CERTIFICATE OF THE CHIEF FINANCIAL OFFICER OF CASCADIA STATE INFRASTRUCTURE AUTHORITY — FINANCIAL COVENANT COMPLIANCE
Cascadia State Infrastructure Authority Water Treatment Revenue Bonds, Series 2023A (Tax-Exempt) Aggregate Principal Amount: $220,000,000
October 24, 2023
Prepared by Calderwood & Harkness LLP, Issuer's Counsel 1420 Fifth Avenue, Suite 3600 Seattle, WA 98101 C&H Matter No. 1030-00001
RECITALS
The undersigned, Denise R. Whitford, is the duly appointed and acting Chief Financial Officer of Cascadia State Infrastructure Authority ("CSIA" or the "Authority"), a Washington State governmental instrumentality and public body corporate created by and existing under Chapter 43.160A of the Revised Code of Washington, with its principal offices and headquarters located at 1100 Capitol Way South, Suite 400, Olympia, Washington 98501, Employer Identification Number 91-2058374. The undersigned has served in such capacity since July 1, 2019, and is authorized by virtue of her office and by resolution of the Board of Directors of the Authority to execute and deliver this Certificate.
This Certificate of the Chief Financial Officer — Financial Covenant Compliance (this "Certificate") is delivered in connection with the issuance and delivery of the Authority's Water Treatment Revenue Bonds, Series 2023A (Tax-Exempt) (the "Series 2023A Bonds"), in the aggregate principal amount of Two Hundred Twenty Million Dollars ($220,000,000), dated the date hereof, October 24, 2023, and maturing on October 1, 2053, subject to earlier optional redemption as described herein and in the Indenture (as hereinafter defined).
This Certificate is delivered pursuant to and in accordance with the requirements of each of the following documents, instruments, and authorizations:
(a) The Trust Indenture dated as of October 24, 2023 (the "Master Indenture"), between CSIA, as issuer, and Pacific Northwest Trust Company, National Association ("PNTC"), a national banking association organized and existing under the laws of the United States, with corporate trust offices located at 601 Union Street, Suite 1500, Seattle, Washington 98101, as trustee (the "Trustee");
(b) The First Supplemental Indenture dated as of October 24, 2023 (the "First Supplemental Indenture" and, together with the Master Indenture, the "Indenture"), between CSIA and PNTC, as Trustee, providing for the terms and conditions specific to the Series 2023A Bonds;
(c) The Revenue Pledge Agreement dated as of October 24, 2023 (the "Revenue Pledge Agreement"), between CSIA and PNTC, as Trustee, pursuant to which the Authority has pledged certain revenues derived from its water-treatment system to secure the payment of debt service on the Series 2023A Bonds and all other parity obligations issued under the Indenture;
(d) The Bond Purchase Agreement dated August 30, 2023 (the "Bond Purchase Agreement"), between CSIA and Meridian Capital Partners LLC, as representative of the underwriters named therein (collectively, the "Underwriters"), setting forth the terms and conditions upon which the Underwriters agreed to purchase the Series 2023A Bonds from the Authority;
(e) CSIA Board Resolution No. 2023-014, duly adopted by the Board of Directors of the Authority on May 9, 2023, at a regularly scheduled public meeting of the Board held in accordance with the Open Public Meetings Act, Chapter 42.30 RCW, authorizing the issuance of the Series 2023A Bonds, the execution and delivery of the Indenture, the Revenue Pledge Agreement, and the Bond Purchase Agreement, and the execution of all related certificates and closing documents; and
(f) Applicable provisions of Chapter 43.160A RCW, as amended, and such other provisions of Washington State law as may be applicable to the issuance of revenue bonds by the Authority.
Capitalized terms used but not otherwise defined in this Certificate shall have the meanings assigned to such terms in the Indenture or, where applicable, the Revenue Pledge Agreement. References herein to Sections of the Indenture include references to corresponding provisions of the First Supplemental Indenture, as context requires.
SECTION 1: AUTHORITY AND CAPACITY
The undersigned hereby certifies that she is the duly appointed and currently serving Chief Financial Officer of Cascadia State Infrastructure Authority. The undersigned is authorized, by virtue of her office and pursuant to CSIA Board Resolution No. 2023-014, to execute and deliver this Certificate on behalf of the Authority in connection with the issuance of the Series 2023A Bonds.
The undersigned has personal knowledge of the financial matters set forth in this Certificate, or has obtained such knowledge from the books, records, financial systems, and official documents of the Authority, including without limitation the audited financial statements of the Authority for the fiscal year ended June 30, 2022 (the "FY 2022 Audited Financial Statements"). The FY 2022 Audited Financial Statements were audited by Hargrove & Associates CPAs, PLLC, the Authority's independent auditor, under the direction of engagement partner Victoria L. Fong, CPA. Hargrove & Associates issued an unmodified opinion on the Authority's financial statements for fiscal year 2022, dated November 15, 2022, and such opinion was accepted by the Authority's Audit and Finance Committee on December 6, 2022.
The undersigned is familiar with the terms of the Indenture, including the Master Indenture and the First Supplemental Indenture, the Revenue Pledge Agreement, and the financial covenants contained therein, including without limitation the Rate Covenant and the Additional Bonds Test, and has reviewed such documents in connection with the preparation of this Certificate.
SECTION 2: DEFINITIONS OF KEY FINANCIAL TERMS
For purposes of this Certificate, the following financial terms shall have the meanings set forth below, each of which is consistent with and derived from the definitions contained in the Indenture and the Revenue Pledge Agreement:
"Gross Pledged Revenues" means all revenues derived by the Authority from the operation of its water-treatment system (the "System"), including without limitation: (i) all Wholesale Water Treatment Service Charges payable to the Authority by each of the fourteen (14) participating municipal water and sewer districts located across the Puget Sound region (collectively, the "Participating Districts"), each of which is a party to a long-term Wholesale Water Treatment Services Agreement with the Authority (each, a "WWTSA"), setting forth the terms, conditions, and pricing for water-treatment services provided by the Authority; (ii) all connection fees, capacity charges, and system development charges assessed and collected by the Authority in connection with the System; and (iii) all investment earnings on funds and accounts held by the Trustee or otherwise credited to pledged funds under the Indenture, but excluding any amounts deposited in the Rebate Fund or otherwise required to be rebated to the United States Treasury.
"Operation and Maintenance Expenses" or "O&M Expenses" means, as defined in Section 1.01 of the Master Indenture, all costs and expenses of the Authority attributable to the operation, maintenance, repair, and administration of the System, determined in accordance with generally accepted accounting principles as applicable to governmental entities, including salaries, wages, benefits, supplies, chemicals, utilities, insurance premiums, contractual services, and routine capital maintenance, but excluding (a) depreciation and amortization, (b) debt-service payments, (c) capital expenditures funded from bond proceeds, and (d) extraordinary non-recurring items as determined by the Authority's independent auditor.
"Net Pledged Revenues" means Gross Pledged Revenues for the applicable fiscal year less O&M Expenses for such fiscal year.
"Annual Aggregate Parity Debt Service" means the aggregate of all scheduled debt-service requirements (principal and interest) payable during a given fiscal year on all outstanding parity revenue bonds of the Authority, including the Series 2023A Bonds and all previously issued parity obligations secured under the Indenture on a parity basis.
"Maximum Annual Debt Service" or "MADS" means the maximum amount of scheduled debt service (principal and interest) payable in any single fiscal year on the Series 2023A Bonds over the remaining term of such bonds, without regard to optional or extraordinary redemption provisions.
"Debt-Service Coverage Ratio" or "DSCR" means, for any given fiscal year, the quotient obtained by dividing (x) Net Pledged Revenues for such fiscal year by (y) Annual Aggregate Parity Debt Service for such fiscal year.
SECTION 3: RATE COVENANT COMPLIANCE — FY 2022 NET PLEDGED REVENUES
The undersigned hereby certifies the following with respect to the Authority's compliance with the Rate Covenant set forth in the Indenture and the Revenue Pledge Agreement, based upon the FY 2022 Audited Financial Statements and the pro forma calculation of Annual Aggregate Parity Debt Service inclusive of the Series 2023A Bonds:
3.1 — FY 2022 Gross Pledged Revenues
For the fiscal year ended June 30, 2022, Gross Pledged Revenues of the Authority were $489,300,000, as reflected in the FY 2022 Audited Financial Statements. This figure comprises Wholesale Water Treatment Service Charges received from the fourteen Participating Districts, connection fees and capacity charges, and investment earnings on pledged funds, all as calculated in accordance with the definitions contained in the Indenture. The principal components of Gross Pledged Revenues for FY 2022 are summarized as follows:
3.2 — FY 2022 Operation and Maintenance Expenses
For the fiscal year ended June 30, 2022, Operation and Maintenance Expenses of the Authority attributable to the System were $76,700,000, as reflected in the FY 2022 Audited Financial Statements. O&M Expenses have been determined in accordance with generally accepted accounting principles as applicable to governmental entities and are consistent with the definition of O&M Expenses set forth in the Indenture.
3.3 — FY 2022 Net Pledged Revenues
Net Pledged Revenues for fiscal year 2022 are calculated as follows:
3.4 — Total Outstanding Parity Debt (Pro Forma, Including Series 2023A Bonds)
As of the date hereof, and giving effect to the issuance of the Series 2023A Bonds, the total outstanding parity revenue bond obligations of the Authority are as follows:
The existing outstanding parity revenue bonds of the Authority consist of multiple series of water treatment revenue bonds previously issued under the Master Indenture and related supplemental indentures, all of which are secured on a parity basis with the Series 2023A Bonds by the pledge of Net Pledged Revenues under the Revenue Pledge Agreement.
3.5 — Total Annual Aggregate Parity Debt Service (Pro Forma)
Total Annual Aggregate Parity Debt Service on all outstanding parity revenue bonds of the Authority, calculated on a pro forma basis to include the Series 2023A Bonds, is $278,400,000 for the current fiscal year.
The approximate annual debt service on the Series 2023A Bonds alone, calculated on the basis of level debt service over a thirty (30)-year amortization period at a fixed coupon rate of 3.25% per annum, is approximately $11,610,000 per fiscal year.
3.6 — Debt-Service Coverage Ratio Calculation
Based on the foregoing data, the pro forma Debt-Service Coverage Ratio for fiscal year 2022, calculated to include the Series 2023A Bonds, is as follows:
The Rate Covenant set forth in Section 5.04 of the Master Indenture and Section 4.02 of the Revenue Pledge Agreement requires the Authority to establish, fix, prescribe, and collect rates, fees, and charges for the use of and services furnished by the System that are reasonably expected to produce Net Pledged Revenues in each fiscal year equal to at least one hundred forty percent (140%) of Annual Aggregate Parity Debt Service for such fiscal year (the "Rate Covenant").
The FY 2022 pro forma DSCR of 1.48x exceeds the minimum required DSCR of 1.40x under the Rate Covenant.
The undersigned hereby certifies that the Rate Covenant is satisfied.
SECTION 4: ADDITIONAL BONDS TEST COMPLIANCE
4.1 — Requirements of the Additional Bonds Test
Under Section 2.13 of the Master Indenture, the Authority may not issue additional parity bonds (other than refunding bonds) unless, among other conditions, the Authority certifies that either:
(a) Net Pledged Revenues for the most recently completed fiscal year for which audited financial statements are available (the "Historical Test"), calculated to include the proposed additional parity bonds, are at least equal to one hundred forty percent (140%) of Maximum Annual Parity Debt Service, calculated to include all outstanding parity bonds and the proposed additional parity bonds; or
(b) Estimated Net Pledged Revenues for the first full fiscal year following the date on which the project or improvements being financed with the proceeds of such additional parity bonds are expected to be placed in service (the "Projected Test"), as certified by a Qualified Independent Consultant or by the Chief Financial Officer, are at least equal to one hundred forty percent (140%) of Maximum Annual Parity Debt Service, calculated to include all outstanding parity bonds and the proposed additional parity bonds.
The foregoing requirements are collectively referred to herein as the "Additional Bonds Test."
4.2 — Historical Test (FY 2022)
The Authority elects to demonstrate compliance with the Additional Bonds Test using Net Pledged Revenues for the most recently completed fiscal year for which audited financial statements are available — namely, the fiscal year ended June 30, 2022. The relevant calculation is set forth below:
The calculation above reflects total Annual Aggregate Parity Debt Service of $278,400,000, which includes the maximum annual debt service of $11,610,000 attributable to the Series 2023A Bonds. The resulting ratio of 1.48x exceeds the minimum required ratio of 1.40x.
The Additional Bonds Test is satisfied based on the Historical Test.
4.3 — Projected Test (FY 2024, Supplemental Certification)
Additionally, the Authority provides the following supplemental certification. Projected Net Pledged Revenues for fiscal year 2024 (the fiscal year ending June 30, 2024, which constitutes the first full fiscal year of operation following the issuance of the Series 2023A Bonds) are estimated at $431,800,000. This estimate is based upon (i) approved rate schedules and connection-fee schedules currently in effect, (ii) the Authority's adopted operating budget for FY 2024 as approved by the Board of Directors on June 13, 2023, (iii) projected service demand from the Participating Districts, and (iv) projected investment earnings based on current market conditions.
The projected FY 2024 DSCR is calculated as follows:
This supplemental projection further supports satisfaction of the Additional Bonds Test, demonstrating that the Authority's revenue base is expected to continue to exceed parity debt-service requirements by a comfortable margin.
SECTION 5: SERIES 2023A BOND TERMS SUMMARY
For reference purposes, the principal terms of the Series 2023A Bonds are summarized below:
Debt-Service Reserve Fund. The Debt-Service Reserve Fund Requirement for the Series 2023A Bonds has been satisfied by the delivery of Surety Policy No. OG-2023-MUN-4718 (the "Surety Policy") issued by Olympia Guaranty Insurance Corp., a monoline insurance company, in the stated amount of $11,610,000, which amount is equal to Maximum Annual Debt Service on the Series 2023A Bonds. The annual premium payable by the Authority for the Surety Policy is $23,220, which represents 0.20% of the surety amount. Olympia Guaranty Insurance Corp. is rated "AA" by S&P Global Ratings and "Aa2" by Moody's Investors Service as of the date hereof.
SECTION 6: SOURCES AND USES OF FUNDS (SUMMARY REFERENCE)
The following is a summary of the estimated sources and uses of funds in connection with the issuance of the Series 2023A Bonds:
Sources of Funds:
Uses of Funds:
Costs of Issuance of $1,870,000 include, without limitation, legal fees (including fees of Issuer's Counsel and Co-Bond Counsel), rating agency fees paid to S&P Global Ratings and Moody's Investors Service, Trustee's initial acceptance fee, printing costs, CUSIP Bureau fees, verification agent fees, financial advisory fees, and miscellaneous closing costs.
The total estimated project cost for the Puget Sound Regional Advanced Water Treatment Facility (the "Project") is $237,400,000, inclusive of the guaranteed maximum price ("GMP") contract with Northtide Environmental Engineering, Inc. in the amount of $193,500,000 under Contract No. CSIA-DB-2023-001, executed March 10, 2023. The balance of project costs includes owner's contingency, construction management, permitting, environmental compliance, and equipment procurement not included within the GMP scope.
SECTION 7: REPRESENTATIONS AND CERTIFICATIONS
The undersigned, in her capacity as Chief Financial Officer of Cascadia State Infrastructure Authority, hereby certifies, represents, and warrants to the Trustee, the Underwriters, Co-Bond Counsel, and their respective successors and assigns, as follows:
1. Accuracy of Financial Data. The financial data set forth in this Certificate is true, correct, and complete in all material respects as of the date hereof. All calculations and computations contained herein have been prepared in good faith and are mathematically accurate based on the underlying data and assumptions described herein.
2. Fair Presentation of Financial Statements. The FY 2022 Audited Financial Statements of the Authority, prepared in accordance with generally accepted accounting principles ("GAAP") as applicable to governmental entities promulgated by the Governmental Accounting Standards Board ("GASB"), and audited by Hargrove & Associates CPAs, PLLC in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, fairly present in all material respects the financial condition and results of operations of the Authority as of June 30, 2022, and for the fiscal year then ended.
3. Rate Covenant Compliance. The Authority is in compliance with the Rate Covenant contained in Section 5.04 of the Master Indenture and Section 4.02 of the Revenue Pledge Agreement. As demonstrated in Section 3 of this Certificate, the FY 2022 pro forma Debt-Service Coverage Ratio of 1.48x exceeds the minimum required Debt-Service Coverage Ratio of 1.40x.
4. Additional Bonds Test Compliance. The Additional Bonds Test set forth in Section 2.13 of the Master Indenture has been satisfied with respect to the issuance of the Series 2023A Bonds. As demonstrated in Section 4 of this Certificate, based on FY 2022 Net Pledged Revenues of $412,600,000 and pro forma Annual Aggregate Parity Debt Service of $278,400,000, the resulting coverage ratio of 1.48x exceeds the minimum required ratio of 1.40x.
5. No Default. No Event of Default (as defined in the Indenture) under the Indenture or the Revenue Pledge Agreement has occurred and is continuing as of the date hereof, and no event has occurred which, with the giving of notice or the lapse of time or both, would constitute an Event of Default under the Indenture or the Revenue Pledge Agreement.
6. No Material Adverse Change. There has been no material adverse change in the financial condition, results of operations, properties, or business of the Authority since June 30, 2022, the date of the most recent audited financial statements. The Authority's financial position remains stable and consistent with the trends and expectations described in the Official Statement for the Series 2023A Bonds.
7. Annual Operating Budget. The annual operating budget of the Authority for fiscal year 2023 (the fiscal year ending June 30, 2023), as duly adopted by the Board of Directors, is approximately $1.48 billion, which reflects the full scope of the Authority's water-treatment, wastewater, and related capital programs.
8. Wholesale Water Treatment Services Agreements. The Wholesale Water Treatment Services Agreements with each of the fourteen (14) Participating Districts are in full force and effect as of the date hereof, and no Participating District is in default under its respective WWTSA. Each WWTSA has a remaining term of not less than twenty (20) years and contains a "take-or-pay" obligation or an equivalent unconditional payment obligation on the part of the respective Participating District.
9. Governmental Approvals. All necessary governmental approvals, permits, licenses, and authorizations required for the construction and operation of the Puget Sound Regional Advanced Water Treatment Facility have been obtained and are in full force and effect, including without limitation: (a) the State Environmental Policy Act ("SEPA") Determination of Non-Significance issued by the Washington State Department of Ecology on September 12, 2022; and (b) the modification of National Pollutant Discharge Elimination System ("NPDES") Permit No. WA-004837-2, approved by the Washington State Department of Ecology on January 6, 2023, authorizing discharge from the expanded facility in accordance with applicable federal and state water quality standards.
SECTION 8: RELIANCE
This Certificate is delivered to Pacific Northwest Trust Company, National Association, as Trustee under the Indenture, to Meridian Capital Partners LLC and Dralvecen Fenn & Co., Inc., as Underwriters of the Series 2023A Bonds, and to Calderwood & Harkness LLP and Pryor Crestfield LLP, as Co-Bond Counsel to the Authority, in connection with the issuance, sale, and delivery of the Series 2023A Bonds on the date hereof.
Each of the parties named above, and their respective counsel, successors, and assigns, are entitled to rely on the certifications, representations, and warranties contained in this Certificate in connection with the closing of the Series 2023A Bonds on October 24, 2023. This Certificate may not be relied upon by any other person or entity without the prior written consent of the Authority.
This Certificate shall be governed by and construed in accordance with the laws of the State of Washington. The representations and warranties set forth herein shall survive the closing of the Series 2023A Bonds and shall remain in full force and effect for so long as the Series 2023A Bonds are outstanding.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of the date first written above.
CASCADIA STATE INFRASTRUCTURE AUTHORITY
CASCADIA STATE INFRASTRUCTURE AUTHORITY
By: ________
Name: Denise R. Whitford
Title: Chief Financial Officer
Date: October 24, 2023
Address:
1100 Capitol Way South, Suite 400 Olympia, WA 98501
ACKNOWLEDGMENT AND ATTESTATION
The undersigned, Harold K. Nakamura, Executive Director of Cascadia State Infrastructure Authority, hereby acknowledges and attests that Denise R. Whitford is the duly appointed and acting Chief Financial Officer of the Authority, that she is authorized to execute and deliver the foregoing Certificate on behalf of the Authority, and that the undersigned has reviewed this Certificate and has no knowledge of any facts or circumstances that would render any of the certifications, representations, or warranties contained herein untrue, inaccurate, or incomplete in any material respect.
ACKNOWLEDGED AND ATTESTED:
By: ________
Name: Harold K. Nakamura
Title: Executive Director
Cascadia State Infrastructure Authority
Date: October 24, 2023
| Revenue Component | FY 2022 Amount |
| Wholesale Water Treatment Service Charges | $461,850,000 |
| Connection Fees and Capacity Charges | $19,240,000 |
| Investment Earnings on Pledged Funds | $8,210,000 |
| Total Gross Pledged Revenues | $489,300,000 |
Amount
| Gross Pledged Revenues | $489,300,000 |
| Less: O&M Expenses | ($76,700,000) |
| Net Pledged Revenues | $412,600,000 |
Principal Amount
| Existing Outstanding Parity Revenue Bonds (pre-issuance) | $3,120,000,000 |
| Series 2023A Bonds (this issuance) | $220,000,000 |
| Total Outstanding Parity Debt (post-issuance, pro forma) | $3,340,000,000 |
Amount
| FY 2022 Net Pledged Revenues (Numerator) | $412,600,000 |
| Pro Forma Annual Aggregate Parity Debt Service (Denominator) | $278,400,000 |
| FY 2022 DSCR (Pro Forma) | 1.48x |
Amount
| FY 2022 Net Pledged Revenues | $412,600,000 |
| Maximum Annual Parity Debt Service (including the Series 2023A Bonds) | $278,400,000 |
| Ratio | 1.48x |
Amount
| Projected FY 2024 Net Pledged Revenues | $431,800,000 |
| Pro Forma Annual Aggregate Parity Debt Service | $278,400,000 |
| Projected FY 2024 DSCR | 1.55x (approximate) |
| Term | Description |
| Issuer | Cascadia State Infrastructure Authority |
| Series Designation | Water Treatment Revenue Bonds, Series 2023A (Tax-Exempt) |
| Aggregate Principal Amount | $220,000,000 |
| Interest Rate | 3.25% per annum (fixed rate) |
| Dated Date | October 24, 2023 |
| Maturity Date | October 1, 2053 (30-year final maturity) |
| Interest Payment Dates | April 1 and October 1 of each year |
| First Interest Payment Date | April 1, 2024 |
| Optional Redemption | Callable at par (100%) on or after October 1, 2033 (10-year call protection) |
| Authorized Denominations | $5,000 or any integral multiple thereof |
| Registration | Book-entry only; The Depository Trust Company ("DTC") / Cede & Co. as registered owner |
| CUSIP Base | 148392 |
| Year 1 Interest | $7,150,000 ($220,000,000 × 3.25%) |
| Approximate Annual Debt Service (P+I, Level) | $11,610,000 |
| Source | Amount |
| Par Amount of Series 2023A Bonds | $220,000,000 |
| Less: Original Issue discount (priced at 99.25%) | ($1,650,000) |
| Less: Underwriters' discount (0.45% of par) | ($990,000) |
| Net Bond Proceeds | $217,360,000 |
| CSIA Equity Contribution (from existing capital reserves) | $17,400,000 |
| Total Sources | $234,760,000 |
| Use | Amount |
| Deposit to Project Fund | $215,490,000 |
| Costs of Issuance | $1,870,000 |
| Deposit to Capitalized Interest Fund | $4,510,000 |
| CSIA Equity Contribution to Project Costs | $12,890,000 |
| Additional Project Contingency (CSIA funded) | $140,000 |
| Total Uses | $234,890,000 |