FIRST SUPPLEMENTAL INDENTURE
between
CASCADIA STATE INFRASTRUCTURE AUTHORITY
and
PACIFIC NORTHWEST TRUST COMPANY, NATIONAL ASSOCIATION, as Trustee
Supplementing the Bond Indenture dated as of October 24, 2023
Authorizing
$220,000,000 CASCADIA STATE INFRASTRUCTURE AUTHORITY WATER TREATMENT REVENUE BONDS, SERIES 2023A (TAX-EXEMPT)
Dated as of October 24, 2023
RECITALS
WHEREAS, the Cascadia State Infrastructure Authority ("CSIA" or the "Authority") is a Washington State governmental instrumentality and public body corporate, duly created and existing under and pursuant to Chapter 43.160A of the Revised Code of Washington (the "Act"), with its principal office located at 1100 Capitol Way South, Suite 400, Olympia, Washington 98501, and is authorized under the Act to issue revenue bonds for the purpose of financing and refinancing the costs of public infrastructure projects, including water treatment facilities, within the State of Washington; and
WHEREAS, CSIA and Pacific Northwest Trust Company, National Association ("PNTC" or the "Trustee"), a national banking association duly organized and existing under the laws of the United States of America, with its designated corporate trust office located at 1201 Third Avenue, Suite 1600, Seattle, Washington 98101, have heretofore entered into that certain Bond Indenture dated as of October 24, 2023 (as the same may be amended or supplemented from time to time, the "Master Indenture"), which Master Indenture provides for the issuance from time to time of revenue bonds of the Authority in one or more series, each such series to be authorized by a supplemental indenture; and
WHEREAS, under Section 2.12 of the Master Indenture, the Authority has reserved the right to issue additional series of Bonds upon satisfaction of the conditions precedent set forth therein, including, without limitation, the execution and delivery of a supplemental indenture setting forth the terms and conditions of such additional series, compliance with the Additional Bonds Test, and delivery of certain certificates and opinions; and
WHEREAS, the Board of Directors of the Authority (the "Board"), by Resolution No. 2023-014 duly adopted on May 9, 2023 (the "Authorizing Resolution"), authorized the issuance of revenue bonds of the Authority in an aggregate principal amount not to exceed Two Hundred Twenty Million Dollars ($220,000,000) for the purpose of financing the design, construction, equipping, and commissioning of the Puget Sound Regional Advanced Water Treatment Facility (the "Project"), and delegated to Harold K. Nakamura, Executive Director of the Authority, the authority to determine the final terms of such bonds, including but not limited to the interest rate, maturity schedule, redemption provisions, and purchase price, subject to the parameters established in the Authorizing Resolution; and
WHEREAS, the Authority desires to authorize, issue, sell, and deliver pursuant to this First Supplemental Indenture to the Master Indenture (this "First Supplemental Indenture") its 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) for the purposes set forth herein; and
WHEREAS, the Series 2023A Bonds shall be secured on a parity basis with all other Bonds heretofore or hereafter issued and Outstanding under the Master Indenture by a pledge of Net Pledged Revenues, as more particularly described in the Revenue Pledge Agreement dated as of October 24, 2023, between the Authority and the Trustee (the "Revenue Pledge Agreement"); and
WHEREAS, Olympia Guaranty Insurance Corp. ("Olympia Guaranty"), a financial guaranty insurance company domiciled in the State of New York, has issued its Debt-Service Reserve Fund Surety Bond, Policy No. OG-2023-MUN-4718, in the amount of Eleven Million Six Hundred Ten Thousand Dollars ($11,610,000) to satisfy the Debt-Service Reserve Fund Requirement for the Series 2023A Bonds in lieu of a cash-funded reserve; and
WHEREAS, the Series 2023A Bonds have been assigned underlying credit ratings of "AA" with a stable outlook by Lakeshore Ratings Group, Inc. and "AA−" with a stable outlook by Pinnacle Credit Analytics, Inc., and insured ratings of "AA+" by Lakeshore Ratings Group, Inc. and "AA" by Pinnacle Credit Analytics, Inc., in each case reflecting the benefit of the Surety Policy; and
WHEREAS, the Authority has determined that all acts, conditions, and things required by law, the Master Indenture, and the Authorizing Resolution to exist, to have happened, and to have been performed precedent to and in the issuance of the Series 2023A Bonds exist, have happened, and have been performed in due time, form, and manner as required by law; and
WHEREAS, all things necessary to make the Series 2023A Bonds, when executed by the Authority, authenticated by the Trustee, and issued as provided in the Master Indenture and this First Supplemental Indenture, the valid, binding, and legal obligations of the Authority in accordance with their terms, have been done and performed, and the creation, execution, and delivery of this First Supplemental Indenture have in all respects been duly authorized;
NOW, THEREFORE, in consideration of the premises, the mutual covenants herein contained, and the purchase and acceptance of the Series 2023A Bonds by the owners thereof from time to time, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Authority and the Trustee hereby agree as follows:
ARTICLE I — DEFINITIONS AND RULES OF CONSTRUCTION
Section 1.01 — Definitions
All capitalized terms used but not otherwise defined in this First Supplemental Indenture shall have the respective meanings ascribed to them in the Master Indenture. In addition to the terms defined in the Recitals hereto, the following terms, as used in this First Supplemental Indenture, shall have the following meanings unless the context clearly requires otherwise:
"Act" means Chapter 43.160A of the Revised Code of Washington, as amended and supplemented from time to time.
"Authorizing Resolution" means Resolution No. 2023-014 of the Board of the Authority, duly adopted on May 9, 2023, authorizing the issuance of the Series 2023A Bonds.
"Bond Counsel" means Pryor Crestfield LLP and Calderwood & Harkness LLP, each with offices in Seattle, Washington, acting as Co-Bond Counsel in connection with the issuance of the Series 2023A Bonds, or any successor firm or firms appointed by the Authority and acceptable to the Trustee.
"Bond Purchase Agreement" means the Bond Purchase Agreement dated August 30, 2023, between the Authority and Meridian Capital Partners LLC, as representative of the Underwriters, pursuant to which the Underwriters have agreed to purchase the Series 2023A Bonds from the Authority on the terms and conditions set forth therein.
"Capitalized Interest Fund" means the Series 2023A Capitalized Interest Account established within the Bond Fund pursuant to Section 4.03 hereof.
"Closing Date" means October 24, 2023, the date on which the Series 2023A Bonds are issued, authenticated, and delivered to or upon the order of the Underwriters against payment of the purchase price therefor.
"Code" means the Internal Revenue Code of 1986, as amended from time to time, and all applicable regulations, rulings, and revenue procedures promulgated thereunder by the United States Department of the Treasury or the Internal Revenue Service.
"Construction Fund" or "Project Fund" means the fund established under the Escrow Deposit Agreement for the deposit of proceeds of the Series 2023A Bonds and the Authority's equity contribution, and for the disbursement of such amounts to pay or reimburse the Authority for Costs of the Project.
"Continuing Disclosure Agreement" means the Continuing Disclosure Agreement dated as of October 24, 2023, between the Authority and PNTC, in its capacity as Dissemination Agent, entered into in connection with the issuance of the Series 2023A Bonds for the purpose of assisting the Underwriters in complying with SEC Rule 15c2-12.
"Co-Managing Underwriter" means Dralvecen Fenn & Co., Inc., a broker-dealer registered with the Securities and Exchange Commission and a member of the Financial Industry Regulatory Authority.
"Costs of Issuance" means all items of expense directly or indirectly payable by or reimbursable to the Authority and related to the authorization, issuance, sale, and delivery of the Series 2023A Bonds, including but not limited to filing and recording fees, bond printing costs, rating agency fees, initial trustee acceptance fees, financial advisor fees, legal fees of Bond Counsel, disclosure counsel, and Authority counsel, CUSIP registration fees, verification agent fees, and other miscellaneous costs and expenses. The aggregate estimated Costs of Issuance for the Series 2023A Bonds is One Million Eight Hundred Seventy Thousand Dollars ($1,870,000).
"Costs of Issuance Fund" means the Series 2023A Costs of Issuance Fund established and held by the Trustee pursuant to Section 4.02 hereof.
"CUSIP Base" means 148392, as assigned to the Series 2023A Bonds by CUSIP Global Services, a service of the American Bankers Association operated by Drayton Services Inc..
"Dated Date" means October 24, 2023, the date from which interest on the Series 2023A Bonds shall begin to accrue.
"Debt-Service Reserve Fund Surety Bond" or "Surety Policy" means the surety bond designated as Policy No. OG-2023-MUN-4718, issued by Olympia Guaranty Insurance Corp. in the stated amount of Eleven Million Six Hundred Ten Thousand Dollars ($11,610,000), for the purpose of satisfying the Debt-Service Reserve Fund Requirement for the Series 2023A Bonds.
"Design-Build Contract" means that certain Guaranteed Maximum Price Design-Build Contract, Contract No. CSIA-DB-2023-001, dated March 10, 2023, between the Authority and Northtide Environmental Engineering, Inc., for the design and construction of the Project, as amended or modified from time to time, with a Guaranteed Maximum Price of One Hundred Ninety-Three Million Five Hundred Thousand Dollars ($193,500,000).
"DTC" means The Depository Trust Company, a limited-purpose trust company organized under the laws of the State of New York, or any successor securities depository.
"Escrow Deposit Agreement" means the Escrow Deposit Agreement dated as of October 24, 2023, between the Authority and PNTC, in its capacity as Escrow Agent, pursuant to which bond proceeds are deposited and disbursed for the payment of Costs of the Project.
"Final Official Statement" means the Final Official Statement of the Authority dated September 5, 2023, relating to the Series 2023A Bonds, as the same may be supplemented or amended from time to time.
"First Interest Payment Date" means April 1, 2024, being the first date on which interest on the Series 2023A Bonds is payable.
"Interest Payment Date" means each April 1 and October 1 of each year during which any Series 2023A Bonds remain Outstanding, commencing on the First Interest Payment Date.
"Maturity Date" means October 1, 2053, the final maturity date of the Series 2023A Bonds.
"Net Bond Proceeds" means the amount received by the Authority from the sale of the Series 2023A Bonds, after deduction of the Original Issue discount and the Underwriters' discount, equal to Two Hundred Seventeen Million Three Hundred Sixty Thousand Dollars ($217,360,000).
"Olympia Guaranty" means Olympia Guaranty Insurance Corp., a financial guaranty insurance company domiciled in the State of New York, in its capacity as the Surety Provider under the Surety Policy.
"Optional Redemption Date" means any date on or after October 1, 2033, on which the Authority may optionally redeem the Series 2023A Bonds, in whole or in part, in accordance with Section 3.01 hereof.
"Original Issue discount" or "OID" means the discount at which the Series 2023A Bonds were sold to the Underwriters below their aggregate par amount, equal to One Million Six Hundred Fifty Thousand Dollars ($1,650,000), reflecting an aggregate purchase price of 99.25% of par.
"Participating Districts" means the fourteen (14) Puget Sound-region municipal water and sewer districts that are parties to Wholesale Water Treatment Services Agreements with the Authority, as more particularly identified in the Final Official Statement.
"Preliminary Official Statement" means the Preliminary Official Statement of the Authority dated June 26, 2023, relating to the Series 2023A Bonds.
"Project" means the Puget Sound Regional Advanced Water Treatment Facility, as more particularly described in Schedule B attached hereto, including a sixty-million-gallons-per-day (60 MGD) advanced membrane-filtration and UV-disinfection water-treatment facility, influent and effluent pipelines, a five-million-gallon equalization basin, biosolids handling improvements, and SCADA system upgrades, located on approximately eighteen (18) acres of Authority-owned land at 7250 Deschutes Parkway, Tumwater, Thurston County, Washington 98501, adjacent to the existing Deschutes River Tertiary Treatment Plant.
"Revenue Pledge Agreement" means the Revenue Pledge Agreement dated as of October 24, 2023, between the Authority and PNTC, as Trustee, pursuant to which the Authority has pledged Net Pledged Revenues for the benefit of holders of Bonds issued under the Master Indenture.
"Senior Managing Underwriter" means Meridian Capital Partners LLC, a broker-dealer registered with the Securities and Exchange Commission and a member of the Financial Industry Regulatory Authority.
"Series 2023A Bonds" means the Cascadia State Infrastructure Authority Water Treatment Revenue Bonds, Series 2023A (Tax-Exempt), authorized and issued pursuant to this First Supplemental Indenture in the aggregate principal amount of Two Hundred Twenty Million Dollars ($220,000,000).
"Surety Provider" means Olympia Guaranty Insurance Corp., acting in its capacity as issuer of the Debt-Service Reserve Fund Surety Bond.
"Tax Regulatory Agreement" means the Tax Regulatory Agreement and Certificate dated October 15, 2023, executed by the Authority in connection with the issuance of the Series 2023A Bonds, setting forth the representations, certifications, and covenants of the Authority with respect to the use of proceeds, investment restrictions, arbitrage compliance, and other matters necessary to ensure the exclusion of interest on the Series 2023A Bonds from gross income for federal income tax purposes.
"Total Project Cost" means Two Hundred Thirty-Seven Million Four Hundred Thousand Dollars ($237,400,000), representing the estimated aggregate cost of designing, constructing, equipping, and commissioning the Project, including all hard costs, soft costs, contingencies, and related financing costs.
"Underwriters" means, collectively, Meridian Capital Partners LLC, as Senior Managing Underwriter, and Dralvecen Fenn & Co., Inc., as Co-Managing Underwriter.
"Underwriters' discount" means the compensation payable to the Underwriters in connection with the sale of the Series 2023A Bonds, equal to 0.45% of the aggregate par amount of the Series 2023A Bonds, or Nine Hundred Ninety Thousand Dollars ($990,000), allocated as follows: Meridian Capital Partners LLC (70%): Six Hundred Ninety-Three Thousand Dollars ($693,000); and Dralvecen Fenn & Co., Inc. (30%): Two Hundred Ninety-Seven Thousand Dollars ($297,000).
Section 1.02 — Rules of Construction
The following rules of construction shall apply to this First Supplemental Indenture:
(a) All references herein to the "Master Indenture" shall mean the Master Indenture as supplemented and amended by this First Supplemental Indenture and by any further supplemental indentures entered into in accordance with the terms thereof.
(b) The table of contents and the article and section headings used herein are for convenience of reference only and shall not be deemed to limit, modify, or otherwise affect the meaning or interpretation of any of the terms or provisions hereof.
(c) Terms defined in the singular shall include the plural and vice versa, and terms defined in one gender shall include all genders, unless the context clearly requires otherwise.
(d) Unless otherwise expressly stated, all references herein to "Sections," "Articles," "Exhibits," and "Schedules" are to the Sections and Articles of, and the Exhibits and Schedules attached to, this First Supplemental Indenture.
(e) The words "herein," "hereof," "hereunder," "hereby," and other words of similar import refer to this First Supplemental Indenture as a whole and not to any particular Section, Article, or other subdivision hereof.
(f) This First Supplemental Indenture shall be governed by and construed in accordance with the applicable laws of the State of Washington, without regard to conflicts of law principles.
(g) All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles as applied to governmental entities.
(h) The terms "include," "includes," and "including" shall be deemed to be followed by the phrase "without limitation."
Section 1.03 — Authority for First Supplemental Indenture
This First Supplemental Indenture is entered into pursuant to and in accordance with (a) the Act, (b) Section 2.12 of the Master Indenture, which authorizes the issuance of additional series of Bonds upon the execution and delivery of a supplemental indenture and satisfaction of the conditions precedent set forth therein, and (c) the Authorizing Resolution. The Series 2023A Bonds constitute "Bonds" as defined in and issued under the Master Indenture and are entitled to all of the benefits, protections, and security provided therefor by the Master Indenture on a parity basis with all other Outstanding Bonds heretofore or hereafter issued under the Master Indenture. The Authority has determined that all conditions precedent to the issuance of the Series 2023A Bonds under the Master Indenture, including the Additional Bonds Test set forth in Section 2.13 thereof, have been satisfied, as more particularly set forth in Article V hereof.
ARTICLE II — AUTHORIZATION AND TERMS OF SERIES 2023A BONDS
Section 2.01 — Authorization of Series 2023A Bonds
The Authority hereby authorizes the issuance and delivery of a series of Bonds to be designated "Cascadia State Infrastructure Authority Water Treatment Revenue Bonds, Series 2023A (Tax-Exempt)" in the aggregate principal amount of Two Hundred Twenty Million Dollars ($220,000,000). The Series 2023A Bonds are issued under and pursuant to, and in all respects in accordance with, the Act, the Authorizing Resolution, the Master Indenture, and this First Supplemental Indenture. No Series 2023A Bonds may be issued hereunder in excess of the aggregate principal amount specified in this Section 2.01, except as may be necessary for the issuance of replacement bonds upon transfer, exchange, or mutilation, destruction, loss, or theft as provided in the Master Indenture.
Section 2.02 — Purpose
The proceeds of the Series 2023A Bonds shall be applied and used for the following purposes:
(a) to finance the design, construction, equipping, and commissioning of the Project, as more particularly described in Schedule B attached hereto;
(b) to fund the Costs of Issuance Fund established pursuant to Section 4.02 hereof;
(c) to fund the Capitalized Interest Fund established pursuant to Section 4.03 hereof, to pay interest accruing on the Series 2023A Bonds during the initial construction period of the Project; and
(d) to pay such other costs and expenses as are incidental to and necessary for the accomplishment of the foregoing purposes.
The Project consists of the Puget Sound Regional Advanced Water Treatment Facility — a sixty-million-gallons-per-day (60 MGD) advanced membrane-filtration and UV-disinfection water-treatment facility, including influent and effluent pipelines totaling approximately 4.2 miles, a five-million-gallon equalization basin, biosolids handling improvements, and supervisory control and data acquisition (SCADA) system upgrades. The facility is designed with an ultimate design capacity of 60 MGD and an initial operating capacity of 42 MGD. The Project is located on approximately eighteen (18) acres of Authority-owned land adjacent to the existing Deschutes River Tertiary Treatment Plant at 7250 Deschutes Parkway, Tumwater, Thurston County, Washington 98501. A more complete description of the Project is set forth in Schedule B hereto.
Section 2.03 — Terms of the Series 2023A Bonds
The Series 2023A Bonds shall have the following terms:
(a) Aggregate Principal Amount. The aggregate principal amount of the Series 2023A Bonds shall be Two Hundred Twenty Million Dollars ($220,000,000).
(b) Dated Date. The Series 2023A Bonds shall be dated as of October 24, 2023 (the "Dated Date").
(c) Interest Rate. The Series 2023A Bonds shall bear interest at a fixed rate of three and twenty-five hundredths percent (3.25%) per annum (325 basis points). Interest shall be computed on the basis of a three hundred sixty (360)-day year consisting of twelve (12) thirty (30)-day months (30/360 day-count convention).
(d) Interest Payment Dates. Interest on the Series 2023A Bonds shall be payable semiannually on each April 1 and October 1, commencing on April 1, 2024 (the First Interest Payment Date). Interest on the Series 2023A Bonds shall accrue from the Dated Date or from the most recent Interest Payment Date to which interest has been paid or duly provided for, whichever is later. Interest payable on the First Interest Payment Date shall represent interest accrued for the period from October 24, 2023 through March 31, 2024 (approximately 158 days on a 30/360 basis), equal to approximately Three Million One Hundred Forty-One Thousand Six Hundred Sixty-Seven Dollars ($3,141,667).
(e) Maturity. The Series 2023A Bonds shall mature on October 1, 2053, representing a final maturity of thirty (30) years from the initial Interest Payment Date. Principal of the Series 2023A Bonds shall be payable on each October 1, commencing October 1, 2024, in accordance with the Mandatory Sinking Fund Schedule set forth in Schedule A attached hereto. The Mandatory Sinking Fund Schedule has been structured to produce level annual debt service (combined principal and interest) of approximately Eleven Million Six Hundred Ten Thousand Dollars ($11,610,000) per year.
(f) Denominations. The Series 2023A Bonds shall be issued in authorized denominations of Five Thousand Dollars ($5,000) or any integral multiple thereof. No Series 2023A Bond shall be issued in a denomination of less than Five Thousand Dollars ($5,000).
(g) Form and Numbering. The Series 2023A Bonds shall be issued as fully registered bonds, without coupons, and shall be numbered consecutively from "R-1" and upward in such manner as the Trustee shall determine. Each Series 2023A Bond shall be in substantially the form set forth in Exhibit A attached hereto, with such insertions, omissions, substitutions, and other variations as are permitted or required by this First Supplemental Indenture or the Master Indenture. Each Series 2023A Bond shall bear the CUSIP Base 148392 followed by the appropriate alphabetical or numerical suffix as assigned by CUSIP Global Services for each maturity.
(h) Place of Payment. The principal of and interest on the Series 2023A Bonds shall be payable at the corporate trust office of Pacific Northwest Trust Company, National Association, currently located at 1201 Third Avenue, Suite 1600, Seattle, Washington 98101, or at such other office as the Trustee may hereafter designate by written notice to the Authority and the registered owners of the Series 2023A Bonds.
(i) Record Date. The Record Date for the determination of the registered owners entitled to receive interest on each Interest Payment Date shall be the fifteenth (15th) day of the calendar month immediately preceding such Interest Payment Date (i.e., March 15 for the April 1 Interest Payment Date and September 15 for the October 1 Interest Payment Date), whether or not such day is a Business Day.
Section 2.04 — Tax-Exempt Status
The interest on the Series 2023A Bonds is intended to be and shall be excludable from gross income of the owners thereof for federal income tax purposes under Section 103 of the Code, and the Series 2023A Bonds are not "private activity bonds" as defined in Section 141 of the Code. The Authority has covenanted and agreed to take such actions and refrain from taking such actions as are necessary to maintain such exclusion, all as more particularly set forth in Article VIII hereof and in the Tax Regulatory Agreement.
The State of Washington does not impose a personal income tax on the income of individuals or corporations. Accordingly, no separate state income tax exemption opinion is required or being delivered in connection with the issuance of the Series 2023A Bonds.
The Authority has executed the Tax Regulatory Agreement dated October 15, 2023, which contains detailed representations, covenants, and certifications regarding compliance with Sections 103, 141, 142, 143, 144, 145, 146, 147, 148, 149, and 150 of the Code, including limitations on private business use of the Project, the investment of Bond proceeds, compliance with arbitrage yield restrictions, arbitrage rebate calculations and payments to the United States, identification of hedges and qualified guarantees, and record retention requirements.
Section 2.05 — Pricing and Sale
The Series 2023A Bonds have been sold by the Authority to the Underwriters pursuant to the Bond Purchase Agreement dated August 30, 2023, at a purchase price equal to 99.25% of the aggregate par amount thereof (reflecting an Original Issue discount of One Million Six Hundred Fifty Thousand Dollars ($1,650,000)), less the Underwriters' discount of Nine Hundred Ninety Thousand Dollars ($990,000) (0.45% of par). The Underwriters' discount is allocated between the Underwriters as follows:
(i) Meridian Capital Partners LLC, as Senior Managing Underwriter (70%): Six Hundred Ninety-Three Thousand Dollars ($693,000); and
(ii) Dralvecen Fenn & Co., Inc., as Co-Managing Underwriter (30%): Two Hundred Ninety-Seven Thousand Dollars ($297,000).
The Net Bond Proceeds to the Authority, after deduction of Original Issue discount and Underwriters' discount and before payment of Costs of Issuance, are Two Hundred Seventeen Million Three Hundred Sixty Thousand Dollars ($217,360,000). The allocation of Net Bond Proceeds and other sources of funds is set forth in Schedule C attached hereto.
ARTICLE III — REDEMPTION OF SERIES 2023A BONDS
Section 3.01 — Optional Redemption
The Series 2023A Bonds are subject to optional redemption by the Authority, in whole or in part, on any date on or after October 1, 2033 (representing ten (10) years of call protection from the Dated Date), at a redemption price equal to one hundred percent (100%) of the principal amount of the Series 2023A Bonds to be redeemed, plus accrued and unpaid interest thereon to the date fixed for redemption, without premium. The Authority shall give written direction to the Trustee specifying the date fixed for optional redemption and the principal amount of Series 2023A Bonds to be redeemed not less than forty-five (45) days prior to such redemption date (or such shorter period as shall be acceptable to the Trustee). In the event of any partial optional redemption, such redemption shall reduce the remaining Mandatory Sinking Fund Installments in such order and amounts as shall be directed by the Authority.
Section 3.02 — Mandatory Sinking Fund Redemption
The Series 2023A Bonds are subject to mandatory sinking fund redemption, in part, on each October 1 on which a Mandatory Sinking Fund Installment is due, commencing October 1, 2024, at a redemption price equal to one hundred percent (100%) of the principal amount to be redeemed, plus accrued and unpaid interest thereon to the date fixed for redemption, in the respective principal amounts set forth in the Mandatory Sinking Fund Schedule in Schedule A attached hereto and incorporated herein by this reference. The Mandatory Sinking Fund Schedule has been designed to produce level annual debt service (principal and interest) of approximately Eleven Million Six Hundred Ten Thousand Dollars ($11,610,000).
On or before each October 1 on which a Mandatory Sinking Fund Installment is due, the Trustee shall apply moneys in the Bond Fund to the redemption of Series 2023A Bonds in the aggregate principal amount of such Mandatory Sinking Fund Installment. In the event that the Authority shall have previously redeemed Series 2023A Bonds through optional redemption or shall have purchased Series 2023A Bonds in the open market and delivered them to the Trustee for cancellation, the Authority may receive a credit against the next ensuing Mandatory Sinking Fund Installment(s) in a principal amount equal to the aggregate principal amount of the Series 2023A Bonds so redeemed or purchased and cancelled, as directed by the Authority.
Section 3.03 — Selection of Bonds for Redemption
If fewer than all of the Outstanding Series 2023A Bonds are to be redeemed at any time, whether by optional redemption or mandatory sinking fund redemption, the particular Series 2023A Bonds or portions thereof to be redeemed shall be selected by the Trustee by lot or by such other method as the Trustee shall deem fair and appropriate; provided, however, that so long as the Series 2023A Bonds are held in book-entry form through the facilities of DTC, the particular Series 2023A Bonds or portions thereof to be redeemed shall be selected in accordance with the operational procedures of DTC then in effect. Bonds shall be redeemed in authorized denominations only. If a portion of a Bond is called for redemption, a new Bond or Bonds in the aggregate principal amount of the unredeemed portion shall be issued to the registered owner upon the surrender thereof.
Section 3.04 — Notice of Redemption
The Trustee shall give notice of any redemption of the Series 2023A Bonds (whether optional or mandatory sinking fund) by sending a written notice by first-class mail, postage prepaid (or, so long as the Series 2023A Bonds are held in book-entry form, by electronic transmission through DTC's procedures), not less than thirty (30) days nor more than sixty (60) days prior to the date fixed for redemption, to each registered owner of Series 2023A Bonds to be redeemed, at the address shown on the registration books maintained by the Trustee. Each such notice shall state:
(a) the complete official designation of the Series 2023A Bonds to be redeemed, including the series designation;
(b) the CUSIP numbers of the Series 2023A Bonds to be redeemed;
(c) the date fixed for redemption;
(d) the redemption price;
(e) the place or places where amounts due upon such redemption will be payable, including the name and address of the Trustee;
(f) that on the date fixed for redemption, provided that funds for the payment of the redemption price shall have been deposited with the Trustee, interest on the Series 2023A Bonds to be redeemed shall cease to accrue from and after such date; and
(g) if the notice is conditional, a statement to that effect specifying the conditions to be satisfied.
Failure of any registered owner to receive any such notice of redemption shall not affect the validity of the proceedings for the redemption of any other Series 2023A Bonds for which proper notice has been given. Any notice of redemption mailed as provided herein shall be conclusively presumed to have been duly given, whether or not such owner actually receives such notice.
In addition to the foregoing notice, the Trustee shall send a copy of each notice of redemption by registered or certified mail, return receipt requested, or by recognized overnight delivery service, to (i) the Municipal Securities Rulemaking Board through its Electronic Municipal Market Access (EMMA) system, (ii) each nationally recognized municipal securities information repository, and (iii) the appropriate state information depository, if any, in each case not later than the date on which notice is given to registered owners.
Section 3.05 — Conditional Redemption
The Authority reserves the right to condition any optional redemption of the Series 2023A Bonds pursuant to Section 3.01 hereof upon the availability of sufficient moneys to pay the redemption price on the date fixed for redemption. In such event, the notice of redemption shall state that it is conditional and shall specify the conditions that must be satisfied. If such conditions are not satisfied on or prior to the date fixed for redemption, the notice of redemption shall be of no force and effect, the Trustee shall not redeem the Series 2023A Bonds, and the Trustee shall, within a reasonable time thereafter, give notice to the registered owners of the Series 2023A Bonds that were the subject of such conditional notice, in the same manner in which the notice of redemption was given, that such redemption has been rescinded. In no event shall the failure of such conditions to be satisfied constitute a default or an Event of Default under the Master Indenture or this First Supplemental Indenture.
Section 3.06 — Effect of Redemption
On the date fixed for redemption, if moneys sufficient to pay the redemption price of the Series 2023A Bonds called for redemption, including all accrued and unpaid interest thereon, are held by the Trustee in trust for such purpose, the Series 2023A Bonds so called for redemption shall cease to be Outstanding under the Master Indenture and this First Supplemental Indenture, interest on such Bonds shall cease to accrue from and after such redemption date, and the owners of such Bonds shall have no further rights hereunder or under the Master Indenture except the right to receive payment of the redemption price upon presentation and surrender of such Bonds at the place of payment specified in the notice of redemption. If any Series 2023A Bond called for redemption is not presented for payment within two (2) years after the redemption date, the Trustee shall, upon request of the Authority, pay the unclaimed redemption price to the Authority, and the owner of such Bond shall thereafter look only to the Authority for payment of such amount.
ARTICLE IV — APPLICATION OF PROCEEDS; FUNDS AND ACCOUNTS
Section 4.01 — Deposit of Proceeds
On the Closing Date, the Net Bond Proceeds of the Series 2023A Bonds in the amount of Two Hundred Seventeen Million Three Hundred Sixty Thousand Dollars ($217,360,000) shall be received by the Trustee and applied as follows:
(a) Two Hundred Fifteen Million Four Hundred Ninety Thousand Dollars ($215,490,000) shall be deposited into the Project Fund established under the Escrow Deposit Agreement, to be applied to pay or reimburse costs of the Project;
(b) One Million Eight Hundred Seventy Thousand Dollars ($1,870,000) shall be deposited into the Costs of Issuance Fund established pursuant to Section 4.02 hereof, to be applied to pay Costs of Issuance of the Series 2023A Bonds; and
In addition to the foregoing deposits from Net Bond Proceeds, the Authority shall deposit from its own capital reserves an equity contribution of Seventeen Million Four Hundred Thousand Dollars ($17,400,000) into the Project Fund on or about the Closing Date. Such equity contribution is necessary to fund the difference between the Net Bond Proceeds allocated to construction and the Total Project Cost of Two Hundred Thirty-Seven Million Four Hundred Thousand Dollars ($237,400,000). The combined deposits to the Project Fund (Net Bond Proceeds of $215,490,000 and CSIA equity contribution of $17,400,000) shall aggregate Two Hundred Thirty-Two Million Eight Hundred Ninety Thousand Dollars ($232,890,000).
The Capitalized Interest Fund, in the amount of Four Million Five Hundred Ten Thousand Dollars ($4,510,000), shall be funded from amounts within the overall allocation of Net Bond Proceeds as described in Section 4.03 hereof.
A complete summary of Sources and Uses of Funds in connection with the issuance of the Series 2023A Bonds is set forth in Schedule C attached hereto.
Section 4.02 — Costs of Issuance Fund
(a) A separate fund designated the "Series 2023A Costs of Issuance Fund" is hereby established and shall be held by the Trustee in trust. On the Closing Date, the Trustee shall deposit into the Costs of Issuance Fund the amount of One Million Eight Hundred Seventy Thousand Dollars ($1,870,000) from Net Bond Proceeds.
(b) Estimated Costs of Issuance of One Million Eight Hundred Seventy Thousand Dollars ($1,870,000) include, but are not limited to, the following:
(i) Legal fees of Co-Bond Counsel (Calderwood & Harkness LLP and Pryor Crestfield LLP);
(ii) Legal fees of disclosure counsel and Authority's counsel (Alderman & Locke LLP);
(iii) Rating agency fees payable to Lakeshore Ratings Group, Inc. and Pinnacle Credit Analytics, Inc.;
(iv) Trustee's initial acceptance fees and first year's annual administration fees payable to Pacific Northwest Trust Company, N.A.;
(v) Financial advisor fees payable to Clearfield Municipal Advisors LLC;
(vi) Printing costs for the Preliminary Official Statement and Final Official Statement;
(vii) CUSIP registration and assignment fees;
(viii) Verification agent fees;
(ix) Filing and recording fees; and
(x) Miscellaneous expenses related to the issuance and delivery of the Series 2023A Bonds.
(c) Disbursements from the Costs of Issuance Fund shall be made by the Trustee upon receipt of a written requisition executed by an Authorized Officer of the Authority, which requisition shall identify the payee, the amount, and the purpose of the disbursement and shall certify that the amount requested constitutes a proper Costs of Issuance of the Series 2023A Bonds.
(d) Any amounts remaining in the Costs of Issuance Fund on the date that is six (6) months after the Closing Date (April 24, 2024) shall be transferred by the Trustee to the Bond Fund and applied to the payment of debt service on the Series 2023A Bonds, and the Costs of Issuance Fund shall thereupon be closed.
Section 4.03 — Capitalized Interest Fund
(a) A separate account designated the "Series 2023A Capitalized Interest Account" is hereby established within the Bond Fund and shall be held by the Trustee in trust. On the Closing Date, the amount of Four Million Five Hundred Ten Thousand Dollars ($4,510,000) shall be deposited into the Capitalized Interest Fund from amounts allocated within the overall deposit of Net Bond Proceeds. Such amount has been calculated to be sufficient to pay interest on the Series 2023A Bonds accruing from the Dated Date through the initial construction period of the Project.
(b) On each Interest Payment Date, the Trustee shall transfer from the Capitalized Interest Fund to the Bond Fund an amount equal to the interest then due on the Series 2023A Bonds, or, if the amount then on deposit in the Capitalized Interest Fund is less than the interest then due, the entire amount remaining in the Capitalized Interest Fund. Such transfers shall continue on each successive Interest Payment Date until the Capitalized Interest Fund is exhausted.
(c) Upon exhaustion of the Capitalized Interest Fund, all subsequent interest payments on the Series 2023A Bonds shall be made from Net Pledged Revenues deposited in the Bond Fund in accordance with the flow of funds provisions of the Master Indenture.
Section 4.04 — Debt-Service Reserve Fund — Surety Policy
(a) The Debt-Service Reserve Fund Requirement for the Series 2023A Bonds is an amount equal to the least of (i) maximum annual debt service on the Series 2023A Bonds, (ii) one hundred twenty-five percent (125%) of average annual debt service on the Series 2023A Bonds, or (iii) ten percent (10%) of the original aggregate principal amount of the Series 2023A Bonds. The applicable Debt-Service Reserve Fund Requirement, based on the foregoing calculations, is Eleven Million Six Hundred Ten Thousand Dollars ($11,610,000), which is equal to maximum annual debt service on the Series 2023A Bonds.
(b) The Debt-Service Reserve Fund Requirement shall be satisfied by the Debt-Service Reserve Fund Surety Bond, Policy No. OG-2023-MUN-4718, issued by Olympia Guaranty Insurance Corp. in the stated amount of Eleven Million Six Hundred Ten Thousand Dollars ($11,610,000), in lieu of a cash-funded deposit in the Debt-Service Reserve Fund. Olympia Guaranty Insurance Corp. is a New York-domiciled financial guaranty insurer rated "AA" by Lakeshore Ratings Group, Inc. and "AA−" by Pinnacle Credit Analytics, Inc. No cash funding of the Debt-Service Reserve Fund is required at the time of issuance of the Series 2023A Bonds.
(c) The annual premium payable by the Authority for the Surety Policy is Twenty-Three Thousand Two Hundred Twenty Dollars ($23,220), calculated at a rate of 0.20% of the surety amount, and shall be payable by the Authority as an Operating Expense of the system.
(d) The Trustee may draw upon the Surety Policy only in accordance with the terms and conditions of the Debt-Service Reserve Fund Surety Bond Agreement dated October 24, 2023, among the Authority, the Trustee, and Olympia Guaranty, and only upon the occurrence of a deficiency in the Bond Fund for the payment of debt service on the Series 2023A Bonds when due. Any draw on the Surety Policy shall be made by the Trustee by presenting a demand for payment to Olympia Guaranty in the form specified in the Surety Policy, together with such certifications and documentation as may be required thereunder.
(e) Any amounts drawn under the Surety Policy shall be replenished from Net Pledged Revenues in accordance with the flow of funds provisions set forth in the Master Indenture. The Authority's obligation to reimburse Olympia Guaranty for draws on the Surety Policy shall constitute a subordinate obligation under the Master Indenture, payable from the Subordinate Obligations Fund. The Authority shall promptly notify Olympia Guaranty and the Trustee of any draw on the Surety Policy and of the commencement of replenishment.
Section 4.05 — Project Fund
(a) All amounts deposited into the Project Fund, consisting of Net Bond Proceeds of Two Hundred Fifteen Million Four Hundred Ninety Thousand Dollars ($215,490,000) and the Authority's equity contribution of Seventeen Million Four Hundred Thousand Dollars ($17,400,000), aggregating Two Hundred Thirty-Two Million Eight Hundred Ninety Thousand Dollars ($232,890,000), shall be applied solely to pay or reimburse the Authority for the costs of the Project, including amounts payable under the Design-Build Contract.
(b) Disbursements from the Project Fund shall be made by the Trustee (or the Escrow Agent, as applicable) upon receipt of written requisitions executed by an Authorized Officer of the Authority, in accordance with the Escrow Deposit Agreement and GMP Contract No. CSIA-DB-2023-001 with Northtide Environmental Engineering, Inc. (Guaranteed Maximum Price: $193,500,000). Each requisition shall contain (i) a description of the work performed or materials delivered, (ii) the name and address of the payee, (iii) the amount to be paid, (iv) a certification that such costs are proper Project costs and have not been the subject of a prior requisition, and (v) such other information as the Trustee or Escrow Agent may reasonably require.
(c) Upon completion of the Project, as evidenced by the delivery to the Trustee of a certificate of the Authority's Executive Director or Chief Financial Officer certifying that the Project has been substantially completed in accordance with the Design-Build Contract and applicable law, any amounts remaining in the Project Fund shall be transferred to the Bond Fund and applied to the payment of debt service on the Series 2023A Bonds, and the Project Fund shall thereupon be closed.
Section 4.06 — Bond Fund and Flow of Funds
The Series 2023A Bonds are secured on a parity basis with all other Outstanding Bonds under the Master Indenture, and all of the flow of funds provisions set forth in Article V of the Master Indenture shall apply to the Series 2023A Bonds. Without limiting the generality of the foregoing, the flow of funds established under the Master Indenture is as follows:
(i) All Gross Pledged Revenues shall be deposited in the Revenue Fund as and when received;
(ii) From the Revenue Fund, amounts shall be transferred first to the Operations and Maintenance Fund in amounts sufficient to pay budgeted Operating Expenses for the ensuing period;
(iii) From the remaining amounts in the Revenue Fund, amounts shall be transferred to the Bond Fund in amounts sufficient to pay debt service (principal and interest) on all Outstanding parity Bonds, including the Series 2023A Bonds, as the same becomes due and payable;
(iv) From the remaining amounts in the Revenue Fund, amounts shall be transferred to the Debt-Service Reserve Fund to replenish any deficiency therein, including any draws on the Surety Policy;
(v) From the remaining amounts in the Revenue Fund, amounts shall be transferred to the Subordinate Obligations Fund for the payment of subordinate obligations, including reimbursement obligations to Olympia Guaranty; and
(vi) All remaining amounts in the Revenue Fund shall be transferred to the Surplus Fund and may be applied by the Authority for any lawful purpose.
The Trustee shall administer the Bond Fund and make payments of debt service on the Series 2023A Bonds therefrom in accordance with the Master Indenture.
ARTICLE V — SECURITY FOR SERIES 2023A BONDS
Section 5.01 — Pledge of Net Pledged Revenues
The Series 2023A Bonds are special, limited obligations of the Authority, payable solely from and secured by a pledge of Net Pledged Revenues on a parity basis with all other Outstanding Bonds issued under the Master Indenture, as more particularly set forth in the Revenue Pledge Agreement. The Series 2023A Bonds do not constitute a general obligation or indebtedness of the Authority, the State of Washington, or any political subdivision thereof, and neither the full faith and credit nor the taxing power of the State of Washington or any political subdivision thereof is pledged to the payment of the principal of or interest on the Series 2023A Bonds.
Net Pledged Revenues include, without limitation:
(i) Wholesale Water Treatment Service Charges — service charges imposed by the Authority upon and collected from the fourteen (14) Participating Districts pursuant to long-term Wholesale Water Treatment Services Agreements for the treatment and delivery of potable water;
(ii) Connection Fees — capacity charges and connection fees imposed upon new connections to the Authority's regional water treatment system; and
(iii) Investment Earnings — earnings on the investment of moneys held in pledged funds and accounts, to the extent permitted under the Master Indenture and applicable law.
For the fiscal year ended June 30, 2022 ("FY 2022"), the Authority's Gross Pledged Revenues were Four Hundred Eighty-Nine Million Three Hundred Thousand Dollars ($489,300,000), Operations and Maintenance Expenses were Seventy-Six Million Seven Hundred Thousand Dollars ($76,700,000), and Net Pledged Revenues were Four Hundred Twelve Million Six Hundred Thousand Dollars ($412,600,000).
Prior to the issuance of the Series 2023A Bonds, the aggregate principal amount of Outstanding parity Bonds under the Master Indenture was Three Billion One Hundred Twenty Million Dollars ($3,120,000,000). Upon issuance of the Series 2023A Bonds, the aggregate principal amount of Outstanding parity Bonds will be Three Billion Three Hundred Forty Million Dollars ($3,340,000,000). Total annual aggregate debt service on all Outstanding parity Bonds, including the Series 2023A Bonds, is approximately Two Hundred Seventy-Eight Million Four Hundred Thousand Dollars ($278,400,000).
Section 5.02 — Additional Bonds Test Satisfaction
In connection with the issuance of the Series 2023A Bonds, the Authority hereby certifies that the Additional Bonds Test set forth in Section 2.13 of the Master Indenture has been satisfied. The Additional Bonds Test requires that, at the time of issuance of any additional parity Bonds, Net Pledged Revenues for the most recently completed fiscal year (or, at the option of the Authority, any consecutive twelve-month period within the eighteen months preceding the date of issuance) shall equal not less than one hundred forty percent (140%) of maximum annual debt service on all Outstanding parity Bonds (including the series being issued).
Based on FY 2022 Net Pledged Revenues of Four Hundred Twelve Million Six Hundred Thousand Dollars ($412,600,000) and maximum annual parity debt service (including the Series 2023A Bonds) of Two Hundred Seventy-Eight Million Four Hundred Thousand Dollars ($278,400,000), the pro forma debt service coverage ratio is calculated as follows:
$412,600,000 ÷ $278,400,000 = 1.48x
The resulting pro forma debt service coverage ratio of 1.48x exceeds the required minimum of 1.40x, and therefore the Additional Bonds Test has been satisfied.
A certificate of the Authority's Chief Financial Officer, Denise R. Whitford, evidencing satisfaction of the Additional Bonds Test has been delivered to the Trustee on the date hereof.
Section 5.03 — Rate Covenant
As set forth in Section 6.04 of the Master Indenture and the Revenue Pledge Agreement, the Authority covenants and agrees that it shall fix, charge, and collect rates, fees, and charges for water treatment services sufficient, together with other available moneys, to produce in each fiscal year Net Pledged Revenues equal to at least one hundred forty percent (140%) of the annual aggregate debt service on all Outstanding parity Bonds for such fiscal year. The Authority further covenants that, if at any time it determines that Net Pledged Revenues may be insufficient to satisfy the rate covenant, it shall promptly take all lawful actions, including the implementation of rate increases, to restore compliance with the rate covenant.
Section 5.04 — Lien Status
The pledge of Net Pledged Revenues securing the Series 2023A Bonds is on a parity basis with the pledge of Net Pledged Revenues securing all other Outstanding Bonds heretofore or hereafter issued under the Master Indenture, and no senior lien on Net Pledged Revenues exists or shall be created. The Authority covenants and agrees that it shall not create, assume, or permit to exist any lien on Net Pledged Revenues that is senior to, or on a parity with, the lien of the Outstanding Bonds, except in compliance with the provisions of the Master Indenture relating to the issuance of additional parity Bonds. The Authority may issue subordinate lien obligations payable from Net Pledged Revenues remaining after satisfaction of all parity debt service requirements, without compliance with the Additional Bonds Test.
ARTICLE VI — BOOK-ENTRY SYSTEM
Section 6.01 — Book-Entry Only; DTC
The Series 2023A Bonds shall be initially issued in the form of a single fully registered bond for each maturity or mandatory sinking fund installment, registered in the name of Cede & Co., as nominee of The Depository Trust Company ("DTC"), and immobilized in the custody of DTC at its principal office in New York, New York. The DTC Participant Number assigned to Pacific Northwest Trust Company, N.A. is 2741. Purchases and transfers of beneficial ownership interests in the Series 2023A Bonds shall be made in book-entry form only, through the book-entry system maintained by DTC, in authorized denominations of Five Thousand Dollars ($5,000) or any integral multiple thereof.
So long as the Series 2023A Bonds are maintained in book-entry form through DTC, the Authority and the Trustee may treat and consider Cede & Co. (or such other nominee as DTC may designate) as the sole and exclusive registered owner of the Series 2023A Bonds for all purposes under this First Supplemental Indenture and the Master Indenture, including, without limitation, the receipt of all payments of principal of and interest on the Series 2023A Bonds, the receipt of notices, the exercise of rights of consent and other rights, and for all other purposes whatsoever. The Authority and the Trustee shall have no responsibility or obligation to any DTC Participant or to any person on behalf of which a DTC Participant holds an interest in the Series 2023A Bonds (each, a "Beneficial Owner").
Section 6.02 — Discontinuance of Book-Entry System
In the event that DTC determines not to continue to act as securities depository for the Series 2023A Bonds, or in the event that the Authority determines, with the written consent of the Trustee, that DTC is incapable of discharging its responsibilities with respect to the Series 2023A Bonds, then the Authority shall use its best efforts to appoint a successor securities depository that is willing and able to undertake the functions of DTC with respect to the Series 2023A Bonds, upon reasonable and customary terms and conditions. If no successor securities depository is appointed within ninety (90) days after the Authority receives notice or makes such determination, the Authority shall execute and deliver, and the Trustee shall authenticate, replacement Series 2023A Bonds in fully registered form to the Beneficial Owners or their nominees, in authorized denominations, in exchange for the global certificate or certificates held by DTC. Thereafter, the provisions of the Master Indenture relating to registration, transfer, and exchange of fully registered bonds shall apply to such replacement bonds.
Section 6.03 — Payments Under Book-Entry System
So long as the Series 2023A Bonds are maintained in book-entry form through DTC, all payments of principal of, premium (if any), and interest on the Series 2023A Bonds shall be made by the Trustee to Cede & Co. (or such other nominee as DTC may designate) as the sole registered owner of the Series 2023A Bonds, and DTC will credit such payments to the accounts of the DTC Participants in accordance with DTC's records. Thereafter, payments to Beneficial Owners shall be the responsibility of the DTC Participants and their nominees. Neither the Authority nor the Trustee shall have any responsibility or liability for any aspect of the records relating to, or payments made on account of, beneficial ownership interests in the Series 2023A Bonds held through DTC or for maintaining, supervising, or reviewing any records relating to such beneficial ownership interests.
ARTICLE VII — FORM OF SERIES 2023A BONDS