Contract analysis

I. Executive Summary This memorandum analyzes the validity, priority, and perfection of the pledge of net water-treatment revenues by the Cascadia State Infrastructure Authority ("CSIA" or "Cascadia") as security for CSIA's Water Treatment Revenue Bonds, Series 2023A (Tax-Exempt) (the "Series 2023A Bonds") in the aggregate principal amount of $220,000,000 under Washington State law. Based on the analysis set forth he

II. Background and Transaction Overview A. The Issuer — Cascadia State Infrastructure Authority The Cascadia State Infrastructure Authority is a governmental instrumentality and public body corporate and politic of the State of Washington, created and existing pursuant to Chapter 43.160A RCW. CSIA was established by the Washington State Legislature to develop, finance, construct, and operate regional water treatment

1. Bond Indenture (Trust Indenture) between CSIA and PNTC, dated as of October 24, 2023 (the "Bond Indenture" or "Indenture"). The Bond Indenture is the master trust agreement that establishes the terms and conditions for the issuance of revenue bonds by CSIA, creates the funds and accounts for the receipt and disbursement of pledged revenues, sets forth the flow-of-funds provisions, defines the revenue pledge, estab

2. First Supplemental Indenture (Series 2023A) between CSIA and PNTC, dated as of October 24, 2023 (the "First Supplemental Indenture"). The First Supplemental Indenture supplements the Bond Indenture to authorize the specific terms of the Series 2023A Bonds, including the aggregate principal amount, interest rate, maturity schedule, redemption provisions, and form of bond.

3. Revenue Pledge Agreement between CSIA and PNTC, dated as of October 24, 2023 (the "Revenue Pledge Agreement"). The Revenue Pledge Agreement sets forth the specific terms of the pledge of Net Pledged Revenues by CSIA in favor of the Trustee for the benefit of bondholders. This agreement operates in conjunction with the Bond Indenture to create the statutory lien on pledged revenues.

4. Debt-Service Reserve Fund Surety Bond Agreement among CSIA, PNTC, and Olympia Guaranty Insurance Corp. (the "Surety Agreement"), providing for the issuance of Surety Policy No. OG-2023-MUN-4718 in satisfaction of the Debt Service Reserve Fund requirement for the Series 2023A Bonds.

5. Wholesale Water Treatment Services Agreements between CSIA and each of the 14 participating municipal water and sewer districts (collectively, the "Service Agreements"). These long-term agreements establish the contractual obligations of the participating districts to pay wholesale water treatment service charges to CSIA and form the primary revenue base underlying the pledge. Each of these documents is in substan

III. Statutory Framework — Chapter 43.160A RCW and Related Provisions A. Enabling Legislation — Chapter 43.160A RCW The statutory foundation for the revenue pledge securing the Series 2023A Bonds is Chapter 43.160A of the Revised Code of Washington. This chapter creates CSIA as a governmental instrumentality and public body corporate and politic of the State of Washington and confers upon CSIA a broad range of powers

IV. Definition and Scope of Pledged Revenues A. Components of "Net Pledged Revenues" The scope of the revenue pledge is defined by the terms "Gross Pledged Revenues," "Operation and Maintenance Expenses," and "Net Pledged Revenues," each as defined in the Bond Indenture and Revenue Pledge Agreement. A precise understanding of these definitions is essential to the analysis of the pledge, as the statutory lien attaches

V. Parity Lien Structure and Outstanding Obligations A. Existing Outstanding Parity Debt Prior to the issuance of the Series 2023A Bonds, CSIA had $3,120,000,000 in aggregate principal amount of outstanding parity revenue bonds, all of which are secured by a lien on Net Pledged Revenues on a parity (equal and ratable) basis under the Bond Indenture. The existing outstanding parity bonds consist of multiple series of

VI. Flow of Funds Under the Bond Indenture A. Revenue Fund The Bond Indenture requires that all Gross Pledged Revenues received by CSIA be deposited into the Revenue Fund held by PNTC as Trustee. The Revenue Fund is the initial point of collection for all revenues pledged to secure the outstanding parity bonds. The deposit of Gross Pledged Revenues into the Revenue Fund is a mandatory obligation of CSIA under the Ind

1. Operation and Maintenance Fund — First Priority. The first application of Gross Pledged Revenues is to the payment of O&M Expenses through the Operation and Maintenance Fund. This first-priority position reflects the fundamental principle that the water-treatment system must be operated and maintained on a current basis to continue generating the revenues that secure the bonds. Amounts deposited in the Operation a

2. Bond Fund (Debt Service Fund) — Second Priority. After the payment of O&M Expenses, the next application of revenues is to the Bond Fund (also referred to as the Debt Service Fund). Monthly deposits are required in amounts sufficient to accumulate funds to pay the scheduled principal of and interest on all outstanding parity bonds as they come due. Interest on the parity bonds, including the Series 2023A Bonds, is

3. Debt Service Reserve Fund ("DSRF") — Third Priority. After the Bond Fund deposits, the next priority of disbursement is to the Debt Service Reserve Fund. The DSRF serves as a reserve fund to cover shortfalls in debt service payments in the event that Net Pledged Revenues are insufficient to make scheduled payments from the Bond Fund. The DSRF requirement for the Series 2023A Bonds is satisfied by the surety policy

4. Rebate Fund — Fourth Priority. After the DSRF, the next priority of disbursement is to the Rebate Fund, which is maintained to accumulate and hold amounts required to be rebated to the United States Treasury in compliance with the arbitrage rebate requirements of Section 148 of the Internal Revenue Code of 1986, as amended. The rebate obligation arises if investment earnings on the gross proceeds of the Series 202

5. Surplus / Residual Fund — Fifth Priority. Any amounts remaining in the Revenue Fund after all of the foregoing deposits have been made in full are transferred to the Surplus Fund (or Residual Fund), which is available for use by CSIA for any lawful purpose. Lawful purposes include, without limitation, capital improvements to the water-treatment system, payment of debt service on subordinate lien obligations (if an

VII. Rate Covenant A. Financial Covenant The Bond Indenture and Revenue Pledge Agreement contain a Rate Covenant pursuant to which CSIA covenants and agrees to establish, maintain, and collect rates, fees, and charges for water treatment services at levels sufficient to produce Net Pledged Revenues in each fiscal year that are at least equal to 1.40 times (1.40x) the annual aggregate parity debt service payable in su

VIII. Perfection of the Pledge Under Washington Law A. Statutory Perfection Mechanism Under Chapter 43.160A RCW, the pledge of revenues by CSIA as security for the Series 2023A Bonds is perfected automatically by operation of statute, without any physical delivery, filing, recording, or further act. This statutory perfection mechanism is established by Section 43.160A.060 RCW, which provides that the pledge of revenu

IX. Enforceability of the Revenue Pledge Against Participating Districts A. Nature of the Districts' Obligations The revenue pledge securing the Series 2023A Bonds is ultimately dependent upon the receipt by CSIA of wholesale water treatment service charges from the 14 participating municipal water and sewer districts. Accordingly, the enforceability of the obligations of those districts to CSIA is a critical element