaking to Provide Continuing Disclosure.” The Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their responsibility to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. Information on web site addresses set forth in this Official Statement is not incorporated into this Official Statement and cannot be relied upon to be accurate as of the date of this Official Statement, nor can any such information be relied upon in making investment decisions regarding the Bonds. The order and placement of materials in this Official Statement, including the Appendices, are not to be deemed to be a determination of relevance, materiality or importance, and this Official Statement, including the Appendices, must be considered in its entirety. The offering of the Bonds is made only by means of this entire Official Statement. In connection with the offering of the Bonds, the Underwriters may overallot or effect transactions that stabilize or maintain the market price of the Bonds at levels above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Bonds have not been registered under the Securities Act of 1933, as amended, and the Indenture has not been qualified under the Trust Indenture Act of 1939, as amended, in reliance upon exemptions contained in such acts. The registration or qualification of the Bonds in accordance with applicable provisions of the laws in any states in which Bonds have been registered or qualified and the exemption from registration or qualification in other states cannot be regarded as a recommendation thereof. Neither these states nor any of their agencies have passed upon the merits of the Bonds or the accuracy or completeness of this Official Statement. Any representation to the contrary may be a criminal offense.
HOUSING AUTHORITY OF THE CITY OF SEATTLE
Board of Commissioners
Chair ...... Deborah Canavan Thiele Vice Chair ...... Emily Abbey Commissioner ...... Ahmed Abdi Commissioner ...... Dr. Paula Houston Commissioner ...... David Moseley Commissioner ...... Zachary Pullin Commissioner ...... Jermaine Smiley
Authority Management
Executive Director ...... Andrew Lofton Deputy Executive Director ...... Anne Fiske Zuniga General Counsel ...... James Fearn Chief Financial Officer ...... Shelly Yapp Director of Communications ...... Kerry Coughlin Director of Development ...... Stephanie Van Dyke Director of Housing Operations ...... Rod Brandon Director of Housing Choice Voucher Program ...... Cynthia West Director of Housing Finance and Asset Management ...... Ann-Marie Lindboe Director of Human Resources ...... Marc Nilsen Director of Intergovernmental Relations ...... Lisa Wolters Director of Policy and Strategic Initiatives ...... Andria Lazaga
TRUSTEE
U.S. BANK NATIONAL ASSOCIATION Seattle, Washington
BOND COUNSEL
FOSTER PEPPER PLLC Seattle, Washington
UNDERWRITERS
KEYBANC CAPITAL MARKETS INC. Seattle, Washington
WEDBUSH SECURITIES INC. Scottsdale, Arizona
TABLE OF CONTENTS Page Page Early Redemption ...... 30 INTRODUCTION ...... 1 Competing Facilities ...... 30 THE BONDS ...... 1 Project Feasibility ...... 30 General ...... 1 Secondary Market and Prices ...... 30 Redemption of the Bonds ...... 2 Effects on Exemption of Interest From Federal Optional Redemption ...... 2 Income Taxes ...... 30 Mandatory Redemption ...... 2 Federal Housing Programs ...... 31 Extraordinary Mandatory Redemption ...... 3 Municipal Bankruptcies ...... 31 Notice of Redemption ...... 3 Environmental Matters ...... 32 Cancellation of Redemption ...... 4 TAX MATTERS ...... 32 Effect of Redemption ...... 4 Acceleration ...... 4 ABSENCE OF MATERIAL LITIGATION ...... 33 Open Market Purchases ...... 5 Registration, Transfer and Exchange of the APPROVAL OF LEGALITY ...... 33 Bonds ...... 5 CONTINUING DISCLOSURE ...... 33 Book-Entry Only System ...... 6 Undertaking to Provide Continuing Disclosure ...... 33 Past Compliance with Continuing Disclosure SECURITY AND SOURCES OF PAYMENT FOR THE Undertakings ...... 34 BONDS ...... 6 General ...... 6 RATING ...... 34 Limited Obligations ...... 6 Trust Estate ...... 7 UNDERWRITING ...... 34 Loan Agreement ...... 7 AUTHORITY AUDITS ...... 34 General Revenue Pledge ...... 7 Debt Service Reserve Account ...... 8 CONFLICTS ...... 35 Other Funds and Accounts ...... 9 Deed of Trust ...... 9 OTHER MATTERS ...... 35
PLAN OF FINANCE ...... 9 EXECUTION ...... 35
ESTIMATED SOURCES AND USES OF BOND APPENDIX A DEFINITIONS OF CERTAIN TERMS; PROCEEDS ...... 11 SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL DOCUMENTS DEBT SERVICE SCHEDULE ...... 12 APPENDIX B AUTHORITY’S COMPREHENSIVE ANNUAL THE AUTHORITY ...... 13 FINANCIAL REPORT FOR THE FISCAL General ...... 13 YEAR ENDED DECEMBER 31, 2015 Board Members and Senior Staff ...... 13 APPENDIX C FORM OF BOND COUNSEL OPINION Financial Management ...... 16 APPENDIX D DTC’S BOOK-ENTRY ONLY SYSTEM Programs ...... 17 APPENDIX E FORM OF BORROWER’S CONTINUING Pensions ...... 18 DISCLOSURE AGREEMENT
THE TRUSTEE ...... 20
THE BORROWER AND THE PROJECT ...... 20 The Borrower ...... 20 The Project ...... 20 Lease ...... 21 Use Restrictions and Project Rents ...... 22 Project Management ...... 23 Project Operating Pro Forma ...... 24 Other Project Debt ...... 26 Master Authority Loan ...... 26 Commerce Loan ...... 26 City Loans ...... 27
CERTAIN BONDOWNERS’ RISKS ...... 27 General ...... 27 Special Obligations ...... 27 Revenue Forecasts ...... 28 Casualty Loss or Condemnation ...... 28 Tax Credit Equity ...... 28 Use Restrictions ...... 28 General Revenue Pledge ...... 29 Possible Limitations on Remedies and Enforcement of Security Interests ...... 29 Limitations on Forecasting ...... 30 -i-
(This Page Intentionally Left Blank)
OFFICIAL STATEMENT
RELATING TO
HOUSING AUTHORITY OF THE CITY OF SEATTLE
$6,860,000* $15,380,000* REVENUE BONDS, SERIES 2016A REVENUE BONDS, SERIES 2016B (NEWHOLLY PHASE I PROJECT) (NEWHOLLY PHASE I PROJECT)
INTRODUCTION
This Official Statement, including the cover page and appendices hereto, is being distributed by the Housing Authority of the City of Seattle (the “Authority”), a public body corporate and politic duly organized and existing under the laws of the State of Washington, to provide information in connection with the issuance and sale by the Authority of its Revenue Bonds, Series 2016A (NewHolly Phase I Project) (the “2016A Bonds”) and Revenue Bonds, Series 2016B (NewHolly Phase I Project) (the “2016B Bonds” and, together with the 2016A Bonds, the “Bonds”).
The Bonds will be issued pursuant to the laws of the State of Washington, Resolution No. 5109 of the Authority, adopted by the Board of Commissioners of the Authority on August 15, 2016, authorizing the issuance and sale of the Bonds (the “Resolution”), and a Trust Indenture (the “Indenture”) to be entered into by the Authority and U.S. Bank National Association, as trustee, paying agent and registrar (referred to herein as the “Trustee”).
The Authority will lend the proceeds of the Bonds to NewHolly Phase I LLLP (the “Borrower”), a Washington limited liability limited partnership of which the Authority is the sole general partner, pursuant to a Loan Agreement (the “Loan Agreement”) between the Authority and the Borrower, to provide part of the funds with which to: (1) finance of a portion of the cost of acquiring and rehabilitating the 305-unit affordable rental housing project, known as NewHolly Phase I, in the City of Seattle, Washington (the “Project”); (2) fund a debt service reserve for the 2016A Bonds; and (3) pay costs of issuing the Bonds. See “PLAN OF FINANCE.”
The Borrower will make payments under the Loan Agreement (“Loan Payments”) from certain revenues and receipts available from the Project. Payment of the principal of and interest on the Bonds is secured by (1) Loan Payments, (2) a leasehold deed of trust granting the Trustee a security interest in the Borrower’s leasehold interest in the Project, and (3) a pledge of the Authority’s General Revenues. The 2016A Bonds are also secured by the Debt Service Reserve Account. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS.”
The summaries and descriptions of and references to statutes, the Resolution, the Indenture, the Loan Agreement, the Deed of Trust and other agreements that are included in this Official Statement do not purport to be comprehensive or definitive and such summaries, descriptions, and references are qualified by reference to each such statute, document, or instrument. Copies of the agreements are available upon request from the Trustee, U.S. Bank National Association, 1420 5th Avenue, 7th Floor, Seattle, Washington 98101. Capitalized terms used herein, if not specifically defined herein have the same meanings as in the Indenture. See Appendix A – “DEFINITIONS OF CERTAIN TERMS; SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL DOCUMENTS.”
THE BONDS
General
The Bonds will be dated their date of issue, will bear interest at the rates set forth on the inside front cover of this Official Statement, computed on the basis of a 360-day year consisting of twelve 30-day months, payable on April 1, 2017 and semiannually thereafter on April 1 and October 1 (each, an “Interest Payment Date”) of each year to their maturity or earlier redemption or acceleration, will be subject to redemption as described below, and will mature on the dates and in the amounts set forth on the inside cover page hereof. So long as the Bonds are registered in the name of The Depository Trust Company, New York, New York (“DTC”), or any nominee thereof, all payments of
* Preliminary, subject to change.
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the principal or redemption price of or interest on the Bonds will be made to DTC or its nominee. For information as to the payment of the principal or redemption price of or interest on the Bonds prior to the discontinuance of the book-entry system for the Bonds, see “THE BONDS – Book-Entry Only System” and Appendix D – “DTC’S BOOK- ENTRY ONLY SYSTEM.”
Redemption of the Bonds
Optional Redemption
* The 2016A Bonds maturing on or before October 1, 2026 are not subject to optional redemption prior to maturity. The 2016A Bonds maturing on or after October 1, 2031*, are subject to optional redemption on any date on or after October 1, 2026*, at the option and written direction of the Authority (if from General Revenues) or the Borrower, in whole or in part, with maturities selected by the Authority, at a price of par plus accrued interest to the date of redemption.
The Series 2016B Bonds are subject to redemption on any date on or after April 1, 2018*, at the option and written direction of the Authority (if from General Revenues) or the Borrower, in whole or in part, at a price of par plus accrued interest to the date of redemption.
Mandatory Redemption
The 2016A Bonds maturing in the years 2031*, 2036*, 2041* and 2046*are subject to mandatory redemption at par plus accrued interest to the date of redemption on October 1 in years and amounts as follows:
2016A Bonds Maturing on October 1, 2031*
Mandatory Par Redemption Date* Amount* 2027 $185,000 2028 195,000 2029 200,000 2030 205,000 2031† 210,000
ಳMaturity.
2016A Bonds Maturing on October 1, 2036*
Mandatory Par Redemption Date* Amount* 2032 $220,000 2033 225,000 2034 235,000 2035 240,000 2036† 250,000
ಳMaturity.
* Preliminary, subject to change.
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2016A Bonds Maturing on October 1, 2041*
Mandatory Par Redemption Date* Amount* 2037 $255,000 2038 265,000 2039 275,000 2040 285,000 2041† 295,000
ಳMaturity.
2016A Bonds Maturing on October 1, 2046*
Mandatory Par Redemption Date* Amount* 2042 $305,000 2043 315,000 2044 330,000 2045 340,000 2046† 350,000
ಳMaturity.
If 2016A Bonds maturing in the years 2031*, 2036*, 2041* or 2046* have been purchased in the open market or optionally redeemed other than as set forth in the mandatory redemption schedules above, the principal amount of such 2016A Bonds previously purchased or optionally redeemed is to be credited against such scheduled mandatory redemptions in inverse chronological order. If 2016A Bonds maturing in the years 2031*, 2036*, 2041* or 2046* have been defeased or redeemed pursuant to an extraordinary redemption, the principal amount of such 2016A Bonds so defeased or redeemed will be credited against the scheduled redemptions set forth above for that maturity on a pro rata basis within such maturity.
Extraordinary Mandatory Redemption
The Bonds are subject to extraordinary mandatory redemption prior to maturity at a redemption price equal to the principal amount to be redeemed plus accrued interest thereon to the date of redemption and without premium: (a) as a whole or in part within maturities selected by the Borrower in consultation with Bond Counsel, on the first date for which timely notice of redemption may be given, upon the destruction, damage or condemnation of all or a portion of the Project and the decision of the Borrower not to repair or replace the Project, as described in the Loan Agreement, with the Insurance Proceeds or a Condemnation Award (and, if necessary, other money legally available therefor) and (b) as a whole or in part within maturities selected by the Authority, on the first date for which timely notice of redemption can be given upon receipt by the Trustee of an opinion of Bond Counsel to the effect that such redemption is required to prevent a Determination of Taxability.
Notice of Redemption
So long as the Bonds are registered in the name of DTC or any nominee thereof, redemption notices are required to be given to DTC as provided in the Letter of Representations. Notice to beneficial owners of the Bonds is the responsibility of DTC and its participants. See “THE BONDS – Book-Entry Only System.”
The Trustee, or the Bond Registrar on behalf of the Trustee, must give notice of redemption by first class mail, postage prepaid, mailed not less than 20 nor more than 60 days prior to the redemption date to each Owner of Bonds to be redeemed at the address of such Owner appearing in the Bond Register, and also to the Rating Agency, if any, at its office in New York, New York (or its successor), and to such other Persons as the Authority specifies to the Trustee in writing. The failure of the Trustee to mail notice of redemption to Persons other than the Owners of Bonds to be redeemed will not affect the sufficiency of the proceedings for redemption. Notwithstanding the foregoing, notice of extraordinary mandatory redemption of Bond to prevent a Determination of Taxability must be
3
given by the Trustee, or by the Bond Registrar on behalf of the Trustee, within five Business Days of receipt by the Trustee of the opinion of Bond Counsel to the effect that such redemption is so required, and the redemption date must be not more than 10 days after the notice of such redemption is mailed by the Trustee or the Bond Registrar.
All notices of redemption are to state: (a) the redemption date, (b) the redemption price, (c) the name and Series of the Bonds to be redeemed, the principal amount of Bonds to be redeemed, and if less than all Outstanding Bonds of a Series are to be redeemed, the CUSIP numbers or other identification (and in the case of partial redemption, the respective principal amounts) of the Bonds to be redeemed, (d) that on the redemption date the redemption price of each such Bond will become due and payable to the extent of such funds on deposit with the Trustee for that purpose, and that interest on the principal amount of each such Bond to be redeemed will cease to accrue on and after such date, (e) the place or places where such Bonds must be surrendered for payment of the redemption price thereof, and (f) such additional information as the Trustee or the Bond Registrar deems appropriate.
Neither failure of an Owner to receive a redemption notice, nor any defect in any notice, will affect the sufficiency of the proceedings for redemption.
Cancellation of Redemption
Any notice of optional redemption may be rescinded by written notice to the Trustee by the Authority (if the redemption price was to be derived from General Revenues) or the Borrower prior to the date specified for redemption. The Trustee is to give notice of such rescission as soon thereafter as practicable in the same manner, and to the same persons, as notice of such redemption was given.
Further, with respect to optional redemptions only, if the Bond Registrar does not have funds in its possession on the redemption date sufficient to pay the redemption price (including interest accruing to the redemption date) of all of the Bonds to be optionally redeemed for any reason (including, but not limited to, failure to issue any refunding obligations intended for such purpose on or prior to the redemption date), then the purported optional redemption and such notice of redemption may be rescinded and will be void, and the Bond Registrar (if any entity other than the Trustee) is to so notify the Trustee. Such event will not constitute an Event of Default under the Indenture.
Effect of Redemption
Notice of redemption having been given as required by the Indenture and described above, the principal amount of the Bonds to be redeemed will become due and payable on the redemption date at the redemption price specified, and on and after such date (unless the Trustee does not have funds available for payment of the redemption price) such principal amount of the Bonds will cease to bear interest. Upon surrender of any such Bond for redemption in accordance with the notice, such Bond will be paid at the redemption price thereof to the extent that money is on deposit with the Bond Registrar for that purpose.
If any Bond called for redemption is not paid on the redemption date upon proper surrender of the Bond for redemption, the redemption price and, to the extent lawful, interest thereon will, until paid, bear interest from the redemption date at the rate borne by the Bond immediately before the redemption date.
Acceleration
If an Event of Default occurs due to a default in the due and punctual payment of the principal of, premium, if any, or interest on any Bond when and as the same shall become due and payable, whether on any Interest Payment Date, at maturity, by proceedings for redemption (except as otherwise described in “THE BONDS – Redemption of the Bonds”), by acceleration, or otherwise, then during the continuance of such Event of Default, the Trustee will be entitled, upon written notice to the Authority and the Borrower, or the Owners of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding will be entitled, upon written notice to the Authority, the Borrower and the Trustee, to direct the Trustee to declare the principal of all of the Bonds then Outstanding and the interest accrued thereon to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable.
The Trustee is to give or cause to be given notice of any Declaration of Acceleration to the respective Owners of the Bonds at their addresses appearing on the Bond Registrar. Notice of such Declaration of Acceleration having been
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given, interest will cease to accrue on the Bonds from an after the date established for payment of the Bonds pursuant to the Declaration of Acceleration if and to the extent that money to make such payment is on hand with the Trustee in any of the Funds on that date.
Open Market Purchases
The Authority or the Borrower may at any time purchase Bonds in the open market. The Authority or the Borrower, as applicable, is to notify the Trustee in writing of any such purchase and, if the Bonds are in certificated form, immediately deliver such Bonds to the Bond Registrar for cancellation, together with a certificate specifying the date(s) of purchase. If the Bonds are not in certificated form, any such purchase will be deemed to be a redemption of such Bonds upon written notice to the Trustee of such purchase, whether or not such Bonds are otherwise subject to redemption at the time of purchase.
Registration, Transfer and Exchange of the Bonds
The Indenture provides that the Authority is to cause the Bond Registrar to keep books for the registration and transfer of the Bonds. The Bonds will initially be registered in the name of “Cede & Co.,” as nominee of DTC. The Bonds so registered will be held in fully immobilized form by or on behalf of DTC as depository. For so long as the Bonds are held in fully immobilized form, DTC or its successor depository will be deemed to be the registered owner for all purposes of the Indenture and all references to registered owner, bondowners and the like will mean DTC or its nominees and will not mean the owners or beneficial owners of any interests in the Bonds. So long as the Bonds are held in fully immobilized form, registered ownership of the Bonds, or any portions thereof, may not be transferred except: (i) to any successor of DTC or its nominee, if that successor is qualified under applicable laws to provide the services proposed to be provided by it; (ii) to any substitute depository appointed by the Authority or such substitute depository’s successor; or (iii) to any person as provided in the Indenture if the Bonds are no longer held in immobilized form. So long as the Bonds are registered in the name of DTC, or any nominee thereof, the beneficial ownership of the Bonds may only be transferred in accordance with DTC’s Book-Entry Only System. See Appendix D – “DTC’S BOOK-ENTRY ONLY SYSTEM.”
Upon the resignation of DTC or its successor (or any substitute depository or its successor) from its functions as depository, or a determination by the Authority that it no longer wishes to continue the system of book entry transfers through DTC or its successor (or any substitute depository or its successor), the Authority may appoint a substitute depository. Any such substitute depository must be qualified under any applicable laws to provide the services proposed to be provided by it.
In the event that (i) DTC or its successor (or substitute depository or its successor) resigns from its functions as depository, and no substitute depository can be obtained, or (ii) the Authority determines that the Bonds are to be in certificated form, the ownership of Bonds may be transferred to any Person as provided in the Indenture, and the Bonds no longer will be held in fully immobilized form.
Any Bond in certificated form to be exchanged may be surrendered at an office of the Bond Registrar designated by the Bond Registrar for that purpose. Any Bond in certificated form presented for transfer is to be accompanied by a written instrument or instruments of transfer, in form and with guaranty of signature satisfactory to the Bond Registrar, duly executed by the Owner thereof or by its attorney duly authorized in writing. Upon surrender for transfer of any Bonds in certificated form at an office of the Bond Registrar designated by the Bond Registrar for that purpose, the Bond Registrar will authenticate and deliver in the name of the transferee or transferees a new Bond or Bonds of the same Series and interest rate and maturity and for the aggregate principal amount the Owner is entitled to receive. No transfer of any Bond will be binding upon the Bond Registrar, the Authority or the Trustee unless made at such office of the Bond Registrar and shown on the Bond Register. The costs of printing any new Bonds and any services rendered or expenses incurred by the Bond Registrar or the Authority in connection with any exchange or transfer of Bonds will be paid by the Borrower in accordance with the Loan Agreement, except that as a condition to a transfer of a particular Bond, the Bond Registrar may require payment by the Bondowner of a sum sufficient to cover any tax, fee or other governmental charge that the Bond Registrar is required to pay in relation thereto. The Bond Registrar will not be required to exchange or transfer any Bond or portion thereof that has been selected for redemption and also shall not be required to transfer or exchange any Bond or portion thereof during the period in which the Bond Registrar is selecting Bonds for redemption or during the 15 days preceding any Interest Payment Date or redemption date.
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Book-Entry Only System
So long as the Bonds or any portion thereof are registered in the name of DTC or any nominee thereof (e.g., Cede & Co.), all payments of the principal of and interest on the Bonds will be made in the manner set forth in the Letter of Representations. While the Bonds are registered in the name of Cede & Co. as nominee of DTC, neither the Authority, the Trustee nor the Bond Registrar will have any responsibility or obligation to any direct or indirect participant in DTC, any Person claiming a beneficial ownership interest in the Bonds under or through DTC or any such participant, or any other Person not shown on the Bond Register as being an Owner, with respect to (i) the accuracy of any records maintained by DTC or any such participant; (ii) the payment by DTC or any such participant of any amount in respect of the principal or redemption price of or interest on the Bonds; (iii) the delivery to any participant or to any other Person, other than the Owners as shown on the Bond Register, of any notice with respect to the Bonds, including any notice of redemption; (iv) the selection by DTC or any such participant of any Person to receive payment in the event of a partial redemption of the Bonds; or (v) any consent given or other action taken by DTC as Owner. See Appendix D – “DTC’S BOOK-ENTRY ONLY SYSTEM.”
SECURITY AND SOURCES OF PAYMENT FOR THE BONDS
General
The principal of and interest on the Bonds are expected to be paid primarily from loan payments (the “Loan Payments”) made by the Borrower to the Authority under the Loan Agreement. The Borrower expects to make the Loan Payments solely from revenues of the Project, except for proceeds from capital contributions from the Borrower’s Limited Partner that are expected to be used to pay principal of the 2016B Bonds when due. Payment of the principal of and interest on the Bonds is secured by (1) Loan Payments, (2) a leasehold deed of trust granting the Trustee a security interest in the Borrower’s leasehold interest in the Project, and (3) a pledge of the Authority’s General Revenues. The 2016A Bonds are also secured by money and/or investments on deposit in the Debt Service Reserve Account.
The pledge of the General Revenues of the Authority to the payment of the Bonds is subject to the right of the Authority to issue, without limitation, other obligations to be paid from the General Revenues on a parity of lien with the Bonds and to pledge any portion of the General Revenues to the payment of other obligations, those payments to have a priority over the payments to be made on the Bonds with respect to that portion of the General Revenues so pledged. Nothing in the Indenture prohibits the Authority from issuing indebtedness that is payable solely from revenues, proceeds and earnings which are not Loan Payments or Bond proceeds, and are not payable, in whole or in part, from money in any of the Funds.
Except as contemplated under the Indenture, the Authority will not create or suffer to be created any lien upon the Trust Estate or any part thereof other than the liens created or contemplated by the Indenture and by the Loan Agreement and the Deed of Trust. The Authority has also agreed in the Indenture that it will issue no other obligations, other than bonds to refund the Bonds or a portion thereof, the payment of which is secured by money or amounts derived from Loan Payments. See Appendix A – “DEFINITIONS OF CERTAIN TERMS; SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL DOCUMENTS – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE – Authority Covenants.”
Limited Obligations
THE BONDS ARE NOT A DEBT OF THE CITY OF SEATTLE, WASHINGTON, THE STATE OF WASHINGTON OR ANY POLITICAL SUBDIVISION THEREOF. NEITHER THE CITY OF SEATTLE, WASHINGTON, THE STATE OF WASHINGTON NOR ANY POLITICAL SUBDIVISION THEREOF (EXCEPT THE AUTHORITY FROM THE SOURCES DESCRIBED IN THE INDENTURE) SHALL BE LIABLE FOR PAYMENT OF THE BONDS NOR IN ANY EVENT SHALL THE PRINCIPAL OF, PREMIUM, IF ANY, ON OR INTEREST ON THE BONDS BE PAYABLE OUT OF ANY FUNDS OR ASSETS OTHER THAN THOSE PLEDGED TO THAT PURPOSE BY THE AUTHORITY IN THE INDENTURE AND IN THE RESOLUTION. THE AUTHORITY DOES NOT HAVE TAXING POWER. WHILE THE AUTHORITY HAS PLEDGED ITS GENERAL REVENUES TO SECURE PAYMENT OF THE BONDS, THERE CAN BE NO ASSURANCE THAT FUNDS WILL BE AVAILABLE TO THE AUTHORITY FOR THAT PURPOSE, OR IF AVAILABLE, IN A TIMELY MANNER.
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Trust Estate
As provided in the Indenture, the Authority has granted to the Trustee a security interest in property described under this heading to secure the Bonds (the “Trust Estate”). The Trust Estate has been granted to the Trustee in order to secure the payment of the principal of, premium, if any, and interest on the Bonds according to their tenor and effect, and the performance and observance by the Authority of all the covenants in the Indenture and in the Bonds. The Trust Estate consists of the following:
(a) All rights, title and interest of the Authority in the Loan Agreement (with certain reservations and exceptions noted in the Loan Agreement), including, but not limited to, the lien against and security interest in the Project, and the present and continuing right thereunder (i) to make claim for, collect or cause to be collected, and receive or cause to be received, all sums payable or receivable thereunder, (ii) to bring actions and proceedings thereunder or for the enforcement thereof, and (iii) to do the things which the Authority is or may become entitled to do under the Loan Agreement;
(b) The lien on the Borrower’s leasehold interest in the Project conveyed by the Deed of Trust;
(c) All General Revenues of the Authority, subject to the parity lien of other obligations, as described herein;
(d) All Funds and accounts established under the Indenture and all Investment Earnings thereon and money, securities and obligations therein (subject to disbursements from any such Fund or account upon the conditions set forth in the Indenture);
(e) All money and securities from time to time held by the Trustee under the terms of the Indenture (except money and securities in the Rebate Fund) and any and all other real or personal property of every name and nature conveyed, mortgaged, pledged, assigned or transferred as and for additional security under the Indenture by the Authority or anyone on its behalf, or with its written consent, to the Trustee, but excluding money collected for the indemnification of the Authority or the Trustee; and
(f) To the extent not covered above, all proceeds of the foregoing.
The Trust Estate has been pledged for the equal and proportionate benefit, security and protection (subject to the terms of the Indenture) of all Owners of the Bonds, without privilege, priority or distinction as to the lien or otherwise of any Bond over any other Bond, except as expressly provided therein. Notwithstanding the foregoing, the Debt Service Reserve Account shall be used solely to pay debt service on the 2016A Bonds.
Loan Agreement
The principal of and interest on the Bonds are expected to be paid primarily from Loan Payments to be made by the Borrower to the Authority under the Loan Agreement. See Appendix A – “DEFINITIONS OF CERTAIN TERMS; SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL DOCUMENTS – SUMMARY OF CERTAIN PROVISIONS OF THE LOAN AGREEMENT.” The Borrower expects to make Loan Payments solely from revenues of the Project, except for proceeds from capital contributions from the Borrower’s Limited Partner that are expected to be used to pay principal of the 2016B Bonds when due. See “THE BORROWER AND THE PROJECT.” The Authority has assigned its rights to receive such Loan Payments and all remaining rights and interest in the Loan Agreement (other than certain indemnification rights and other rights specifically reserved in the Indenture and the Loan Agreement) to the Trustee, as security for payment of the principal of and interest on the Bonds. See “CERTAIN BONDHOLDERS’ RISKS – Possible Limitations on Remedies and Enforcement of Security Interests.”
General Revenue Pledge
The General Revenues of the Authority are pledged to the payment of the Bonds. “General Revenues” means all revenues of the Authority (other than Loan Payments) from any source, but only to the extent that those revenues are available to pay debt service on the Bonds and are not on the date of issuance of the Bonds or thereafter pledged or restricted, by law, regulation, contract, covenant, resolution, deed of trust or otherwise (including restrictions relating to funds made available to the Authority under the U.S. Housing Act of 1937), solely to another particular
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purpose. The pledge of the General Revenues of the Authority to the payment of the Bonds is subject to the right of the Authority to issue, without limitation, other obligations to be paid from the General Revenues on a parity of lien with the Bonds and to pledge any portion of the General Revenues to the payment of other obligations, those payments to have a priority over the payments to be made on the Bonds with respect to that portion of the General Revenues so pledged. See “CERTAIN BONDHOLDERS’ RISKS – General Revenue Pledge” and “– Possible Limitations on Remedies and Enforcement of Security Interests.”
Although the amount of annual General Revenues is not included in the Authority’s Comprehensive Annual Financial Report for the Fiscal Year ended December 31, 2015, included in Appendix B hereto, it is the Authority’s practice to calculate General Revenues for each Fiscal Year. The following table sets forth the Authority’s annual General Revenues for Fiscal Years 2011 through 2015.
General Revenues for Fiscal Years 2011-2015 2011 2012 2013 2014 2015 $103,610,066 $104,497,138 $115,259,272 $130,332,505 $141,904,639
The Authority has previously issued multiple series of bonds and notes to which it has pledged its General Revenues. As of December 31, 2015, the amount of such obligations outstanding and secured in whole or in part by a pledge of General Revenues, was approximately $184,707,193, which includes financings for properties owned by the Authority and for projects owned by tax credit entities managed by the Authority. Of the $184,707,193 outstanding principal amount of Authority obligations to which General Revenues were pledged as of December 31, 2015, $5,784,412 is payable primarily from General Revenues. The remaining $178,922,781 is payable from multiple sources, and the Authority expects that such obligations will be paid from sources other than General Revenues, such as project revenues and/or capital contributions of tax credit equity investors. Some of the outstanding obligations to which General Revenues have been pledged are draw down obligations which may be drawn upon in amounts in excess of that outstanding as of December 31, 2015. In 2015, aggregate annual debt service for all obligations payable, in whole or in part, from General Revenues, represented approximately 14% of the Authority’s total General Revenues. Other than payments on obligations payable primarily from General Revenues, General Revenues were not used to pay debt service on any of the Authority’s obligations in 2015. The Authority expects to issue approximately $49,000,000 of other debt secured, in whole or in part, by a pledge of General Revenues within the next 12 months.
Debt Service Reserve Account
Under the provisions of the Indenture, the Trustee will create a debt service reserve account (the “Debt Service Reserve Account”) as security for the 2016A Bonds. Pursuant to the Indenture, the Trustee is required to deposit into the Debt Service Reserve Account (a) $180,148.13* derived from 2016A Bond proceeds upon the initial sale of the 2016A Bonds (the “Debt Service Reserve Requirement”) and (b) all other money required to be transferred to or deposited in the Debt Service Reserve Account pursuant to the Indenture or the Loan Agreement. Pursuant to the Loan Agreement, if at any time the Trustee withdraws money from the Debt Service Reserve Account to pay debt service on the 2016A Bonds (except with respect to the payment of the final installment(s) of principal of and interest on the 2016A Bonds), the Borrower is required to immediately deliver to the Trustee an amount sufficient to replenish the Debt Service Reserve Account to the Debt Service Reserve Requirement. Upon the optional or extraordinary mandatory redemption, open market purchase or defeasance of a portion of the 2016A Bonds, the Debt Service Reserve Requirement is to be reduced to an amount equal to 50% of the maximum annual debt service on the 2016A Bonds Outstanding immediately after such redemption, purchase or defeasance.
The money and investments in the Debt Service Reserve Account are irrevocably pledged and are to be used by the Trustee, to the extent required, in the following order of priority:
(A) for transfer to the Series 2016A Principal and Interest Account on each redemption or Interest Payment Date with respect to the 2016A Bonds, to the extent that the amount in the Series 2016A
* Preliminary, subject to change.
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Principal and Interest Account on that date is insufficient to pay the principal of, premium, if any, on and/or interest on the 2016A Bonds coming due on that date;
(B) for transfer to the Rebate Fund, if any, to the extent the Authority determines pursuant to the Indenture that a Rebate Amount must be deposited in the Rebate Fund; and
(C) for transfer to the Series 2016A Principal and Interest Account or to the trust account described in the Indenture to pay or defease the last installment(s) of principal of and/or interest on the 2016A Bonds.
The Debt Service Reserve Account is to be valued the last Business Day of each March and September, beginning in March, 2017, and also on the date that a portion of the 2016A Bonds is defeased, purchased in the open market or redeemed. If on any valuation date the amount in the Debt Service Reserve Account exceeds the Debt Service Reserve Requirement, the Trustee is to transfer any excess to the Rebate Fund, if any, to the extent the Authority determines pursuant to the Indenture that a Rebate Amount must be deposited in the Rebate Fund, and then to the Series 2016A Principal and Interest Account.
The Debt Service Reserve Account does not secure payment of principal of or interest on the 2016B Bonds.
Other Funds and Accounts
In addition to the Debt Service Reserve Account, all money, along with Investment Earnings thereon, on deposit in any of the Funds and accounts created under the Indenture are pledged to secure performance of the Authority’s obligations under the Indenture. See Appendix A – “DEFINITIONS OF CERTAIN TERMS; SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL DOCUMENTS – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE – Establishment of Funds and Accounts.”
Deed of Trust
On the date of issuance of the Bonds, the Borrower will lease the Project and the real property on which it is located (the “Property”) from the Authority for a term of approximately 99 years. To secure the payment of the principal of and premium, if any, and interest on the Bonds and performance of the other covenants and agreements of the Borrower in the Loan Agreement, the Borrower has granted to the Trustee, by way of the Deed of Trust, a first monetary lien on the Borrower’s leasehold interest in the Property, along with the equipment, furniture, fixtures and other articles of property therein. The Deed of Trust limits the Borrower’s ability to encumber, sell, convey or otherwise transfer its leasehold interest in the property subject thereto. See Appendix A – “DEFINITIONS OF CERTAIN TERMS; SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL DOCUMENTS – SUMMARY OF CERTAIN PROVISIONS OF THE DEED OF TRUST.” At any time, the value of the property encumbered by the Deed of Trust could be less than the principal amount of obligations secured thereby. A mortgagee policy of title insurance, subject to certain exceptions, will insure the Trustee’s mortgage lien interest in the Borrower’s leasehold interest in the Property encumbered by the Deed of Trust. The security for owners of the Bonds represented by the Deed of Trust may be subject to certain limitations and restrictions. See “CERTAIN BONDHOLDERS’ RISKS – Possible Limitations on Remedies and Enforcement of Security Interests.”
PLAN OF FINANCE
On the Date of Issue, the Authority and the Borrower will enter into a Lease, transferring ownership of the improvements constituting the Project to the Borrower for federal tax purposes. A portion of the capitalized rent under the Lease Agreement in the anticipated amount of $13,018,768* is expected to be financed by a loan from the Authority. Renovation of the Project is expected to cost approximately $20,910,687 and will be paid for with proceeds of the Bonds and with other sources as shown in the following table.
* Preliminary, subject to change.
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The Authority will lend the proceeds of the Bonds to the Borrower under the Loan Agreement, to be applied, together with other available funds, to (1) finance a portion of the cost of acquiring and rehabilitating the Project; (2) fund a debt service reserve for the 2016A Bonds; and (3) pay costs of issuing the Bonds.
After the rehabilitation of the Project, the Authority expects that the Borrower will receive capital contributions from U.S. Bancorp Community Development Corporation, which is the investor Limited Partner of the Borrower, in the amount of approximately $18,046,820. A portion of this amount is expected to be used to repay or redeem the outstanding principal of the 2016B Bonds.
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The total permanent project costs for the Project are estimated by the Borrower to be approximately $46,071,771, not including accrued interest on the Bonds to be paid from Project revenues. The estimated sources and uses of funds for the Project are set forth below:
Source of Funds 2016A Bond Proceeds $6,860,000* Limited Partner Capital Contributions 18,046,820 Acquisition Loan 13,018,768* Assumption of City General Fund Loan 946,183 Assumption of Commerce Loan 1,700,000 First and Second Rehabilitation Loans 5,500,000 Total Sources of Funds $46,071,771
Uses of Funds Project Acquisition $19,250,000 Renovation 20,910,687 Financing Cost and Fees 544,012 Capitalized Interest on Bonds 219,772* Reserves 3,647,300 Developer Fee 1,500,000 Total Uses of Funds $46,071,771
*Preliminary, subject to change.
ESTIMATED SOURCES AND USES OF BOND PROCEEDS
Sources of Funds: Principal Amount of Bonds $______Original Issue Premium Other Borrower Funds Total Sources of Funds $______
Uses of Funds: Deposit to Debt Service Reserve Account $______Underwriters’ Discount Other Costs of Issuance(1) Deposit to Project Account ______Total Uses of Funds $______(1) Includes legal, printing, rating agency, trustee and other miscellaneous costs of issuance.
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DEBT SERVICE SCHEDULE
The following table sets forth an estimate of the debt service payments for the Bonds based on a year ending _____ l.
2016A Bonds 2016B Bonds(1) Year Ending Total Debt Principal Interest Principal Interest Service(1)
Totals(2) $______$______$______(1) Principal of the 2016B Bonds is expected to be paid from capital contributions from Borrower’s Limited Partner. (2) Totals may not add due to rounding. Source: KeyBanc Capital Markets Inc.
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THE AUTHORITY
General
The Authority was created in 1939 by the Seattle City Council under chapter 35.82 of the Revised Code of Washington. The Authority is a public body corporate and politic created specifically to provide low-income housing and related services. The majority of the Authority’s revenue comes from rental income and from the U.S. Department of Housing and Urban Development (“HUD”). The Authority has entered into a Cooperation Agreement with the City of Seattle (the “City”) pursuant to which the City provides support services (police, fire, etc.) for the Authority’s developments.
The Mayor of the City appoints the seven-member non-paid Board of Commissioners of the Authority (the “Board”) for staggered four-year terms. The Board is responsible for setting policies for the Authority and for hiring the Executive Director, who administers the Authority’s programs and supervises its staff.
The Authority provides affordable housing for more than 29,500 people in more than 17,000 rental units throughout the City. The Authority owns more than 8,150 of these units. The others are privately owned or owned by non-profit organizations, and residents receive Federal rent subsidies through programs administered by the Authority. All households have initial incomes upon initial occupancy less than 80% of the median income in the Seattle-Bellevue- Everett Metropolitan Division (consisting of King and Snohomish Counties, Washington), adjusted for household size. Households generally pay a specified percentage of their income for rent and utilities, typically 30%.
Board Members and Senior Staff
Deborah Canavan Thiele, Chair. Commissioner Thiele is a Senior Program Manager for a national organization that works to improve opportunities for the homeless and other vulnerable families through supportive housing. She has held previous positions in multi-family lending at the Seattle Office of Housing, and in homeless housing initiatives at the King County Housing Authority. Commissioner Thiele holds a degree in communications and professional writing. She is an experienced public speaker and trainer for multiple government and nonprofit organizations. Commissioner Thiele’s term will expire March 20, 2017.
Emily Abbey, Vice Chair. Commissioner Abbey has been a resident of the Authority since 2003 and has served on the Authority’s Joint Policy Advisory Committee as co-chair for four years. She has worked for the federal government, a government contractor, private industry and a social services agency in roles including editor/writer and administration of employee development programs and energy program grants. She holds an M.A. degree in applied behavioral sciences, which emphasized skill training in organizational development, communication and conflict management skills, leading meetings and managing projects. Commissioner Abbey’s term will expire March 20, 2019.
Ahmed Abdi, Commissioner. Commissioner Abdi is a resident of the Authority and an Outreach Manager at Fair Work Center where he is responsible for organizing and conducting workshops for community partner organizations around King County. Commissioner Abdi also helps coordinate the Fair Work Collaborative, a coalition of ten organizations committed to collaboratively educating works on labor standards. Mr. Abid previously held positions with SEIU 775, Pastoralist Girls Initiative, Working Washington, African Diaspora of Washington, Somali American Public Advocacy Committee, Crest Services and Jewish Vocational Services. He volunteers at East African Community Services and serves on the Board of African Diaspora of Washington. Commissioner Abdi’s term will expire October 1, 2018.
Dr. Paula Houston, Commissioner. Commissioner Houston is the CEO of Sound Generations in Seattle. She was previously Executive Director for the Meredith Mathews East Madison YMCA. Commissioner Houston is a member of Seattle Rotary #4, where she has held an officer position, sits on the board of the Alzheimer’s Association and is a member of the Seattle Art Museum’s Education and Community Engagement Committee. She has also been a member of numerous other nonprofit boards and served two terms on the Seattle Women’s Commission. Commission Houston has a B.S. degree from Syracuse University, and a Master’s degree in Health Administration from the University of Washington and earned her Doctorate in Educational Leadership from Seattle University in 2014. Commissioner Houston’s term will expire March 20, 2020.
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David Moseley, Commissioner. Commissioner Moseley is semi-retired. Most recently he was the Assistant Secretary to the Washington State Department of Transportation Ferries Division where he was responsible for the management of all aspects of the largest ferry system in the United States. Previously he was the Vice President of Institute for Community Change. Commissioner Moseley currently serves on numerous nonprofit boards and committees including Pioneer Human Services and the Housing Affordability and Livability Advisory Committee. He has a B.A. in Political Science from Willamette University, a Masters of Divinity from Golden Gate Theological Seminary, and a Certificate from Harvard University, John F. Kennedy School of Government. Commissioner Moseley’s term will expire March 19, 2019.
Zachary Pullin, Commissioner. Commissioner Pullin is a communications project lead at a large healthcare union. He has also worked as a communications coordinator for a nonprofit organization, the director of online community for a social justice website, a logistics coordinator for an 18-city social justice bus tour, and an organizational development volunteer for the United States Peace Corps. He serves on the boards of the Gender Justice League, Victory Campaign, and 43rd District Democrats of Washington, and is president of the Capitol Hill Community Council. He is a graduate of Western Washington University. Commissioner Pullin’s term will expire December 1, 2018.
Jermaine Smiley, Commissioner. Commissioner Smiley is executive director of a non-profit organization committed to developing affordable workforce housing, and is an organizer at Laborers’ Local 242. He is a former member of the Authority’s Section 3 advisory committee, and currently serves on the board of Puget Sound Sage, a community group that serves the interests of low-income people, people of color, immigrants and refugees in the Puget Sound region. Commissioner Smiley’s term will expire December 1, 2018.
Senior staff members are as follows:
Andrew Lofton, Executive Director. Mr. Lofton was appointed Executive Director of the Authority on September 1, 2012, and leads strategic planning and the day-to-day operations of the organization. Prior to his promotion to Executive Director, he held the position of Deputy Executive Director–Finance and Administration for more than eight years. As Deputy Executive Director, Mr. Lofton oversaw the Authority’s Human Resources, Information Technology, Finance and Budget, and Housing Choice Voucher functions, including the development and management of the agency’s annual budget. He has also worked closely with representatives of the U.S. Department of Housing and Urban Development regarding the oversight of the Authority’s Moving to Work agreement, regulatory reform, and funding issues. During Mr. Lofton’s nearly 40 years of public service, his many leadership positions have included Chief of Departmental Operations for City of Seattle Mayor Greg Nickels; Deputy Superintendent for Customer Service with Seattle City Light; Deputy Chief of Staff for City of Seattle Mayor Norm Rice; and Budget Director for the City of Seattle. He also served as Deputy Director for the Washington State Department of Community, Trade, and Economic Development (now the Washington State Department of Commerce). Mr. Lofton received his Baccalaureate from the University of Puget Sound and did his graduate work in Urban Planning at the University of Washington.
Anne Fiske Zuniga, Deputy Executive Director. Ms. Zuniga was appointed Deputy Executive Director of the Authority in May 2013, after joining the Authority as Senior Development Program Manager in March 2010. Previously, she worked as the first Deputy Director of the City of Seattle Department of Transportation, a department of over 800 employees, for nine years. Ms. Zuniga has also worked for the City of Seattle as a budget analyst and as manager of the City of Seattle Department of Neighborhoods, where she created the City’s Neighborhood Implementation Program. She has served on the board of directors of the Seattle Institute of Early Childhood Development. Ms. Zuniga earned a B.A. degree from Wellesley College in 1985 and received an MPA from the University of Washington – Evans School in 1992.
Shelly Yapp, Chief Financial Officer. Ms. Yapp joined the Authority in June 2007, bringing over 25 years of public sector management, financial and policy experience to the Authority. Most recently, she has held the position of Redevelopment Director and Executive Advisor for the Seattle Center. During her tenure there, she was responsible for capital financing of the Seattle Center’s projects, managed over $600 million in private investment and development at the Seattle Center and successfully completed the redevelopment of McCaw Hall. Ms. Yapp has also served as Executive Director of the Pike Place Market Preservation & Development Authority, as Deputy Mayor to City of Seattle Mayor Charles Royer, and as the Budget Director for King County, Washington. As King County Budget Director, she was responsible for the development and management of the County’s $500 million Operating
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and Capital budget, and was on the Executive Finance Committee directing investment policies and practices for over 50 County funds. She has a B.A. in Economics from the University of Washington, where she graduated cum laude, was elected to Phi Beta Kappa and has since served as a member of the Board of Regents.
Kerry Coughlin, Director of Communications. Ms. Coughlin became Director of Communications of the Authority in January 2015. She serves on the Authority’s Executive Cabinet, providing counsel and oversight to ensure effective communication with the Board, residents and clients, elected officials, partner agencies, media, the public, employees and other stakeholders. Most recently Ms. Coughlin served as a director with the international Marine Stewardship Council, an organization devoted to environmental, food security and economic sustainability of the global seafood industry, as well as a consultant with the Daniel J. Evans Graduate School of Public Affairs at the University of Washington. She has held top communications leadership positions with former Washington State Governor Chris Gregoire, The Seattle Times Company and the YWCA of Seattle, King and Snohomish Counties. Prior to her career in management and corporate communications, Ms. Coughlin worked as a journalist.
Stephanie Van Dyke, Director of Development. Ms. Van Dyke joined the Authority in 2005 and is responsible for overseeing the Development Department activities, including HOPE VI redevelopment projects and Choice Neighborhood (CNI) redevelopments, which currently includes the redevelopment of the Yesler Terrace community. She is responsible for the oversight of major development programs and supervision of program management staff. Prior to joining the Authority, Ms. Van Dyke worked as a Senior Project Manager at The City of Seattle, where she was responsible for redevelopment projects at the Seattle Center, including the $110 million dollar McCaw Hall project. Ms. Van Dyke has an M.A. degree in Public Administration from the University of Washington and a B.A. degree from Harvard University.
Rod Brandon, Director of Housing Operations. Mr. Brandon was appointed Director of Housing Operations in January 2010. Mr. Brandon has held increasingly responsible leadership positions in the public sector for the past 25 years, most recently serving as director of sustainability services for King County Executive Ron Sims, where he implemented strategies for smart growth management, including the acquisition of more than 160,000 acres of threatened land into King County ownership. Mr. Brandon earned a B.A. degree in business administration from the University of Montana, Missoula, and also attended the John F. Kennedy School of Government, where he completed its summer program for senior executives in state and local government.
Cynthia West, Director of Housing Choice Voucher Program. Ms. West joined the Authority in January 2015. Previously, she was the Chief Financial Officer for Seattle-King County Public Health for nearly five years. In addition, Ms. West has served as a Health and Human Services Supervisor in the King County Office of Management and Budget, a Contract Monitor in The City of Seattle Human Services Department, a Criminal Justice Strategic Advisor in The City of Seattle Office of Policy and Management, and a high school social studies teacher. Ms. West holds a master’s degree in Public Administration from the University of Washington.
Ann-Marie Lindboe, Director of Housing Finance and Asset Management. Ms. Lindboe has been with the Authority for 12 years as the Housing Finance Manager. In May 2006 that position was combined with the Asset Manager position and elevated to a director level. Ms. Lindboe has over 30 years of housing finance and development experience having worked previously for the Alaska Housing Finance Corporation and the Housing Authority of the City of Tacoma. Ms. Lindboe has a B.B.A. degree in Business Administration and an M.P.A. degree in Public Administration from the University of Alaska Anchorage.
Lisa Wolters, Director of Intergovernmental Relations. Ms. Wolters was appointed the Authority’s Director of Intergovernmental Relations in 2015. Previously, she served as the Authority’s Director for the Housing Choice Voucher (Section 8) programs at the Porchlight Center for nine years, developing and implementing the Porchlight Center’s strategic plans, budgets, and operational procedures, and was responsible for federal, state and local policy issues and community building. Prior to joining the Authority in 2005, she was King County Director for U.S. Senator Maria Cantwell. Ms. Wolters has over ten years of management experience in the public and private sectors, including positions with the State of Washington, YWCA and TRAC Associates. She holds a B.A. degree in Political Science from Clemson University.
Andria Lazaga, Director of Policy and Strategic Initiatives. Ms. Lazaga was appointed the first director of the Authority’s newly formed Office of Policy and Strategic Initiatives in January 2015, having previously spent more than 15 years at the Authority in asset management and leading human services efforts in the Authority’s
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redevelopment communities. Prior to joining the Authority, she worked in youth development and on policy and budget issues for local school districts. Ms. Lazaga holds an MPA degree from the University of Washington.
James Fearn, General Counsel. Mr. Fearn is the General Counsel at the Authority. He is an attorney with extensive experience in the areas of land use, zoning, environmental, real estate and municipal law. He also has been substantially involved in low income housing development issues. Prior to coming to the Authority, Mr. Fearn worked in the Land Use Division of the Seattle City Attorney’s Office, in private practice, and for the Department of Housing and Urban Development. Mr. Fearn has represented public and private organizations in connection with land development issues. He is a graduate of the University of Chicago Law School.
Marc Nilsen, Human Resources Director. Mr. Nilsen joined the Authority in November 1984 and has over 30 years in the Human Resources field, with special emphasis on employment, recruitment, labor relations, classification/compensation, and human resource information systems. He has B.A. degrees in Political Science and in International Studies from the Jackson School at the University of Washington in Seattle, Washington. He obtained his Professional Certification in Human Resources from the University of Washington, and is credentialed as a Senior Professional in Human Resources (SPHR) with the Human Resources Certification Institute, and as a Senior Certified Professional with the Society for Human Resource Management (SHRM). Prior to joining the Authority, Mr. Nilsen worked with the federal General Services Administration in Seattle.
Financial Management
The Authority is a Washington public body, corporate and politic, that is exempt from Federal income tax and from all state and local property taxes. The Authority owns, manages or administers approximately 8,150 housing units. The Authority’s accounts are organized on the basis of funds, each of which is considered a separate accounting entity and has a separate set of self-balancing accounts comprised of its assets, liabilities, net assets, revenues and expenses. The financial statements of the Authority are reported using the economic resources measurement focus and the accrual basis of accounting in conformity with Generally Accepted Accounting Principles (GAAP) as applied to government units. Annual appropriated budgets are adopted and all annual appropriations lapse at the Authority’s year-end. The Authority’s total assets as of December 31, 2015 were approximately $685 million.
The Authority, recognized by HUD as a high-performing, large housing authority, was selected to participate in HUD’s Moving to Work (“MTW”) Demonstration Program effective January 13, 1999. Under MTW, the Authority is exempt from many HUD regulations and reporting requirements, and is allowed significant flexibility to combine its HUD funding for reallocation among the Authority’s administrative, capital and development activities. The MTW contract also gives the Authority the ability to redesign HUD housing programs to meet the market conditions and resident needs in the City. In December 2015, Congress passed the Consolidated Appropriations Act of 2016, which directed HUD to extend the Authority’s MTW contract through December 30, 2028, maintaining the same terms and conditions as the existing MTW contract.
Pending HUD’s revisions of its Public Housing Assessment System or designation of an alternate tool, the Authority retains its high performer designation. Prior to its participation in the MTW Demonstration Program, the Authority was evaluated by HUD under its Public Housing Management Assessment Program (“PHMAP”). The PHMAP program evaluates housing authorities on eight indicators, including financial management, modernization, vacancy rates, uncollected rents, resident services and security. Under this program, the Authority was designated a “High Performer” for six straight years and received a perfect score of 100% two years in a row. HUD has confirmed the Authority’s designation as a “High Performer” each year since the Authority was selected to participate in MTW.
The Authority’s most recent audit is for the fiscal year ending December 31, 2015, and comprises a Comprehensive Annual Financial Report (“CAFR”) and a Single Audit report. The audit was performed by the independent accounting firm of KPMG, LLP. Both reports were issued by KPMG, LLP in May 2016. The audit for the year ended December 31, 2015, reported no findings of significant deficiencies, and there were no significant deficiencies reported by KPMG, LLP in connection with its audit of the Authority’s CAFR for the fiscal year ending December 31, 2015. The Authority’s CAFR for the fiscal year ended December 31, 2014, was awarded the Authority’s eighteenth consecutive Certificate of Achievement for Excellence in Financial Reporting by the Government Finance Officers Association of U.S. and Canada. As a political subdivision of the State of Washington, the Authority is also subject to accountability audits conducted by the Office of the State Auditor. Reports of the Authority’s audit examinations are published annually and are available to the public.
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HUD Settlement. The Authority reached an agreement with HUD in August 2013 that resulted in an increase to the Authority’s annual Public Housing Operating funding of approximately $6.5 million. This addition to the Authority’s funding base represented a correction to the Authority’s funding formula and will continue from year to year in the future, subject to the overall Public Housing Operating Subsidy federal appropriation levels and funding proration. These funds are subject to the Authority’s MTW single fund authority and become part of the General Revenues of the Authority.
Programs
Public Housing Program. The Authority’s Public Housing Program operates under HUD’s Annual Contributions Contract (ACC) SF-151 and consists of the operations of low-rent public housing properties totaling 6,040 units, which includes 1,030 units of senior housing. The purpose of the program is to provide decent and affordable housing to low-income families at reduced rents. The properties are owned, maintained, and managed by the Authority. The properties are acquired, developed, and modernized under HUD’s Capital Funds Program and through HUD HOPE VI Urban Revitalization grants. Financing for the properties is obtained through bond issues and grants. Funding for the management and operation of the program is provided by federal annual contributions and operating subsidies and tenant rentals (determined as a percentage of family income, adjusted for family composition). 177 of the units in the Project will be public housing units.
Section 8 Programs. The Authority administers three Section 8 programs:
Section 8 Housing Choice Voucher Program. This program provides rental housing assistance subsidies in support of 10,359 housing units. The purpose of the program is to provide decent and affordable housing to low-income families and elderly and handicapped persons where rental assistance is provided by HUD. The associated units are maintained and managed by private landlords, private non-profit housing agencies and the Authority.
Section 8 New Construction and Substantial Rehabilitation Program. The purpose of this program is to construct or purchase and rehabilitate rental housing units to provide decent and affordable housing to low- income, elderly and handicapped individuals where rental assistance is provided by HUD. Funding of the program is provided by federal housing assistance contributions and tenant rentals. The Authority owns two housing developments financed under this program, totaling 130 units.
Section 8 Moderate Rehabilitation Program. This program operates under HUD’s ACC S-0068K and consists of the operations of 759 privately owned family housing units. The purpose of the program is to rehabilitate substandard rental housing units and provide decent and affordable housing to low-income families where rental assistance is provided by HUD. The associated developments are maintained and managed by private landlords. Funding of the program is provided by federal housing assistance contributions.
Seattle Senior Housing Program (“SSHP”). In 1981, City voters approved a $48.1 million elderly housing bond issue. The Authority entered into an agreement with the City to develop, manage and operate a total of 994 completed units. The purpose of this program is to provide low rent housing for the elderly, handicapped and disabled. In 2011, the Authority received approval from HUD and from the City to include 894 of the SSHP units in the Public Housing Program. This change took effect January 1, 2012. The Authority currently operates a total of 1,030 units under the SSHP.
Locally Developed Housing. The Authority has issued bonds and secured local funds from the City and the State of Washington (the “State”) to develop and manage 826 units of large family, elderly and special needs housing. The most recent acquisition was the Baldwin Apartments.
Tax-Exempt Conduit Bonds. Since 1985, the Authority has issued tax-exempt bonds to finance loans to non-profit corporations, partnerships and public corporations in connection with 56 properties. The loans totaled approximately $367 million and assisted in the development of over 4,000 units of affordable housing for residents of Seattle.
Low Income Housing Tax Credits. The Authority is the general partner in 17 limited partnerships formed to take advantage of the federal Low Income Housing Tax Credit program. These 17 partnerships own and manage 3,449
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units of low-income housing. The Authority’s current limited partners in these partnerships include Enterprise Community Investments, Boston Capital, Boston Financial, Wells Fargo Affordable Housing Community Development Corporation, Union Bank and U.S. Bancorp Community Development Corporation.
Pensions
Substantially all of the Authority’s full-time and qualifying part-time employees are enrolled in the State Public Employees Retirement System (“PERS”). PERS Plans 1 and 2 are defined benefit plans and PERS Plan 3 is both a defined benefit plan (employer share) and defined contribution plan (employee share). These plans are administered by the State. Contributions by both employees and employers are based on gross wages. Those PERS participants who joined the system by September 30, 1977 are Plan 1 members. PERS participants who joined on or after October 1, 1977, are Plan 2 members, unless they exercise an option to transfer to Plan 3. PERS participants joining on or after September 1, 2002, have the irrevocable option of choosing membership in PERS Plan 2 or PERS Plan 3.
State law requires systematic actuarial based funding to finance the retirement plans. Actuarial calculations to determine employer and employee contributions are prepared by the Office of the State Actuary (“OSA”), a nonpartisan legislative agency charged with advising the Legislature and Governor on pension benefits and funding policy. To calculate employer and employee contribution rates necessary to pre-fund the plans’ benefits, OSA uses actuarial cost and asset valuation methods selected by the Legislature as well as economic and demographic assumptions. The Legislature adopted the following economic assumptions for contribution rates beginning July 1, 2015: (1) 7.8% rate of investment return; (2) general salary increases of 3.75%; (3) 3.0% rate of Consumer Price Index increase; and (4) 0.95% growth in membership. The long-term investment return assumption is used as the discount rate for determining the liabilities for a plan. As of March 31, 2016, the 10-year (2005-2015) annualized return on the investment of the retirement funds was 6.12%.
Plan Funding; Contribution Rates and Amounts. All State-administered retirement plans are funded by a combination of funding sources: (1) contributions from the State for certain plans; (2) contributions from employers (including the State as employer and the Authority and other governmental employers); (3) contributions from employees; and (4) investment returns. Retirement funds are invested by the Washington State Investment Board, a 15-member board created by the Legislature in 1981.
The Authority contributed $2,860,091 to PERS for plan year 2015 (July, 2014-June, 2015) and contributed $2,750,920 to PERS for plan year 2014 (July, 2013-June, 2014) for all of the Authority’s employees that are covered under PERS, representing 8.72% and 8.87% of covered payroll, respectively. See Appendix B – “AUTHORITY’S COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 2015 – Notes to Basic Financial Statements – Note (9)” for a description of the PERS pension plan.
Under State statute, contribution rates are adopted by the Pension Funding Council (“PFC”) in even-numbered years for the next ensuing State biennium. The rate-setting process begins with an actuarial valuation by the OSA, which makes non-binding recommendations to the Select Committee on Pension Policy, which then recommends contribution rates to the PFC. No later than the end of July in even-numbered years, the PFC adopts contribution rates, which are subject to revision by the Legislature. The following table outlines the current contribution rates of employers and employees under PERS effective as of July 1, 2015.
Contribution Rates for the 2015-17 Biennium Expressed as a Percentage of Covered Payroll
Employer(1) Employee PERS Plan 1 11.18% 6.00% PERS Plan 2 11.18 6.12 PERS Plan 3 11.18 Variable(2) ______(1) Includes a 0.18% DRS administration expense fee. Rates reflected are as of year-end 2015 and were effective for PERS plan year 2016, beginning July, 2015. (2) Rates vary from 5.0% minimum to 15.0% maximum based on rate selected by the PERS 3 member. Source: Department of Retirement Systems.
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Plan Funding Status and Unfunded Actuarial Liability. While the Authority’s prior contributions represent its full current liability under the retirement systems, any unfunded pension benefit obligations could be reflected in future years as higher contribution rates. It is expected that the contribution rates for employees and employers in the PERS Plans 2 and 3 will increase in the coming years. The OSA website (which is not incorporated into this Official Statement by reference) includes information regarding the values, funding levels and investments of these retirement plans.
Historically, OSA used the Projected Unit Credit (“PUC”) cost method and the Actuarial Value of Assets (“AVA”) to report a plan’s funded status. PUC was one of several acceptable measures of a plan’s funded status under current GASB rules. The PUC cost method projects future benefits under the plan, using salary growth and other assumptions and applies the service that has been earned as of the valuation date to determine accrued liabilities. The Actuarial Value of Assets (“AVA”) is calculated using a methodology which smoothes the effect of short-term volatility in the Market Value of Assets (“MVA”) by deferring a portion of annual investment gains or losses over a period of up to eight years.
In September 2015, OSA adopted the Entry Age Normal (“EAN”) cost method to estimate accrued pension liabilities for the purposes of reporting funded status. The EAN method represents each plan member’s benefits as a constant share of payroll throughout the member’s career. This liability estimate incorporates the statutorily set discount rate and fully reflects the demographic assumptions revised in the June 30, 2013 valuation, which included projected improvements in mortality rates.
During the years 2001 through 2010 the rates adopted by the Legislature were lower than those that would have been required to produce actuarially required contributions to PERS Plan 1, a closed plan with a large proportion of the retirees. The State Actuary’s actuarial valuation for PERS Plan 1 as of June 30, 2013 showed a 63% funded ratio (unfunded liability of $4.831 billion) while PERS Plans 2 and 3 had valuation assets that exceed their accrued liability by $537 million (a 102% funded ratio). The State Actuary’s actuarial valuation for PERS Plan 1 as of June 30, 2014, showed a 61% funded ratio (unfunded liability of $4.965 billion) while PERS Plans 2 and 3 had valuation assets that exceed their accrued liability by $214 million (a 101% funded ratio). The decrease in the funded status and increase in the unfunded accrued actuarial liability primarily reflect changed demographic assumptions, including projected improvements in mortality rates, and the statutory requirement that the assumed rate of return be reduced to 7.8% from 7.9%.
The State Actuary’s actuarial valuation, using the EAN cost method, for PERS Plan 1 and PERS Plans 2 and 3 as of June 30, 2015, showed a 58% funded ratio (unfunded liability of $5.239 billion) and a 88% funded ratio (unfunded liability of $3.715 billion), respectively. Using the EAN cost method, the State Actuary’s actuarial valuation for PERS Plan 1 and PERS Plans 2 and 3 as of June 30, 2014, showed a 61% and 90% funded ratio, respectively.
PERS Plans 2 and 3 are accounted for in the same pension trust fund and may legally be used to pay the defined benefits of any PERS Plan 2 or 3 members. Assets for one plan may not be used to fund benefits for another plan: however, all employers in PERS are required to make contributions at a rate (percentage of payroll) determined by the OSA every two years for the sole purpose of amortizing the PERS Plan 1 unfunded actuarial accrued liability within a rolling 10-year period. The Legislature established certain maximum contribution rates that began in 2009 and continued until 2015 and certain minimum contribution rates that became effective in 2015 and remain in effect until the actuarial value of assets in PERS Plan 1 equals 100% of the actuarial accrued liability of PERS Plan 1. These rates are subject to change by future legislation enacted by the State Legislature to address future changes in actuarial and economic assumptions and investment performance. In 2011, the Legislature ended the future automatic annual increase, which is a fixed dollar amount multiplied by the member’s total years of service, for most retirees in the PERS Plan 1 plan, which is forecast to reduce the unfunded accrued actuarial liability in PERS Plan 1. The State Supreme Court recently upheld the constitutionality of this legislation.
New GASB 67/68 Reporting Rules. The Government Accounting Standard Board (“GASB”) has adopted new pension accounting standards that require employers, including the Authority, to report their pension liabilities on a generally accepted accounting principles (“GAAP”) basis rather than a funding basis. Beginning with its 2015 financial statements, the Authority will report its proportionate share of the net plan asset or liability for each pension plan in which Authority employees participate. The liability is based on the actuarial present value of projected benefit payments to periods of employee service, a discount rate that considers the availability of plan assets and recognition of projected investment earnings. DRS has determined each participating employers’
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proportionate share of the plan liability and the Office of the State Actuary (“OSA”) has determined each plan’s accounting valuation. The GASB rules impact accounting for pensions and not the funding status of the plans calculated by OSA or pension contribution rates that are set based on statutory assumptions.
DRS has calculated the collective net pension liability for the various retirement plans based on the new GASB reporting requirements as well as the Authority’s share of such liability. Net pension liability equals the total pension liability (a measure of the total cost of future pension benefit payments already earned, stated in current dollars) minus the value of the assets in the pension trust that can be used to make benefit payments. Contributions from plan members and employers are assumed to continue to be made at contractually required rates, the assumed long-term rate of investment return is 7.50%, the assumed economic inflation is 3.0%, and the assumed salary inflation is 3.7%. The following table shows the Authority’s share of the net pension liability for the plans it participates in for the State fiscal year ended June 30, 2015 based on its share of contributions for the year.
Authority’s Share of Pension Liabilities/(Assets) For Year Ended June 30, 2015 Net Authority’s Share of Liability/(Assets) Authority’s Percent Net Liability/(Assets) PERS 1 $5,230,930,000 0.279123%(1) $14,600,729 PERS 2/3 $3,573,057,000 0.354073% $12,651,234
(1) Includes 0.274138% of UAAL. Source: DRS CAFR for Fiscal Year Ended June 30, 2015 The information in this section has been obtained from the Authority’s financial statements and information on the State Actuary’s and State Department of Retirement System’s websites.
THE TRUSTEE
The Authority has appointed U.S. Bank National Association as Trustee. The Trustee is to carry out such duties as are assigned to it under the Indenture, which provides that the Trustee is undertaking no duties except in accordance with the terms of the Indenture. Except for the contents of this paragraph, the Trustee has not reviewed or participated in the preparation of the Official Statement and assumes no responsibility for the nature, contents, accuracy or completeness of the information set forth in the Official Statement.
THE BORROWER AND THE PROJECT
The Borrower
NewHolly Phase I LLLP is a Washington limited liability limited partnership with its principal offices located at 190 Queen Anne Ave North, Seattle, Washington. The Authority is the sole general partner of the Borrower. The sole purpose of the Borrower is to own and operate the Project.
The Project
Description. Proceeds of the Bonds will be lent by the Authority to the Borrower to be used to finance a portion of the cost of acquiring and rehabilitating a 305-unit affordable rental housing project, known as NewHolly Phase I, to provide residential housing for persons or families of lower income (the “Project”).
The Project was built beginning in 1997 using the Authority’s initial HOPE VI Grant. It is located north of S. Othello St., west of 32nd Ave. S., south of S. Morgan St., and east of 28th Ave. S, in the Rainier Valley neighborhood. The Project consists of 305 units of housing in 141 buildings located on an approximately 30-acre site, with just under 400,000 square feet of gross building area Most of the existing buildings are two-story townhomes. Tenant parking is either beside townhomes, in individual garage units, or on city streets. The Project contains 177 public housing units and 128 non-public housing units and currently houses approximately 1,200 people from of low income. The Project’s vicinity includes Van Asselt Park and Community Center, a Neighborhood House campus, a Seattle City Library branch, and a South Seattle College branch campus. The Project includes open spaces, common areas and a community garden.
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The unit-mix and current average monthly net rents for public housing units in the Project are set forth in the table below: Average Average No. of Unit Size Total Sq. Current Public Housing Unit Type Units (Sq. Ft.) Footage Net Rent One bedroom 5 746 3,731 $311 Two bedroom 48 1,058 50,798 361 Three bedroom 94 1,273 119,678 411 Four bedroom 25 1,512 37,796 461 Five bedroom 5 1,729 8,645 511 Total 177 220,648 The unit-mix and current average monthly net rents for non-public housing units in the Project are set forth in the table below: Avg. Unit Average No. of Size Total Sq. Current Net Non-Public Housing Unit Type Units (Sq. Ft.) Footage Rent One bedroom 5 781 3,908 $953 Two bedroom 55 1,066 58,646 1,130 Three bedroom 47 1,250 58,652 1,297 Four bedroom 11 1,430 15,727 1,445 Five bedroom 8 1,730 13,846 1,587 Common Area Units (three bedroom) 2 1,285 2,570 400 Total 128 153,349
Lease
On the Date of Issue, the Borrower and the Authority will enter into a Lease Agreement to be dated as of October 1, 2016 and effective the Date of Issue (the “Lease”), under which the Authority will lease the Project to the Borrower for a term to expire on December 31, 2115. The Lease requires the Borrower to use the Project solely for the purpose of providing housing for persons whose incomes, upon initial occupancy, are not greater than 60% of the area median gross income. The Lease requires the Borrower to pay annual ground rent to the Authority in the amount of $12. As consideration for the Borrower’s acquisition of the leasehold interest in improvements, the Lease requires the Borrower to pay capitalized rent in the amount of $19,250,000. Of this amount, (a) $3,585,049* will be paid in cash at closing (which is expected to be derived from proceeds of the sale of the Bonds), (b) $1,700,000 will be deemed paid upon the Borrower’s assumption of the Authority’s obligations under the Commerce Loan (described below), (c) $946,183 will be deemed to be paid upon the Borrower’s assumption of the Authority’s obligations under the City General Fund Loan (described below), and (d) the remaining balance of $13,018,768* will be deemed paid by delivery of a promissory note in connection with the Acquisition Loan as described below. Under certain circumstances, the Authority may terminate the Lease. See Appendix A – “DEFINITIONS OF CERTAIN TERMS; SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL DOCUMENTS – SUMMARY OF CERTAIN PROVISIONS OF THE LEASE.”
* Preliminary, subject to change.
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Use Restrictions and Project Rents
Of the 305 units that comprise the Project, 177 units, or 58 percent, will be reserved for those with incomes below 30 percent of area median income at initial occupancy, and 126 units, or 41 percent, will be reserved for those households with incomes below 60 percent of area median income. The remaining two units will become common area units and be occupied by on-site property management staff.
Public Housing. The 177 units reserved for those with incomes below 30 percent of area median income at initial occupancy are designated as public housing authority or “PHA” units for this extremely low-income population. Pursuant to an Amended Declaration of Trust (which will be amended on or about the Date of Issue), encumbering the fee interest in the Property granted by the Authority in favor of HUD and a Regulatory and Operating Agreement between the Authority and the Project’s prior owner, which will be assumed by the Borrower and amended on or about the Date of Issue (the “Regulatory and Operating Agreement”), the 177 public housing units are required to be operated in accordance with the Revised Consolidated Annual Contributions Contract between HUD and the Authority, as amended from time to time including, specifically, as amended by a Mixed-Finance Amendment to Consolidated Annual Contributions Contract between HUD and the Authority, which will be amended on or about the Date of Issue (collectively, the “ACC”).
The PHA designation is important as it allows the unit and the household to qualify for receipt of an operating subsidy from the Authority. The Regulatory and Operating Agreement provides, in part, that during each fiscal year the Authority may pay to the Borrower an operating subsidy equal to the estimated allowed expenses for the PHA units less estimated income from the PHA units (30 percent of income minus utility allowance) for such period. Allowed expenses include all ordinary and necessary expenses of operations of the Project (exclusive of debt service requirements of any lender and exclusive of utility expenses which are the direct responsibility of the tenant), management fees, legal and accounting expenses, and reserves for replacements. Allowed expenses are adjusted annually for inflation, changes in federal law, and the age and physical structure of the units. The Authority does not expect to use public housing operating subsidy to support the public housing in the Project for the next 15 years because rental income from non-public housing is expected to be sufficient to support Project operations and pay debt service on the Bonds.
The Authority’s overall financial well-being, as well as that of the Project, is partially dependent upon federal financing. The willingness of the U.S. Government to support subsidized housing has varied since the adoption of the Housing Act of 1937. Congress can, and in some cases has, adversely affected housing authority revenues in numerous ways, including decreasing the operating subsidy for public housing units. HUD regularly audits local housing authorities and can compel the repayment to the United States of funds that HUD has found to have been misspent. Such required reimbursements can be withheld from continued operating subsidies, thus depriving the Authority of resources. See “CERTAIN BONDHOLDERS’ RISKS — Federal Housing Programs.”
Regulatory Agreement. The Regulatory Agreement between the Authority and the Borrower (the “Regulatory Agreement”) relating to the various loans from the Authority to the Borrower requires that certain units in the Project be occupied by low or moderate income residents and contains other agreements relating to the Project. Under the Regulatory Agreement, the Borrower has agreed that at all times during the regulatory period (as described in the Regulatory Agreement), it will, among other things: (a) maintain at least 50 percent of the interior space in the Project or at least 50 percent of the dwelling units in the Project, whichever produces the larger number of dwelling units, for occupancy by Qualified Tenants (defined as individuals and families whose gross income does not exceed 60 percent of area median gross income, adjusted for family size); (b) maintain at least 40 percent of the apartment units in the Project for occupancy by Tax Qualified Tenants (defined as individuals and families whose gross income does not exceed 60 percent of area median gross income, adjusted for family size); (c) reserve units for Tax Qualified Tenants that have substantially the same basic equipment and amenities (not including luxury amenities) as other units in the Project; and (d) reserve units for Tax Qualified Tenants that are not geographically segregated and that are of substantially the same size as other units in the Project, unless otherwise required to comply with a local housing assistance program.
Federal Low Income Housing Tax Credits. The Borrower has received a “42(m)(1)” letter from the Washington State Housing Finance Commission (the “Commission”) concerning the financial feasibility of the Project and the availability of 4% Low Income Housing Tax Credits (“LIHTC”) issued under Section 42 of the Code. To qualify for LIHTC, the Authority and the Borrower will enter into a Regulatory Agreement (Extended Use Agreement) that will
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be recorded against the property (the “Extended Use Agreement”). Under the Extended Use Agreement, the Borrower will agree to rent 303 residential units in the Project to individuals or households earning 60 percent or less of median gross income for the area in which the Project is located (adjusted for household size, as determined by HUD). The Borrower will also covenant to restrict monthly rents on the residential units in the Project to 1/12 of 30 percent of the applicable percentage of median gross income for the area in which the Project is located, adjusted for an imputed household size.
City of Seattle Regulatory Agreement. In connection with this financing, an Amended and Restated Regulatory Agreement among the Authority, the Borrower and The City of Seattle will be recorded against the Project (the “City Regulatory Agreement”). The City Regulatory Agreement will, among other things obligate the Authority and the Borrower, to rent 177 residential units in the Project at the time of initial occupancy to individuals or households earning 30 percent or less of median gross income for the area in which the Project is located (adjusted for household size, as determined by HUD). The Borrower is also obligated to restrict monthly rents and utility allowance on the 177 residential units to 1/12 of 30 percent of 30 percent of median gross income for the area in which the Project is located, adjusted for an imputed household size. The City Regulatory Agreement is to remain in effect until February 25, 2038, and thereafter for any period during which loans made by the City for the Project may be outstanding. The City Regulatory Agreement provides that the City may petition a court for the appointment of a receiver to assume full management, control and possession of the Project and to exercise all rights under applicable law (but not including the power to sell or dispose of the Property). However, pursuant to the Priority Agreement, the City agrees that it will not exercise such remedy so long as the Bonds remain outstanding.
State Department of Commerce Covenant Agreement. In connection with the assumption of the Commerce Loan, the Borrower will enter into a First Amended and Restated Low Income Housing Covenant Agreement with Commerce (the “Commerce Covenant Agreement”) that will obligate the Borrower, among other things, to rent 177 residential units in the Project at the time of initial occupancy to individuals or households earning 30 percent or less of median gross income for the area in which the Project is located (adjusted for household size, as determined by HUD) and 126 residential units in the Project to individuals or households earning 60 percent or less of median gross income for the area. Pursuant to the Commerce Covenant Agreement, rents charged to tenants may not exceed 30% of the monthly income of the target population, unless a different percentage is required for federal rental assistance. The Commerce Covenant Agreement will expire on December 31, 2040.
Declaration of Trust. In 1998, the Authority entered into an Amended Declaration of Trust (the “1998 Declaration”) pertaining to Holly Park Phase I (now, the Project) with HUD. In connection with this financing, the Authority and HUD will enter into an Amendment to Declaration of Trust amending the 1998 Declaration (as so amended, the “Declaration of Trust”). The Declaration of Trust requires, among other things, that, during its term, the Authority and the Borrower remain seized of title to the 177 public housing units and refrain from transferring, conveying, assigning, leasing, mortgaging, pledging, or otherwise encumbering or permitting any transfer of such public housing units except as permitted thereby. The Declaration of Trust will remain an encumbrance upon the property, in accordance with its terms, until 2048.
Project Management
The Borrower will enter into a management agreement with the Authority (the “Management Agreement”), pursuant to which the Authority will undertake oversight of the day-to-day operations of the Project. The Project’s day-to-day finances will be managed pursuant to the Management Agreement, including the annual budget, capital improvements, and financial reporting. In the Management Agreement, the Authority will agree to perform duties and responsibilities in compliance with public housing requirements, the Lease and applicable regulatory agreements.
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Project Operating Pro Forma
The table below sets forth the Project’s actual revenues and expenses for 2013 through 2015, budgeted numbers for 2016, and projections for 2017, 2018 and 2019. Renovation of the Project is expected to be completed in April, 2018, making 2019 the first full fiscal year completion of renovation of the Project. The See “CERTAIN BONDHOLDERS’ RISKS — Limitations on Forecasting.”
Actual Budgeted Projected 2013 2014 2015 2016 2017 2018 2019 Revenues Rental Income(1) $2,478,560 $2,598,318 $2,688,809 $2,631,244 $2,683,869 $2,737,546 $2,792,297 Other Tenant Income 87,325 59,863 84,041 88,227 58,288 57,054 58,195 Total Revenues $2,565,885 $2,658,181 $2,772,850 $2,719,471 $2,742,157 $2,794,600 2,850,492
Expenses(2) 1,942,525 2,023,774 1,951,607 1,940,634 1,935,720 1,993,792 2,053,605
Replacement Reserve(2) $ 138,400 $ 142,552 $ 146,829 $ 151,234 $ 152,500 $ 157,075 161,787
Net Operating Income $ 484,960 $ 491,855 $ 674,414 $ 627,603 $ 653,937 $ 643,733 635,100
Debt Service: Prior Debt Service(3) $ 386,425 $ 388,088 $ 389,175 $ 288,623 – –– 2016A Bond Debt Service*(4) – ––43,281 $ 291,978 $ 291,845 $358,573 2016B Bond Debt Service*(5) – – – 41,184 130,573 102,665 – Total Bond Debt Service $386,426 $388,088 $389,175 $373,088 $422,551 $394,510 $358,573 Requirements*
Net Cash Flow After Bond Debt Service $ 98,534 $ 103,767 $ 285,239 $ 254,515 $ 231,386 $ 249,223 $ 276,527
* Preliminary, subject to change. (1) Assumes 2% rent inflation and 5% residential vacancy rate in the years 2016 through 2019. Years 2013, 2014 and 2015 include Housing Assistance Payments associated with Tenant Based Vouchers residing in certain units previously financed with low-income housing tax credits. Although the Regulatory and Operating Agreement allows the Authority to provide public housing operating subsidy (“Section 9 Operating Subsidy”) to support public housing units, Section 9 Operating Subsidy was not used to support the public housing units in years 2013-2015, nor does the Authority anticipate using Section 9 Operating Subsidy to support the public housing units in the upcoming 15- year period. The amount of Section 9 Operating Subsidy is restricted to the difference between the operating expenses associated with the public housing units and the tenant-paid rent from the public housing units. (2) Assumes 3.0% inflation for expenses and reserves in the years 2017 and 2018. (3) Includes debt defeased on or around the Date of Issue. (4) Excludes that portion of interest expected to be paid from Bond proceeds. (5) Preliminary, subject to change. Excludes that portion of interest expected to be paid from Bond proceeds and principal on the 2016B Bonds, which is expected to be paid from capital contributions from the Limited Partner. Assumes that 2016B Bonds will be optionally redeemed on October 1, 2018. Note: Actual revenue and expense information set forth above is for fiscal years ended December 31, 2013, 2014 and 2015. The information regarding budgeted and projected revenues and expenses is for fiscal years ending December 31, 2016, 2017, 2018 and 2019. Source: The Authority
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Occupancy Rates. The monthly occupancy rates for the Project for September, 2014 through August, 2016 are set forth below: Occupancy Occupancy Occupancy Month Rate Month Rate Month Rate September 2014 99.3% May 2015 100.0% January 2016 98.36% October 2014 99.7% June 2015 100.0% February 2016 99.02% November 2014 99.7% July 2015 99.3% March 2016 98.03% December 2014 99.7% August 2015 98.7% April 2016 99.02% January 2015 99.7% September 2015 97.7% May 2016 98.69% February 2015 100.0% October 2015 98.7% June 2016 97.70% March 2015 100.0% November 2015 98.7% July 2016 98.03% April 2015 100.0% December 2015 99.0% August 2016 97.38% Source: The Authority.
Acquisition of Renovation of the Project/Capital Needs
Renovation of the Project is expected to cost approximately $20,910,687 and will be paid for in part with proceeds of the Bonds, Limited Partner capital contributions, and other sources. See “PLAN OF FINANCE.” In the past year, the Authority discovered exterior construction defects that resulted in water intrusion and premature damage to the Project’s buildings. The renovation will include removing and reinstalling all roofing, siding, windows, trim, gutters and decks. Water and other damage to the structures will also be corrected at this time. Any damage to unit interiors will be addressed on a unit-by-unit basis. Residents will occupy their units during construction and no tenant relocation is anticipated. The renovation work is expected to be completed in April, 2018. The Authority has projected other capital needs of the Project for 15 years and believes those needs can be met from Project revenues and reserves. The Borrower expects, but is not required by the documents pertaining to the Bonds, to fund a reserve for replacement fund for the Project at a rate of not less than $500 per unit per year.
On April 18, 2016, an accidental fire caused the total loss of one unit within a duplex at the Project. The other unit in the duplex will require some siding replacement, soffit and deck repair, limited interior drywall patching/paint and some carpet replacement/cleaning. Another neighboring unit will require replacement of the siding, building wrap and windows on one side. The cost of this work, estimated to be $300,000, is included in the costs of rehabilitation of the Project.
Project Appraisal
The Authority obtained an appraisal for the Project dated July 1, 2016. The appraiser determined the “as is market value” for the Project as of June 9, 2016 to be $19,250,000. The appraiser applied a capitalization rate of 6.0% in the “income approach” valuation. The appraisal took into consideration that 177 units are public housing and provided no added value to the Project, as they operate at a loss without public housing operating subsidy. In addition, the appraisal assumes the Project’s current set-aside restrictions of 56 units at 50% area median income, 56 units at 60% area median income and 16 market rate units. The Authority believes that the Project would appraise at a greater value after the completion of the Project.
Project Environmental Review
The Authority obtained a Phase I environmental assessment with respect to the Project dated March 18, 2016 (the “Phase I Assessment”). The Phase I Assessment reported no significant risks of environmental impact to the Project site from then-current or historical uses. The potential for environmental impact to the Project site from off- site sources was reported to be low. No additional environmental assessments were recommended at the time of the Phase I Assessment.
Market Study
The Project is located in the greater Rainier Valley neighborhood of Seattle. A market study by Kidder Mathews LLC dated February 3, 2016 (the “Market Study”) reported that, in the past 10 years, the area market’s
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vacancy rate had a high of 8.7% in March 2006 and a low of 0.8% in September 2012. The Market Study reported a 1.4% estimated area market vacancy as of September 2015, a 2.6% area market five-year average vacancy rate and a 3.1% 10-year average vacancy rate. In the Market Study, the available supply of affordable housing was compared to estimated demand at similar income levels. The Market Study concluded that, based on existing data, there is a net shortage of affordable housing within the area market. The Project is an existing project and a majority of the Project’s units are income-restricted and do not constitute additional supply of affordable housing in the area market.
Other Project Debt
Master Authority Loan
On the Date of Issue the Borrower will grant the Authority a leasehold deed of trust encumbering the Borrower’s interest in the Project (the “Master Loan Deed of Trust”) to secure (1) a loan in the original principal amount of $13,018,768* (the “Acquisition Loan”) to finance a portion of the capitalized rent under the Lease; (2) a loan in the original principal amount of not to exceed $3,000,000 (the “First Rehabilitation Loan”) to finance a portion of the costs of rehabilitating the Project; and (3) a loan in the original principal amount of not to exceed $2,500,000 (the “Second Rehabilitation Loan” and, collectively with the Acquisition Loan and the First Rehabilitation Loan, the “Master Loan”) to finance a portion of the costs of rehabilitating the Project, all made pursuant to a Master Loan Agreement between the Authority and the Borrower to be dated as of October 1, 2016 (the “Master Loan Agreement”). In the event of unanticipated cost overruns associated with rehabilitation of the Project, the Authority may make additional loans to the Borrower, or increase the amount of the Master Loan.
The Acquisition Loan will be fully disbursed (or will be deemed to have been fully disbursed) at the time the initial rent is due under the Lease. See “THE BORROWER AND THE PROJECT — The Lease.” The Acquisition Loan will bear interest at a rate of 2.18% per annum, compounded annually, subject to adjustment upon an event of default. The Borrower may request advances on the First Rehabilitation Loan in an aggregate amount not to exceed $3,000,000. The First Rehabilitation Loan will bear interest at a rate of 1.00% per annum, compounded annually, subject to adjustment upon an event of default. The Borrower may request advances on the Second Rehabilitation Loan in an aggregate amount not to exceed $2,500,000. The Second Rehabilitation Loan will bear interest at a rate of 1.00% per annum, compounded annually, subject to adjustment upon an event of default. The Acquisition Loan, First Rehabilitation Loan and Second Rehabilitation Loan are each scheduled to mature on October 1, 2066, and are each payable from Project cash flow available after payment of operating expenses and debt service on the Bonds and from Capital Proceeds (as defined in the Partnership Agreement). Pursuant to the Priority Agreement, the Authority will agree that the Master Loan Deed of Trust is subordinate to the Deed of Trust.
Commerce Loan
In 1998, the Authority and the Washington State Department of Commerce (formerly known as the Washington State Department of Community, Trade and Economic Development) (“Commerce”) entered into that certain Holly Park Phase I Housing Finance Unit Contract No. 98-493-425 (the “Commerce Contract”), executed by Grantor on February 20, 1998, pursuant to which Commerce lent $1,700,000 to the Authority, which loan (the “Commerce Loan”) was originally secured by a leasehold deed of trust encumbering the Project. Pursuant to an Assignment, Assumption and Consent Agreement, by and among the Authority, the Borrower and Commerce, the Borrower will assume all of the Authority’s obligations under the Commerce Contract and the promissory note and covenant agreement pertaining to the Commerce Loan. The Commerce Loan does not accrue interest, and is due on the earlier of (a) December 31, 2040, or (b) the date the leasehold interest of the Borrower in the Project is sold, refinanced or not used as required by Commerce. The Commerce Loan will be secured by a Leasehold Deed of Trust encumbering the Project made by the Borrower and the Authority for the benefit of Commerce (the “Commerce Deed of Trust”). Pursuant to the Priority Agreement, Commerce will agree that the Commerce Deed of Trust is subordinate to the Deed of Trust.
* Preliminary, subject to change.
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City Loans
In 1998, the Authority obtained a loan from The City of Seattle (the “City”) in the principal amount of $801,570 (the “City General Fund Loan”) pursuant to a Loan Agreement dated February 23, 1998, which was amended in 2010 (as amended, the “City General Fund Loan Agreement”). The Borrower will assume the obligations of the Borrower under the City General Fund Loan Agreement (including the obligation to pay accrued and unpaid interest) in connection with its acquisition of a leasehold interest in the Project. The City General Fund Loan will be secured by a Leasehold Deed of Trust, Assignment of Rents, Security Agreement, and Fixture Filing encumbering the Project made by the Borrower for the benefit of the City (the “City General Fund Deed of Trust”). The City General Fund Loan bears interest at a rate of 1.0% per annum, subject to adjustment upon an event of default, and is scheduled to mature in February 23, 2038, subject to extension for up to seven five-year periods, or to earlier maturity upon transfer of the property. Pursuant to the Priority Agreement, the City will agree that the City General Fund Deed of Trust is subordinate to the Deed of Trust.
The City and the Authority are parties to an second Loan Agreement dated February 23, 1998, which was amended in 2010, pursuant to which the City made a loan to the Authority in the principal amount of $413,000 to finance certain infrastructure improvements (the “City Urban Renewal Loan”). The Partnership is not obligated to pay debt service on the City Urban Renewal Loan, but the City Urban Renewal Loan is secured by a Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing (Urban Renewal Closeout Subaccount) encumbering the Authority’s fee interest in the Project (the “City Urban Renewal Deed of Trust”). Pursuant to the Priority Agreement, the City will agree that the City Urban Renewal Deed of Trust is subordinate to the Deed of Trust.
The City and the Authority are also parties to a third Loan Agreement dated February 23, 1998, which was amended in 2010, pursuant to which the City made a loan to the Authority in the principal amount of $1,202,685 to finance certain public street serving the Project (the “City Capital Facilities Projects Loan”). The Partnership is not obligated to pay debt service on the City Capital Facilities Projects Loan, but the City Capital Facilities Projects Loan is secured by a Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing (City Capital Facilities Projects Loan) encumbering the Authority’s fee interest in the Project (the “City Capital Facilities Projects Loan Deed of Trust”). Pursuant to the Priority Agreement, the City will agree that the City Capital Facilities Projects Loan Deed of Trust is subordinate to the Deed of Trust.
CERTAIN BONDOWNERS’ RISKS
The purchase of the Bonds involves certain investment risks that are discussed throughout this Official Statement. Accordingly, each prospective purchaser of the Bonds should make an independent evaluation of all of the information presented in this Official Statement in order to make an informed investment decision. Certain of these risks are described below. The discussion of risk factors is not meant to be definitive or exhaustive.
General
Prospective purchasers of the Bonds should consider carefully all possible factors that may affect both the operation of and the revenues from the Project and the Authority’s General Revenues, and consequently create the possibility that payment on the Bonds will not be made or that interest on the Bonds might be taxable from their date of issuance. The Bonds may not be a suitable investment for all prospective purchasers. Prospective purchasers should consult their investment advisors before making any decisions as to the purchase of the Bonds.
Special Obligations
THE BONDS ARE NOT A DEBT OF THE CITY OF SEATTLE, WASHINGTON, THE STATE OF WASHINGTON OR ANY POLITICAL SUBDIVISION THEREOF. NEITHER THE CITY OF SEATTLE, WASHINGTON, THE STATE OF WASHINGTON NOR ANY POLITICAL SUBDIVISION THEREOF (EXCEPT THE AUTHORITY FROM THE SOURCES DESCRIBED IN THE INDENTURE) SHALL BE LIABLE FOR PAYMENT OF THE BONDS NOR IN ANY EVENT SHALL THE PRINCIPAL OF, PREMIUM, IF ANY, ON OR INTEREST ON THE BONDS BE PAYABLE OUT OF ANY FUNDS OR ASSETS OTHER THAN THOSE PLEDGED TO THAT PURPOSE BY THE AUTHORITY IN THE INDENTURE AND IN THE RESOLUTION. THE AUTHORITY DOES NOT HAVE TAXING POWER. WHILE THE AUTHORITY HAS PLEDGED ITS GENERAL REVENUES TO SECURE PAYMENT OF THE BONDS, THERE CAN BE NO
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ASSURANCE THAT FUNDS WILL BE AVAILABLE TO THE AUTHORITY FOR THAT PURPOSE, OR IF AVAILABLE, IN A TIMELY MANNER.
Revenue Forecasts
The Authority expects that the Bonds will be repaid from Loan Payments received under the Loan Agreement. The ability of the Authority to pay the principal of and interest on the Bonds depends in substantial part upon receipt of Loan Payments. The Borrower, in turn, expects to obtain the funds needed to make Loan Payments from Project Revenues, except for capital contributions from Borrower’s Limited Partner that are expected to be used to pay principal of the 2016B Bonds when due.
A primary source of repayment for the Bonds is the net operating income available from the Project. Although the Authority expects net operating income, together with capital contributions from the Borrower’s Limited Partner, to be adequate to make Loan Payments and hence payment on the Bonds, a number of factors could cause that not to be the case. Forecasted net operating income is based upon certain assumptions regarding current and future rent levels and occupancy levels. Although the Authority believes that the assumptions made are prudent and reasonable, various conditions, including but not limited to, rental rates lower than expected, vacancy rates higher than projected, a contraction in business growth, a downturn in the overall economy of the area, inadequate property management, expenses higher than projected or a significant number of new competing multifamily units built in the area of the Project could cause actual rent and occupancy levels to be less favorable than current Authority forecasts. As a result, future Project Revenues may vary from these forecasts, and could vary materially.
Casualty Loss or Condemnation
The insurance coverage for damage to or destruction of the Project may not adequately reimburse the income loss or total cost of reconstruction in the event of a casualty. Also, a particular loss may be excluded from coverage. Condemnation of the Project or a portion thereof may result in the remaining income being inadequate to make debt service payments on the Bonds. The net proceeds derived from a total condemnation may be insufficient to fund an extraordinary redemption of the Bonds. In such event, the Authority anticipates that it would use other available funds, including its General Revenues, to make up any shortfall.
Tax Credit Equity
Upon substantial completion of the Project, the Authority expects that the Borrower will receive capital contributions from U.S. Bancorp Community Development Corporation, which is the Limited Partner of the Borrower, in the amount of approximately $18,046,820. A portion of these capital contributions is expected to be used by the Borrower to make Loan Payments to be used pay the outstanding principal of the 2016B Bonds. The commitment of the Limited Partner make its capital contributions is subject to a number of preconditions and requirements. Although the Borrower expects to timely satisfy these requirements and preconditions, no guaranty can be made to that effect. The Trustee has no right, on behalf of Owners or beneficial owners of the Bonds, to enforce the rights to receive capital contribution payments under the Partnership Agreement. No analysis of the Limited Partner’s creditworthiness or ability to make its capital contributions under the Partnership Agreement has been performed by the Authority or the Borrower. Any failure by the Borrower to receive the full amount of the Limited Partner’s capital contributions on the anticipated schedule would have a significant impact on the Borrower’s ability to make Loan Payments, and therefore the Authority’s ability to make debt service payments on the Bonds, in particular the 2016B Bonds.
Use Restrictions
As described “THE BORROWER AND THE PROJECT – Use Restrictions and Project Rents”, the Project is subject to a number of use restrictions, that limit the ability of the Borrower to raise rents, if necessary or desirable to improve financial performance of the Project, and further restrict eligibility of potential tenants to certain income levels, which could make it more difficult to maintain high occupancy rates at the Project. These use restrictions could, in the future, negatively affect the ability of the Borrower to make Loan Payments. In addition, certain use restrictions would continue to apply to the Project, in accordance with their terms, after foreclosure of the Deed of Trust, limiting the value and the future operation of the Project.
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General Revenue Pledge
The Authority has pledged its General Revenues as additional security for the Bonds. Prospective purchasers of the Bonds should assume that the Bonds will be paid solely from Loan Payments and funds held by the Trustee. If Loan Payments are insufficient to meet debt service on the Bonds, there is no assurance that General Revenues of the Authority will be available or sufficient for that purpose. The pledge of General Revenues of the Authority to the payment of the Bonds is subject to the right of the Authority to issue, without limitation, other obligations to be paid from the General Revenues on parity of lien with the Bonds and to pledge any portion of the General Revenues to the payment of other obligations, those payments to have priority over the payments to be made on the Bonds with respect to that portion of the General Revenues so pledged. The Authority has previously issued multiple series of bonds and notes to which it has pledged its General Revenues and expects to continue to do so in the future. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS – General Revenue Pledge.”
Many factors could affect the availability of General Revenues to pay debt service on the Bonds. The Authority’s overall financial wellbeing is partially dependent upon federal financing. See “CERTAIN BONDHOLDERS’ RISKS – Federal Housing Programs.” See also “THE AUTHORITY – Pensions – Plan Funding Status and Unfunded Actuarial Liability” for a discussion of funding levels relating to retirement plans, which could affect future availability of General Revenues to pay debt service on the Bonds.
Possible Limitations on Remedies and Enforcement of Security Interests
While the Bonds are secured pursuant to the Indenture, the Deed of Trust and the Loan Agreement, and are payable primarily from the Loan Payments to be made by the Borrower under the Loan Agreement, the practical realization of such security interests (which are perfected only to the extent they may be perfected by recording with the appropriate authorities, filing pursuant to the Washington Uniform Commercial Code and/or by the Trustee’s possession of certain money and investments) upon any default will depend upon the exercise of various remedies specified by the Indenture, the Deed of Trust and the Loan Agreement. These and other remedies are in many respects dependent upon judicial actions, which are often subject to discretion and delay. Under existing constitutional, statutory and judicial law, the remedies specified by the Indenture, the Deed of Trust, the Loan Agreement or other related documents may not be readily available or may be limited by bankruptcy or by other similar laws affecting creditors’ rights. In addition, in the event of a foreclosure, there can be no assurance that amounts realized from the foreclosure of the Project would be sufficient to pay the debt service on the Bonds.
It is not possible to perfect a security interest in certain types of revenues of the Bond (e.g. cash, gifts, donations) prior to the actual possession of the cash relating to such items by the Trustee.
In addition, the enforceability of the security interests created under the Indenture and the Resolution in the Authority’s General Revenues may be subject to subordination or prior claims in certain instances, in addition to bankruptcy. The Authority and the Trustee are not entering into any depository agreement or other contractual arrangement whereby the Trustee will have any claim of possession with respect to the General Revenues of the Authority prior to the actual deposit of amounts derived from such General Revenues with the Trustee.
The Deed of Trust encumbers the Borrower’s leasehold interest in the Project. Although the Lease provides certain rights to Leasehold Mortgagees, were the Lease to be terminated, or found invalid or unenforceable, the Trustee would no longer have a security interest under the Deed of Trust.
The legal opinions to be delivered concurrently with the delivery of the Bonds will be qualified as to the enforceability of the various legal instruments by limitations imposed by state and federal laws, ruling and decisions affecting remedies by bankruptcy, insolvency, organization or other laws of general application affecting the enforcement of creditors’ rights, and, with respect to the Authority, by limitations potentially imposed on the basis of public policy.
Potential purchasers of Bonds should consult legal counsel or otherwise familiarize themselves with the relevant Washington laws.
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Limitations on Forecasting
The Authority has prepared the forecasted financial information set forth in this Official Statement. The prospective financial information was not prepared with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information but, in the view of the Authority, was prepared on a reasonable basis, reflects the best currently available estimates and judgments and presents, to the best of the Authority’s knowledge and belief, the expected course of action and the expected future financial performance of the Project. However, this information is not fact and should not be relied upon as necessarily indicative of future results. Readers of this Official Statement are cautioned not to place undue reliance on the forecasted financial information. Neither the State Auditor nor any independent accountant has compiled, examined or performed any procedures with respect to the prospective financial information contained herein, nor has the State Auditor or any independent accountant expressed any opinion or any form of assurance on such information or its achievability, or assumed any responsibility for or association with the prospective financial information.
Early Redemption
Purchasers of Bonds, including those who purchase Bonds at a price in excess of their principal amount or who hold such a Bond trading at a price in excess of par, should consider the fact that the Bonds are subject to redemption at a redemption price equal to their principal amount plus accrued interest in the event such Bonds are redeemed prior to maturity. See “THE BONDS – Redemption of the Bonds.”
Competing Facilities
The Authority, persons who may be affiliated with the Authority and others may own, finance, develop, construct and operate other facilities in the area of the Project that could compete with the Project. Any competing facilities, if so constructed, could adversely affect occupancy and revenues of the Project.
Project Feasibility
No independent financial feasibility study has been made of the Project. See “THE BORROWER AND THE PROJECT.”
Secondary Market and Prices
It has been the practice of the Underwriters to maintain a secondary market in municipal securities they sell, and the Underwriters currently intend to engage in secondary market trading of the Bonds, subject to applicable securities laws. The Underwriters, however, are not obligated to engage in secondary trading or to repurchase any of the Bonds at the request of the owners thereof. Because of general market conditions or because of adverse history or economic prospects connected with a particular issue or issuer, secondary marketing activity in connection with a particular issue may be suspended or terminated. Additionally, prices of issues for which a market is being made will depend upon then prevailing circumstances. Such prices could be substantially different from the original purchase price. THERE CAN BE NO GUARANTEE THAT THERE WILL BE A SECONDARY MARKET FOR THE BONDS, OR IF A SECONDARY MARKET EXISTS, THAT THE BONDS CAN BE SOLD FOR ANY PARTICULAR PRICE.
Effects on Exemption of Interest From Federal Income Taxes
The exemption of interest on the Bonds from federal income taxes is dependent upon continuing compliance by the Authority and the Borrower with the requirements of the Code. If there is a failure to comply, interest on the Bonds could become includable for federal income tax purposes in the gross incomes of the owners thereof, which inclusion in gross income could be retroactive to the date of issuance of the Bonds. See “TAX MATTERS – Continuing Requirements”.
Current and future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the Bonds to be subject, directly or indirectly, to federal income taxation, or to be subject to state income taxation, or otherwise prevent beneficial owners from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such legislative proposals, clarification of the Code or court decisions
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may also affect the market price for, or marketability of, the Bonds. Prospective purchasers of the Bonds should consult their own tax advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation.
Although the Bonds may be redeemed if necessary to prevent a Determination of Taxability, no loss of the exclusion of the interest on the Bonds from gross income for federal income tax purposes constitutes a default under the Indenture, and extraordinary mandatory redemption or acceleration upon any such loss of tax-exempt status is not required under the Indenture. Consequently, the Trustee may not have remedies available to it to mitigate the adverse economic effects to the Owners of the Bonds resulting from the interest on the Bonds becoming subject to federal income taxation. If interest on the Bonds becomes so includable in the owners’ gross incomes, the effect will be to reduce the yield on an owner’s Bonds as a result of the federal and, in certain cases, state and local, income tax liability incurred in connection with the receipt of interest on the Bonds. There is no provision for any adjustment to the interest rate borne by the Bonds in the event of any such loss of tax exempt status, nor is any provision made for the payment of any penalties or premium in such event. Such loss of tax exempt status can be expected to have a material adverse effect on the market price of the Bonds. Potential purchasers of the Bonds should note that there are no provisions for an early redemption of, or interest rate adjustment for, Bonds upon the occurrence of a Determination of Taxability.
Federal Housing Programs
The Authority’s overall financial well-being, as well as that of the Project, is partially dependent upon federal financing. The willingness of the U.S. Government to support subsidized housing has varied since the adoption of the Housing Act of 1937. Likewise, the allocation of federal funds in support of housing does not necessarily come through housing authorities.
Congress can and in some cases has adversely affected housing authority revenues in numerous ways including without limitation failing to create additional programs administered by housing authorities and permitting existing programs to expire; decreasing the operating subsidy for public housing units; decreasing the administrative fee for the administration of the Section 8 Certificate and Voucher Programs; and directing federal resources through other channels.
Activities of local housing authorities are closely monitored and regulated by HUD. Regulation can take the form of limitations in spending or compulsory spending in areas that could adversely affect the General Revenues of the Authority available to the owners of the Bonds. HUD is required to review housing authorities’ budgets to the extent of federal involvement. HUD regularly audits local housing authorities and can compel the repayment to the United States of funds that HUD has found to have been misspent. Such required reimbursements can be withheld from continued operating subsidies, thus depriving the Authority of resources.
Various proposals have been discussed that would significantly change the structure and programs of HUD. At this time it is not possible to determine what, if any, proposals may become law and what effect such proposals may have on the ability of the Authority to make debt service payments on the Bonds.
Municipal Bankruptcies
A municipality such as the Authority must be specifically authorized under state law in order to seek relief under Chapter 9 of the U.S. Bankruptcy Code (the “Bankruptcy Code”). Chapter 39.64 RCW, entitled the “Taxing District Relief Act,” permits any “taxing district” (defined to include any municipality or other political subdivision of any state) to voluntarily petition for relief under the Bankruptcy Code. While the Authority does not have taxing authority, it is a political subdivision of the state of Washington and falls within the definition of “taxing district” for purposes of chapter 39.64 RCW. Involuntary bankruptcy proceedings against municipal entities are not permitted under Chapter 9 of the Bankruptcy Code. In addition, under RCW 39.64.060 no plan of readjustment is effective for the purpose of binding a taxing district unless such taxing district files with the bankruptcy court a certified copy of a resolution adopted by its board or commission consenting to the plan of readjustment. The federal bankruptcy courts have broad discretionary powers under the Bankruptcy Code.
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The various legal opinions to be delivered concurrently with the delivery of the Bonds will be qualified by reference to bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium and other similar laws affecting the rights of creditors generally, and by general principles of equity.
Environmental Matters
Under the federal Comprehensive Environmental Response, Compensation and Liability Act and under comparable State law, a secured party that takes a deed in lieu of foreclosure, purchases a mortgaged property at a foreclosure sale or operates a mortgaged property may become liable in certain circumstances for the cost of remedial action (“Remedial Action Costs”) if hazardous waste or hazardous substances have been released or disposed of on the property. Such Remedial Action Costs could subject all or a portion of the Project to a lien and reduce or eliminate the amounts otherwise available to pay the owners of the Bonds if such Remedial Action Costs were incurred.
TAX MATTERS
Exclusion from Gross Income. In the opinion of Bond Counsel, under existing federal law and assuming compliance by the Authority and the Borrower with applicable requirements of the Internal Revenue Code of 1986, as amended (the “Code”) that must be satisfied subsequent to the issue date of the Bonds, (i) interest on the Bonds (except any Bond for any period during which it is held by a “substantial user” of the Project or a “related person” within the meaning of Section 147(a) of the Code) is excluded from gross income for federal income tax purposes, and (ii) interest on the Bonds is not treated as an item of tax preference for purposes of the federal alternative minimum tax applicable to individuals and corporations and is not included in adjusted current earnings of corporations for purposes of the federal alternative minimum tax.
Continuing Requirements. The Authority and the Borrower are required to comply with certain requirements of the Code after the date of issuance of the Bonds in order to maintain the exclusion of the interest on the Bonds from gross income for federal income tax purposes, including, without limitation, requirements concerning the qualified use of Bond proceeds and the facilities financed or refinanced with Bond proceeds, limitations on investing gross proceeds of the Bonds in higher yielding investments in certain circumstances, and the requirement to comply with arbitrage rebate requirements to the extent applicable to the Bonds. The Authority and the Borrower have covenanted in the Indenture, the Loan Agreement, and the Regulatory Agreement to comply with those requirements, but if the Authority or the Borrower fails to comply with those requirements, interest on the Bonds could become taxable retroactive to the date of issuance of the Bonds. Bond Counsel has not undertaken and does not undertake to monitor the Authority’s or the Borrower’s compliance with such requirements.
Tax on Certain Passive Investment Income of S Corporations. Under Section 1375 of the Code, certain excess net passive investment income, including interest on the Bonds, received by an S corporation (a corporation treated as a partnership for most federal tax purposes) that has Subchapter C earnings and profits at the close of its taxable year may be subject to federal income taxation at the highest rate applicable to corporations, if more than 25% of the gross receipts of such S corporation is passive investment income.
Foreign Branch Profits Tax. Interest on the Bonds may be subject to the foreign branch profits tax imposed by Section 884 of the Code when the Bonds are owned by, and effectively connected with a trade or business of, a United States branch of a foreign corporation.
Possible Consequences of Tax Compliance Audit. The Internal Revenue Service (the “IRS”) has established a general audit program to determine whether issuers of tax-exempt obligations, such as the Bonds, are in compliance with requirements of the Code that must be satisfied in order for interest on those obligations to be, and continue to be, excluded from gross income for federal income tax purposes. Bond Counsel cannot predict whether the IRS would commence an audit of the Bonds. Depending on all the facts and circumstances and the type of audit involved, it is possible that commencement of an audit of the Bonds could adversely affect the market value and liquidity of the Bonds until the audit is concluded, regardless of its ultimate outcome.
Bonds Not “Qualified Tax-Exempt Obligations” for Financial Institutions. Section 265 of the Code provides that 100% of any interest expense incurred by banks and other financial institutions for interest allocable to tax-exempt private activity bonds, such as the Bonds, acquired after August 7, 1986, will be disallowed as a tax deduction.
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Reduction of Loss Reserve Deductions for Property and Casualty Insurance Companies. Under Section 832 of the Code, interest on the Bonds received by property and casualty insurance companies will reduce tax deductions for loss reserves otherwise available to such companies by an amount equal to 15% of tax-exempt interest received during the taxable year.
Effect on Certain Social Security and Retirement Benefits. Section 86 of the Code requires Owners of the Bonds who are also recipients of certain Social Security and certain Railroad Retirement benefits to take receipts or accruals of interest on the Bonds into account in determining gross income.
Other Possible Federal Tax Consequences. Receipt of interest on the Bonds may have other federal tax consequences as to which prospective purchasers of the Bonds may wish to consult their own tax advisors.
Potential Future Federal Tax Law Changes. From time to time, there are legislative proposals in Congress which, if enacted, could require changes in the description of federal tax matters relating to the Bonds or adversely affect the market value of the Bonds. It cannot be predicted whether future legislation may be proposed or enacted that would affect the federal tax treatment of interest received on the Bonds. Prospective purchasers of the Bonds should consult with their own tax advisors regarding any proposed or pending legislation that would change the federal tax treatment of interest on the Bonds.
ABSENCE OF MATERIAL LITIGATION
There is no controversy of any nature now pending against the Authority or the Borrower, to the knowledge of the Authority’s officers, threatened which seeks to restrain or enjoin the issuance, sale, execution or delivery of the Bonds or the application of the proceeds of the Bonds as contemplated by the Indenture, or in any way contesting or affecting the validity of the Bonds, any proceedings of the Authority or the Borrower taken with respect to the issuance or sale thereof, the pledge or application of any money or security provided for the payment of the Bonds, the existence or powers of the Authority or the Borrower or the title of any officers of the Authority to their respective positions.
APPROVAL OF LEGALITY
Legal matters incident to the authorization, issuance and sale of the Bonds by the Authority are subject to the approving legal opinion of Foster Pepper PLLC, Seattle, Washington, Bond Counsel. The form of the opinion of Bond Counsel with respect to the Bonds is attached as Appendix C. The opinion of Bond Counsel is given based on factual representations made to Bond Counsel, and under existing law, as of the date of initial delivery of the Bonds, and Bond Counsel assumes no obligation to revise or supplement its opinion to reflect any facts or circumstances that may thereafter come to its attention, or any changes in law that may thereafter occur. The opinion of Bond Counsel is an expression of its professional judgment on the matters expressly addressed in its opinion and does not constitute a guarantee of result. Bond Counsel will be compensated only upon the issuance and sale of the Bonds. Payment of the fees of Bond Counsel to the transaction is contingent upon the issuance and delivery of the Bonds as described herein.
CONTINUING DISCLOSURE
Undertaking to Provide Continuing Disclosure
To meet the requirements of paragraph (b)(5) of United States Securities and Exchange Commission (“SEC”) Rule 15c2-12 (the “Rule 15c2-12”), as applicable to a participating underwriter for the Bonds, each obligated person will undertake (each, an “Undertaking”) for the benefit of holders of the Bonds to provide, or cause to be provided, to the Municipal Securities Rulemaking Board (“MSRB”), certain annual financial information and notices of certain events. The Authority’s Undertaking will be contained within the Indenture. See Appendix A – “Certain Definitions and Summary of Certain Provisions of Principal Documents – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE – Undertaking to Provide Annual Financial Information” for a summary of applicable provisions of the Indenture. A form of the Borrower’s Undertaking is set forth in Appendix E.
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Past Compliance with Continuing Disclosure Undertakings
The Authority previously entered into undertakings under the Rule with respect to certain of its bonds. In the past five years, the Authority failed to (1) timely submit event notices with respect to rating changes on its Capital Fund Program Revenue Bonds, 2005 (High Rise Rehabilitation Program – Phase I), Capital Fund Program Revenue Bonds, 2006 (High Rise Rehabilitation Program – Phase II), Capital Fund Program Revenue Bonds, 2007 (High Rise Rehabilitation Program – Phase III), and Multifamily Housing Revenue Bonds, 2003 (GNMA Collateralized Mortgage Loan – Wisteria Court Project); (2) timely file audited annual financial statements for the fiscal year ended December 31, 2014 (materials were provided two days later than required by certain undertakings); (3) connect its audited annual financial statements for the fiscal year ended December 31, 2013, with the CUSIPs for the Authority’s Pooled Housing Revenue and Refunding Revenue Bonds, 2014; (4) provide notice of an assignment and assumption agreement entered into in connection with the Authority’s Revenue Bonds, 1997 (NewHolly Project) (the “1997 NewHolly Bonds”); (5) provide all operating data required by the undertaking entered into in connection with the 1997 NewHolly Bonds for the fiscal years ended December 31, 2010, 2011 and 2012; (6) provide all operating data required by the undertaking entered into in connection with the Authority’s Housing Revenue Bonds, 2002 (Replacement Housing Projects) for the fiscal year ended December 31, 2011; (7) provide a statement of unexpended capital fund allocations as required by the undertakings entered into in connection with the Authority’s Capital Fund Program Revenue Bonds, 2005 (High Rise Rehabilitation Program – Phase I), Capital Fund Program Revenue Bonds, 2006 (High Rise Rehabilitation – Phase II) and Capital Fund Program Revenue Bonds, 2007 (High Rise Rehabilitation Program – Phase III) for the fiscal year ended December 31, 2011; (8) provide a statement of coverage ratio for all projects as required by the undertaking for the Authority’s Taxable Refunding Revenue Bonds, 2015 (Gamelin House and Genesee Projects) for the fiscal year ended December 31, 2015; and (9) and provide notices of certain of the herein-described failures to comply. As of the date of this Official Statement, the Issuer has arranged for supplementary filings to provide information previously omitted from its filings with respect to those issues that will remain outstanding after the date of issuance of the Bonds. The Authority has taken steps intended to improve future compliance with its continuing disclosure undertakings, including recent participation by certain staff in relevant training and implementation of revised disclosure policies and procedures.
RATING
Standard & Poor’s Ratings Services (the “Rating Agency”) has assigned a rating of “AA” to the Bonds. Such rating reflects only the view of the Rating Agency and an explanation of the significance of such rating mentioned above may only be obtained from the Rating Agency. There is no assurance that the rating mentioned above will continue for any given period of time or that such rating will not be suspended, revised downward or withdrawn entirely, if in the judgment of the Rating Agency circumstances so warrant. The Authority and the Underwriters have undertaken no responsibility to oppose any such proposed revision or withdrawal. Any suspension, downward revision or withdrawal of a rating may have an adverse effect on the market price of the Bonds.
UNDERWRITING
The Bonds are being purchased by KeyBanc Capital Markets Inc., on its own behalf and as representative of Wedbush Securities Inc. (together, the “Underwriters”), pursuant to a bond purchase contract entered into by and between the Authority and the Underwriters. The Bonds are being purchased at a price equal to $______(representing the aggregate principal amount of the Bonds, plus/minus a [net] original issue premium/discount of $______less an underwriter’s discount of $______). The bond purchase contract provides that the Underwriters will purchase all of the Bonds, if any are purchased. The obligation of the Underwriters to accept delivery of the Bonds is subject to various conditions contained in the bond purchase contract.
The Underwriters intend to offer the Bonds to the public at the offering prices set forth on the inside front cover page of this Official Statement, which offering prices may subsequently change without any requirement of prior notice.
AUTHORITY AUDITS
KPMG, LLP, the Authority’s independent auditor, currently audits the Authority’s financial statements. The Authority’s audited financial statements for the year ended December 31, 2015, are included in Appendix B.
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KPMG, LLP has not been engaged to perform and has not performed, since the date of its report included herein, any procedures on the financial statements addressed in that report. KPMG, LLP also had not performed any procedures relating to this Official Statement.
Additionally, the State Auditor is required to conduct an Accountability Audit of housing authorities in the State, including the Authority. The examination must include, among other things, the financial condition and resources of an authority, whether the laws and constitution of the State are being complied with, and the methods and accuracy of the accounts and reports of such an authority. Reports of the auditor’s examinations are required to be filed in the office of the State Auditor and in the auditing department of such an authority. The Authority’s most recent Audit Accountability Report can be obtained from the Authority.
CONFLICTS
Some or all of the fees of the Underwriters, Trustee and Bond Counsel are contingent upon the sale of the Bonds. Furthermore, from time to time Bond Counsel may serve as counsel to the Underwriters with respect to transactions other than the issuance of bonds of the Authority. None of the Commissioners or other officers of the Authority have interests in the issuance of the Bonds that are prohibited by applicable law.
OTHER MATTERS
All quotations from, and summaries and explanations of, the Indenture and the other documents referred to herein do not purport to be complete, and reference is made to those documents for full and complete statements of their provisions. Copies of such documents are available from the Trustee at the address set forth on page 1 of this Official Statement. The appendices attached hereto are a part of this Official Statement. All statements in this Official Statement involving matters of opinion, estimates or projections whether or not expressly so stated, are intended as such and not as representations of fact.
EXECUTION
This Official Statement has been issued by the Authority. This Official Statement is not to be construed as a contract or agreement between the Authority and the purchasers or holders of any of the Bonds.
HOUSING AUTHORITY OF THE CITY OF SEATTLE
By Andrew J. Lofton, Executive Director
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APPENDIX A
DEFINITIONS OF CERTAIN TERMS; SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL DOCUMENTS
The following statements are brief summaries of certain provisions of the principal documents executed in connection with the issuance of the Bonds that have not been described elsewhere in this Official Statement. The summary does not purport to be complete and reference is made to the actual documents available from the Trustee for a full and complete statement of the provisions thereof.
CERTAIN DEFINITIONS
Unless the context otherwise requires, capitalized terms used in the following summaries of the principal documents and elsewhere in this Official Statement have the meanings set forth below, such definitions to be equally applicable to both the singular and plural forms of any of the terms defined.
“Accountant” means any firm of independent certified public accountants selected by the Authority, or by the Borrower and approved by the Authority.
“Act” means Chapter 35.82 of the Revised Code of Washington, as amended.
“Authority” means the Housing Authority of the City of Seattle, a public body corporate and politic of the State of Washington.
“Authorized Denomination” means $5,000 or any integral multiple thereof within a single maturity.
“Authorized Investments” means any investments that are lawful for housing authorities in the State.
“Authorized Representative” means, (a) with respect to the Trustee, any Responsible Officer thereof; (b) with respect to the Authority, the Chair of its Board of Commissioners, its Executive Director, any Deputy Executive Director, or any other person(s) designated by resolution of the Board of Commissioners as the authorized representative of the Authority; and (c) with respect to the Borrower, (i) so long as the Authority is the sole general partner of the Borrower, the Chair of the Authority’s Board of Commissioners, the Authority’s Executive Director, any Deputy Executive Director of the Authority, or any other person(s) designated by resolution of the Authority’s Board of Commissioners as an authorized representative of the Authority, and (ii) if the Authority is not the sole general partner of the Borrower, the person or persons designated by the general partner of the Borrower in writing to the Trustee as the authorized representative of the Borrower.
“Bond” or “Bonds” means one or more of 2016A Bonds or 2016B Bonds.
“Bond Counsel” means the firm of Foster Pepper PLLC, of Seattle, Washington, or any other firm of nationally recognized bond counsel, and designated by the Authority as its bond counsel for the Bonds.
“Bond Fund” means the fund of that name established pursuant to the Indenture.
“Bond Register” means the books for registration of the Bonds kept for the Authority by the Bond Registrar as provided in the Indenture.
“Bond Registrar” means the paying agent and bond registrar for the Bonds, initially the Trustee.
“Bond Year” means, unless a different period has been selected by the Authority prior to the fifth anniversary of the Date of Issue, as to the first Bond Year, the period from the Date of Issue to October 1, 2017, and, thereafter, the annual period ending on October 1 of each year.
“Bondowner” means the Owner of any Bond.
“Borrower” means NewHolly Phase I LLLP, a Washington limited liability limited partnership of which the Authority is the sole general partner.
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“Business Day” means any day, other than a Saturday or a Sunday, on which banking institutions are open in the State of Washington and in the state(s) in which the Corporate Trust Office of the Trustee and the office of the Bond Registrar designated from time to time by the Bond Registrar for the transfer or exchange of Bonds are located.
“City” means The City of Seattle, Washington.
“Code” means the Internal Revenue Code of 1986, as amended, or any successor federal income tax statute or code. Any reference to a provision of the Code shall include the applicable regulations of the Department of the Treasury promulgated or proposed with respect to such provision.
“Computation Period” means each period for which the Rebate Amount is determined.
“Condemnation Award” means the total condemnation proceeds actually paid by the condemnor as a result of the condemnation of all or any part of the property subject to the Deed of Trust, less the actual costs and expenses, including attorneys’ fees, incurred by the Authority, the Borrower and/or the Trustee in obtaining such award.
“Continuing Disclosure Agreement” means the Continuing Disclosure Agreement between the Borrower and the dissemination agent named therein, initially U.S. Bank National Association, relating to the Bonds, as such agreement may be supplemented or amended.
“Corporate Trust Office” means the office of the Trustee located at (i) for purposes of presentation of Bonds for payment or transfer St. Paul, Minnesota, or (ii) for all other purposes Seattle, Washington, or such other office(s) as the Trustee may designate from time to time.
“Costs of Issuance” means all expenses of issuing the Bonds or the Indenture, including but not limited to legal, fiscal and printing expenses, the initial fees of the Trustee (including any fees and expenses of counsel to the Trustee) under the Indenture, or the initial fee of any bank or other agency for collection or administration of the Bonds, advertising expenses, any underwriter’s discount on the Bonds, financial advisor fees and expenses and any and all other similar out-of-pocket expenses incurred for the purpose of issuing the Bonds.
“Costs of Issuance Fund” means the fund of that name established pursuant to the Indenture.
“Date of Issue” means the date the Bonds are issued and delivered to the initial purchaser thereof.
“Debt Service Reserve Account” means the account of that name in the Bond Fund.
“Debt Service Reserve Requirement” means $180,148.13*. Notwithstanding the foregoing, upon the optional or extraordinary mandatory redemption, open market purchase, or defeasance of a portion of the Series 2016A Bonds, the Debt Service Reserve Requirement shall be reduced to an amount equal to 50% of the maximum annual debt service on the Series 2016A Bonds Outstanding immediately after such redemption, purchase or defeasance.
“Declaration of Acceleration” means a declaration given in accordance with the provisions of the Indenture that all principal of and interest on the Bonds are due and payable immediately.
“Deed of Trust” means the Leasehold Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing under which the Borrower is to be grantor the Trustee is to be beneficiary, as such deed of trust may be amended from time to time in accordance with the Indenture.
“Determination of Taxability” means the receipt by the Trustee of (1) a copy of written notice from the Commissioner or any District Director of the Internal Revenue Service or a determination by any court of competent jurisdiction, or (2) an opinion of Bond Counsel, in either case to the effect that interest on the Bonds is not excludable for regular federal income tax purposes under Section 103(a) of the Code from gross income of any Owners of the Bonds (other than an Owner who is a substantial user of the Project or a related person as defined in the Code).
* Preliminary, subject to change.
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“DTC” means The Depository Trust Company.
“Event of Default” means any of the events specified in the Indenture as summarized under the heading “THE INDENTURE – Events of Default and Remedies of Bondowners – Events of Default”.
“Fiscal Year” means the fiscal year of the Authority, initially the 12-month period ending on December 31 of each year.
“Funds” means the Funds created and established pursuant to the Indenture, including, but not limited to, the Bond Fund, the Costs of Issuance Fund and the Project Fund, but excluding the Rebate Fund.
“General Revenues” means all revenues of the Authority (other than Loan Payments) from any source, but only to the extent that those revenues are available to pay debt service on the Bonds and are not now or hereafter pledged or restricted, by law, regulation, contract, covenant, resolution, deed of trust or otherwise (including restrictions relating to funds made available to the Authority under the U.S. Housing Act of 1937), solely to another particular purpose.
“Government Obligations” means (1) direct obligations of the United States of America (including obligations issued or held in book-entry form on the books of the Department of the Treasury of the United States of America) or obligations the timely payment of the principal of and interest on which are fully guaranteed by the United States of America, including instruments evidencing an ownership interest in securities described in this clause (1); and (2) obligations, debentures, notes or other evidences of indebtedness issued or guaranteed by any of the following: Federal Home Loan Bank System, Export-Import Bank of the United States, Federal Financing Bank, Federal Land Banks, Government National Mortgage Association, Federal Home Loan Mortgage Corporation, Federal National Mortgage Association or Federal Housing Administration.
“Hazardous Substances Agreement” means the Hazardous Substances Warranty/Indemnity Agreement relating to the Project executed by the Borrower in favor of the Trustee.
“Indenture” means the Trust Indenture pertaining to the Bonds, as originally executed or as it may from time to time be supplemented, modified or amended by any Supplemental Indenture.
“Insurance Proceeds” means the total proceeds of casualty insurance actually paid or payable in respect of insurance on the Project, less the actual costs and expenses, including attorneys’ fees, incurred by the Borrower, the Authority and/or the Trustee in collecting such proceeds.
“Interest Payment Date” means the first day of each April 1 and October 1 after the Date of Issue, commencing April 1, 2017. In the case of payment of defaulted interest, “Interest Payment Date” also means the date of such payment established pursuant to the Indenture for payment of principal or interest not punctually paid.
“Investment Earnings” means all net earnings derived from the investment of money held in any of the Funds.
“Lease” means the Lease Agreement between the Authority and the Borrower providing for the lease of the Project and the Property by the Authority to the Borrower, as it may be amended or supplemented.
“Letter of Representations” means the Blanket Issuer Letter of Representations dated July 10, 1995, between the Authority and DTC.
“Limited Partner” means the entity designated by the Borrower as its limited partner, initially U.S. Bancorp Community Development Corporation, a Minnesota corporation.
“Loan” means the loan by the Authority to the Borrower of the proceeds of the Bonds.
“Loan Agreement” means the Loan Agreement dated the Date of Issue, by and between the Authority and the Borrower, relating to the loan of the Bond proceeds to the Borrower and repayment of the Loan by the Borrower, including any supplements or amendments thereto made in conformity therewith and with the Indenture.
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“Loan Documents” means the Loan Agreement, the Regulatory Agreement, the Deed of Trust, any related UCC Financing Statements and any other documents relating to the Loan executed by the Borrower, as contemplated by the Resolution.
“Loan Payments” means the payments of principal of and premium if any, and interest on the Loan pursuant to the Loan Agreement and allocable to payment of principal of and interest on the Bonds.
“MSRB” means the Municipal Securities Rulemaking Board.
“Operation and Maintenance Costs” means all necessary costs of operating and maintaining the Project, including but not limited to administrative and general expenses, costs of insurance (including reasonable contributions for self-insurance reserves, if any), consulting and technical services and repairs and replacements (to the extent not properly classifiable as capital costs) and reasonable reserves therefor, but excluding depreciation (or reserves therefor), amortization of intangibles or other bookkeeping entries of a similar nature and debt service on the Bonds and any other obligations of the Borrower relating to the Project.
“Outstanding”, when used as of any particular time with reference to Bonds, means all Bonds theretofore, or thereupon being, authenticated and delivered by the Bond Registrar under the Indenture except (1) Bonds theretofore canceled by the Bond Registrar or surrendered to the Bond Registrar for cancellation; (2) Bonds with respect to which all liability of the Authority shall have been discharged in accordance with the Indenture, and (3) Bonds for the transfer or exchange of or in lieu of or in substitution for which other Bonds shall have been authenticated and delivered by the Bond Registrar pursuant to the Indenture.
“Owner”, whenever used herein with respect to a Bond, means the Person in whose name such Bond is registered on the Bond Register.
“Partnership Agreement” means the Amended and Restated Agreement of Limited Partnership of the Borrower, as such agreement may be supplemented or amended.
“Person” means an individual, corporation, firm, association, partnership, trust, or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof.
“Priority Agreement” means the Priority and Subordination Agreement, by and among the Borrower, the Trustee, the Washington State Department of Commerce, The City of Seattle, the Authority, the Washington State Housing Finance Commission and the United States Department of Housing and Urban Development.
“Project” means, depending on the context (1) the acquisition and rehabilitation of the 305-unit affordable rental housing project, known as NewHolly Phase I, located in Seattle, Washington, or (2) NewHolly Phase I.
“Project Fund” means the fund of that name established pursuant to the Indenture.
“Project Revenues” means (1) all amounts due to or received by the Authority or by the Trustee for the account of the Authority pursuant or with respect to the Projects, including without limitation all rental revenue, subsidy payments, lease payments, payments on contractors’ bonds, Insurance Proceeds and Condemnation Awards, but excluding refundable security deposits, and (2) all Investment Earnings.
“Rating Agency” means the nationally recognized rating agency or agencies, if any, at the time rating the Bonds at the request of the Authority.
“Rebate Amount” means an amount equal to the sum of (1) the excess of (a) the aggregate amount earned from the Date of Issue on all nonpurpose investments in which gross proceeds of the Bonds are invested (not including income attributable to the excess amount described in this clause (1)) over (b) the amount that would have been earned if the yield on such nonpurpose investments (not including income attributable to the excess amount described in this clause (1)) had been equal to the yield on the Bonds, plus (2) all income attributable to the excess amount described in clause (1) whether or not that income exceeds the yield on the Bonds (i.e., whether or not that income was earned at a yield higher than the yield on the Bonds), all as determined in accordance with Section 148 of the Code.
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“Rebate Fund” means the fund of that name, the creation of which is provided for in the Indenture.
“Record Date” means the 15th day of the month preceding each Interest Payment Date occurs.
“Regulatory Agreement” means the Regulatory Agreement between the Authority and the Borrower dated the Date of Issue, relating to the use of the Project by the Borrower.
“Resolution” means Resolution No. 5109 adopted by the Authority on August 15, 2016, authorizing the issuance of the Bonds, as such resolution may be amended or supplemented.
“Responsible Officer” means, when used with respect to the Trustee, the president, any vice president, any assistant vice president, the secretary, any assistant secretary, the treasurer, any assistant treasurer or any other officer of the Trustee within the Corporate Trust Office (or any successor corporate trust office) customarily performing functions similar to those performed by the persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred at the Corporate Trust Office because of such person’s knowledge of and familiarity with the particular subject and having direct responsibility for the administration of the Indenture.
“Series” means any Series of Bonds issued pursuant to the Indenture.
“Series 2016A Principal and Interest Account” means the account of that name in the Bond Fund.
“Series 2016B Principal and Interest Account” means the account of that name in the Bond Fund.
“Special Record Date” means the date established by the Trustee pursuant to the Indenture as a record date for the payment of defaulted principal of or interest on the Bonds.
“State” means the State of Washington.
“Supplemental Indenture” means any indenture hereafter duly authorized and entered into between the Authority and the Trustee, supplementing, modifying or amending the Indenture; but only if and to the extent that such Supplemental Indenture is specifically authorized thereunder.
“Trust Estate” means the trust estate pledged by the Authority and described under “SOURCES OF PAYMENT AND SECURITY FOR THE BONDS – Trust Estate” in the forepart of this Official Statement.
“Trustee” means U.S. Bank National Association, a national banking association organized and existing under the laws of the United States of America and having a corporate trust office in Seattle, Washington, or its successor, as trustee under the Indenture.
“2016A Bonds” means one or more of the $6,860,000* Housing Authority of the City of Seattle Revenue Bonds, Series 2016A (NewHolly Phase I Project), or any replacement thereof authorized by, and at any time outstanding pursuant to, the Indenture.
“2016B Bonds” means one or more of the $15,380,000* Housing Authority of the City of Seattle Revenue Bonds, Series 2016B (NewHolly Phase I Project), or any replacement thereof authorized by, and at any time outstanding pursuant to, the Indenture.
“UCC” means the State’s Uniform Commercial Code.
* Preliminary, subject to change.
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SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE
General
The Indenture sets forth the terms of the Bonds, the nature and extent of the security, the various rights of the Owners, the rights, duties and immunities of the Trustee and the rights and obligations of the Authority. Certain provisions of the Indenture are summarized below. Other provisions are described in this Official Statement under the captions “THE BONDS” and “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS.”
Establishment of Funds and Accounts
The Indenture provides for the creation of a Bond Fund (and within the Bond Fund, a Series 2016A Principal and Interest Account, a Series 2016B Principal and Interest Account and a Debt Service Reserve Account), a Project Fund, a Costs of Issuance Fund, and, if necessary, a Rebate Fund, all of which are to be held by the Trustee.
Series 2016A Principal and Interest Account within the Bond Fund. The Indenture requires that the Trustee deposit in or transfer to the Series 2016A Principal and Interest Account, to the extent funds are available for such purpose: (a) all Loan Payments received from the Borrower for the payment of principal of or premium, if any, or interest on the 2016A Bonds; (b) all amounts required by the Indenture to be transferred to the Series 2016A Principal and Interest Account from the Debt Service Reserve Account; (c) all amounts required to be transferred to the Series 2016A Principal and Interest Account from the Project Fund; (d) all amounts required to be transferred to the Series 2016A Principal and Interest Account from the Costs of Issuance Fund; (e) the net earnings on investments of money in the Series 2016A Principal and Interest Account and the Debt Service Reserve Account (except as otherwise provided in the Indenture); and (f) all other money required to be transferred to or deposited in the Series 2016A Principal and Interest Account pursuant to any provision of the Indenture and the proceeds of any investment thereof.
The money and investments in the Series 2016A Principal and Interest Account are irrevocably pledged and shall be used by the Trustee, from time to time, to the extent required, in the following order of priority: (a) for the payment of the principal of and/or interest on 2016A Bonds coming due on the next Interest Payment Date or mandatory or extraordinary mandatory redemption date; (b) for the payment of the redemption price of 2016A Bonds called for optional redemption; (c) for transfer to the Rebate Fund, if any, to the extent the Authority determines pursuant to the Indenture that a Rebate Amount must be deposited in the Rebate Fund; and (d) for transfer to the Authority on the Business Day following each Interest Payment Date of all funds which the Trustee has determined, as of such Business Day, to be in excess of those necessary for the purposes described in paragraphs (a) through (c) above.
The Trustee is to deliver to the Bond Registrar on each redemption date or Interest Payment Date money from the Series 2016A Principal and Interest Account, to the extent available therein, in an amount sufficient to pay the principal of and premium, if any, and interest on all 2016A Bonds coming due on that date.
Series 2016B Principal and Interest Account within the Bond Fund. The Indenture requires that the Trustee deposit in or transfer to the Series 2016B Principal and Interest Account, to the extent funds are available for such purpose: (a) all Loan Payments received from the Borrower for the payment of principal of or premium, if any, or interest on the 2016B Bonds; (b) all amounts required to be transferred to the Series 2016B Principal and Interest Account from the Project Fund; (c) all amounts required to be transferred to the Series 2016B Principal and Interest Account from the Costs of Issuance Fund; the net earnings on investments of money in the Series 2016B Principal and Interest Account and the Debt Service Reserve Account (except as otherwise provided in the Indenture); and (d) all other money required to be transferred to or deposited in the Series 2016B Principal and Interest Account pursuant to any provision of the Indenture and the proceeds of any investment thereof.
The money and investments in the Series 2016B Principal and Interest Account are irrevocably pledged and shall be used by the Trustee, from time to time, to the extent required, in the following order of priority: (a) for the payment of the principal of and/or interest on 2016B Bonds coming due on the next Interest Payment Date or mandatory or extraordinary mandatory redemption date; (b) for the payment of the redemption price of 2016B Bonds called for optional redemption; (c) for transfer to the Rebate Fund, if any, to the extent the Authority determines pursuant to the Indenture that a Rebate Amount must be deposited in the Rebate Fund; and (d) for transfer to the Authority on
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the Business Day following each Interest Payment Date of all funds which the Trustee has determined, as of such Business Day, to be in excess of those necessary for the purposes described in paragraphs (a) through (c) above.
The Trustee is to deliver to the Bond Registrar on each redemption date or Interest Payment Date money from the Series 2016B Principal and Interest Account, to the extent available therein, in an amount sufficient to pay the principal of and premium, if any, and interest on all 2016B Bonds coming due on that date.
Debt Service Reserve Account within the Bond Fund. Upon receipt thereof, the Trustee shall deposit into the Debt Service Reserve Account: (a) all amounts derived from Bond proceeds or from the Borrower required to be deposited therein and (b) all other money required to be transferred to or deposited in the Debt Service Reserve Account pursuant to any provision of the Indenture or the Loan Agreement.
The money and investments in the Debt Service Reserve Account are irrevocably pledged and shall be used by the Trustee, from time to time, to the extent required, in the following order of priority: (a) for transfer to the Series 2016A Principal and Interest Account on each redemption or Interest Payment Date with respect to the 2016A Bonds, to the extent that the amount in the Series 2016A Principal and Interest Account on that date is insufficient to pay the principal of, premium, if any, on and/or interest on the 2016A Bonds coming due on that date; (b) for transfer to the Rebate Fund, if any, to the extent the Authority determines pursuant to the Indenture that a Rebate Amount must be deposited in the Rebate Fund; and (c) for transfer to the Series 2016A Principal and Interest Account or to the trust account described in the Indenture and summarized under the heading “The Indenture – Discharge of Obligations to Bondowners – Defeasance of Bonds” to pay or defease the last installment(s) of principal of and/or interest on the 2016A Bonds.
The Debt Service Reserve Account shall be valued on the last Business Day of each February and August, beginning in February, 2017, and also on any date a portion of the 2016A Bonds is defeased, purchased in the open market or redeemed pursuant to the optional or extraordinary mandatory redemption provisions of the Indenture. If on any valuation date the amount in the Debt Service Reserve Account exceeds the Debt Service Reserve Requirement, the Trustee shall transfer any excess to the Rebate Fund, if any, to the extent the Authority determines that a Rebate Amount must be deposited in the Rebate Fund, and if no determination of the Authority has been provided to the Trustee, then to the Series 2016A Principal and Interest Account.
Investment of Money in Bond Fund. Pending application of money in the Bond Fund, such money shall be invested and reinvested by the Trustee in Authorized Investments. All net earnings on money and investments in the accounts in the Bond Fund shall be deposited in such account, except that all net earnings on money and investments in the Debt Service Reserve Account shall remain in that account if and to the extent necessary to cause the balance therein to equal the Debt Service Reserve Requirement, and unless and to the extent the Authority determines that a Rebate Amount must be deposited in the Rebate Fund.
Project Fund. The Trustee shall deposit in or transfer to the Project Fund: (a) upon receipt thereof, the amounts derived from Bond proceeds required to be deposited therein pursuant to the Indenture; (b) upon receipt thereof, such amounts as are received by the Trustee from the Borrower, the Authority or any other source (other than proceeds of the Bonds) for purposes of paying costs of completing the Project; and (c) all earnings on funds in the Project Fund. The money and investments in the Project Fund will be held in trust by the Trustee and applied in accordance with and subject to the provisions of the Indenture and, pending such application, will be held for the further security of the Owners of the Bonds until applied as provided in the Indenture.
Upon giving a notice of a Declaration of Acceleration, the Trustee is required to transfer all funds in the Project Fund to the Series 2016A Principal and Interest Account of the Bond Fund and the Series 2016B Principal and Interest Account of the Bond Fund, until the amount on deposit in those accounts plus, with respect to the Series 2016A Principal and Interest Account, the amount in the Debt Service Reserve Account, equals the amount necessary to pay the principal of and interest on the Bonds coming due by reason of such acceleration (provided that if such amounts are not sufficient to pay the principal of and interest on the Bonds coming due, amounts in the Project Fund shall be divided between the Series 2016A Principal and Interest Account and Series 2016B Principal and Interest Account pro rata, based on the Outstanding principal amount of each Series). The Authority has no obligation under the Indenture or under the Act to deposit any money in the Project Fund (other than the proceeds of the Bonds as provided in the Indenture) nor to apply any money to payment of the costs of completing the Project except the money in the Project Fund.
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Payments from Project Fund. Costs of the Project, including interest on the Bonds prior to completion of construction, shall be paid by the Trustee from the Project Fund, but only to the extent of the balance therein, within five Business Days following receipt by the Trustee of a written request for payment from an Authorized Representative of the Borrower. Notwithstanding the foregoing, the Trustee shall pay costs of the Project as set forth with the closing memorandum for the Bonds without the need for a requisition. All payments made from the Project Fund pursuant to a written request for payment from an Authorized Representative of the Borrower will be presumed to be made properly and the Trustee will not be required to see to the application of any payments made from the Project Fund or to inquire into the purposes for which withdrawals are being made from the Project Fund.
Establishment of Completion and Application of Balance in Project Fund. The deemed completion date of the Project will be the earliest of (a) the date when the Trustee has received a certificate of an Authorized Representative of the Borrower to the effect that all costs of completing the Project have been paid in full, (b) the date on which no money remains in the Project Fund, or (c) the third anniversary of the Date of Issue, as such date may be extended upon receipt of an opinion of Bond Counsel to the effect that such extension will not result in a Determination of Taxability. Within five Business Days of the deemed completion date of the Project, the Trustee will transfer any money and investments remaining in the applicable account in the Project Fund (other than any money determined to be a Rebate Amount) to the Bond Fund to be used to make the payment of principal of or interest on Bonds due on the next Interest Payment Date.
Investment of Money in Project Fund. Pending application of money in the Project Fund, such money shall be invested and reinvested by the Trustee as directed by the Authority in accordance with the Indenture. All Investment Earnings on money in the Project Fund shall be deposited in the Project Fund, subject to the provisions of the Indenture.
Costs of Issuance Fund. The Trustee shall deposit in or transfer to the Project Fund: (a) upon receipt thereof, the amounts derived from Bond proceeds required to be deposited therein pursuant to the Indenture; (b) upon receipt thereof, such amounts as are received by the Trustee from the Borrower, the Authority or any other source (other than proceeds of the Bonds) for purposes of paying Costs of Issuance; and (c) all earnings on funds in the Costs of Issuance Fund. The money and investments in the Costs of Issuance Fund will be held in trust by the Trustee and applied in accordance with and subject to the provisions of the Indenture and, pending such application, will be held for the further security of the Owners of the Bonds until applied as provided in the Indenture.
Upon giving a notice of a Declaration of Acceleration, the Trustee is required to transfer all funds in the Costs of Issuance Fund to the Series 2016A Principal and Interest Account of the Bond Fund and the Series 2016B Principal and Interest Account of the Bond Fund, until the amount on deposit in those accounts plus, with respect to the Series 2016A Principal and Interest Account, the amount in the Debt Service Reserve Account, equals the amount necessary to pay the principal of and interest on the Bonds coming due by reason of such acceleration (provided that if such amounts are not sufficient to pay the principal of and interest on the Bonds coming due, amounts in the Costs of Issuance Fund shall be divided between the Series 2016A Principal and Interest Account and Series 2016B Principal and Interest Account pro rata, based on the Outstanding principal amount of each Series). The Authority has no obligation under the Indenture or under the Act to deposit any money in the Costs of Issuance Fund (other than the proceeds of the Bonds as provided in the Indenture) nor to apply any money to payment of the Costs of Issuance except the money in the Costs of Issuance Fund.
Payments from Costs of Issuance Fund. Costs of Issuance shall be paid by the Trustee from the Costs of Issuance Fund, within five Business Days following receipt by the Trustee of a written request for payment from an Authorized Representative of the Borrower. Notwithstanding the foregoing, the Trustee shall pay Costs of Issuance as set forth with the closing memorandum for the Bonds without the need for a requisition. All payments made from the Costs of Issuance Fund pursuant to a written request for payment from an Authorized Representative of the Borrower will be presumed to be made properly and the Trustee will not be required to see to the application of any payments made from the Costs of Issuance Fund or to inquire into the purposes for which withdrawals are being made from the Costs of Issuance Fund.
Application of Balance in Costs of Issuance Fund. Within five Business Days of the earlier to occur of (a) the date when the Trustee has received a certificate of an Authorized Representative of the Borrower to the effect that all Costs of Issuance have been paid in full, (b) the date on which no money remains in the Costs of Issuance Fund, the Trustee will transfer any money and investments remaining in the applicable account in the Costs of Issuance Fund
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(other than any money determined to be a Rebate Amount) to the Bond Fund to be used to make the payment of principal of or interest on Bonds due on the next Interest Payment Date.
Investment of Money in Costs of Issuance Fund. Pending application of money in the Costs of Issuance Fund, such money shall be invested and reinvested by the Trustee as directed by the Authority in accordance with the Indenture. All Investment Earnings on money in the accounts of the Costs of Issuance Fund shall be deposited in the Costs of Issuance Fund, subject to the provisions of the Indenture.
Investment of Funds; Rebate Fund
Investment of Funds. Except as otherwise provided in the Indenture, money on deposit in the Project Fund, the Costs of Issuance Fund or the Bond Fund, if invested, shall be invested and reinvested by the Trustee in Authorized Investments, as directed in writing by an Authorized Representative of the Borrower at least two Business Days in advance of the investment, which direction shall certify that such investment is an Authorized Investment; but in the event of the failure of the Authority to provide timely written directions as to such investment or reinvestment, the Trustee shall invest or reinvest any or all money held by it in the Project Fund, the Costs of Issuance Fund or the Bond Fund in Authorized Investments through an automated sweep investment vehicle as directed by an Authorized Representative of the Borrower. The Trustee shall have no obligation to invest and reinvest any cash held in the Project Fund, the Costs of Issuance Fund, the Rebate Fund and the Bond Fund in the absence of timely and specific written direction from the Borrower or the Authority. The Trustee shall have no liability in respect of losses incurred as result of the liquidation of any investment prior to its stated maturity or the failure of the Borrower or the Authority to provide timely written direction. The Trustee may deem such investments as Authorized Investments without independent investigation thereof.
Money in the Series 2016A Principal and Interest Account and the Series 2016B Principal and Interest Account shall be invested only in Authorized Investments, as directed by the Borrower, maturing no later than the date money in such account is needed to make the payments authorized to be made therefrom. Money in the Debt Service Reserve Account shall be invested in Authorized Investments, as directed by the Borrower. Pending application of the money in the Rebate Fund as required pursuant to the Indenture, such money shall be invested and reinvested, without regard to yield, in such Government Obligations maturing on or before the date the money invested therein is required to be paid to the United States as an Authorized Representative of the Authority shall direct in writing at least two Business Days prior to the date of investment. However, if no such investment is available or if no such direction is given, the Trustee shall invest such money in the sweep investment vehicle identified by an Authorized Representative of the Authority.
For the purpose of valuing Authorized Investments held in any Fund or Account, the Trustee shall value all investments at market. In determining market value of Authorized Investments, the Trustee may use and rely conclusively and without liability upon any generally recognized pricing information service (including brokers and dealers in securities) available to it and any pricing service available within the accounting systems used by the Trustee for record-keeping purposes of the funds and accounts held by the Trustee under this Indenture.
Allocation of Income and Losses. The interest and income received with respect to the investments in any Fund or account held by the Trustee under the Indenture, and any profit or loss resulting from the sale of any such investments, shall be deposited and credited upon receipt, or charged, as follows: (a) all interest, income and profit received from the investment of money in the Rebate Fund shall be deposited and credited, upon receipt, to the Rebate Fund; (b) all earnings received from the investment of money in any Fund or account that has been determined to be a Rebate Amount for any Computation Period, as determined in accordance with the Indenture, shall be deposited in and credited to the Rebate Fund (to the extent such money has not been previously disbursed to any Person pursuant to the terms of the Indenture); and (c) all loss resulting from the sale of any investments in any specified Fund or account shall be charged to such Fund or such account, and all earnings received from the investment of money in any Fund or account shall be credited as described in the Indenture and summarized above under the heading “THE INDENTURE – Establishment of Funds and Accounts.”
Rebate Fund. The Trustee is authorized to establish a separate special fund designated as the “Rebate Fund” if at any time there is determined, pursuant to the Indenture, to be a Rebate Amount, which fund shall be segregated from all other funds and accounts held by the Trustee. If such a fund is established, the Trustee shall maintain the Rebate Fund until the expiration of 60 days after the retirement of the last outstanding Bond. (2) Within 30 days after the
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end of each Computation Period, the Authority shall determine or cause to be determined, by an Accountant or other qualified Person selected by the Authority, in accordance with Section 148 of the Code and applicable Treasury Regulations promulgated under Section 148(f) of the Code and written instructions of Bond Counsel delivered to the Trustee, the Borrower and the Authority from time to time, the Rebate Amount attributable to each account and/or fund and to the fees, if any, of the Authority under the Loan Agreement for each Computation Period (initially, a five-year period ending on the last day of each fifth Bond Year) on such determination date or dates as may be permitted by Section 148 of the Code and written instructions of Bond Counsel delivered to the Authority, the Borrower and the Trustee, and shall notify the Trustee in writing of any Rebate Amount so determined within 45 days after the end of the Computation Period. The Trustee, the Authority and the Borrower may rely conclusively upon the opinions, calculations, determinations, directions and advice of such Accountant or other Person, copies of all of which opinions, calculations, determinations, directions and advice shall be given to the Trustee by the Authority. If a Rebate Amount is determined to exist, the Trustee shall notify the Authority and the Borrower of the amount in the Rebate Fund available to pay the Rebate Amount, and the Borrower shall deliver an amount equal to any deficiency in the Rebate Fund to the Trustee, with instructions to deposit that amount in the Rebate Fund for any Computation Period the amount of money and investments held in the Rebate Fund exceeds the Rebate Amount for that Computation Period, the Trustee shall deposit such excess to the Series 2016A Principal and Interest Account and the Series 2016B Principal and Interest Account (pro rata, based on the Outstanding principal amount of each Series). The Borrower has covenanted in the Loan Agreement to deliver all Rebate Amounts to the Trustee within 10 days of a request from the Trustee for such amounts. The Trustee shall not be responsible for calculating Rebate Amounts or for the adequacy or correctness of any rebate report. The Trustee shall deposit in and credit to the Rebate Fund all amounts described under the subheading “Allocation of Income and Losses” above, as determined in accordance with the Indenture, and all earnings received from the investment of those amounts.
The Trustee shall make the following payments from the money and investments in the Rebate Fund to the United States Treasury when and as indicated below (or on such other payment date or dates as may be permitted by Section 148 of the Code and specified in written instructions of Bond Counsel delivered to the Trustee), and shall file with the Internal Revenue Service such forms and/or reports as the Authority provides to the Trustee for such purpose: (a) not later than the 60th day following the end of each fifth Bond Year, an amount equal to 90% of the Rebate Amount for the Computation Period ending immediately prior to the date of payment; and (b) not earlier than the date of payment of the last outstanding Bond, nor later than the 60th day thereafter, the amount, if any, which, when added to amounts previously paid to the United States as Rebate Amounts, will equal 100% of the Rebate Amount with respect to the Bonds.
Authority Covenants
The Authority has covenanted:
In General. That it will faithfully perform at all times any and all covenants, undertakings, stipulations and provisions contained in the Indenture, in any and every Bond executed, authenticated and delivered under the Indenture and in all proceedings of its Board of Commissioners pertaining thereto.
Extensions of Payment of Bonds. That it will not directly or indirectly extend or assent to the extension of the maturity of any of the Bonds or the time of payment of the interest thereon without the consent of the Owners of all Outstanding Bonds.
Lien of Indenture. That it will not create or suffer to be created any lien upon the Trust Estate or any part thereof other than the liens created or contemplated hereby and by the Loan Agreement and the Deed of Trust. The Authority agrees that it issue no obligations, other than refunding bonds, the payment of which is secured by money or amounts derived from Loan Payments.
Tax-Exempt Status of Bonds. That it will not to use or permit the use of any of the proceeds of the Bonds in such manner, and not to take or omit to take any other action in such manner, as will impair the exclusion of interest on the Bonds from gross income for federal income tax purposes, and that it will comply with applicable arbitrage rebate requirements under Section 148 of the Code, and to provide to the Trustee written as to the investment of funds held by the Trustee.
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Concerning the Loan Agreement. That it shall do or cause to be done all things to be performed on its part under the Loan Agreement so that the obligations of the Borrower thereunder shall not be impaired or excused.
Undertaking to Provide Annual Financial Information
To meet the conditions of paragraph (d)(2) of United States Securities and Exchange Commission (“SEC”) Rule 15c2-12 (the “Rule”), as applicable to a participating underwriter for the Bonds, the Authority has agreed to undertake (the “Undertaking”) for the benefit of holders of the Bonds to provide or cause to be provided, either directly or through the Dissemination Agent, as its designated dissemination agent, to the MSRB, in an electronic format as prescribed by the MSRB, accompanied by identifying information as prescribed by the MSRB::
(a) annual financial information and operating data of the type included in the final official statement for the Bonds (“annual financial information”); and
(b) timely notice of a failure by the Authority to provide required annual financial information on or before the required date.
Type of Annual Financial Information Undertaken to be Provided. The annual financial information that the Authority undertakes to provide:
(a) Shall consist of: (A) annual financial statements for the Authority prepared in accordance with applicable generally accepted accounting principles promulgated by the Government Accounting Standards Board (“GASB”), as modified to reflect HUD guidelines and principles, as such principles may be modified from time to time by GASB or HUD, and (B) a statement of the amount of the Authority’s General Revenues for the applicable Fiscal Year;
(b) If the Authority’s audited financial statements are not available by the time the annual financial information is required to be provided, if and when audited financial statements are otherwise prepared and available to the Authority, they will be provided;
(c) Shall be provided to the MSRB, not later than the last day of the ninth month after the end of each Fiscal Year of the Authority (currently, a fiscal year ending December 31), as such Fiscal Year may be changed as required or permitted by State law, commencing with the Authority’s Fiscal Year ending December 31, 2016; and
(d) May be provided in a single or multiple documents, and may be incorporated by reference to other documents that have been filed with the MSRB.
Authority Listed Events. The Authority shall give, or cause to be given, notice of the occurrence of any of the following events (each, an “Authority Listed Event”) with respect to the Bonds to the MSRB in an electronic format as prescribed by the MSRB, accompanied by identifying information as prescribed by the MSRB, in a timely manner but not in excess of 10 Business Days after the occurrence of the Listed Event:
(a) Modifications to rights of holders, if material;
(b) Rating changes;
(c) Bankruptcy events, or similar events involving the Authority; and
(d) Consummation of a merger, consolidation, or acquisition involving the Authority or the sale of all or substantially all of the assets of the Authority (other than in the ordinary course of business), the entry into a definitive agreement to undertake such action or the termination of a definitive agreement relating to any such actions, other than pursuant to the terms of such agreement, if material.
Amendment of Undertaking. The Undertaking is subject to amendment after the primary offering of the Bonds without the consent of any holder of any Bond, or of any broker, dealer, municipal securities dealer, participating underwriter, rating agency or the MSRB, under the circumstances and in the manner permitted by the Rule.
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The Authority will give (or cause the dissemination agent to give) notice to the MSRB of the substance (or provide a copy) of any amendment to the Undertaking and a brief statement of the reasons for the amendment. If the amendment changes the type of annual financial information to be provided, the annual financial information containing the amended financial information will include a narrative explanation of the effect of that change on the type of information to be provided.
Beneficiaries. The Undertaking evidenced by the Indenture will inure to the benefit of the Authority and any holder of Bonds, and shall not inure to the benefit of or create any rights in any other Person.
Termination of Undertaking. The Authority’s obligations under the Undertaking shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. In addition, the Authority’s obligations under the Undertaking will terminate if those provisions of the Rule that require the Authority to comply with the Undertaking become legally inapplicable in respect of the Bonds for any reason, as confirmed by an opinion of nationally recognized bond counsel or other counsel familiar with federal securities laws delivered to the Authority, and the Authority provides timely notice of such termination to the MSRB.
Remedy for Failure to Comply with Undertaking. As soon as practicable after the Authority learns of any failure to comply with the Undertaking, the Authority will proceed with due diligence to cause such noncompliance to be corrected. No failure by the Authority or other obligated person to comply with the Undertaking shall constitute a default in respect of the Bonds. The sole remedy of any holder of a Bond shall be to take such actions as that holder deems necessary and appropriate, including seeking a writ of mandate or order of specific performance from an appropriate court, to compel the Authority or other obligated person to comply with the Undertaking.
Designation of Official Responsible to Administer Undertaking. The Executive Director of the Authority or his or her designee is authorized and directed in his or her discretion to take such further actions as may be necessary, appropriate or convenient to carry out the Undertaking of the Authority in respect of the Bonds set forth in the Indenture and in accordance with the Rule, including, without limitation, the following actions:
(a) Preparing and filing with the Dissemination Agent the annual financial information undertaken to be provided;
(b) Determining whether any person other than the Authority is an “obligated person” within the meaning of the Rule with respect to the Bonds, and obtaining from such person an undertaking to provide any annual financial information and notice of material events for that person in accordance with the Rule;
(c) Selecting, engaging and compensating designated agents and consultants, including but not limited to financial advisors and legal counsel, to assist and advise the Authority in carrying out the Undertaking; and
(d) Effecting any necessary amendment of the Undertaking.
Concerning the Dissemination Agent. Upon written direction of the Authority given to U.S. Bank National Association, U.S. Bank National Association, not in its capacity as Trustee, but solely in its capacity as dissemination agent (“Dissemination Agent”), agrees to act to act as dissemination agent. Either the Authority or the Dissemination Agent may elect to terminate the Dissemination Agent’s responsibilities as Dissemination Agent, in either case upon prior written notice to the other party. The Authority shall pay compensation to the Dissemination Agent for its services, as agreed by the Authority and Dissemination Agent from time to time, and the reasonable out-of-pocket expenses, which fees and expenses shall be in addition to and separate from its fees of the Trustee.
Trustee to Forward Information. The Trustee shall provide notice to the Authority of any of the events listed in “Authority Listed Events” described above of which the officer of the Trustee responsible for administering the Indenture has actual notice (including notice from the Authority) or knowledge and, upon a written determination by the Authority given to the Dissemination Agent, the Dissemination Agent shall provide notice of such event to the MSRB. In addition, the Dissemination Agent shall forward to the MSRB all information delivered to the Dissemination Agent by the Authority with instructions to forward that information to the MSRB pursuant to this section, it being understood that the Dissemination Agent has no responsibility for the content, format or timeliness of any such information.
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Notwithstanding the foregoing, the Trustee shall have no duty or obligation under the Undertaking to the Authority, any holder of Bonds or any other Person (including without limitation any underwriter of the Bonds) to monitor the Authority’s compliance with the Undertaking.
Events of Default and Remedies of Bondowners
Events of Default. The following events shall be Events of Default:
(1) default in the due and punctual payment of the principal of, premium, if any, or interest on any Bond when and as the same shall become due and payable, whether on any Interest Payment Date, at maturity as expressed therein, by proceedings for redemption (except as otherwise provided in the Indenture with respect to optional redemptions), acceleration, or otherwise; or
(2) default by the Authority in the observance of any of the other covenants, agreements or conditions on its part contained in the Indenture, the Resolution the Loan Agreement or the Bonds, if such default shall have continued beyond any applicable cure period and for a period of 60 days after written notice thereof, specifying such default and requiring the same to be remedied, shall have been given to the Authority and the Borrower by the Trustee, or to the Authority, the Borrower and the Trustee by the Owners of not less than 25% in aggregate principal amount of the Bonds at the time Outstanding (or, if cure cannot be completed within such 60-day period through the exercise of diligence and the Authority commences the required cure within such 60-day period and continues the cure with diligence and the Authority reasonably anticipates that the default could be cured within 120 days, the Authority shall have 120 days following receipt of such notice to effect the cure).
Acceleration of Maturity. If any Event of Default described in paragraph (1) under the heading “THE INDENTURE – Events of Default and Remedies of Bondowners – Events of Default” shall occur, then, and in each and every such case during the continuance of such Event of Default, the Trustee shall be entitled, upon written notice to the Authority and the Borrower, or the Owners of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding shall be entitled, upon notice in writing to the Authority, the Borrower and the Trustee, to direct the Trustee to declare the principal of all of the Bonds then Outstanding and the interest accrued thereon to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything contained in the Indenture or in the Bonds to the contrary notwithstanding.
The Trustee shall give or cause to be given notice of any such Declaration of Acceleration to the respective Owners of the Bonds at their addresses appearing on the Bond Register. Notice of such Declaration of Acceleration having been given as aforesaid, anything to the contrary contained in the Indenture or in the Bonds notwithstanding, interest shall cease to accrue on such Bonds from and after the date established for payment of the Bonds pursuant to the Declaration of Acceleration if and to the extent that money to make such payment is on hand with the Trustee in any of the Funds on that date.
Remedies Upon Default. Upon the occurrence and during the continuance of an Event of Default, then and in every such case the Trustee in its discretion may (subject to the provisions described under the subheading “Trustee to Represent Bondowners” below), and upon the written direction of the Owners of not less than a majority in principal amount of the Bonds then Outstanding and receipt of indemnity against anticipated expenses and liability satisfactory to the Trustee in its sole discretion (which indemnity, subject to the provisions described in the last paragraph of this subsection and under the subheading “Trustee to Represent Bondowners” below, is a condition precedent to its duties under the Indenture) shall, in its capacity as the Trustee of an express trust, pursue any one or more of the following remedies to the extent permitted by applicable law:
(1) by mandamus, or other suit, action or proceeding at law or in equity, enforce all rights of the Owners and require the Authority or the Borrower to carry out any agreements with or for the benefit of the Bondowners and to perform its duties under the Act, the Resolution and the Indenture, provided that any such remedy may be taken only to the extent permitted under the applicable provisions the Act, the Resolution, the Loan Agreement or the Indenture, as the case may be;
(2) bring suit upon the Bonds;
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(3) foreclose the Deed of Trust or exercise any remedies thereunder; or
(4) by action or suit in equity enjoin any acts or things which may be unlawful or in violation of the rights of the Owners of the Bonds.
The Trustee shall be entitled as a matter of right to the appointment of a receiver or receivers for the property securing the obligations under the Indenture, and of the revenues, income and profits thereof, ex parte, and without notice, and the Authority consents to the appointment of such receiver upon the occurrence of an Event of Default. In the case of any receivership, insolvency, bankruptcy, reorganization, or other judicial proceedings affecting the Authority, the Trustee shall be entitled to file such proof of claims and other documents as may be necessary or advisable in order to have the claims of the Trustee and of the Owners allowed in such proceedings.
Upon instituting any such proceeding, the Trustee shall be entitled, as a matter of right, to the appointment of a receiver of the assets pledged under the Indenture, the Deed of Trust or the Loan Agreement pending resolution of such proceeding. The Trustee shall have the right to decline to follow any direction of Bondowners that in the sole discretion of the Trustee would be unjustly prejudicial to the Trustee or to Bondowners not parties to such direction or that is not in accordance with law or the provisions of the Indenture, and shall not be responsible for the propriety of or liable for the consequences of following such a direction given by the Owners of a majority in aggregate principal amount of the Bonds Outstanding. Notwithstanding anything to the contrary contained herein, the Trustee shall not be required to foreclose the Deed of Trust or bid on behalf of Bondowners at any foreclosure sale (a) if, in the Trustee’s sole discretion, such action would subject the Trustee to personal liability including, but not limited to, any liability arising directly or indirectly under any federal, state or local statute, rule or ordinance related to the protection of the environment or Hazardous Substances (as defined in the Loan Agreement), for the cost of investigation, removal and/or other remedial activity with respect to Hazardous Substances or (b) if the presence of any Hazardous Substance on the property subject to the Deed of Trust results in such property having no or nominal value. In particular, the Trustee is authorized to obtain a “Phase One” environmental report prior to taking any action under the Deed of Trust. It is acknowledged and agreed that the Trustee has no authority to manage, own or operate the Project, or any portion thereof, except as necessary to exercise remedies upon an Event of Default.
When the Trustee incurs expenses or renders services after the occurrence of an Event of Default, such expenses and the compensation for such services are intended to constitute expenses of administration under any federal or state bankruptcy, insolvency, arrangement, moratorium, reorganization or other debtor relief law.
Application of Funds After Default. If an Event of Default shall occur and be continuing, all Loan Payments and other assets and funds then held or thereafter received by the Trustee under any of the provisions of the Indenture (subject to provisions of the Indenture with respect to discharge of the Indenture), the Loan Agreement or the Deed of Trust shall be applied by the Trustee as follows and in the following order:
(1) To the payment of any expenses necessary in the sole discretion of the Trustee to protect the interests of the Owners of the Bonds and reimbursement of the Trustee for any advances made by the Trustee for such purposes, and/or payment of reasonable fees, charges and expenses of the Trustee and the Authority (including reasonable fees and disbursements of their respective counsel, advisors and agents) incurred in and about the performance of their respective powers and duties under the Indenture, the Deed of Trust, the Loan Agreement or any other document executed in connection with any of the foregoing;
(2) If the Trustee appoints a receiver or exercises remedies under the Deed of Trust or the Loan Agreement, to prevent payment of Operation and Maintenance Costs;
(3) To the payment of the principal of and interest then due on the Bonds (upon presentation of the Bonds to be paid, and stamping thereon of the payment if only partially paid, or surrender thereof if fully paid) subject to the provisions of the Indenture, as follows:
(a) Unless the principal of all of the Bonds shall have become or have been declared due and payable,
First: To the payment to the Persons entitled thereto of all installments of interest then due on the Bonds in the order of the maturity of such installments and, if the amount available shall not be
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sufficient to pay in full any installment or installments maturing on the same date, then to the payment thereof ratably, according to the amounts due thereon, to the Persons entitled thereto, without any discrimination or preference, except that the Series 2016A Principal and Interest Account and the Debt Service Reserve Account shall be applied only to payments with respect to the 2016A Bonds, and the Series 2016B Principal and Interest Account shall be applied only to payments with respect to the 2016B Bonds; and
Second: To the payment to the Persons entitled thereto of the unpaid principal of any Bonds that shall have become due, whether at maturity or by call for redemption, with interest on the overdue principal at the rate borne by the respective Bonds, and, if the amount available shall not be sufficient to pay in full all of the principal due on the Bonds, together with such interest, then to the payment thereof ratably, according to the amounts of principal due on such date to the Persons entitled thereto, without any discrimination or preference, except that the Series 2016A Principal and Interest Account and the Debt Service Reserve Account shall be applied only to payments with respect to the 2016A Bonds, and the Series 2016B Principal and Interest Account shall be applied only to payments with respect to the 2016B Bonds; or
(b) If the principal of all of the Bonds shall have become or have been declared due and payable, to the payment of the principal and interest then due and unpaid upon the Bonds, with interest on the overdue principal at the rate borne by the Bonds, and, if the amount available shall not be sufficient to pay in full the whole amount so due and unpaid, then to the payment thereof ratably, without preference or priority of principal over interest, or of interest over principal, or of any installment of interest over any other installment of interest, or of any Bond over any other Bond, according to the amounts due respectively for principal and interest, to the Persons entitled thereto without any discrimination or preference, except that the Series 2016A Principal and Interest Account and the Debt Service Reserve Account shall be applied only to payments with respect to the 2016A Bonds, and the Series 2016B Principal and Interest Account shall be applied only to payments with respect to the 2016B Bonds;
(3) To the Authority, to the extent specified by the Authority in a notice to the Trustee that amounts are owed to it under the terms of the Loan Agreement; and
(4) To the Borrower.
Trustee to Represent Bondowners. Pursuant to the Indenture, the Trustee is irrevocably appointed (and the successive respective Owners of the Bonds, by taking and holding the same, shall be deemed to have so appointed the Trustee) as trustee for and true and lawful attorney-in-fact of the Owners of the Bonds for the purpose of exercising and prosecuting on their behalf such rights and remedies as may be available to such Owners under the provisions of the Bonds, the Indenture, the Loan Agreement and applicable provisions of any law. All rights of action under the Indenture, the Loan Agreement or the Bonds or otherwise may be prosecuted and enforced by the Trustee without the possession of any of the Bonds or the production thereof in any proceeding relating thereto, and any such suit, action or proceeding instituted by the Trustee shall be brought in the name of the Trustee for the benefit and protection of all Owners of Bonds, subject to the provisions of the Indenture. The foregoing notwithstanding, the Trustee shall not be entitled to vote in favor of any plan of reorganization or similar restructure plan in any bankruptcy or other insolvency proceeding, to the extent that such a vote by the Trustee would alter the Indenture, or the rights of the Owners of any outstanding Bonds, in any manner not permitted by the Indenture.
Bondowners’ Direction of Proceedings. No Owner of any Bonds shall have the right to institute any proceeding, judicial or otherwise, for the enforcement of the covenants contained in the Indenture, without the concurrence of the Owners of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding. The Owners of not less than a majority in aggregate principal amount of the Bonds at any time Outstanding may, subject to the limitations of and upon compliance with the provisions of the Indenture summarized below under the heading “THE INDENTURE – Events of Default and Remedies of Bondholders – Limitation on Bondowners’ Right to Sue”, either at law or in equity, by suit, action, mandamus, application for appointment of a receiver or other proceeding, protect and enforce the rights of all Owners of Bonds, and may enforce the performance of all covenants and duties of the Authority and its officials as set forth in the Indenture, including but not limited to collection and proper segregation an application of all Loan Payments. Before the Owners may take any action under the Indenture, the
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Trustee may require that it be furnished an indemnity bond for the reimbursement of all of its expenses to which it may be put (including the reasonable expenses and disbursements of its in-house and outside counsel, independent appraisers, accountants, consultants, agents and other experts) and to protect it against all liability by reason of any action so taken by the Owners, except liability which is adjudicated to have resulted from the negligence or willful misconduct of the Trustee.
Limitation on Bondowners’ Right to Sue. No Owner of any Bond shall have the right to institute any suit, action or proceeding at law or in equity, or take any other action described above under the heading “THE INDENTURE – Events of Default and Remedies of Bondholders – Bondowners’ Direction of Proceedings”, for the protection or enforcement of any right or remedy under the Indenture, the Loan Agreement or any applicable law with respect to such Bond, unless (1) the Owner shall have given to the Trustee written notice of the occurrence of an Event of Default; (2) the Owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding shall have made written request upon the Trustee to exercise the powers hereinbefore granted or to institute such suit, action or proceeding in their names; (3) such Owner or Owners shall have tendered to the Trustee indemnity satisfactory to the Trustee in its sole discretion against the costs, expenses and liabilities to be incurred in compliance with such request (including the reasonable expenses and disbursements of its in-house and outside counsel, independent appraisers, accountants, consultants, agents and other experts); and (4) the Trustee shall have refused or failed to comply with such request for a period of 60 days after such written request shall have been received by, and such tender of indemnity shall have been made to, the Trustee. Such notification, request, tender of indemnity and refusal or failure are, in every case, to be conditions precedent to the exercise by any Owner of Bonds of any remedy under the Indenture, the Loan Agreement or under law; it being understood and intended that no one or more Bondowners shall have any right in any manner whatever by his or their action to affect, disturb or prejudice the security of the Indenture or the rights of any other Bondowners, or to enforce any right under the Indenture or applicable law with respect to the Bonds, except in the manner provided in the Indenture, and that all proceedings at law or in equity to enforce any such right shall be instituted, had and maintained in the manner provided in the Indenture, and for the benefit and protection of all Owners of Outstanding Bonds, subject to the provisions of the Indenture.
Termination of Proceedings. In case any proceedings taken by the Trustee or any one or more Bondowners on account of any Event of Default shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Trustee or the Owners, then in every such case the Authority, the Borrower, the Trustee and the Owners, subject to any determination in such proceedings, shall be restored to their former positions and rights under the Indenture, severally and respectively, and all rights, remedies, powers and duties of the Authority, the Borrower, the Trustee and the Owners shall continue as though no such proceedings had been taken. The Trustee shall restore the balance in each fund or account to its level prior to the occurrence of the Event of Default from and to the extent of money transferred from such fund or account as a result of the occurrence of such Event of Default and not disbursed in accordance with the Indenture.
Remedies Not Exclusive. Except with respect to the limitations on Owners’ rights to sue set forth in “THE INDENTURE – Events of Default and Remedies of Bondholders – Limitation on Bondowners’ Right to Sue”, no remedy conferred upon or reserved to the Trustee or the Owners of the Bonds is intended to be exclusive of any other remedy or remedies, and each and every such remedy, to the extent permitted by law, shall be cumulative and in addition to any other remedy given under the Indenture or now or hereafter existing at law or in equity or otherwise.
No Waiver of Default. No delay or omission of the Trustee or of any Owner of the Bonds to exercise any right or power arising upon the occurrence of any default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein, and every power and remedy given by the Indenture to the Trustee or to the Owners may be exercised from time to time and as often as may be deemed expedient.
Concerning the Trustee
Qualifications of Trustee. There shall at all times be a Trustee under the Indenture which shall be an association or a corporation organized and doing business under the laws of the United States or any state thereof, authorized under such laws to exercise corporate trust powers. Any successor Trustee shall have a combined capital and surplus of at least $50,000,000 (or shall be a wholly-owned subsidiary of an association or corporation that has such combined capital and surplus), and be subject to supervision or examination by federal or state authority, or shall have been
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appointed by a court of competent jurisdiction. If such association or corporation publishes reports of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority referred to above, the combined capital and surplus of such association or corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time any successor Trustee shall cease to be eligible in accordance with the provisions and another association or corporation is eligible, the Trustee shall resign immediately.
Resignation of Trustee. The Trustee may resign and be discharged from the trusts created by the Indenture by giving to the Authority and the Borrower at least 60 days’ advance written notice. Such resignation shall take effect on the day specified in such notice, but the Trustee shall not be discharged from the trusts created until a successor Trustee has been approved and appointed. Subsequent to such date, the Trustee shall have no further duties and obligations under the Indenture.
Removal of Trustee. The Trustee may be removed at any time, either with or without cause, by the Authority or at the written request of the Borrower, so long as there has been no Event of Default which then remains uncured and provided that all fees and expenses of the Trustee that are due and owing and that are not disputed shall first be paid. The Trustee may be removed at any time, either with or without cause, by the Owners of a majority in aggregate principal amount of Outstanding Bonds, provided that all fees and expenses of the Trustee that are due and owing and that are not disputed shall first be paid. Any removal of the Trustee shall be effected by delivery to the Trustee and the Authority (if applicable), and the Borrower of a written instrument to that effect. Such removal shall take effect on the day specified in such notice, but the Trustee shall not be discharged from the trusts created by the Indenture until a successor Trustee has been approved and appointed. Subsequent to such date, the Trustee shall have no further duties and obligations under the Indenture.
Appointment of Successor Trustee. In case at any time the Trustee shall resign, be removed or otherwise become incapable of acting, or shall be adjudged a bankrupt or insolvent, or if a receiver of the Trustee or of its property shall be appointed, or if a public supervisory office shall take charge or control of the Trustee or of its property or affairs, a vacancy shall forthwith and automatically be created in the office of such Trustee under the Indenture, and the Authority shall, after consultation with the Borrower, promptly appoint a successor. Any such appointment shall be made by a written instrument executed by an Authorized Representative of the Authority, with a copy to the Borrower. The Authority shall direct the successor Trustee to mail notice by first class mail, postage prepaid, at least once within 30 days of such appointment, to the Owners of all Outstanding Bonds at their addresses on the Bond Register.
If, in a proper case, no appointment of a successor Trustee shall be made within 90 days after the receipt by the Authority and the Borrower of the Trustee’s notice of resignation or of removal of the Trustee, any Owner or the retiring Trustee, may apply to any court of competent jurisdiction to appoint a successor Trustee. The court may thereupon, after such notice, if any, as such court may deem proper and prescribe, appoint a successor Trustee.
Merger of Trustee. Any Person into which the Trustee may be converted or merged, or with which it may be consolidated, or to which it may sell or transfer its corporate trust business and assets as a whole or substantially as a whole, or any corporation or association resulting from any such conversion, sale, merger, consolidation or transfer to which it is a party, automatically shall be and become successor trustee under the Indenture and shall be vested with all of the title to the Trust Estate and all the trusts, powers, discretions, immunities, privileges and all other matters as was its predecessor, without the execution or filing of any instrument or any further act, deed or conveyance on the part of any of the parties to the Indenture, anything in the Indenture to the contrary notwithstanding, but only if such resulting entity is entitled under state or federal law to exercise corporate trust powers.
Appointment of a Co-Trustee. It is the intent of the Authority and the Trustee that there shall be no violation of any law of any jurisdiction (including particularly the law of the State) denying or restricting the right of banking corporations or associations to transact business as Trustee in such jurisdiction. It is recognized that in case of litigation under the Indenture and, in particular, in case of the enforcement of any remedies on default, or in case the Trustee deems that by reason of any present or future law of any jurisdiction it may not exercise any of the powers, rights or remedies granted herein to the Trustee or hold title to the properties in trust, as granted in the Indenture, or take any other action that may be desirable or necessary in connection therewith, it may be necessary that the Trustee appoint, with the consent of the Authority, an additional individual or institution as a separate trustee or co-
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trustee. In the event that the Trustee appoints an additional individual or institution as a separate trustee or co- trustee, in the event of the incapacity or lack of authority of the Trustee, by reason of any present or future law of any jurisdiction, to exercise any of the rights, powers, trusts and remedies granted to the Trustee herein or to hold title to the Trust Estate or to take any other action that may be necessary or desirable in connection therewith, each and every remedy, power, right, obligation, claim, demand, cause of action, immunity, estate, title, interest and lien expressed or intended by the Indenture to be imposed upon, exercised by or vested in or conveyed to the Trustee with respect thereto shall be imposed upon, exercisable by and vest in such separate trustee or co-trustee, but only to the extent necessary to enable such separate trustee or co-trustee to exercise such powers, rights, trusts and remedies, and every covenant and obligation necessary to the exercise thereof by such separate trustee or co-trustee shall run to and be enforceable by either of them. Such separate trustee or co-trustee shall deliver an instrument in writing acknowledging and accepting its appointment under the Indenture to the Authority and the Trustee. Should any instrument in writing from the Authority be required by the separate trustee or co-trustee so appointed by the Trustee for more fully and certainly vesting in and confirming to him or it such properties, rights, powers, trusts, duties and obligations, any and all such instruments in writing shall, on request, be executed, acknowledged and delivered by the Authority. If the Authority shall fail to deliver the same with 15 days of such request, the Trustee is appointed attorney-in-fact for the Authority to execute, acknowledge and deliver such instruments in the Authority’s name and stead. In case any separate trustee or co-trustee, or a successor to either, shall die, become incapable of acting, resign or be removed, all the estates, properties, rights, powers, trusts, duties and obligations of such separate trustee or co- trustee, so far as permitted by law, shall vest in and be exercised by the Trustee until the appointment of a new trustee or successor to such separate trustee or co-trustee.
Discharge of Obligations to Bondowners
Defeasance of Bonds. In the event that, in accordance with a refunding or defeasance plan, the Authority shall issue refunding bonds or if the Authority or the Borrower shall have money available from any other lawful source to pay the principal of and interest on the Bonds or such portion thereof included in the refunding or defeasance plan as the same become due and payable and to refund or defease such then Outstanding Bonds and to pay the costs of refunding or defeasance, and the Authority or the Borrower shall have set aside irrevocably in a special fund for and pledged to such payment, refunding or defeasance, cash and/or Government Obligations described in paragraph (1) of the definition of Government Obligations that are not subject to redemption prior to maturity sufficient in amount, together with known earned income from the investments thereof, to make such payments and to accomplish the refunding or defeasance as scheduled (the “trust account”), and shall make irrevocable provisions for redemption of such Bonds, if applicable, then in that case all right and interest of the Owners of the Bonds to be so retired, refunded or defeased (collectively, the “defeased Bonds”) in the covenants of the Indenture, in the Trust Estate, and in the funds and accounts obligated to the payment of such defeased Bonds, other than the right to receive the funds so set aside and pledged, thereupon shall cease and become void, except that such Owners shall have the right to receive payment of the principal of and premium, if any, and interest on the defeased Bonds from the trust account and, in the event the funds in the trust account are not available for such payment, shall have the residual right to receive payment of the principal of and premium, if any, and interest on the defeased Bonds from the Trust Estate (but only if the Indenture has not been discharged) without any priority of lien or charge against the Trust Estate or those covenants with respect thereto except to be paid therefrom (except that such rights as exist with respect to payment, exchange and transfer of such Bonds under the pertinent provisions of the Indenture shall continue in full force and effect). The Authority shall include in the refunding or defeasance plan such provisions as the Authority deems necessary for the random selection of any defeased Bonds that constitute less than all of a particular maturity of the Bonds, for notice of the defeasance to be given to the Owners of the defeased Bonds and to such other Persons as the Authority shall determine, for any required replacement of Bond certificates for defeased Bonds, and for new CUSIP numbers to be assigned to all or a portion of the defeased Bonds if less than all of the Bonds of a particular maturity are to be defeased. After the establishing and full funding of such trust account, the defeased Bonds shall be deemed to be discharged and the Authority or the Borrower then may cause any money in any other fund or account established for the payment or redemption of the defeased Bonds to be applied to such lawful purposes as they shall determine, subject only to the rights of the Owners of any other Bonds then Outstanding, the rights of the Authority under the Loan Agreement and the rights of the Trustee under the Indenture. If the Bonds are registered in the name of DTC or its nominee, notice of any defeasance of Bonds shall be given to DTC in the manner prescribed in the Letter of Representations for notices of redemption of Bonds.
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The Authority or the Borrower, if applicable, shall notify the Trustee of the defeasance of any Bonds. The Trustee may rely on any notice provided to it by the Authority or the Borrower pursuant to the Indenture. However, the Trustee may in its discretion request that the Authority or the Borrower provide to the Trustee (a) an opinion of Bond Counsel stating that the defeased Bonds are no longer deemed Outstanding under the Indenture and (b) if Government Obligations form any part of the trust account, written verification by an Accountant of the conformity of the trust account with the provisions of the Indenture.
Discharge of Indenture. The obligations of the Trustee under the Indenture shall remain in effect with respect to all Bonds until the principal of and premium, if any, and interest on all Bonds shall have been paid in full or discharged, notwithstanding that the lien of the Indenture may have been discharged with respect to some of the Bonds. Any money held by the Trustee after payment or discharge of principal of and interest on all of the Bonds and all amounts due to the Trustee under the Indenture shall be free from the trust hereof and, except for any money in the Rebate Fund, shall promptly thereafter be transferred to the Borrower, and the Trustee shall be released and discharged with respect thereto. None of the Trustee, the Authority nor the Bond Registrar shall be responsible for accounting for, or paying to, any Bondowner any return on or benefit from money held for the payment of unredeemed Bonds or outstanding checks, and no calculation of the same shall affect or result in any offset against fees and expenses due to the Trustee or the Bond Registrar under the Indenture.
Nonpresentment of Bonds. In the event any Bond shall not be presented for payment when the principal thereof becomes due, either at maturity or at the date fixed for redemption thereof or otherwise, if funds sufficient to pay the principal and interest accrued thereon to such date shall have been made available to the Bond Registrar for the benefit of the Owner thereof, the Bond Registrar shall hold such principal and interest accrued thereon to such date, without liability to the Owner for further interest thereon, for the benefit of the Owner of such Bond, for a period of one year from the date such Bond shall have become due, either at maturity or upon earlier redemption or otherwise, and thereafter the Bond Registrar shall remit such funds to the Authority unless otherwise required by the Uniform Unclaimed Property Act, RCW 63.29, as amended, or its successor. In the event the Uniform Unclaimed Property Act, as amended, or its successor, should require by law other action to be taken by the Bond Registrar, then the Bond Registrar shall comply with such law and the Indenture shall be deemed amended. After remittance as provided herein, the Bond Registrar’s liability for payment to the Owner of such Bond shall forthwith cease, terminate and be completely discharged and thereafter the Owner shall be restricted exclusively to his or her rights of recovery provided under the Uniform Unclaimed Property Act. All money held under this section will be held uninvested.
Amendment of Indenture
The Indenture shall not be supplemented or amended in any respect subsequent to the initial issuance of the Bonds, except as provided in and in accordance with and subject to the provisions of the Indenture.
Amendments to Indenture Without Consent of Owners. The Authority and the Trustee may from time to time without the consent of or notice to the Owners of the Bonds, enter into Supplemental Indentures for the following purposes:
(a) to cure any formal defect, omission, inconsistency or ambiguity in the Indenture in a manner not materially adverse to the Owner of any Bond;
(b) to impose upon the Trustee (with its consent) for the benefit of the Owners of the Bonds any additional rights, remedies, powers, authority, security, liabilities or duties that may lawfully be granted, conferred or imposed and that are not contrary to or inconsistent with the Indenture or the rights of the Trustee thereunder as theretofore in effect;
(c) to add to the covenants and agreements of, and limitations and restrictions upon, the Authority in the Indenture other covenants, agreements, limitations and restrictions to be observed by the Authority which are not contrary to or inconsistent with the Indenture as theretofore in effect;
(d) to confirm, as further assurance, any pledge under, and the subjection to any claim, lien or pledge created or to be created by, the Indenture of any other money, securities or funds;
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(e) to comply with any future federal law, regulation or interpretation to prevent the occurrence of an event that in the opinion of Bond Counsel would lead to a Determination of Taxability;
(f) to authorize different denominations of the Bonds and to make correlative amendments and modifications to the Indenture regarding exchangeability of Bonds of different Authorized Denominations, redemptions of portions of Bonds of particular Authorized Denominations and similar amendments and modifications of a technical nature;
(g) to make such changes as are required to provide for the conversion of the Bonds to certificated form;
(h) to make such changes as are required by the Rating Agency to obtain or maintain a rating or ratings for the Bonds;
(i) to make such changes as are elsewhere expressly permitted by the Indenture, including but not limited to amendments to the continuing disclosure undertaking of the Authority; and
(j) to modify, alter, amend or supplement the Indenture in any other respect which is not materially adverse to the Owners of the Bonds to be Outstanding after the effective date of the change and which does not involve a change described below under the heading “THE INDENTURE – Amendment of Indenture – Amendments to Indenture Requiring Consent of All Owners”.
Before the Authority and the Trustee shall adopt any such Supplemental Indenture or simultaneously with such adoption, there shall be or have been delivered to the Authority and the Trustee an opinion of Bond Counsel, stating that such Supplemental Indenture is authorized or permitted by the Indenture and will, upon the execution and delivery thereof, be valid and binding upon the Authority in accordance with its terms and will not cause the interest on the Bonds to be included in gross income of the Owners for federal income tax purposes.
Amendments to Indenture Requiring Consent of All Owners. Unless approved in writing by the Owners of all Bonds then Outstanding, or as expressly provided in the Indenture, nothing in the Indenture shall permit, or be construed as permitting:
(a) a change in the times, amounts or currency of payment of the principal of or interest on any outstanding Bond, or a reduction in the principal amount or redemption price of any outstanding Bond or (except for amendment under described under subparagraph (f) above) a change in the method of redemption or redemption price of any outstanding Bond, or
(b) a preference or priority of any Bond over any other Bond, except as expressly contemplated in the Indenture, or
(c) a reduction in the aggregate principal amount of Bonds, the consent of the Owners of which is required for any such Supplemental Indenture, or
(d) the creation of any lien or pledge of the Trust Estate (other than pledges of the Authority’s General Revenues) ranking prior to or on a parity with the lien of the Bonds, or
(e) the modification of any of the provisions of the Indenture regarding Supplemental Indentures.
Procedures for Consent. If the Bonds are registered in the name of DTC or its nominee, then for purposes of obtaining the consent of the Owners of the Bonds the Trustee shall establish a record date for determining the identity of beneficial owners thereof in accordance with the Letter of Representations, and notice to DTC of such record date shall be given to the address specified in the Letter of Representations.
If at any time the Authority and the Trustee shall desire to enter into any Supplemental Indenture for any of the purposes described under the headings “THE INDENTURE – Amendment of Indenture – Amendments to Indenture Requiring Consent of All Owners” and “THE INDENTURE – Amendment of Indenture – Amendments to Indenture Requiring Consent of Majority Owners”, the Trustee shall cause notice (in the form provided by the Authority) of the proposed Supplemental Indenture to be given by first class mail, postage prepaid, to all Owners of the then
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Outstanding Bonds. Such notice shall briefly set forth the nature of the proposed Supplemental Indenture, shall request the consent of each Bondowner and shall state that a copy of the proposed Supplemental Indenture is on file at the office of the Trustee for inspection by all Owners of outstanding Bonds. Within four weeks after the date of the mailing of such notice, the Authority and the Trustee may enter into such Supplemental Indenture substantially in the form described in such notice, but only if there shall have first been or is simultaneously delivered to the Trustee (i) the required consents, in writing, of the Owners of at least a majority of the aggregate principal amount of the Bonds Outstanding, and (ii) an opinion of Bond Counsel, stating that such Supplemental Indenture is authorized or permitted by the Indenture and, upon the execution and delivery thereof, will be valid and binding upon the Authority in accordance with its terms and will not cause interest on the Bonds to be includable in gross income of the Owners for federal income tax purposes.
If the Owners of not less than the percentage of Bonds required by the Indenture shall have consented to and approved the execution and delivery thereof as provided herein, no Owner of any Bond shall have any right to object to the adoption of such Supplemental Indenture, or to object to any of the terms and provisions contained therein or the operation thereof, or in any manner to question the propriety of the execution thereof, or to enjoin or restrain the Authority or the Trustee from entering into the same or from taking any action pursuant to the provisions thereof. Any written consent to a permitted amendment may be embodied in and evidenced by one or any number of concurrent written instruments of substantially similar tenor signed by Bondowners in person or by an agent duly appointed in writing, and such consent shall become effective when such instrument or instruments are delivered to the Authority or the Trustee.
Proof of the execution of any such consent or of a writing appointing any such agent shall be sufficient for any purpose and shall be conclusive in favor of the Authority if made in the following manner: the fact and date of the execution by any Person of any such consent or appointment may be proved by the affidavit of any witness of such execution or by the certificate of any notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the Person signing such consent or appointment acknowledged to him the execution thereof. The fact and date of execution of such consent or appointment may also be proved in any other manner which the Authority may deem sufficient; but the Authority may nevertheless, in its discretion, require further proof in cases where it deems further proof desirable. Any consent by the Owner of any Bond shall bind any future Owner of the same Bond with respect to any Supplemental Indenture executed by the Authority pursuant to such consent.
Amendments to Loan Agreement, Regulatory Agreement, or Deed of Trust Without Consent of Bondowners
The Authority, the Trustee and the Borrower, as applicable, may consent to and execute such supplements or amendments to the Loan Agreement, the Regulatory Agreement, and/or the Deed of Trust as may or shall by them be deemed necessary or desirable and as they all shall approve, from time to time and at any time, without the consent of any Owner, for any one or more of the following purposes:
(a) To add covenants and agreements to the Loan Agreement, the Regulatory Agreement, or the Deed of Trust for the protection of Owners of Bonds; and/or
(b) To cure any ambiguity or correct any defect or inconsistent provision in the Loan Agreement, the Regulatory Agreement or the Deed of Trust; and/or
(c) To make subject to the lien of the Bonds additional revenues, properties or collateral; and/or
(d) To preserve the exclusion of the interest on the Bonds from gross income for federal income tax purposes and preserve the right of the Authority to continue to issue bonds, debts or other obligations of any nature the interest income on which is likewise excluded from gross income for federal income tax purposes; and/or
(e) To make any other change which, in the judgment of the Trustee, is not materially adverse to the Trustee or the Owners of Outstanding Bonds.
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Modification of Loan Agreement, Regulatory Agreement, or Deed of Trust with Consent of Majority of Bondowners
Except for the supplements and amendments necessary or desirable to accomplish the purposes described under “Amendments to Loan Agreement, Regulatory Agreement, or Deed of Trust Without Consent of Bondowners”, none of the Authority, the Trustee or the Borrower shall consent to any other supplement or amendment to the Loan Agreement, the Regulatory Agreement or the Deed of Trust after the execution thereof without the approval of all of them and the prior written consent of the Owners of not less than a majority in aggregate principal amount of Outstanding Bonds. If the Owners of not less than a majority in aggregate principal amount of Outstanding Bonds shall have consented to and approved the execution thereof as provided in the Indenture, no Owner shall have any right to object to any of the terms and provisions contained therein, or in the operation thereof, or in any manner to question the propriety of the execution thereof, or to enjoin or restrain the Trustee, the Borrower or the Authority from executing the same or from taking any action pursuant to the provisions thereof.
Modification of Loan Agreement, Regulatory Agreement, or Deed of Trust with Consent of All Bondowners
Without the approval of the Authority, the Trustee, the Borrower and the Owners of all the Outstanding Bonds, no supplement or amendment to the Loan Agreement, the Regulatory Agreement and/or the Deed of Trust shall change the terms of redemption or maturity of the principal of any Bonds or of any installment of interest on any Bonds; shall deprive any Owner of any Outstanding Bond of the lien or right created by the Indenture; shall give priority to any Bond over any other Bond (except as expressly contemplated herein); or shall amend the provisions of the Indenture summarized under this heading.
SUMMARY OF CERTAIN PROVISIONS OF THE LOAN AGREEMENT
Loan; Payments
Under the Loan Agreement, the Authority agrees to make the Loan to the Borrower in an amount equal to the aggregate principal amount of the Bonds and the Borrower agrees to repay the Loan in the amounts and at the times necessary to pay amounts due on the Bonds.
The Borrower is required to repay the Loan, together with interest thereon, in Loan Payments, delivered to the Trustee in immediately available funds in amounts that shall be sufficient, together with other money, if any, in the Series 2016A Principal and Interest Account and Series 2016B Principal and Interest Account (including, without limitation, amounts transferred to the Series 2016A Principal and Interest Account and/or the Series 2016B Principal and Interest Account from the Project Fund to pay capitalized interest on the applicable series of Bonds), to pay in full all of the principal of and premium, if any, and interest on the Bonds on the Business Day immediately before the date on which the same shall come due, whether at maturity, earlier redemption or acceleration pursuant to the Indenture. If at any time the Trustee withdraws money from the Debt Service Reserve Account to pay debt service on the 2016A Bonds (except with respect to the payment of the final installment(s) of principal of and interest on the Bonds), the Borrower shall immediately deliver to the Trustee an amount sufficient to replenish the Debt Service Reserve Account to the Debt Service Reserve Requirement. Any amounts so delivered to the Trustee by the Borrower shall be credited against the Loan Payments. In addition, all payments of interest Bonds made from money transferred from the Project Account to the Series 2016A Principal and Interest Account or the Series 2016B Principal and Interest Account to pay capitalized interest on the Bonds and the final installment(s) of principal and interest on the Bonds made from money in the Debt Service Reserve Account pursuant to the Indenture shall be credited against amounts due under the Loan Agreement.
Prepayment
The Borrower, at its option, may pay the remaining balance of the Loan or any part thereof in advance at the times and prices and after notice to the Authority and the Trustee and with subsequent notice to the Bondowners in the manner and at time times provided for redemption of the Bonds in the Indenture, the Bonds and the Loan Documents.
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Payments Required Upon Acceleration
In the event of acceleration of payment of the principal of and interest on any of the Bonds, the Borrower shall pay to the Trustee an amount sufficient, together with other money held by the Trustee under the Indenture (but not including money in the Rebate Fund), to pay the entire principal of and accrued interest on the Bonds so accelerated to the date of payment.
Nature of Borrower’s Obligations; Limitation of Liability
Notwithstanding anything in the Loan Agreement to the contrary, (i) the obligations of the Borrower to make the Loan Payments and to perform and observe the other obligations on its part contained therein and in the other Loan Documents shall be absolute and unconditional, and shall not be subject to diminution by setoff, counterclaim, abatement or otherwise, (ii) the Borrower’s obligations to make payments and to perform any other covenants or indemnities or meet any conditions under the Loan Agreement and under the other Loan Documents shall be secured solely by the property pledged thereunder; and (iii) except to the extent of the Authority’s pledge of its General Revenues to the payment of the Bonds in its capacity as issuer of the Bonds, no recourse shall be had against any assets of the Borrower not so pledged, or against any of the partners, officers, directors or employees of the Borrower in their capacities as such, nor shall any recourse be had against any affiliate of the Borrower, or against any partner, officer, director, commissioner or employee of any such affiliate, except as otherwise set forth in the Loan Documents.
Insurance; Damage, Destruction and Condemnation
Insurance. During the term of the Loan Agreement, the Borrower will maintain at its sole cost and expense liability insurance, business interruption insurance and insurance against loss and/or damage to the Project and all equipment therein under a policy or policies covering such risks as are ordinarily insured against by like organizations engaged in like activities of comparable size and liability exposure. All required insurance shall be carried by insurers that are financially responsible and capable of fulfilling the requirements of such policies. All policies evidencing insurance shall be in the usual form and shall name the Borrower as the insured party or loss payee and shall also name the Authority and the Trustee as insured parties and loss payees. Annually on or before December 31, the Borrower shall provide to the Authority and the Trustee copies of certificates from an insurance agent or consultant indicating that the required insurance has been maintained. All insurance shall be carried by insurers that are financially responsible and capable of fulfilling the requirements of such policies.
Damage, Destruction, Condemnation or Insured Loss of Title. The Borrower shall be obligated to continue to make the Loan Payments even if the Project or the property therein is destroyed or damaged (in whole or in part) by fire or other casualty, or if title to, or the temporary use of, the Project or the property therein or any part thereof shall be condemned by any governmental body or any Person acting under governmental authority, unless the Borrower shall have theretofore caused all of the principal of and premium, if any, and interest on the Bonds to have been paid or prepaid in full in accordance with their terms. Upon the occurrence of any such event, the Borrower may direct the Trustee to call Bonds for mandatory redemption pursuant to the Indenture.
If Insurance Proceeds or a Condemnation Award is paid, the Borrower shall forthwith notify the Authority and the Trustee of such fact and of the amount of Insurance Proceeds or Condemnation Award received by the Borrower, and shall deliver such Insurance Proceeds or Condemnation Award to the Trustee for deposit in an account created for that purpose under the Indenture. Money in the amount of such Condemnation Award or Insurance Proceeds shall be held by the Trustee in trust for the purposes set forth in the following paragraphs.
If the Borrower determines to restore the Project (such determination to be made within 120 days after receipt by the Trustee of such Condemnation Award or Insurance Proceeds), such Condemnation Award or Insurance Proceeds shall be used exclusively for such purpose, and the Borrower shall so certify to the Authority and the Trustee. The Trustee shall disburse such funds to pay the costs of the reconstruction or rehabilitation of the Project in accordance with the procedures established for disbursement of amounts in the Project Fund pursuant to the Indenture. In such event, the date for the completion of the Project as set forth in the Indenture shall be adjusted to reflect a reasonable date for completion of such restoration or rehabilitation as determined by the Borrower and the Authority, but in no
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event later than three years from the date of receipt by the Borrower of the Condemnation Award or Insurance Proceeds.
If the Borrower determines not to restore the Project (the Borrower shall make such determination if, in the opinion of the Borrower, repair could not be completed within three years or the restoration and repair of the Project would not be economically practical or desirable), the Borrower shall so certify to the Authority and the Trustee, and the Trustee shall transfer such Condemnation Award or Insurance Proceeds to the Series 2016A Principal and Interest Account and the Series 2016B Principal and Interest Account in the Bond Fund under the Indenture to be applied to the payment or mandatory redemption of the Bonds in accordance with the provisions of the Indenture.
Application of Project Revenues
Project Revenues shall be applied solely for the purposes and is the order set forth below.
(a) to pay Project Operation and Maintenance Costs;
(b) to make deposits to the Series 2016A Principal and Interest Account and the Series 2016B Principal and Interest Account as required by the Indenture and the Loan Agreement;
(c) to make deposits to the Debt Service Reserve Account sufficient to maintain the Debt Service Reserve Requirement;
(d) to repay other debt or other obligations of the Borrower with respect to the Project; and
(e) for application in accordance with to the Partnership Agreement.
Certain Other Covenants of the Borrower
Maintenance of Existence. The Borrower covenants and agrees to maintain its existence as a limited liability limited partnership duly qualified to do business in the State.
Sale, Transfer or Assignment of Assets. The Borrower agrees in the Loan Agreement that it will not voluntarily sell, assign or transfer all or substantially all of its interest in the Project except that the Borrower may sell, assign or transfer all or substantially all of interest in the Project (a) in accordance with the Loan Documents and with the consent of the Authority and prior written notice to the Trustee, (b) to the Authority, or (c) in connection with the removal of the Authority as general partner of the Borrower. For purposes of these provisions, a change of the general partner of the Borrower, or the admission of a new general partner, shall be deemed to be a transfer of the Borrower’s interest in the Project, but a transfer of the interest of a limited partner shall not be deemed to be a transfer of the Borrower’s interest in the Project. Any sale, transfer or other disposition of the Project in violation of the Loan Agreement provisions summarized under this heading shall be ineffective to relieve the Borrower of its obligations under the Loan Agreement.
Maintenance of Facilities; Management Contract. The Borrower covenants and agrees in the Loan Agreement to carry on and conduct its business in an efficient manner at all times; and to maintain, preserve and keep substantially all of the Project in reasonable repair, working order and condition, reasonable wear and tear excepted. The Borrower further covenants and agrees that it shall at all times during the Regulatory Period contract for the services of a qualified property manager for the Project (which may be the Authority) and that if the Authority is no longer the sole general partner of the Borrower, it will obtain the written consent of the Authority, which consent shall not be unreasonably withheld, to the appointment of such property manager. Further, the Borrower agrees that if the property manager fails to meet the performance criteria established by the Authority, the Authority shall have the right, but not the obligation, to appoint a new property manager (which may be the Authority, unless the Authority has been removed as general partner of the Borrower for cause) for the Project.
Use of Facilities. The Borrower agrees in the Loan Agreement that the Project is to be owned, managed and operated as a “housing project” under the Act and as a “qualified residential rental property” as that term is used in
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Section 142(d) of the Code at all times during the term of the Loan Agreement and throughout the Regulatory Period, and that the Borrower shall own and operate the portions of the Project financed with proceeds of the Bonds as a housing project containing Dwelling Units and Functionally Related and Subordinate Facilities to such Dwelling Units in compliance with the provisions of the Act, Section 142(d) of the Code and related Treasury Regulations.
Tax-Exempt Status of the Bonds. The Borrower covenants and agrees in the Loan Agreement (1) to provide such certificates, opinions of Bond Counsel and other evidence as may be necessary or requested by the Authority to establish the exclusion of interest on the Bonds from gross income under Section 103 of the Code and the absence of arbitrage expectation under Section 148 and related sections of the Code; (2) acting alone or with the Trustee or the Authority, to file such information and statements with the Internal Revenue Service as may be required to establish or preserve such exemption or as may be required by Section 103 or related sections of the Code; (3) to comply with arbitrage rebate requirements imposed with respect to the Bonds, including the requirement to calculate and pay to the United States, at the sole expense of the Borrower, all arbitrage rebate amounts in the manner and at the times required by Section 148 of the Code; and (4) if required to prevent a loss of the exclusion from gross income for federal income tax purposes of interest on the Bonds because of any failure to meet applicable arbitrage rebate requirements under Section 148 of the Code, to pay on behalf of the Authority the penalty and interest thereon as provided in Section 148(f)(7)(C) of the Code. The Borrower further covenants and agrees that it will not (a) take any action, (b) fail to take any action or (c) make any use of the Project or the proceeds of the Bonds, which would cause the interest on the Bonds to be or become includable in the gross income of the owner thereof (other than substantial users of the Project) for federal income tax purposes. Without limiting the generality of the foregoing, the Borrower further covenants and agrees that it will take such action or actions, including, without limitation, consenting and agreeing to amendments to the Loan Agreement or any of the other documents as may be necessary, in the opinion of Bond Counsel, so that the Borrower and all subsequent owners of the Project comply fully and continuously with the Code, as applicable to the Bonds from time to time, and all applicable rules, rulings, policies, procedures, regulations or other official statements promulgated or proposed by the Department of the Treasury or the Internal Revenue Service pertaining to qualified residential rental property (as defined in the Code), including, without limitation, the Treasury Regulations.
Borrower’s Performance Under Indenture. Pursuant to the Loan Agreement, the Borrower agrees that it shall, for the benefit of the Bondowners and the Trustee, do and perform all acts and things that are to be done or performed by it, either directly on its own behalf or on behalf of the Authority, under the terms of the Indenture.
Events of Default; Remedies
Events of Default. Any one or more of the following events shall constitute an “Event of Default” under the Loan Agreement:
(a) A default in the due and punctual payment of the principal of, interest on or other amounts due with respect to the Loan when and as the same shall become due and payable; provided however, that any payment made by means of a draw upon the Debt Service Reserve Account established pursuant to the Indenture shall be deemed a payment made when due, provided further, however, that the failure of the Borrower to replenish the Debt Service Reserve Account shall constitute a default in the due and punctual payment of amounts due with respect to the Loan;
(b) The failure by the Borrower to perform any other covenant, agreement or obligation of the Borrower under the Loan Agreement or the Regulatory Agreement, if not cured within 30 days after written notice thereof is given to the Borrower by the Authority, or if such cure cannot be completed within such 30-day period through the exercise of diligence, the failure by the Borrower to commence the required cure within such 30-day period and thereafter to continue the cure with diligence and to complete the cure within 90 days following the Authority’s notice of default;
(c) The occurrence and continuation of any “Event of Default” under the Deed of Trust which is not cured within any applicable cure or grace period;
(d) The termination of the Lease; or
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(e) The filing by the Borrower of a petition in voluntary bankruptcy or for an arrangement or reorganization pursuant to the Federal bankruptcy statutes, or any similar law, state or federal, whether now or hereafter existing (herein referred to as a “Bankruptcy Proceeding”); or the filing by the Borrower of any answer admitting insolvency or inability to pay its debts; or the failure by the Borrower to obtain the dismissal of any involuntary Bankruptcy Proceeding within 45 days after it is filed; or the adjudication of the Borrower as a bankrupt or insolvent entity in any Bankruptcy Proceeding or the failure of the Borrower to obtain the dismissal of the appointment of any trustee or receiver appointed for or the dismissal of any proceeding in which any court has taken jurisdiction of any of its property in any proceeding for the purpose of, reorganization, arrangement, dissolution, or liquidation unless such trust or receiver is discharged, or such jurisdiction is relinquished or vacated, within 45 days of appointment or commencement; or making by the Borrower of an assignment for the benefit of its creditors or consent to an appointment of a receiver or trustee of any of its property.
Any breach or default by the Borrower under the Loan Agreement or the Deed of Trust which is cured by the action of the Limited Partner, caused to be cured by an action of the Limited Partner, or the cure of which is commenced within a 30-day period by action of the Limited Partner and thereafter the cure is continued with diligence to completion within the 90 day period following the Authority’s notice of default shall be deemed cured for the benefit of the Borrower, and the Authority and the Trustee shall treat such cure as a cure of the Borrower’s breach or default under other Loan Documents, as appropriate.
Remedies on Default. Upon the occurrence of an Event of Default any one or more of the following steps may be taken:
(a) The Authority, by written notice to the Borrower and the Trustee, may declare the entire principal balance of the Loan (if not then due and payable) to be due and payable immediately, and upon any such declaration the principal of the Loan shall become and be immediately due and payable, together with all interest accrued thereon to the date of such acceleration, anything in the Loan Agreement to the contrary notwithstanding. However, if at any time after the acceleration of the Loan shall have been so declared and before any judgment or decree for the payment of the money due shall have been obtained or entered, all arrears of principal and interest, if any, upon the Loan, and the expenses of the Authority and the Trustee shall be paid by the Borrower, and every other default in the observance or performance of any covenant, condition or agreement contained in the Loan Agreement shall be made good or be secured to the satisfaction of the Authority and the Trustee, or provision shall be made therefor in a manner satisfactory to the Authority and the Trustee, then and in every such case, the Authority, by written notice to the Borrower and the Trustee, may waive such Event of Default and may rescind and annul such declaration and its consequences; but no such waiver, rescission or annulment shall extend to or affect any subsequent Event of Default or impair any right incident thereto; provided, however, that it is understood and agreed that a mandatory redemption of the Bonds shall constitute an acceleration of the Loan without further action by the Authority;
(b) The Authority shall be entitled by law or in equity to compel specific performance by the Borrower of its obligations under the Loan Agreement or the Regulatory Agreement, it being recognized that the beneficiaries of the Borrower’s obligations thereunder cannot be adequately compensated by monetary damages in the event of the Borrower’s default;
(c) The Authority, upon reasonable advance notice, may have access to and inspect, examine and make copies of the books and records and any and all accounts, data and income tax and other tax returns of the Borrower;
(d) The Authority may appoint a project manager or managers (which may be the Authority, unless the Authority has been removed as general partner of the Borrower for cause) for the Project;
(e) The Authority may, without being required to give any notice except as provided in the Loan Agreement, pursue all remedies of a secured creditor under applicable laws of the State;
(f) The Authority may proceed to protect and enforce its rights in equity or at law, either in mandamus or for the specific performance of any covenant or agreement contained in the Loan Agreement, or for the enforcement of any other appropriate legal or equitable remedy, as the Authority may deem most effectual to protect and enforce any of its rights or interests under the Loan Agreement;
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(g) The Authority may seek the appointment of a receiver of the rents, issues and profits arising from or related to the Project, with such powers as the court making such appointment shall confer, including such powers as may be necessary or usual in such cases for the protection, possession, control, management and operation of the Project in accordance with the provisions of the Indenture, the Lease, the Regulatory Agreement and the Deed of Trust;
(h) The Trustee may, but shall not be required to, foreclose the Deed of Trust and otherwise enforce its rights as beneficiary thereunder; and/or
(i) The Authority may institute and prosecute any proceeding at law or in equity to abate, prevent or enjoin any violation or attempted violation of any of the provisions of the Loan Agreement, or to recover monetary damages caused by such violation or attempted violation.
SUMMARY OF CERTAIN PROVISIONS OF THE DEED OF TRUST
To secure its obligations under the Loan Agreement, the Borrower will enter into a Leasehold Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing (the “Deed of Trust”). The initial deed of trust trustee will be First American Title Insurance Company, and the beneficiary of the Deed of Trust (the “Beneficiary”) is U.S. Bank National Association, as Trustee under the Indenture.
Obligations Secured
The Deed of Trust secures the following:
(1) Payment of the principal of and premium, if any, and interest on the Loan to the Borrower of the proceeds of the Bonds made pursuant to the Loan Agreement;
(2) The performance of the other covenants and agreements of the Borrower contained in the Loan Agreement;
(3) Payment of all sums advanced to protect the security of the Deed of Trust, together with interest thereon;
(4) Performance of all of the Borrower’s other obligations under the Financing Documents.
As used in the Deed of Trust, the term “Financing Documents” means the Deed of Trust, the Loan Agreement, the Indenture, the Regulatory Agreement, any UCC Financing Statements executed in connection therewith, and any other instrument or document (other than the Hazardous Substances Agreement) securing the obligations secured by the Deed of Trust or otherwise executed in connection therewith, together with all modifications, extensions, renewals and replacements thereof.
Property Encumbered by the Deed of Trust
Pursuant to the Deed of Trust, the Borrower grants, transfers, conveys and assigns to the deed of trust trustee, in trust, with power of sale, all of the Borrower’s present and future estate, rights, title, claim, interest and demand, either in law or in equity, now existing or hereafter acquired, of, in and to the following property (the “Property”):
(a) The Borrower’s leasehold estate in the real property and all rights to the alleys, streets and roads adjoining or abutting the real property described on Exhibit “A” to the Deed of Trust (the “Realty”), together with and including all right, title and interest of the Borrower therein, and which leasehold estate is created by the Lease;
(b) The Borrower’s leasehold estate in all buildings, improvements and tenements now or hereafter located on the Realty;
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(c) The Borrower’s leasehold estate in all fixtures and articles of property now or hereafter attached to, or used or adapted for use in the ownership, development, operation or maintenance of the buildings, improvements, and Realty (whether such items be owned absolutely or subject to any title retaining or security instrument, or be otherwise used or possessed, but excluding leased property located on the Realty), including without limitation all heating, cooling, air conditioning, ventilating, refrigerating, plumbing, generating, power, lighting, laundry, maintenance, incinerating, lifting, cleaning, fire prevention and extinguishing, security and access control, cooking, gas, electric and communication fixtures, equipment and apparatus, all engines, motors, conduits, pipes, pumps, tanks, ducts, compressors, boilers, water heaters and furnaces, all ranges, stoves, disposals, refrigerators and other appliances, all escalators and elevators, baths, sinks, all cabinets, partitions, mantels, built in mirrors, window shades, blinds, screens, awnings, storm doors, windows and sashes, all carpeting, underpadding, floor covering, paneling and draperies, all furnishings of public spaces, halls and lobbies, and all shrubbery and plants; all of which items shall be deemed part of the real property and not severable wholly or in part without material injury to the freehold;
(d) All assessments, all access, air and development rights, all minerals and oil, gas and other hydrocarbon substances, all royalties, all water, water rights and water stock, and all other rights, hereditaments, privileges, permits, licenses, franchises and appurtenances now or hereafter belonging or in any way appertaining to the Realty;
(e) All of the Borrower’s rights, title and interests in the rents, revenues, issues, profits and income of the Property, and all rights, title and interests of the Borrower in and to all present and future leases and other agreements for the occupancy or use of all or any part of the Realty, and all right, title and interest of the Borrower thereunder, including without limitation all cash or security deposits, advance rentals and deposits or payments of similar nature; SUBJECT, HOWEVER, to the assignment of rents and other property to the Beneficiary contained in the Deed of Trust;
(f) All of the Borrower’s rights, title and interests in all intangible personal property used or useful in connection with the ownership, development, operation or maintenance of the buildings, improvements and Realty, including without limitation all permits, licenses and franchises with respect to the Property, the exclusive right to use of any trade names, all contract rights (including, but not limited to, architectural, engineering and management agreements), all accounts receivable, leases and rental agreements, escrow accounts, insurance policies, deposits (including but not limited to tenant deposits), instruments, documents of title, general intangibles and business records pertaining to the buildings, improvements and Realty excluding only cash on hand and in bank accounts;
(g) All of the Borrower’s rights, title and interests in materials, supplies and other goods, collectively referred to as “materials” now owned or hereafter acquired, wherever located, whether in the possession of the Borrower or any warehouseman or bailee, or any other person, purchased for use in the construction or furnishing of improvements on the Realty, but excluding leased property located on the Realty, together with any documents covering such materials, all contract rights and general intangibles relating to such materials and proceeds of such materials, documents, contract rights and general intangibles;
(h) All other rights and privileges of every kind included within the Property, and all present and future contracts and policies of insurance which insure the Property or any part thereof, real or personal (whether or not Beneficiary is a loss payee thereof); and
(i) All products and proceeds of the foregoing property.
Events of Default
The occurrence of any one or more of the following shall constitute an event of default under the Deed of Trust:
(a) Failure by the Borrower to make any payment when due under any of the other Financing Documents, if not cured within any applicable grace period set forth in such documents, or under the Deed of Trust, if not cured within 30 days after written notice thereof given to the Borrower by Beneficiary.
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(b) Failure by the Borrower to perform any other covenant, agreement or obligation under any of the Financing Documents, if not cured after notice and within any applicable cure period set forth in such documents (or if such cure cannot be completed within such period though the exercise of diligence, the failure by the Borrower to commence the required cure within such period and thereafter to continue the cure with diligence and to complete the cure within 120 days following the Trustee’s notice of default).
Remedies
Acceleration Upon Default; Additional Remedies. In the event of any uncured default under the Deed of Trust, Beneficiary may, at its option and without notice to or demand upon the Borrower but subject to the terms of the Indenture, exercise any one or more of the following actions:
(a) Declare any or all indebtedness secured by the Deed of Trust to be due and payable immediately;
(b) Bring a court action to enforce the provisions of the Deed of Trust or any of the indebtedness or obligations secured by the Deed of Trust;
(c) Foreclose the Deed of Trust as a mortgage;
(d) Cause any or all of the Property to be sold under the power of sale granted by the Deed of Trust in any manner permitted by applicable law;
(e) Elect to exercise its rights with respect to the Leases and the Rents;
(f) Exercise any or all of the other rights and remedies provided for in the Deed of Trust in the event of default thereunder; or
(g) Exercise any other right or remedy available under law or in equity.
Exercise of Power of Sale. For any sale under the power of sale granted by the Deed of Trust, Beneficiary or deed of trust trustee shall record and give all notices required by law and then, upon the expiration of such time as is required by law, deed of trust trustee may sell the Property upon any terms and conditions specified by Beneficiary and permitted by applicable law. Deed of trust trustee may postpone any sale by public announcement at the time and place noticed for the sale. If the Property includes several lots or parcels, Beneficiary in its discretion may designate their order of sale or may elect to sell all of them as an entirety. The Property, real, personal and mixed, may be sold in one parcel. To the extent any of the Property sold by the deed of trust trustee is personal property, then deed of trust trustee shall be acting as the agent of Beneficiary in selling such Property. Any person permitted by law to do so may purchase at any sale. Upon any sale, deed of trust trustee will execute and deliver to the purchaser or purchasers a deed or deeds conveying the Property sold, but without any covenant or warranty, express or implied, and the recitals in the deed of trust trustee deed showing that the sale was conducted in compliance with all the requirements of law shall be prima facie evidence of such compliance and conclusive evidence thereof in favor of bona fide purchasers and encumbrancers for value.
Application of Sale Proceeds. The proceeds of any sale under the Deed of Trust will be applied in the following manner:
FIRST: Payment of the costs and expenses of the sale, including without limitation deed of trust trustee’s fees, legal fees and disbursements, title charges and transfer taxes, and payment of all expenses, liabilities and advances of Trustee, together with interest on all advances made by deed of trust trustee from the date of disbursement at the rate specified in the Deed of Trust
SECOND: Payment of all sums expended by Beneficiary under the terms of the Deed of Trust and not yet repaid, together with interest on such sums from date of disbursement at the rate specified in the Deed of Trust.
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THIRD: Payment of all other indebtedness secured by the Deed of Trust in any order that Beneficiary chooses, subject to the terms of any applicable subordination agreements.
FOURTH: The remainder, if any, to the person or persons legally entitled to it.
Limited Partner’s Right to Cure. Notwithstanding anything to the contrary contained in the Deed of Trust, Beneficiary shall not exercise any of its remedies without having given notice of the Event of Default to the Limited Partner. The Limited Partner shall have the same cure period after the giving of a notice as provided to the Borrower. If the Limited Partner elects to cure the default (and nothing in the Deed of Trust binds the Limited Partner to do so), Beneficiary agrees to accept such performance as though the same had been done or performed by the Borrower.
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SUMMARY OF CERTAIN PROVISIONS OF THE LEASE
Pursuant to a Lease Agreement to be dated as of October 1, 2016 (the “Lease”), between the Authority, as Grantor, and the Borrower, as Grantee, the Authority will lease to the Borrower and the Borrower will lease from the Authority the property comprising the Project (the “Property”). The term of the Lease will commence on the Date of Issue and will end on December 31, 2115. The Authority will at all times own title to the Property, and will be the owner of the Property for State law purposes. However, the parties to the Lease intend that the Borrower alone will be entitled to all of the federal tax attributes of ownership of the Property, including, without limitation, the right to claim depreciation or cost recover deductions and the right to claim the low-income housing tax credit described in Section 42 of the Code. Capitalized terms not otherwise defined under this heading shall have the terms ascribed thereto in the Lease.
Payments Under the Lease
In addition to the rent payments described in this Official Statement under the heading “The Borrower and the Project – Lease”, under the Lease the Borrower is required to pay all reasonable expenses incurred by the Authority in enforcing provisions of the Lease. And, if the Authority ceases to be the sole general partner of the Borrower (other than as a result of the Authority’s voluntary withdrawal), the Borrower is required to pay to the Authority a monitoring fee equal to the actual documented cost to the Authority of monitoring the Borrower’s compliance with use restrictions under the Lease. Such fee is not required to be paid while the Loan pertaining to the Bonds remains outstanding.
Repairs and Maintenance
Under the Lease the Borrower is solely responsible for repairs and replacements necessary to maintain the Property and shall have the right to make necessary alterations and repairs. The Borrower agrees to keep the Property (including, without limitation, the structural and interior and exterior portions, roofing and covering material, foundations, exterior walls, plumbing, electrical systems, heating and ventilation systems, sidewalks, parking areas and landscaping) in good and safe condition, in compliance with all applicable laws, codes and regulations, and in good order and repair, ordinary wear and tear and damage by fire, casualty or condemnation.
Services
Under the Lease the Borrower agrees to make arrangements for the provision to the Property of all utilities and to directly pay for all utilities supplied to the Property, unless such utilities are billed to residents of the dwelling units in the Property.
Conditions, Covenants and Restrictions
The Borrower agrees operate the Property in compliance with all applicable conditions, covenants and restrictions relating to the Property, and to pay any assessments required by any documents containing such conditions, covenants or restrictions, whether now existing or created during the term of the Lease.
Taxes
The Borrower and the Authority anticipate that the Property is and will remain exempt from all state, local and/or other real estate taxes and assessments (but not fees and charges, including for example surface water management fees assessed by King County, Washington, all of which are to be paid by the Borrower). Notwithstanding the foregoing, the Borrower agrees to pay all real estate taxes and assessments levied or assessed directly against the Property. The Borrower may at its sole cost and expense, and in its own name, dispute and contest any taxes or assessments charged against the Property. The Authority agrees to cooperate with the Borrower in any reasonable effort necessary to have the Property retain an exemption or reduction from real estate or property taxes on the basis of its intended use and ownership of the Property.
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Indemnification
During the term of the Lease, the Borrower agrees, subject to limitations imposed by law, to indemnify and defend the Authority and its commissioners, officers, employees and agents for and hold Grantor and its commissioners, officers, employees and agents harmless from all claims, actions, causes of action, judgments, liabilities, expenses, costs and reasonable attorneys’ fees and all limitations, restraints, penalties or obligations pertaining to the Authority or its commissioners, officers, employees or agents arising or alleged to arise out of any act, omissions, or neglect in connection with the Borrower’s (including the Borrower’s employees, agents, officers, licensees, invitees or other occupants of the Property) use or occupancy of the Property covered by the Lease, except in all cases where such is a result solely of the negligence or willful misconduct of the Authority or its commissioners, officers, employees or agents.
During the term of the Lease, the Authority agrees, subject to the limitations imposed by law, to indemnify and defend and hold harmless the Borrower and its partners, employees and agents from all claims, actions, causes of action, judgments, liabilities, expenses, costs and reasonable attorneys’ fees and from all limitations, restraints, penalties or obligations pertaining to the Borrower or its partners, employees or agents arising out of or alleged to arise out of any act, omissions or neglect in connection with the Authority’s (including the Authority’s commissioners, employees, agents, officers, licensees, or invitees) ownership of the premises covered by the Lease or obligations thereunder, including any such claims, actions, causes of action, judgments, liabilities, expenses, costs and reasonable attorneys’ fees arising from any environmental condition existing prior to the date of the Lease, except where such is a result of the negligence or willful misconduct of the Borrower or its partners (other than the Authority), agents or employees.
Insurance; Damage, Destruction and Condemnation
During the term of the Lease, the Borrower agrees to maintain at its sole cost and expense liability insurance, business interruption insurance and insurance against loss and/or damage to the Property and all equipment therein under a policy or policies covering such risks as are ordinarily insured against by like organizations engaged in like activities of comparable size and liability exposure, including but not limited to claims arising from violations or alleged violations of fair housing laws.
Although the Lease contains provisions regarding the use of Insurance and Condemnation Proceeds, all Insurance Proceeds and Condemnation Proceeds shall be subject to any Leasehold Mortgagee’s right to receive and apply the same as set forth in the applicable Leasehold Mortgagee documents.
Leasehold Mortgage Provisions
Leasehold Mortgages Authorized. The Lease provides Borrower may mortgage or otherwise encumber the Borrower’s leasehold estate under one or more mortgages, deeds of trust, security agreements or collateral assignments, securing a loan or loans to the Borrower, and/or assumed by the Borrower, and encumbering the Borrower’s estate created thereunder (“Leasehold Mortgage”) and regulatory, use and other security agreements in connection therewith, all of which constitute permitted encumbrances under the Lease.
Notice to Grantor. If the Borrower shall mortgage the Borrower’s leasehold estate, the holder of such Leasehold Mortgage shall provide Grantor with written notice of such Leasehold Mortgage together with a true copy of such Leasehold Mortgage and the name and address of the mortgagee.
Consent of Leasehold Mortgagee Required. No cancellation, surrender, or modification of the Lease Agreement will be effective as to any Leasehold Mortgage unless consented to in writing by such Leasehold Mortgagee.
Default Notice. The Authority, upon providing the Borrower any notice of (i) an Event of Default under the Lease, (ii) termination of the Lease, or (iii) failure of the Borrower to exercise any renewal option or purchase option prior to the expiration date thereof, shall, at the same time provide a copy of such notice to any Leasehold Mortgagee, to the Limited Partner and, so long as the Applicable Public Housing Requirements are in effect, to HUD. After such notice has been given to a Leasehold Mortgagee, such Leasehold Mortgagee shall have the same period, after the
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giving of such notice upon it, for remedying any Event of Default or causing the same to be remedied, as is given Grantee after the giving of such notice to Grantee, plus in each instance, the additional periods of time specified in the Lease to remedy, commence remedying, or cause to be remedied the Events of Default specified in any such notice. The Authority shall accept such performance by or at the instigation of such Leasehold Mortgagee as if the same had been done by the Borrower. The Borrower authorizes each Leasehold Mortgagee to make any such action at such Leasehold Mortgagee’s option and authorizes entry upon the Property by the Leasehold Mortgagee for such purpose.
Notice to Leasehold Mortgagees. The Authority shall have no right to terminate the Lease unless, following the expiration of the period of time given to the Borrower to cure such default, the Authority shall notify any Leasehold Mortgagee of Grantor’s intent to so terminate at least 30 days in advance of the proposed effective date of such termination if the nature of such default is the failure to pay a sum of money, and at least 60 days in advance of the proposed effective date of such termination if such default is not the failure to pay a sum of money.
Procedure on Default.
If the Borrower shall elect to terminate the Lease by reason of any default of Grantee, the specified date for the termination of the Lease, as fixed by Grantor in its Termination Notice shall be extended for a period of six months, provided that such Leasehold Mortgagee shall, during such six-month period:
(1) Pay or cause to be paid the rent, additional rent and other monetary obligations of the Borrower under the Lease as the same become due, and continue its good faith efforts to perform all of Grantee’s other obligations under the Lease, excepting (A) obligations of Grantee to satisfy or otherwise discharge any lien, charge, or encumbrance against the Borrower’s interest in the Lease junior in priority to the lien of the mortgage held by such Leasehold Mortgagee and (B) past non-monetary obligations then in default and not reasonably susceptible of being cured by such Leasehold Mortgagee; and
(2) If not enjoined or stayed, take steps to acquire or sell the Borrower’s interest in the Lease by foreclosure of the Leasehold Mortgage or other appropriate means and prosecute the same to completion with reasonable diligence.
If at the end of such six-month period such Leasehold Mortgagee complying with the procedures described above, the Lease shall not then terminate; and the time for completion by such Leasehold Mortgagee of proceedings pursuant to (2) above shall continue so long as such Leasehold Mortgagee is enjoined or stayed and thereafter for so long as such Leasehold Mortgagee proceeds to complete steps to acquire or sell Borrower’s interest in the Lease by foreclosure of the Leasehold Mortgage or by other appropriate means with reasonable diligence and continuity.
If a Leasehold Mortgagee is complying with the procedures described above, and if the Borrower has failed to discharge any lien, charge or encumbrance against Grantee’s interest in the Lease which is junior in priority to the lien of the Leasehold Mortgage held by such Leasehold Mortgagee and which the Borrower is obligated to satisfy and discharge by reason of the terms of the Lease, then upon the acquisition of the Borrower’s estate therein by such Leasehold Mortgagee or its designee or any other purchaser at a foreclosure sale or otherwise the Lease shall continue in full force and effect as if the Borrower had not defaulted under the Lease.
Use Covenants
Under the Lease, the Borrower agrees that the Property is to be owned, managed and operated pursuant to the Housing Authorities Act at all times during the term of the Lease, Section 42 of the Code so long as the Extended Use Agreement is in effect and Section 142(d) of the Code at all times during the Regulatory Period. To that end, during such period, the Borrower represents, covenants and agrees in the Lease as follows:
a) that the Property will be used for the purpose of providing low income housing under the Housing Authorities Act and as “qualified residential rental property” as that term is used in Section 142(d) of the Code, and Grantee shall operate the Property as a housing project containing dwelling units and facilities that are functionally related and subordinate to such dwelling units in compliance with the provisions of the
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Housing Authorities Act, and, during the Regulatory Period, Section 142(d) of the Code and related Treasury Regulations; b) that throughout the Regulatory Period, Dwelling Units, together with facilities Functionally Related and Subordinate to those Dwelling Units, used by Qualified Tenants on a long-term basis shall occupy at least 50% of the interior space in the Improvements or shall constitute at least 50% of the Dwelling Units, whichever produces the larger number of Dwelling Units used by Qualified Tenants; c) that each Dwelling Unit shall contain complete and separate facilities for living, sleeping, eating, cooking and sanitation for a single person or family; d) that not more than 20% of the interior space in any building constituting part of the Improvements that exceeds four stories in height shall be commercial space, and there shall be no commercial space in any building without the written consent of Grantor; e) that none of the Dwelling Units shall at any time be used on a transient basis; that none of the Dwelling Units shall be leased or rented for a period of less than six months; and that neither the Improvements nor any portion thereof shall be used as a hotel, motel, dormitory, fraternity house, sorority house, room house, hospital, sanitarium, nursing home or trailer park, or court, or by a cooperative housing corporation (as defined in Section 216(b)(1) of the Code); f) that once available for occupancy, each Dwelling Unit (other than the manager’s unit(s), if any) shall at all times be occupied by or available for residency on a continuous basis to qualified members of the general public (except as otherwise allowed under applicable fair housing laws) in compliance with applicable Treasury Regulations, the laws of the State and the Lease; g) that the Improvements will include similarly constructed Dwelling Units, together with Functionally Related and Subordinate facilities, financed pursuant to a “common plan”, which Improvements shall be owned by the same “person” (as such terms are used in the Treasury Regulations) for federal tax purposes; h) that, if at any time Grantee is unable to rent or lease the Dwelling Units designated in accordance with Section 20(b) for use by Qualified Tenants to such tenants, it will hold the unrented Dwelling Units so designated vacant until Qualified Tenants are found to occupy those Dwelling Units, and that it will offer the unrented Dwelling Units so designated for occupancy by Qualified Tenants; i) that it will comply with the provisions of all regulatory agreements applicable to the Property (including, without limitation, the Permitted Encumbrances) through the periods specified therein; j) that it will obtain at the time each Dwelling Unit is rented to a Qualified Tenant and annually thereafter and maintain on file certifications or verifications of income. Such certifications and verifications of income shall be in such form and manner as may be acceptable to Grantor, as dictated by the rules applicable to Grantor’s administration of public housing programs or housing voucher programs (to the extent applicable to the Property) and, during the “extended use period” (as defined in Code Section 42(h)(6)(D)) with respect to the Property, by the Low-Income Housing Tax Credit Program. Copies of such documentation shall be submitted to Grantor upon request. An annual rent roll and financial statement for the Property shall be submitted to Grantor upon request; k) that it will obtain and maintain on file, with respect to each Qualified Tenant residing in the Property, the original documentation required in paragraph (j) above; l) that it will permit any duly authorized representative of Grantor to inspect, during regular business hours and upon reasonable notice, the books and records of Grantee pertaining to the incomes of the Qualified Tenants who are residing or have resided in the Property; m) that it will, beginning on the last day of the “compliance period” (as defined in Code Section 42(i)(1)) with respect to the Property, and at all times thereafter during the term of the Lease, maintain 100% of the Dwelling Units for occupancy by individuals and families whose annual income is not greater than 60% of area median gross income (such calculation shall be adjusted for family size and shall be performed in a manner consistent with determinations made pursuant to the United States Housing Act of 1937, as amended, and its implementing regulations); and n) that, beginning on the last day of the “compliance period” (as defined in Code Section 42(i)(1)) with respect to the Property, and at all times thereafter during the term of the Lease, each Dwelling Unit will be “rent restricted” (within the meaning of Code Section 42(g)(2), as the same exists on the date of the Lease) determined with reference to the income limitation set forth in Section 20(m) above.
For the purposes of the Lease, subject to the requirements of the Low-Income Housing Tax Credit Program, a Dwelling Unit occupied by an individual or family who at the commencement of that occupancy is a Qualified Tenant shall be treated as occupied by a Qualified Tenant during such individual’s or family’s tenancy in such unit
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regardless of the future income levels of such individual or family; moreover, a unit shall be treated as occupied by a Qualified Tenant until occupied by another occupant, at which time the character of the unit shall be redetermined. Income limits on continued occupancy shall be governed by the rules of Grantor’s administration of public housing programs or housing voucher programs (to the extent applicable to the Property), by the restrictions of the Low- Income Housing Tax Credit Program.
Defaults; Remedies.
Defaults. Each of the following will constitute an Event of Default under the Lease:
(a) Failure by the Borrower to make any required rent or any other payment as and when due, if the failure continues for a period of 10 days after written notice from the Authority.
(b) Failure by the Borrower to comply with any of the covenants or provisions of the Lease, other than those described in (a) above, if the failure continues for a period of 60 days after written notice from the Authority. If the nature of the Borrower’s default reasonably requires more than 60 days for its cure, the Borrower will not be in default if it commences to cure within the 60 day period and thereafter diligently pursues its completion.
(c) The Borrower’s making any general assignment or arrangement for the benefit of creditors; the filing by or against the Borrower of a petition to have it adjudged as bankrupt or a petition for reorganization or arrangement under any bankruptcy law (unless any petition filed against the Borrower is dismissed or stayed within 60 days); the appointment of a trustee or receiver to take possession of substantially all of the Borrower’s assets at the Property or its interest in the Lease, if possession is not restored to the Borrower within 60 days; or the attachment, execution or other judicial seizure of substantially all of Grantee’s assets at the Property or its interest in the Property, if that seizure is not discharged within 60 days.
Notwithstanding the foregoing, the Authority shall not terminate the Lease, consider a default to be an Event of Default or exercise any other remedy under the Lease if at the time of the default the Authority, or any affiliate of the Authority, is the general partner of the Authority and such default is not caused, directly or indirectly, by any material act or omission of the Limited Partner under the Partnership Agreement (including, without limitation, the failure of the Limited Partner to make capital contributions to the Borrower as and when required by the terms and conditions of the Partnership Agreement), or if such default is caused, directly or indirectly, by any act or omission of the Authority, or any affiliate of the Authority, in its capacity as general partner of the Authority or developer of the Property.
Remedies. Upon the occurrence of an Event of Default, the Authority may at any time thereafter without notice or demand (subject to the conditions of the Extended Use Agreement) do any or all of the following:
(a) Upon 90 days’ written notice to the Borrower and the Limited Partner, terminate Grantee’s right to possession of the Property and the Lease. The Authority may then re-enter and take possession of and remove all persons or property, and the Borrower shall immediately surrender possession of the Property to the Authority. The Authority may recover from the Borrower all damages incurred by the Authority resulting from the Event of Default, including but not limited to reasonable attorney’s fees and costs.
(b) Maintain the Borrower’s right to possession, and continue the Lease in force whether or not the Borrower has abandoned the Property. The Authority shall be entitled to enforce all of its rights and remedies under the Lease, including the right to recover rent as it becomes due.
(c) Pursue any other remedy available to the Authority under the law.
(d) No remedy conferred upon or reserved to the Authority by the Lease is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under the Lease or now or hereafter existing at law or in equity or by statute, and the Authority shall be free to pursue, at the same time, each and every remedy, at law or in equity, which it may have under the Lease, or otherwise.
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In the event the Authority exercises its remedies pursuant to (a) or (c) above and terminates the Lease, the Borrower may, within 90 days following such termination reinstitute the Lease for the balance of the term, by paying to the Authority an amount equal to the actual damages incurred by the Authority as a result of such breach and payment of any actual costs or expenses incurred by the Authority, including reasonable attorneys’ fees and disbursements, as a result of such reinstatement of the Lease.
The Authority’s rights to exercise remedies under the Lease are subject to notice and cure rights of the Limited Partner and, to the Authority’s agreement that, for so long as the Authority is the Borrower’s general partner, Authority will not exercise any remedy during the tax credit “compliance period”. In addition, the rights and remedies of the Authority in are subject to the rights and remedies of Leasehold Mortgagees, as described above.
Default by Authority. The Authority is not in default unless it fails to perform obligations required of it within a reasonable time, and not later than 60 days after delivery of written notice by the Borrower to the Authority specifying the Authority’s failures to perform its obligations. If the Authority’s obligation reasonably requires more than 60 days for performance or cure, the Authority is not in default if it commences performance or cure within the 60-day period and thereafter diligently pursues its completion. In the event of default by the Authority, the Borrower may pursue all remedies available to it at law or in equity.
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APPENDIX B
AUTHORITY’S COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 2015
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The Housing Authority of the City of Seattle, Washington
Comprehensive Annual Financial Report
For the year ended December 31, 2015
THE HOUSING AUTHORITY OF THE CITY OF SEATTLE, WASHINGTON
Comprehensive Annual Financial Report
For the year ended December 31, 2015
Issued by Department of Finance & Administrative Services Shelly Yapp, Chief Financial Officer
THE HOUSING AUTHORITY OF THE CITY OF SEATTLE, WASHINGTON Table of Contents
Exhibit Page(s) SECTION I – INTRODUCTORY SECTION (UNAUDITED): Transmittal Letter i–xvii Principal Officials xviii Organization Chart xix Government Finance Officers Association of the United States and Canada (GFOA) xx December 31, 2014 Certificate
SECTION II – FINANCIAL SECTION: Independent Auditors’ Report 1–3 Management’s Discussion and Analysis (Unaudited) 4–15 Basic Financial Statements: A-1 Statement of Net Position 16–17 A-2 Statement of Revenues, Expenses, and Changes in Net Position 18 A-3 Statement of Cash Flows 19 Notes to Basic Financial Statements 20–83
Required Supplementary Information 84
Supplementary Information (Unaudited) Cost Certificates: WA19URD001I108 85 WA19C001501-10 86 WA19URD001I199 87 WA19URD001I100 88
Table SECTION III – STATISTICAL SECTION (UNAUDITED): Financial Trends: 1 Net Position by Component – Primary Government 90 2 Changes in Net Position – Primary Government 91 Revenue Capacity: 3 Operating Revenues by Source – Primary Government 92 4 Nonoperating Revenues by Source – Primary Government 93 Debt Capacity: 5 Schedule of General Revenue Bond Coverage 94–95 6 Ratio of Debt to Capital Assets – Primary Government 96 Demographics and Economic Statistics: 7 Tenant Demographics – Population Statistics 97–98 8 Regional Demographics – Population Statistics 99 9 Principal Industries 100 Operating Information: 10 Number of Units by Program, Households Served and Waiting List Data 101 11 Property Characteristics and Dwelling Unit Composition 102–104 12 Regular Staff Headcount by Department 105
THE HOUSING AUTHORITY OF THE CITY OF SEATTLE, WASHINGTON
Introductory Section (Unaudited)
Section I