PRYOR CRESTFIELD LLP 999 Third Avenue, Suite 4800 Seattle, Washington 98104 Telephone: (206) 447-6200 Facsimile: (206) 447-6201
CALDERWOOD & HARKNESS LLP 1420 Fifth Avenue, Suite 3600 Seattle, Washington 98101 Telephone: (206) 839-5500 Facsimile: (206) 839-5501
October 24, 2023
Cascadia State Infrastructure Authority 1100 Capitol Way South, Suite 400 Olympia, Washington 98501
Attention: Harold K. Nakamura, Executive Director
Pacific Northwest Trust Company, National Association, as Trustee 1201 Third Avenue, Suite 1600 Seattle, Washington 98101
Attention: Alan M. Greer, Vice President, Corporate Trust Services
Re: $220,000,000 Cascadia State Infrastructure Authority Water Treatment Revenue Bonds, Series 2023A (Tax-Exempt), CUSIP Base: 148392
Ladies and Gentlemen:
We have acted as Co-Bond Counsel to the Cascadia State Infrastructure Authority ("CSIA" or the "Issuer"), a Washington State governmental instrumentality and public body corporate created pursuant to Chapter 43.160A of the Revised Code of Washington (the "Enabling Act"), in connection with the issuance and delivery of the Cascadia State Infrastructure Authority Water Treatment Revenue Bonds, Series 2023A (Tax-Exempt) (the "Series 2023A Bonds" or the "Bonds"). The Bonds are being issued on the date hereof in the aggregate principal amount of Two Hundred Twenty Million Dollars ($220,000,000), dated October 24, 2023.
The Bonds are authorized and issued pursuant to the Enabling Act and Board Resolution No. 2023-014, duly adopted by the Board of Directors of the Authority on May 9, 2023 (the "Resolution"). The Bonds are issued and secured under and pursuant to the Bond Indenture dated as of October 24, 2023 (the "Master Indenture"), by and between CSIA and Pacific Northwest Trust Company, National Association, a national banking association organized and existing under the laws of the United States of America, as trustee (the "Trustee"), as supplemented by the First Supplemental Indenture dated as of October 24, 2023 (the "First Supplemental Indenture" and, together with the Master Indenture, the "Indenture").
In connection with the issuance and delivery of the Bonds, CSIA has entered into, executed, and delivered the following additional documents and agreements: (i) the Revenue Pledge Agreement dated as of October 24, 2023, between CSIA and the Trustee (the "Revenue Pledge Agreement"); (ii) the Tax Regulatory Agreement and Certificate, executed by CSIA on October 15, 2023 (the "Tax Agreement"); (iii) the Continuing Disclosure Agreement dated as of October 24, 2023, between CSIA and the Trustee, acting as Dissemination Agent (the "Continuing Disclosure Agreement"); (iv) the Escrow Deposit Agreement dated as of October 24, 2023, between CSIA and the Trustee, acting as Escrow Agent (the "Escrow Deposit Agreement"); and (v) the Debt-Service Reserve Fund Surety Bond Agreement dated as of October 24, 2023, among CSIA, the Trustee, and Olympia Guaranty Insurance Corp. (the "Surety Bond Agreement"). The Indenture, the Revenue Pledge Agreement, the Tax Agreement, the Continuing Disclosure Agreement, the Escrow Deposit Agreement, and the Surety Bond Agreement are collectively referred to herein as the "Bond Documents."
Capitalized terms used but not otherwise defined in this opinion letter shall have the meanings ascribed to such terms in the Indenture.
Description of the Bonds
The Bonds bear the designation "Cascadia State Infrastructure Authority Water Treatment Revenue Bonds, Series 2023A (Tax-Exempt)" and are being issued in the aggregate principal amount of $220,000,000. The Bonds are dated October 24, 2023, and mature on October 1, 2053, representing a thirty-year final maturity. The Bonds bear interest at a fixed rate of 3.25% per annum, computed on the basis of a 360-day year consisting of twelve 30-day months. Interest on the Bonds is payable semiannually on April 1 and October 1 of each year, commencing April 1, 2024.
The Bonds are issuable in denominations of $5,000 or any integral multiple thereof. The Bonds are being issued in book-entry-only form through the facilities of The Depository Trust Company ("DTC"), New York, New York, and, so long as the Bonds are in the book-entry-only system, Cede & Co., as nominee of DTC, shall be the sole registered owner of the Bonds.
The Bonds are subject to optional redemption by CSIA, in whole or in part, on any date on or after October 1, 2033 (providing ten-year call protection from the date of issuance), at a redemption price equal to 100% of the principal amount of the Bonds to be redeemed, plus accrued interest to the date fixed for redemption, without premium. The CUSIP Base number assigned to the Bonds is 148392.
Documents Examined
In rendering this opinion, we have examined originals or certified copies of the following documents, instruments, certificates, and records:
1. Chapter 43.160A RCW, as currently in effect (the "Enabling Act");
2. Board Resolution No. 2023-014, adopted by the Board of Directors of CSIA on May 9, 2023, certified by the Secretary to the Board as a true and correct copy;
3. The Master Indenture dated as of October 24, 2023, by and between CSIA and the Trustee;
4. The First Supplemental Indenture dated as of October 24, 2023, by and between CSIA and the Trustee;
5. The Revenue Pledge Agreement dated as of October 24, 2023, by and between CSIA and the Trustee;
6. The Tax Regulatory Agreement and Certificate executed by CSIA on October 15, 2023;
7. The Bond Purchase Agreement dated August 30, 2023, by and between CSIA and Meridian Capital Partners LLC, as representative of the underwriters named therein;
8. The Continuing Disclosure Agreement dated as of October 24, 2023, by and between CSIA and the Trustee, as Dissemination Agent;
9. The Escrow Deposit Agreement dated as of October 24, 2023, by and between CSIA and the Trustee, as Escrow Agent;
10. The Debt-Service Reserve Fund Surety Bond Agreement dated as of October 24, 2023 (Surety Policy No. OG-2023-MUN-4718), by and among CSIA, the Trustee, and Olympia Guaranty Insurance Corp.;
11. The Preliminary Official Statement dated June 26, 2023, relating to the Bonds, and the Final Official Statement dated September 5, 2023, relating to the Bonds (the "Official Statement");
12. The Certificate of Authorized Officer of CSIA, executed by Harold K. Nakamura, Executive Director, dated the date hereof;
13. The CFO's Certificate executed by Denise R. Whitford, Chief Financial Officer of CSIA, dated the date hereof;
14. The State Environmental Policy Act ("SEPA") Determination of Non-Significance issued by the Washington State Department of Ecology on September 12, 2022, relating to the water treatment facilities to be financed with the proceeds of the Bonds;
15. The National Pollutant Discharge Elimination System ("NPDES") Permit No. WA-004837-2 modification approved by the Washington State Department of Ecology on January 6, 2023;
16. Rating letters from Lakeshore Ratings Group, Inc. (assigning a long-term credit rating of "AA" with a stable outlook to the Bonds) and Pinnacle Credit Analytics, Inc. (assigning a long-term credit rating of "AA−" with a stable outlook to the Bonds), each dated July 28, 2023; and
17. Such other documents, certificates, instruments, records, and matters of law as we have deemed necessary or appropriate for purposes of rendering this opinion.
Assumptions and Reliance
In rendering the opinions set forth herein, we have made the following assumptions and have relied upon the following, without undertaking independent investigation or verification:
We have assumed the genuineness of all signatures on all documents and instruments examined by us, the authenticity and completeness of all documents submitted to us as originals, and the conformity to authentic originals of all documents submitted to us as copies, whether certified or otherwise. We have further assumed that all natural persons executing documents reviewed by us had, at the time of execution, the legal capacity to do so.
We have assumed the due authorization, execution, and delivery of the Bond Documents and all related documents and instruments by all parties thereto other than CSIA. We have not undertaken any independent review of the organizational documents, corporate authority, or power of any party other than CSIA to enter into, execute, and deliver the Bond Documents or to perform its respective obligations thereunder.
We have relied upon the representations, warranties, covenants, and certifications of CSIA contained in the Tax Regulatory Agreement and Certificate executed on October 15, 2023, and in the Certificate of Authorized Officer executed by Harold K. Nakamura, Executive Director, without independent investigation or verification of the facts, estimates, or expectations set forth therein. Our opinion regarding the excludability of interest on the Bonds from gross income for federal income tax purposes is expressly conditioned upon the accuracy and completeness of such representations, warranties, covenants, and certifications.
We have relied upon the CFO's Certificate executed by Denise R. Whitford, Chief Financial Officer of CSIA, as to all financial data and fiscal information referenced therein, including, without limitation, the reported fiscal year 2022 net pledged revenues of $412,600,000 and the satisfaction of the rate covenant and the additional bonds test set forth in the Indenture. We have not independently audited, reviewed, or verified such financial data or the calculations derived therefrom.
We have assumed that the Trustee is duly organized and validly existing as a national banking association under the laws of the United States of America, possessing full corporate power and authority to execute and deliver the Indenture and each of the other Bond Documents to which it is a party, and to perform its duties and obligations thereunder in its capacity as Trustee, Dissemination Agent, and Escrow Agent, as applicable.
We have assumed that Olympia Guaranty Insurance Corp. is duly organized, validly existing, and in good standing under the laws of its jurisdiction of organization and is duly authorized and licensed to issue the surety bond described in the Surety Bond Agreement (Surety Policy No. OG-2023-MUN-4718), and that such surety bond constitutes a valid and binding obligation of Olympia Guaranty Insurance Corp. enforceable in accordance with its terms.
Opinions
Based upon and subject to the foregoing, and subject further to the qualifications and limitations set forth below, we are of the opinion that, as of the date hereof:
1. Due Organization and Existence of CSIA. CSIA is a duly created and validly existing governmental instrumentality and public body corporate of the State of Washington, created and existing under and pursuant to Chapter 43.160A RCW. CSIA has full legal right, power, and authority under the Enabling Act to issue the Bonds, to execute and deliver the Bond Documents to which it is a party, and to carry out and perform its obligations thereunder. CSIA is not required to obtain any consent, approval, authorization, or order of, or to make any filing or registration with, any court, governmental agency, or other public body or authority of the State of Washington not already obtained or made as a condition precedent to the valid issuance of the Bonds or the execution and delivery of the Bond Documents.
2. Due Authorization. The issuance of the Bonds and the execution and delivery of each of the Bond Documents by CSIA have been duly authorized by all necessary action on the part of CSIA, including the adoption of Board Resolution No. 2023-014 by the Board of Directors of CSIA on May 9, 2023, in accordance with the Enabling Act and all applicable procedural requirements. All conditions precedent to such authorization, as set forth in the Enabling Act, the Resolution, and the Bond Documents, have been duly fulfilled, and no further approval, consent, or action by CSIA, the Board of Directors of CSIA, or any other governmental body or official is required for the valid issuance and delivery of the Bonds.
3. Valid Issuance and Binding Obligation. The Bonds have been duly authorized, executed, issued, and delivered by CSIA and constitute valid and legally binding special, limited obligations of CSIA, enforceable against CSIA in accordance with their terms. The Bonds are payable solely from and secured by a lien on and pledge of the Net Pledged Revenues, as such term is defined in the Indenture and the Revenue Pledge Agreement, and from certain other moneys and securities held in funds and accounts established under the Indenture. The Bonds do not constitute general obligations or indebtedness of CSIA or of the State of Washington or of any political subdivision thereof within the meaning of any constitutional or statutory debt limitation or restriction. Neither the full faith and credit nor the taxing power of the State of Washington, CSIA, or any other political subdivision of the State of Washington is pledged to the payment of the principal of, premium, if any, or interest on the Bonds.
4. Validity of Indenture and Bond Documents. The Indenture (consisting of the Master Indenture and the First Supplemental Indenture), the Revenue Pledge Agreement, the Tax Agreement, the Continuing Disclosure Agreement, the Escrow Deposit Agreement, and the Surety Bond Agreement have each been duly authorized, executed, and delivered by CSIA and constitute valid and legally binding obligations of CSIA, enforceable against CSIA in accordance with their respective terms. The execution and delivery of the Bond Documents by CSIA, and the performance by CSIA of its obligations thereunder, do not and will not conflict with, or result in a violation or breach of, or constitute a default under, the Enabling Act, the Resolution, or any existing agreement, indenture, mortgage, lease, or other instrument to which CSIA is a party or by which CSIA or its properties are bound, to our knowledge.
5. Validity and Perfection of Revenue Pledge. Under the Indenture and the Revenue Pledge Agreement, CSIA has validly pledged to the payment of the principal of, premium, if any, and interest on the Bonds the Net Pledged Revenues, which consist of (i) Wholesale Water Treatment Service Charges received by CSIA from the fourteen participating municipal water districts, as identified in the Indenture and the Revenue Pledge Agreement, (ii) connection fees assessed and collected by CSIA in connection with the water treatment facilities, and (iii) investment earnings on funds and accounts held under the Indenture pledged to the payment of the Bonds, in each case after the deduction of operation and maintenance expenses as defined in the Indenture. The pledge of Net Pledged Revenues created by the Indenture and the Revenue Pledge Agreement constitutes a valid lien on such revenues, as and to the extent provided by Washington State law, including Chapter 43.160A RCW. Such pledge is effective and enforceable against CSIA and all third parties in accordance with its terms and the provisions of the Enabling Act. The lien on Net Pledged Revenues securing the Series 2023A Bonds is on a parity basis with the lien securing all other outstanding parity revenue obligations of CSIA heretofore or hereafter issued under and pursuant to the Indenture, as provided therein.
6. Federal Tax Exemption — Section 103 of the Internal Revenue Code. Under existing statutes, regulations, published rulings, and court decisions, and assuming continuing compliance by CSIA with certain covenants, representations, and conditions set forth in the Tax Regulatory Agreement and Certificate executed on October 15, 2023, interest on the Bonds is excludable from gross income of the owners thereof for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended (the "Code"). Furthermore, interest on the Bonds is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations under the Code.
We call attention to the fact that the Code imposes certain requirements that must be met on a continuing basis subsequent to the issuance and delivery of the Bonds in order for interest thereon to be and remain excludable from gross income for federal income tax purposes. These requirements include, but are not limited to, requirements relating to the use of the proceeds of the Bonds and the facilities financed therewith, limitations on the investment of Bond proceeds and other amounts at yields in excess of the yield on the Bonds, the timely payment of certain amounts, if any, required to be rebated to the United States of America under Section 148(f) of the Code, and limitations on the use of the Bond-financed facilities to ensure that such facilities are used for governmental purposes as required by Section 141 of the Code. Noncompliance with such requirements may cause interest on the Bonds to be included in gross income of the owners thereof for federal income tax purposes retroactive to the date of original issuance of the Bonds. CSIA has covenanted in the Tax Agreement and in the Indenture to comply with each such continuing requirement and to take all actions necessary to maintain the exclusion of interest on the Bonds from gross income for federal income tax purposes.
We express no opinion regarding any other federal tax consequences relating to the ownership of, receipt of interest on, or disposition of the Bonds, including, without limitation, any federal tax consequences arising under Sections 1, 55, 68, 1221, or 1250 of the Code, or any successor provisions thereto, or any proposed legislation, or any tax consequences arising under the tax laws of any state, territory, or possession of the United States, or any political subdivision or taxing authority thereof or therein, except as expressly stated herein.
7. Washington State Tax. Under existing law of the State of Washington, the State of Washington does not impose a personal income tax on the income of individuals. Accordingly, we express no opinion regarding state income tax exemption as applied to interest on the Bonds. We note that we have not examined and express no opinion concerning the tax treatment of interest on the Bonds under the laws of any state other than the State of Washington.
8. No Litigation Opinion. We have not been engaged to review, and have not reviewed, the status of any pending or threatened litigation, proceedings, or investigations that may affect CSIA, the Bonds, or the Bond Documents. We express no opinion as to the existence or absence of any pending or threatened litigation, arbitration, administrative proceeding, or governmental investigation affecting the validity or enforceability of the Bonds or any of the Bond Documents.
Qualifications and Limitations
The opinions expressed herein are subject to and limited by the following qualifications:
(a) The enforceability of the Bonds and the Bond Documents may be limited or affected by bankruptcy, insolvency, reorganization, moratorium, receivership, conservatorship, arrangement, fraudulent conveyance, fraudulent transfer, and other similar laws relating to or affecting the rights and remedies of creditors generally, including, without limitation, laws relating to fraudulent conveyances or transfers, preferential transfers, equitable subordination, and the rights of secured creditors, whether now or hereafter in effect.
(b) The enforceability of the Bonds and the Bond Documents is subject to general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law), including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing, the discretion of the court before which a proceeding may be brought, and the unavailability of, or limitation on, certain specific remedies, including the remedies of specific performance and injunctive relief, and the exercise of judicial discretion in connection therewith.
(c) The enforceability of the Bonds and the Bond Documents may be limited by the exercise of judicial discretion in accordance with general principles of equity and public policy considerations.
This opinion is limited in all respects to the laws of the State of Washington and the federal laws of the United States of America, each as in effect on the date hereof, and we express no opinion as to the laws of any other jurisdiction. No opinion is expressed herein with respect to the laws of any other state, nation, or jurisdiction, or with respect to any municipal ordinance, rule, or regulation.
We have not been engaged to, and do not, verify, and we express no opinion with respect to, the accuracy, completeness, or sufficiency of the Final Official Statement dated September 5, 2023, or any other offering document, financial statement, or disclosure document prepared in connection with the offering and sale of the Bonds. We have not assumed any responsibility for, and express no opinion regarding, the accuracy or completeness of any financial, statistical, demographic, or engineering data or projections set forth in the Official Statement or any supplement or amendment thereto.
This opinion speaks only as of its date. We undertake no obligation, and expressly disclaim any duty, to update, supplement, revise, or reissue this opinion to reflect any facts or circumstances that may arise or come to our attention, or any changes in law, regulation, or judicial interpretation that may occur, after the date hereof. The opinions set forth herein are rendered solely in our capacity as Co-Bond Counsel and are not to be construed as a guaranty of result.
Reliance
This opinion is rendered solely for the benefit of the addressees hereof and may not be relied upon by any other person or entity, or used, quoted, or referred to for any other purpose, without our prior written consent in each instance. Notwithstanding the foregoing, we hereby consent to the reference to our firms in the Final Official Statement dated September 5, 2023, relating to the Bonds, under the caption "Legal Matters," and to the inclusion of a copy of this opinion as an appendix to the Official Statement. In giving such consent, we do not thereby admit that we are "experts" within the meaning of Section 11 of the Securities Act of 1933, as amended, or that our consent is required by Section 7 of such Act.
Very truly yours,
PRYOR CRESTFIELD LLP
By: ________
Name: Margaret S. Yoon
Title: Partner
CALDERWOOD & HARKNESS LLP
By: ________
Name: George Trujillo
Title: Partner, Energy & Infrastructure