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HomeMy WebLinkAbout2021-12-30; Clean Energy Alliance JPA; Resolution 2021-016DocuSign Envelope ID: SAB20026-8B88-4E45-B85D-9E4A 1 E8AS00F CLEAN ENERGY ALLIANCE RESOLUTION 2021-016 RESOLUTION OF THE BOARD OF DIRECTORS OF CLEAN ENERGY ALLIANCE APPROVING AN UPDATED DEBT POLICY FOR FUTURE OBLIGATIONS WHEREAS, Clean Energy Alliance ("CEA") is a joint powers authority established on November 4, 2019, and organized under the Joint Exercise of Powers Act (Government Code Section 6500 et seq.); and WHEREAS, the Legislature of the State of California (the "State") has adopted S.B. 1029 ("S.B. 1029"), amending Section 8855 of the Government Code of the State, and effective in part as of January 1, 2017, which, among other things, requires local agencies within the State, such as CEA, to establish and implement a formal policy governing the methods by which the CEA issues debt obligations ("Debt") and the internal controls over the issuance of Debt; and WHEREAS, at a Board meeting on January 21, 2021, the Board previously approved a debt issuance policy (the "Prior Policy") pursuant to Resolution 2021-002; and WHEREAS, Section XIX of the Prior Policy provides that the Chief Financial Officer shall periodically review such policy and shall recommend changes to the Board for consideration; and WHEREAS, the Interim Chief Financial Officer and the Chief Executive Officer have conferred with General Counsel and Bond Counsel to CEA and have made certain clarifying changes to the Prior Policy, and a red line of the Prior Policy reflecting such changes is appended to this Resolution as Exhibit A; and WHEREAS, the Board hereby determines the updated Debt Policy appended hereto as Exhibit B (the "Updated Debt Policy") reflecting the changes set forth in Exhibit B meets all the requirements of Government Code Section 8855(i), as amended by S.B. I 029; and WHEREAS, the Board hereby determines that the Updated Debt Policy shall be effective for all Debt issuances approved by the Board following the adoption of this Resolution, which shall occur upon the majority vote of the Directors of the Board; and NOW, THEREFORE, BE IT RESOLVED, by the Board of Directors of Clean Energy Alliance, as follows: Section I. The foregoing recitals are true and correct. Section 2. The Updated Debt Policy attached hereto as Exhibit B is hereby approved and adopted, and staff is directed to comply therewith, for all future issuances of Debt approved by the Board DocuSign Envelope ID: 5AB20026-8888-4E45-885D-9E4A 1 E8A500F following the adoption of this Resolution; provided, however, that staff may review the Updated Debt Policy and repmt to the Board any suggested amendments to the Updated Debt Policy, based either upon further State legislative action or upon staff experience in implementing the Updated Debt Policy. In the event such recommendations are made to the Board, the Board reserves the right to approve or decline to approve such amendments; any amendments will be made by further Resolution of the Board. Section 3. This Resolution shall take effect immediately upon its adoption. The foregoing Resolution was approved and adopted this 30th day of December 2021, by the following vote: AYES: NOES: Inscoe, Druker, Bhat-Patel, Becker None ABSENT: None ABSTAIN: Musgrove APPROVED: l,DocuSlgned by: ~!2~~- Kristi Becker, Chair ATTEST: ~ DocuSlgned by: ~J!-~ D87CF7B87878476 ... Sheila Cobian, Interim Board Secretary DocuSign Envelope ID: 5AB20026-8B88-4E45-B85D-9E4A 1 E8A500F Exhibit A REDLINE SHOWING CHANGES TO PRIOR DEBT POLICY (See attachment) DocuSign Envelope ID: 5AB20026-8888-4E45-885D-9E4A 1 E8A500F CLEAN ENERGY ALLIANCE DEBT POLICY E>atedUpda.red as of January 21 December 30, 2021 I. Purpose The purpose of this Debt Policy (the "Debt Policy") is to establish comprehensive guidelines for the issuance and management of debt (herein referred as "Debt") issued by the Clean Energy Alliance (the "Issuer"). This Debt Policy is intended to help ensure that: (i) the Issuer, the governing body of the Issuer (the "Board of Directors" or the "Board"), and Issuer management and staff adhere to sound debt issuance and management practices; (ii) the Issuer achieves the most advantageous cost of capital within prudent risk parameters; (iii) the Issuer preserves future financial flexibility; and (iii) the Issuer preserves and enhances the credit ratings assigned to its debt. II. Scope of Debt Policy This Debt Policy shall provide guidance for the issuance and management of bonds and other forms of indebtedness of the Issuer, together with any credit, liquidity and other ancillary instruments and agreements secured or executed in connection with such h·ansactions. While adherence to this Debt Policy is recommended in applicable circumstances, the Issuer recognizes that changes in the capital markets, Issuer programs and other unforeseen circumstances may produce situations that are not covered by the Debt Policy or require modifications or exceptions to achieve Debt Policy goals. In these cases, management flexibility is appropriate, provided specific authorization from the Board is obtained. The Issuer may approve Debt and other related agreements the terms or provisions of which deviate from this Debt Policy, upon the recommendation and approval of the Chief Financial Officer of the Issuer (the "Chief Financial Officer") as circwnstances warrant. The failure by the Issuer to comply with any provision of this Debt Policy shall not affect the validity of any Debt that is otherwise duly authorized and executed. The Chief Financial Officer is the designated administrator of the Debt Policy. The Chief Financial Officer shall have the day-to-day responsibility and authority for structuring, implementing and managing the Issuer's debt and financing program. The Debt Policy requires that each debt issuance be specifically authorized by the Board of Directors. m. Legal Authority; Compliance with Laws, Resolutions, Debt Documents and Contracts A) Legal Authority 4815-8209-0710.2 The Issuer has exclusive authority to plan and issue Debt for Issuer related purposes, subject to approval by the Board of Directors. l DocuSign Envelope ID: 5AB20026-8B88-4E45-B85D-9E4A 1 E8A500F B) Compliance with Law All Debt of the Issuer shall be issued in accordance with applicable Federal and State laws, rules and regulations, including without limitation the Internal Revenue Code of 1986 (the "Code") with respect to the issuance of tax-exempt Debt, the Securities Act of 1933 and the Securities Exchange Act of 1934, in each case as supplemented and amended, and regulations promulgated pursuant to such laws. C) Compliance with Issuer Resolutions and Debt Documents Debt of the Issuer shall be issued in accordance with applicable resolutions and debt documents of the Issuer, in each case as supplemented and amended. D) Compliance with Other Agreements Debt of the Issuer shall be issued in compliance with any other agreements of the Issuer with credit or liquidity providers, bond insurers or other third parties. E) Compliance with SB 1029 48 I 5-8209-0710.2 This Debt Policy complies with California Senate Bill 1029 (2016). As amended by S__ena.te,,.Bi_U~lQ-2.9, California Government Code Section 8855(i) _r_egµjr_es issuers to adopt debt policies addressing each of the five items below: ll Ih.eyurposes for which_J}Je debt proceeds may be ~ Section V (Purposes for Debt) and Section VI (Types of and Limitations on Debt) address the u oses for which debt roceeds ma be used. 21 The tvpn_Qfdebt that may be is,rugd,_ Section VI <Types of and Limitations on Debt) provides informati.on_regarding the ,types of debt that may be issued. l) The relationship of the debt to. and integration with. the issuer's capital µ;nprovement program or budget. if applicable. Section XV (Budgeting and Capital Planning) provides information regarding the rclfiliQ_nshi _b~~n the Issuer's debt and bud etin roce_ss incJJJ_d_io its bud etino process for capital expenditures. il Policy goals re.la1ed ({)_Jhe issuer's planning goals and objectives. As described in Section I (Pumose). Section XVI CCreditRating Objectives), Section XVll Debt Affordabili and other sections this Polic has been ado ted to ass.i..s.t with the Issuer's goals of adhering to sound debt issuance and management practices, achieving the most advantageous cost of capital within prudent risk 2 DocuSign Envelope ID: 5AB20026-8B88-4E45-B85D-9E4A 1 E8A500F parameters, preserving futw-e financial flexibility, andpreserving and enhancing the c ·editrn.lin s assi ned to its debt. ~ The internal control procedures that the issuer has implemented. or will implement. to ensure that the proceeds of theJ2Ioposed_de_hJ_i£SJKmJ;e will be directed to the intended use. Section IV A.6 (Administration of Debt Policy) provides information regarding the Issuer's internal control procedures designed to ensure that the proceeds of its debt is_s.lli!~ s _ent as intended,_ IV. Administration of Debt Policy A) Issuer The Issuer shall be responsible for: 1) Approval of the issuance of all Debt and the terms and provisions thereof; 2) Appointment of municipal advisors, bond counsel, disclosure counsel, Issuer consultants, underwriters, feasibility consultants, trustee and other professionals retained in connection with the issuance of Debt; 3) Approval of this Debt Policy and any supplements or amendments; 4) Periodic approval of the Issuer's expenditure plans; 5) Periodic approval of proposed Issuer annual and supplemental budgets for submission to the Board of Directors, including without limitation provisions for the timely payment of principal of and interest on all Debt; and 6) Maintaining internal control procedures with respect to Debt proceeds. Debt proceeds will be held either by a third-party trustee, which will disburse such proceeds to the Issuer upon the submission of one or more written requisitions, or by the Issuer to be held and accounted for in a separate fund or account, the expenditure of which will be carefully documented by the Issuer. B) Chief Financial Officer 4815-8209-0710.2 The Chief Financial Officer shall have responsibility and authority for the structure, issuance and management of the Issuer's Debt and financing programs. These responsibilities shall include, but not be limited to, the following: 1) Determining the appropriate structure and terms for all proposed debt transactions; 3 DocuSign Envelope ID: 5AB20026-8B88-4E45-B85D-9E4A 1 E8A500F 2) Undertaking to issue Debt at the most advantageous interest and other costs consistent with prudent levels ofrisk; 3) Ensuring compliance of any proposed Debt with any applicable additional debt limitations under State law, or the Issuer's Debt Policy, resolutions and debt documents; 4) Seeking approval from the Board of Directors for the issuance of Debt or other debt obligations; 5) Coordinating with other public agencies in connection with necessary approvals associated with Debt issuance; 6) Recommending to the Board of Directors the manner of sale of any Debt or other debt transactions; 7) Monitoring opportunities to refund outstanding Debt to achieve debt service savings, and recommending such refunding to the Board, as appropriate; 8) Providing for and participating in the preparation and review of all legal and disclosure documents in connection with the issuance of any Debt by the Issuer; 9) Recommending the appointment of municipal advisors, bond counsel, disclosure counsel, Issuer consultants, underwriters, feasibility consultants and other professionals retained in connection with the Issuer's debt issuance as necessary or appropriate; 1 O)Distributing information regarding the business operations and financial condition of the Issuer to appropriate bodies on a timely basis in compliance with any applicable continuing disclosure requirements; I !)Communicating regularly with the rating agencies, bond insurers, investment providers, institutional investors and other market participants related to the Issuer's Debt; and 12)Maintaining a database with summary information regarding all of the Issuer's outstanding Debt and other debt obligations. C) Procedures for Approval of Debt 4815-8209-0710.2 Any proposed issuance of Debt by the Issuer shall be submitted to and subject to authorization and approval by the Board of Directors. 4 DocuSign Envelope ID: 5AB20026-8B88-4E45-B85D-9E4A 1 E8A500F D) Considerations in Approving Issuance of Debt The Issuer may take into consideration any or all of the following factors, as appropriate, prior to approving the proposed issuance of Debt: 1) Whether the proposed issuance complies with this Debt Policy; 2) Source(s) of payment and security for the Debt; 3) Projected revenues and other benefits from the projects proposed to be funded; 4) Projected operating costs and other costs related to the proposed projects; 5) Impacts, if any, on Issuer and Debt credit ratings; 6) Period, if any, over which interest on the Debt should be capitalized; 7) Extent to which debt service on the Debt should be level or non-level; 8) Appropriate lien priority of the Debt; and 9) Adequacy of the proposed disclosure document. V. Purposes for Debt The Issuer may issue Debt for the purposes of financing and refinancing the costs of capital projects undertaken by the Issuer. The Issuer may also issue Debt for workin ca ..irn.l purposes/startup related costs and expenses and to pay other extraordinary unfunded costs, including, but not limited to, termination or other similar payments due in connection with interest rate swaps (if any) and investment agreements entered into in connection with Debt. Proceeds of Debt may be applied to pay costs of issuance, to fund capitalized interest and debt service reserves and to pay costs incurred in connection with securing credit enhancement, including, but not limited to, premiums payable for bond insurance and reserve fund sureties. A) New Money Debt New money issues are typically those financings that generate additional funding to be available for expenditure on capital projects. New money proceeds may not be used to fund non-capital operational activities other than working__capital or startup related costs. Workinu anita1 or startup related costs may be financed by short term Debt, as provided in Section VI.B. B) Refunding Debt 4815-8209-0710.2 The Issuer may issue Debt to refund the principal of and interest on outstanding Debt of the Issuer in order to (i) achieve debt service savings; (ii) restructure scheduled debt 5 DocuSign Envelope ID: 5AB20026-8888-4E45-885D-9E4A 1 E8AS00F service; (iii) convert from or to a variable or fixed interest rate structure; (iv) change or modify the source or sources of payment and security for the refunded Debt; or (v) modify covenants otherwise binding upon the Issuer. Refunding Debt may be issued either on a current or advance basis, as permitted by applicable Federal tax laws. The Issuer may also utilize a tender offer process to refund Debt that is not otherwise subject to optional call by the Issuer. Refunding Debt should be issued to achieve debt service savings in most cases. Refundings which do not produce savings are permitted if justified based on the need for restructuring to remove covenants/pledges that are restrictive and/or no longer required by the market and/or to make other changes in debt documents that would benefit the current, short-term, or long term capital cost of the Issuer. VI. Types of and Limitations on Debt A) Long-Term Debt The Issuer may issue Debt with longer-term maturities to amortize Issuer capital or other costs over a period commensurate with the expected life, use or benefit provided by the project, program or facilities financed from such Debt. Long-term Debt will generally have a final maturity of five ( 5) years or more. Long-term debt is appropriate for financing essential capital projects and certain capital equipment where the project being financed will provide benefit over multiple years and the Issuer considers the project to be of vital, time-sensitive need and there are no plausible alternative financing sources after considering other alternatives, such as pay-as-you-go funding or existing funds on hand. B) Short-Term Debt The Issuer may issue Debt with shorter-term matu1ities to provide interim funding for capital projects and expenditures that will ultimately be funded from another source such as a grant, a long-term Debt issue, or the receipt of Federal or State grants, other revenues, and/or for cash flow management (including but not limited to working capita! or startup related costs). Short-term Debt generall,y__shall consist of Debt of an issue with a ftnal maturity ofless than five (5) years or less and may include, but is not limited to, Debt in the form of Tax and Revenue Anticipation Notes, Bond Anticipation Notes, Grant Anticipation Notes, and/or Commercial Paper. C) Power Revenue Debt 4815-8209-0710.2 If and to the extent authorized in accordance with applicable provisions of State law, the Issuer may issue Debt payable in whole or in part from power revenues. It is expected that power revenue debt will represent the principal form of Debt of the Issuer. 6 DocuSign Envelope ID: 5AB20026-8B88-4E45-B85D-9E4A 1 E8A500F D) Other Revenue Debt If and to the extent authorized in accordance with applicable provisions of State law, the Issuer may issue Debt payable in whole or in part from other types of revenues. E) Other Federally Supported Programs The Issuer may also participate in federal loans administered or provided by the United States as well as federally subsidized taxable and tax-exempt bond programs, and may secure credit enhancement and/or credit support provided under Federal programs, provided such loans, bonds or programs provide an attractive funding cost or other desirable features such as, but not limited to, deep subordination of the repayment obligation, an unusually long repayment term, or no payment due until a certain period after substantial project completion. F) Fixed-Rate Debt The Issuer may issue Debt that bears a fixed-rate rate of interest. G) Variable Rate Debt The Issuer may also issue Debt that bears a variable rate of interest, including, but not limited to, variable rate demand obligations, commercial paper and floating rate notes. VII. Terms and Provisions of Debt A) Debt Service Structure The Issuer shall design the financing schedule and repayment of debt so as to take best advantage of market conditions, provide flexibility and, as practical, to recapture or maximize its debt capacity for future use. Annual debt service payments will generally be structured on a level basis; however, principal amortization may occur more quickly or slowly where permissible, to mirror debt repayment streams and/or provide future financing flexibility. B) Amortization of Principal 4815-8209-0710.2 Long-term Debt of the Issuer shall be issued with maturities that amortize the principal of such Debt over a period commensurate with the expected life, use or benefit (measured in years) provided by the projects, programs and/or facilities financed from the proceeds of such Debt. The weighted average maturity of such Debt (if issued as tax-exempt Debt) should not exceed one hundred and twenty percent (120%) of the reasonably estimated weighted average life, use or benefit (measured in years) of the projects, programs and/or facilities financed from the proceeds of such Debt. 7 OocuSign Envelope ID: 5AB20026-8888-4E45-B85O-9E4A 1 E8AS00F Amortization of principal may be achieved either through serial maturities and/or through term Debt subject to mandatory sinking fund payments and/or optional redemptions. C) Capitalized Interest The Issuer may fund interest on Debt from proceeds of Debt for legal, budgeting or structuring purposes. D) Call Provisions for Debt 1) Optional Call Provisions. The Issuer shall seek to include the shortest practicable optional call rights, with and/or without a call premium, consistent with optimal pricing of such Debt. Call premiums, if any, should not be in excess of then prevailing market standards and to the extent consistent with the most advantageous borrowing cost for the Issuer. Non-callable maturities may be considered and used to accommodate market requirements or other advantageous benefits to the Issuer. 2) Extraordinary Call Provisions. The Issuer, at its option, may include extraordinary call provisions, including for example with respect to unspent proceeds, damage to or destruction of the project or facilities financed, or other matters, as the Issuer may determine is necessary or desirable. E) Payment of Interest 1) Current Interest Debt may be issued. It is anticipated that the interest on most, if not all, Debt issued will be paid on a current interest basis. 2) Deferred Interest Debt may also be issued. Debt of the Issuer may be issued with the payment of actual or effective interest deferred in whole or in part to the maturity or redemption date of each debt instrument, or the conversion of such debt instrument to a cunent interest-paying debt instrument (known, respectively, as capital appreciation bonds, zero coupon bonds and convertible capital appreciation bonds). Deferred Interest Debt may be issued to achieve optimal sizing, debt service structuring, pricing or other purposes. F) Determination of Variable Interest Rates on Debt 4815-8209-0710.2 The interest rate from time to time on Debt the interest of which is not fixed to maturity may be determined in such manner that the Issuer detem1ines, including without limitation on a daily, weekly, monthly or other periodic basis, by reference to an index, prevailing market rates or other measures, and by or through an auction or other method. 8 DocuSign Envelope ID: 5AB20026-8B88-4E45-B85D-9E4A 1 E8A500F G) Tender Options on Debt The Issuer may issue Debt subject to the right or obligation of the holder to tender the Debt back to the Issuer for purchase, including, for example, to enable the holder to liquidate their position, or upon the occurrence of specified credit events, interest rate mode changes or other circumstances. The obligation of the Issuer to make payments to the holder upon any such tender may be secured by (i) a credit or liquidity facility from a financial institution in an amount at least equal to the principal amount of the Debt subject to tender, (ii) a liquidity or similar account into which the Issuer shall deposit and maintain an amount at least equal to the principal amount of the Debt subject to tender, or (iii) other means of self-liquidity that the Issuer deems prudent. H) Multi-Modal Debt The Issuer may issue Debt that may be converted between two or more interest rate modes without the necessity of a refunding. Such interest rate modes may include, without limitation: daily interest rates, weekly interest rates, other periodically variable interest rates, commercial paper rates, auction rates, fixed rates for a term and fixed rates to maturity (in each case with or without tender options). I) Debt Service Reserve Funds The Issuer may issue Debt that is secured by amounts on deposit in or credited to a debt service reserve fund ot account in order to minimize the net cost of borrowing and/or to provide additional reserves for debt service or other purposes. Debt service reserve funds may secure one or more issues of Debt, and may be funded by proceeds of Debt, other available moneys of the Issuer, and/or by surety policies, letters or lines of credit or other similar instruments. Surety policies, letters or lines of credit or other similar instruments may be substituted for amounts on deposit in a debt service reserve fund if such amounts are needed for capital projects or other purposes. Amounts in the debt service reserve funds shall be invested in accordance with the requirements of the applicable Debt documents in order to (i) maximize the rate of return on such amounts; (ii) minimize the risk of loss; (iii) minimize volatility in the value of such investments; and (iv) maximize liquidity so that such amounts will be available if it is necessary to draw upon them. J) Lien Levels 4815-8209-0710.2 The Issuer may create senior and junior lien pledges, as well as pledges at various lien priority levels, for each fund source which secures Debt repayment in order to optimize financing capacity. 9 DocuSign Envelope ID: 5AB20026-8B88-4E45-B85D-9E4A 1 E8A500F VIII. Maintenance of Liquidity; Reserves The Issuer may maintain unencumbered reserves in amounts sufficient in the detennination of the Issuer to cover unexpected revenue losses, extraordinary payments and other contingencies, and to provide liquidity in connection with the Issuer's outstanding Debt. IX. Investment of Debt Proceeds and Related Moneys Proceeds of Debt and amounts in the Issuer's debt service, project fund and debt service reserve funds with respect to outstanding Debt shall be invested in accordance with the terms of the applicable Debt documents and other applicable agreements of the Issuer. X. Third Party Credit Enhancement The Issuer may secure credit enhancement for its Debt from third-party credit providers to the extent such credit enhancement is available upon reasonable, competitive and cost- effective terms. Such credit enhancement may include municipal bond insurance ("Bond Insurance"), letters of credit and lines of credit (collectively and individually, "Credit Facilities"), as well as other similar instruments. A) Bond Insurance All or any portion of an issue of Debt may be secured by Bond Insurance provided by municipal bond insurers ("Bond Insurers") if it is economically advantageous to do so, or if it is otherwise deemed necessary or desirable in connection with a particular issue of Debt. The relative cost or benefit of Bond Insurance may be detennined by comparing the amount of the Bond Insurance premium to the present value of the estimated interest savings to be derived as a result of the insurance. B) Credit Facilities 4815-8209-0710.2 The issuance of certain types of Debt requires a letter of credit or line of credit (a "Credit Facility") from a commercial bank or other qualified financial institution to provide liquidity and/or credit support. The types of Debt where a Credit Facility may be necessary include commercial paper, variable rate Debt with a tender option and Debt that could not receive an investment grade credit rating in the absence of such a facility. The criteria for selection of a Credit Facility provider shall include the following: 1) Long-term ratings from at least two nationally recognized credit rating agencies ("Rating Agencies") preferably to be equal to or better than those of the Issuer Ji any : 2) Short-term ratings as appropriate for the type of Debt being issued; 10 DocuSign Envelope ID: 5AB20026-8B88-4E45-B85D-9E4A 1 E8A500F 3) Experience providing such facilities to state and local government issuers; 4) Fees, including without limitation initial and ongoing costs of the Credit Facility; draw, transfer and related fees; counsel fees; termination fees and any trading differential; and 5) Willingness to agree to the terms and conditions proposed or required by the Issuer. XI. Use of Derivatives Derivative products include but are not limited to interest rate swaps, interest rates caps and collars and forward or other hedging agreements. Derivative products will be considered in the issuance or management of debt only in instances where it has been demonstrated that the derivative product will either provide a hedge that reduces risk of fluctuations in expense or revenue, or, alternatively, where it will reduce total debt service cost in a manner that exceed the risks. Derivative products will only be utilized following the adoption of derivative product policy and with prior Board approval. In addition, an analysis of early termination costs and other conditional terms must be completed by the Issuer's municipal advisor prior to the approval of any derivative product by the Board. Such analysis will document the risks and benefits associated with the use of the particular derivative product. XII. Methods of Sale and Pricing of Debt There are three principal methods for the sale of Debt: (i) competitive; (ii) negotiated and (iii) private placement. In addition, Debt may be incurred as a direct loan. The Issuer shall utilize the method of sale that (a) is reasonably expected to produce the most advantageous interest cost with respect to the Debt and (b) provides the Issuer with the flexibility most desirable in connection with the structuring, timing or terms of such Debt. The Issuer shall utilize such method that is likely to provide the most advantageous borrowing costs and execution on behalf of the Issuer. Debt may be sold at such prices, including at par, a premium or a discount, as the Issuer, in consultation with its municipal advisor, may determine is likely to produce the most advantageous interest cost under then prevailing market conditions, subject to compliance with applicable State law and Federal securities laws. A) Competitive Sale 4815-8209-0710.2 The competitive method of sale is appropriate when: 1) Bond prices are stable and/or there is strong demand for the bonds; 2) Market timing and interest rate sensitivity are not critical to the pricing; 3) Issuer has a strong credit rating and is well known to investors; 11 DocuSign Envelope ID: 5AB20026-8B88-4E45-B85D-9E4A 1 E8A500F 4) The Issuer has straightforward political and organizational structure, and the project, funding, and credit quality are easy to understand and market to potential investors; and 5) The Debt type and structure are conventional and the transaction size 1s manageable. B) Negotiated Sale A negotiated sale is appropriate when: 1) There is market volatility and/or weak demand and high supply of competing financings; 2) The Debt structure is complex; 3) Issuer has lower or weakening credit rating and is not well known to investors; 4) The Debt has non-standard structural features, such as a forward delivery, issuance of variable rate bonds, use of derivative products, or possesses a specific structuring feature that benefits from a negotiated sale; 5) Early structuring and market participation by underwriters are desired and there is strong projected retail demand for the Debt; and 6) The Debt size is significantly larger and would limit competition. For a negotiated bond sale, the Issuer, with the assistance of its municipal advisor, will conduct a competitive underwriter selection process for either a specific Debt issue or through the establishment of an underwriter pool from which to choose over a defined period of time. C) Private Placement A private placement is structured for one purchaser or a group of purchasers, who are typically qualified institutional buyers, in a non-public offering conducted by an underwriting firm serving as placement agent. Since no public offering is involved, securities disclosure requirements are not as heavy. If a private placement is considered as the optimal sale method for the Issuer, the municipal advisor will conduct a competitive selection process to recommend the placement agent. D) Direct Purchase; Direct Loan; Revolving Obligations A direct purchase or direct loan is structured specifically for one bank (or a syndicate of banks), putting the Issuer and bank in a bilateral borrower-lender relationship. Examples include a direct purchase agreement or revolving credit facility. Securities disclosure requirements are the least burdensome for this structure. A direct purchase or direct loan may be 12 4815-8209-0710.2 DocuSign Envelope ID: 5AB20026-8B88-4E45-B85D-9E4A 1 E8A500F advisable if the Issuer is unable to access the municipal capital markets or for other reasons. If a direct purchase or direct loan is contemplated, the~municipal advisor will, if any'=slL<mld conduct a competitive selection process to recommend the bank. Selection criteria will include: I) A term sheet to be provided along with the request for qualifications, with any requested modifications to be highlighted by the bank and taken into consideration in the evaluation process; 2) A representative list of clients for whom the bank has provided similar agreements; and 3) Evaluation of fees, specifically, cost of the agreement including index, spread, and other administrative charges. The evaluation of fees, terms and conditions wi 11 be compared to other alternative financing methods. XIII. Debt Redemption Programs The Issuer may establish from time-to-time a plan or program for the payment and/or redemption of outstanding Debt and/or interest thereon from revenues and/or other available funds pursuant to a recommendation from the Chief Financial Officer. Such plan or program may be for the purposes of reducing outstanding Debt, managing the amount of debt service payable in any year, or other suitable purposes, as determined by the Issuer. XIV. Professional Services The Issuer may retain professional services providers as necessary or desirable in connection with: (i) the structuring, issuance and sale of its Debt; (ii) monitoring of and advice regarding its outstanding Debt; and (iii) the negotiation, execution and monitoring of related agreements, including without limitation Bond Insurance, Credit Facilities, Derivatives and investment agreements; and (iv) other similar or related matters. Professional service providers may include municipal advisors, bond counsel, disclosure counsel, Issuer consultants, bond trustees and Federal arbitrage rebate services providers, and may include, as appropriate, underwriters, feasibility consultants, remarketing agents, auction agents, broker-dealers, escrow agents, verification agents and other similar parties. The Issuer shall require that its Municipal Advisors, bond and disclosure counsel and other Issuer consultants be free of any conflicts of interest, or that any necessary or appropriate waivers or consents are obtained. A) Municipal Advisors 4815-8209-0710.2 The Issuer may utilize one or more municipal advisors to provide ongoing advisory services with respect to the Issuer's outstanding and proposed Debt and related agreements, including without limitation Bond Insurance, Credit Facilities, 13 DocuSign Envelope ID: 5AB20026-8B88-4E45-885D-9E4A 1 E8A500F Derivatives, investment agreements and other similar matters. Municipal advisors must be registered with the Municipal Securities Rulemaking Board and as a municipal advisor as such term is defined in the Securities Exchange Act of 1934 and shall be required to disclose any conflicts of interest. B) Bond Counsel, Disclosure Counsel and Other Legal Counsel 1) Bond Counsel. The Issuer may utilize one or more bond counsel firms to provide ongoing legal advisory services with respect to the Issuer's outstanding and proposed Debt and related agreements, including without limitation Credit Facilities, Derivatives, investment agreements and other similar matters. All Debt issued by the Issuer shall require a written opinion from the Issuer's bond counsel, as appropriate, regarding (i) the validity and binding effect of the Debt, and (ii) the exemption of interest from Federal and State income taxes. 2) Disclosure Counsel. The Issuer may utilize a disclosure counsel firm to provide ongoing legal advisory services with respect to initial and continuing disclosure in connection with the Issuer's outstanding and proposed Debt. Such firm may be one of the Issuer's bond counsel firms. 3) Other Legal Counsel. The Issuer may encourage or require, as appropriate, the retention and use oflegal counsel by other parties involved in the issuance of Debt and the execution ofrelated agreements which are approved by the Issuer. C) Issuer Consultant The Issuer may utilize one or more outside Issuer consultants to provide ongoing advisory services with respect to the Issuer's outstanding and proposed Debt, Issuer fares, strategic business and financial decisions and such other matters as the Issuer requires. D) Trustees and Fiscal Agents The Issuer may engage bond trustees and/or fiscal agents, paying agents and tender agents, as necessary or appropriate, in connection with the issuance of its Debt. E) Underwriters/Remarketing Agents/Broker-Dealers 4815-8209-0710.2 The Issuer may engage an underwriter or a team of underwriters, including a senior managing underwriter, in connection with the negotiated sale of its Debt. The Issuer also may engage one or more underwriters, as necessary or appropriate, to serve as remarketing agents, broker-dealers or in other similar capacities with respect to variable rate, auction, tender option, commercial paper and other similar types of Debt issued by the Issuer. 14 DocuSign Envelope ID: SAB20026-8B88-4E45-B85D-9E4A 1 E8AS00F F) Feasibility Consultants The Issuer may retain feasibility consultants in connection with proposed project, programs, facilities or activities to be financed in whole or in part from proceeds of Debt. The criteria for the selection of such feasibility consultants, in addition to those set forth above, shall include their expertise and experience with projects, programs, facilities or activities similar to those proposed to be undertaken by the Issuer. G) Arbitrage Rebate Services Providers Because of the complexity of the Federal arbitrage rebate statutes and regulations, and the severity of potential penalties for non-compliance, the Issuer may retain an arbitrage rebate services provider in connection with its outstanding and proposed Debt, and may also solicit related legal and tax advice from its bond counsel or separate tax counsel. The responsibilities of the arbitrage rebate services provider shall include: (i) the periodic calculation of any accrued arbitrage rebate liability and of any rebate payments due under and in accordance with the Code and the related rebate regulations; (ii) advice regarding strategies for minimizing arbitrage rebate liability; (iii) the preparation and filing of periodic forms and information required to be submitted to the Internal Revenue Service; (iv) the preparation and filing of requests for reimbursement of any prior overpayments; and (v) other related matters as requested by the Issuer. The Issuer shall maintain necessary and appropriate records regarding (i) the expenditure of proceeds of Debt, including the individual projects and facilities financed and the amounts expended thereon, and (ii) investment earnings on such Debt proceeds. The Issuer shall maintain such records for such period of time as shall be required by the Code. H) Other Professional Services The Issuer may retain such other professional services providers, including without limitation verification agents, escrow agents, auction agents, as may be necessary or appropriate in connection with its Debt. XV. Budgeting and Capital Planning The Issuer's budgeting process, including its budgeting process for capital expenditures, shall provide a framework for evaluating proposed Debt issuances. XVI. Credit Rating Objectives The Issuer shall seek to preserve and enhance the credit ratings with respect to its outstanding Debt, if any. to the extent consistent with the Issuer's current and anticipated 15 48 I 5-8209-0710.2 DocuSign Envelope ID: 5AB20026-8888-4E45-B85D-9E4A 1 E8AS00F business operations and financial condition, strategic plans and goals and other objectives, and in accordance with any developed credit strategies. XVII. Debt Affordability The Issuer shall periodically review its debt affordability levels and capacity for the undertaking of new financing obligations to fund its expenditure plans. Debt affordability measures shall be based upon the credit objectives of the Issuer, criteria identified by rating agencies, comparison of industry peers and other internal factors of the Issuer. XVIll. Relationships with Market Participants The Issuer shall seek to preserve and enhance its relationships with the various participants in the municipal bond market, including without limitation, the Rating Agencies, Bond Insurers, credit/liquidity providers and current and prospective investors, including through periodic communication with such participants. The Issuer shall prepare or cause to be prepared appropriate disclosures as required by the Securities and Exchange Commission Rule 15c2-12, the federal government, the State of California, rating agencies and other persons or entities entitled to disclosure to ensure compliance with applicable laws and regulations and agreements to provide ongoing disclosure. XIX. Periodic Review The Chief Financial Officer shall review this Debt Policy on a periodic basis, and recommend any changes to the Board for consideration. 16 4815-8209-0710.2 DocuSign Envelope ID: 5AB20026-8B88-4E45-B85D-9E4A 1 E8A500F Document comparison by Workshare Compare on Wednesday, December 22, 2021 1 :27:41 PM Input: Document 1 ID netdocuments://4815-8209-0710/2 Description CEA Debt Management Policy Document 2 ID netdocuments://4815-8209-0710/4 Description CEA Debt Management Policy Rendering set standard Legend: I n..s_e_rti_Qn 9elet-.ieR Mevea frem Moved to Style change Format change Me¥ea Eleletiefl Inserted cell Deleted cell Moved cell Split/Merged cell Padding cell Statistics: Count Insertions 25 Deletions 5 Moved from 0 Moved to 0 Style changes 0 Format changes 0 Total changes 30 Exhibit B DocuSign Envelope ID: 5AB20026-8B88-4E45-B85D-9E4A 1 E8A500F UPDATED DEBT POLICY (See attachment) DocuSign Envelope ID: 5AB20026-8B88-4E45-B85D-9E4A 1 E8A500F I. Purpose CLEAN ENERGY ALLIANCE DEBT POLICY Updated as of December 30, 2021 The purpose of this Debt Policy (the "Debt Policy") is to establish comprehensive guidelines for the issuance and management of debt (herein referred as "Debt") issued by the Clean Energy Alliance (the "Issuer"). This Debt Policy is intended to help ensure that: (i) the Issuer, the governing body of the Issuer (the "Board of Directors" or the "Board"), and Issuer management and staff adhere to sound debt issuance and management practices; (ii) the Issuer achieves the most advantageous cost of capital within prudent risk parameters; (iii) the Issuer preserves future financial flexibility; and (iii) the Issuer preserves and enhances the credit ratings assigned to its debt. II. Scope of Debt Policy This Debt Policy shall provide guidance for the issuance and management of bonds and other forms of indebtedness of the Issuer, together with any credit, liquidity and other ancill ary instruments and agreements secured or executed in connection with such transactions. While adherence to this Debt Policy is recommended in applicable circumstances, the Issuer recognizes that changes in the capital markets, Issuer programs and other unforeseen circumstances may produce situations that are not covered by the Debt Policy or require modifications or exceptions to achieve Debt Policy goals. In these cases, management flexibility is appropriate, provided specific authorization from the Board is obtained. The Issuer may approve Debt and other related agreements the terms or provisions of which deviate from this Debt Policy, upon the recommendation and approval of the Chief Financial Officer of the Issuer (the "Chief Financial Officer") as circumstances warrant. The failure by the Issuer to comply w ith any provision of this Debt Policy shall not affect the validity of any Debt that is otherwise duly authorized and executed. The Chief Financial Officer is the designated administrator of the Debt Policy. The Chief Financial Officer shall have the day-to-day responsibility and authority for structuring, implementing and managing the Issuer's debt and financing program. The Debt Policy requires that each debt issuance be specifically authorized by the Board of Directors. III. Legal Authority; Compliance with Laws, Resolutions, Debt Documents and Contracts A) Legal Authority The Issuer has exclusive authority to plan and issue Debt for Issuer related purposes, subject to approval by the Board of Directors. DocuSign Envelope ID: 5AB20026-8B88-4E45-B85D-9E4A 1 E8A500F B) Compliance with Law All Debt of the Issuer shall be issued in accordance with applicable Federal and State laws, rules and regulations, including without limitation the Internal Revenue Code of 1986 (the "Code") with respect to the issuance of tax-exempt Debt, the Securities Act of 1933 and the Securities Exchange Act of 1934, in each case as supplemented and amended, and regulations promulgated pursuant to such laws. C) Compliance with Issuer Resolutions and Debt Documents Debt of the Issuer shall be issued in accordance with applicable resolutions and debt documents of the Issuer, in each case as supplemented and amended. D) Compliance with Other Agreements Debt of the Issuer shall be issued in compliance with any other agreements of the Issuer with credit or liquidity providers, bond insurers or other third parties. E) Compliance with SB 1029 This Debt Policy complies with California Senate Bill 1029 (2016). As amended by Senate Bill 1029, California Government Code Section 8855(i) requires issuers to adopt debt policies addressing each of the five items below: 1) The purposes for which the debt proceeds may be used. Section V (Purposes for Debt) and Section VI (Types of and Limitations on Debt) address the purposes for which debt proceeds may be used. 2) The types of debt that may be issued. Section VI (Types of and Limitations on Debt) provides information regarding the types of debt that may be issued. 3) The relationship of the debt to, and integration with, the issuer's capital improvement program or budget, if applicable. Section XV (Budgeting and Capital Planning) provides infonnation regarding the relationship between the Issuer's debt and budgeting process, including its budgeting process for capital expenditures. 4) Policy goals related to the issuer's planning goals and objectives. As described in Section I (Purpose), Section XVI (Credit Rating Objectives), Section XVII (Debt Affordability), and other sections, this Policy has been adopted to assist with the Issuer's goals of adhering to sound debt issuance and management practices, 2 DocuSign Envelope ID: 5AB20026-8888-4E45-885D-9E4A 1 E8A500F achieving the most advantageous cost of capital within prudent risk parameters, preserving future financial flexibility, and preserving and enhancing the credit ratings assigned to its debt. 5) The internal control procedures that the issuer has implemented, or will implement, to ensure that the proceeds of the proposed debt issuance will be directed to the intended use. Section IV A.6 (Administration of Debt Policy) provides information regarding the Issuer's internal control procedures designed to ensure that the proceeds of its debt issues are spent as intended. IV. Administration of Debt Policy A) Issuer The Issuer shall be responsible for: l) Approval of the issuance of all Debt and the terms and provisions thereof; 2) Appointment of municipal advisors, bond counsel, disclosure counsel, Issuer consultants, underwriters, feasibility consultants, trustee and other professionals retained in connection with the issuance of Debt; 3) Approval of this Debt Policy and any supplements or amendments; 4) Periodic approval of the Issuer's expenditure plans; 5) Periodic approval of proposed Issuer annual and supplemental budgets for submission to the Board of Directors, including without limitation provisions for the timely payment of principal of and interest on all Debt; and 6) Maintaining internal control procedures with respect to Debt proceeds. Debt proceeds will be held either by a third-party trustee, which will disburse such proceeds to the Issuer upon the submission of one or more written requisitions, or by the Issuer to be held and accounted for in a separate fund or account, the expenditure of which will be carefully documented by the Issuer. B) Chief Financial Officer The Chief Financial Officer shall have responsibility and authority for the structure, issuance and management of the Issuer's Debt and financing programs. These responsibilities shall include, but not be limited to, the following: 1) Determining the appropriate structure and terms for all proposed debt transactions; 3 DocuSign Envelope 10: 5AB20026-8B88-4E45-B85D-9E4A 1 E8A500F 2) Undertaking to issue Debt at the most advantageous interest and other costs consistent with prudent levels of risk; 3) Ensuring compliance of any proposed Debt with any applicable additional debt limitations under State law, or the Issuer's Debt Policy, resolutions and debt documents; 4) Seeking approval from the Board of Directors for the issuance of Debt or other debt obligations; 5) Coordinating with other public agencies in connection with necessary approvals associated with Debt issuance; 6) Recommending to the Board of Directors the manner of sale of any Debt or other debt transactions; 7) Monitoring opportunities to refund outstanding Debt to achieve debt service savings, and recommending such refunding to the Board, as appropriate; 8) Providing for and participating in the preparation and review of all legal and disclosure documents in connection with the issuance of any Debt by the Issuer; 9) Recommending the appointment of municipal advisors, bond counsel, disclosure counsel, Issuer consultants, underwriters, feasibility consultants and other professionals retained in connection with the Issuer's debt issuance as necessary or appropriate; 10) Distributing information regarding the business operations and financial condition of the Issuer to appropriate bodies on a timely basis in compliance with any applicable continuing disclosure requirements; 11) Communicating regularly with the rating agencies, bond insurers, investment providers, institutional investors and other market participants related to the Issuer's Debt; and 12) Maintaining a database with summary information regarding all of the Issuer's outstanding Debt and other debt obligations. C) Procedures for Approval of Debt Any proposed issuance of Debt by the Issuer shall be submitted to and subject to authorization and approval by the Board of Directors. 4 DocuSign Envelope ID: 5AB20026-8888-4E45-B85O-9E4A 1 E8A500F D) Considerations in Approving Issuance of Debt The Issuer may take into cons,ideration any or all of the following factors, as appropriate, prior to approving the proposed issuance of Debt: l) Whether the proposed issuance complies with this Debt Policy; 2) Source(s) of payment and security for the Debt; 3) Projected revenues and other benefits from the projects proposed to be funded; 4) Projected operating costs and other costs related to the proposed projects; 5) Impacts, if any, on Issuer and Debt credit ratings; 6) Period, if any, over which interest on the Debt should be capitalized; 7) Extent to which debt service on the Debt should be level or non-level; 8) Appropriate lien priority of the Debt; and 9) Adequacy of the proposed disclosure document. V. Purposes for Debt The Issuer may issue Debt for the purposes of financing and refinancing the costs of capital projects undertaken by the Issuer. The Issuer may also issue Debt for working capital purposes/startup related costs and expenses and to pay other extraordinary unfunded costs, including, but not limited to, termination or other similar payments due in connection with interest rate swaps (if any) and investment agreements entered into in connection with Debt. Proceeds of Debt may be applied to pay costs of issuance, to fund capitalized interest and debt service reserves and to pay costs incurred in connection with securing credit enhancement, including, but not limited to, premiums payable for bond insurance and reserve fund sureties. A) New Money Debt New money issues are typically those financings that generate additional funding to be available for expenditure on capital projects. New money proceeds may not be used to fund non-capital operational activities other than working capital or startup related costs. Working capital or startup related costs may be financed by short term Debt, as provided in Section VI.B. 5 DocuSign Envelope ID: 5AB20026-8888-4E45-B85D-9E4A 1 E8A500F B) Refunding Debt The Issuer may issue Debt to refund the principal of and interest on outstanding Debt of the Issuer in order to (i) achieve debt service savings; (ii) restructure scheduled debt service; (iii) convert from or to a variable or fixed interest rate structure; (iv) change or modify the somce or sources of payment and security for the refunded Debt; or (v) modify covenants otherwise binding upon the Issuer. Refunding Debt may be issued either on a current or advance basis, as permitted by applicable Federal tax laws. The Issuer may also utilize a tender offer process to refund Debt that is not otherwise subject to optional call by the Issuer. Refunding Debt should be issued to achieve debt service savings in most cases. Refundings which do not produce savings are permitted if justified based on the need for restructuring to remove covenants/pledges that are restrictive and/or no longer required by the market and/or to make other changes in debt documents that would benefi t the current, short-term, or long-term capital cost of the Issuer. VI. Types of and Limitations on Debt A) Long-Term Debt The Issuer may issue Debt with longer-term maturities to amortize Issuer capital or other costs over a period commensurate with the expected life, use or benefit provided by the project, program or facilities financed from such Debt. Long-term Debt will generally have a final maturity of five (5) years or more. Long-term debt is appropriate for financing essential capital projects and certain capital equipment where the project being financed will provide benefit over multiple years and the Issuer considers the project to be of vital, time-sensitive need and there are no plausible alternative financing sources after considering other alternatives, such as pay-as-you-go funding or existing funds on hand. B) Short-Term Debt The Issuer may issue Debt with shorter-term maturities to provide interim funding for capital projects and expenditures that will ultimately be funded from another source such as a grant, a long-term Debt issue, or the receipt of Federal or State grants, other revenues, and/or for cash flow management (including but not limited to working capital or startup related costs). Short-term Debt generally shall consist of Debt of an issue with a final maturity of five (5) years or less and may include, but is not limited to, Debt in the form of Tax and Revenue Anticipation Notes, Bond Anticipation Notes, Grant Anticipation Notes, and/or Commercial Paper. 6 DocuSign Envelope ID: 5AB20026-8B88-4E45-885D-9E4A 1 ESAS00F C) Power Revenue Debt If and to the extent authorized in accordance with applicable provisions of State law, the Issuer may issue Debt payable in whole or in part from power revenues. It is expected that power revenue debt will represent the principal form of Debt of the Issuer. D) Other Revenue Debt If and to the extent authorized in accordance with applicable provisions of State law, the Issuer may issue Debt payable in whole or in part from other types of revenues. E) Other Federally Supported Programs The Issuer may also participate in federal loans administered or provided by the United States as well as federally subsidized taxable and tax-exempt bond programs, and may secure credit enhancement and/or credit support provided under Federal programs, provided such loans, bonds or programs provide an attractive funding cost or other desirable features such as, but not limited to, deep subordination of the repayment obligation, an unusually long repayment term, or no payment due until a certain period after substantial project completion. F) Fixed-Rate Debt The Issuer may issue Debt that bears a fixed-rate rate of interest. G) Variable Rate Debt The Issuer may also issue Debt that bears a variable rate of interest, including, but not limited to, variable rate demand obligations, commercial paper and floating rate notes. VII. Terms and Provisions of Debt A) Debt Service Structure The Issuer shall design the financing schedule and repayment of debt so as to take best advantage of market conditions, provide flexibility and, as practical, to recapture or maximize its debt capacity for future use. Annual debt service payments will generally be structured on a level basis; however, principal amortization may occur more quickly or slowly where permissible, to mirror debt repayment streams and/or provide future financing flexibility. B) Amortization of Principal Long-term Debt of the Issuer shall be issued with maturities that amortize the principal of such Debt over a period commensurate with the expected life, use or benefit (measured in years) provided by the projects, programs and/or facilities financed from 7 DocuSign Envelope ID: 5AB20026-8888-4E45-885D-9E4A 1 E8A500F the proceeds of such Debt. The weighted average maturity of such Debt (if issued as tax-exempt Debt) should not exceed one hundred and twenty percent (120%) of the reasonably estimated weighted average life, use or benefit (measured in years) of the projects, programs and/or facilities financed from the proceeds of such Debt. Amortization of principal may be achieved either through serial maturities and/or through term Debt subject to mandatory sinking fund payments and/or optional redemptions. C) Capitalized Interest The Issuer may fund interest on Debt from proceeds of Debt for legal, budgeting or structuring purposes. D) Call Provisions for Debt 1) Optional Call Provisions. The Issuer shall seek to include the shortest practicable optional call rights, with and/or without a call premium, consistent with optimal pricing of such Debt. Call premiums, if any, should not be in excess of then prevailing market standards and to the extent consistent with the most advantageous borrowing cost for the Issuer. Non-callable maturities may be considered and used to accommodate market requirements or other advantageous benefits to the Issuer. 2) Extraordinary Call Provisions. The Issuer, at its option, may include extraordinary call provisions, including for example with respect to unspent proceeds, damage to or destruction of the project or facilities financed, or other matters, as the Issuer may determine is necessary or desirable. E) Payment of Interest l) Current Interest Debt may be issued. It is anticipated that the interest on most, if not all, Debt issued will be paid on a current interest basis. 2) Deferred Interest Debt may also be issued. Debt of the Issuer may be issued with the payment of actual or effective interest deferred in whole or in part to the maturity or redemption date of each debt instrument, or the conversion of such debt instrument to a current interest-paying debt instrument (known, respectively, as capital appreciation bonds, zero coupon bonds and convertible capital appreciation bonds). Deferred Interest Debt may be issued to achieve optimal sizing, debt service structuring, pricing or other purposes. F) Determination of Variable Interest Rates on Debt The interest rate from time to time on Debt the interest of which is not fixed to maturity may be determined in such manner that the Issuer determines, including without 8 DocuSign Envelope ID: 5AB20026-8B88-4E45-B85D-9E4A 1 E8A500F limitation on a daily, weekly, monthly or other periodic basis, by reference to an index, prevailing market rates or other measures, and by or through an auction or other method. G) Tender Options on Debt The Issuer may issue Debt subject to the right or obligation of the holder to tender the Debt back to the Issuer for purchase, including, for example, to enable the holder to liquidate their position, or upon the occurrence of specified credit events, interest rate mode changes or other circumstances. The obligation of the Issuer to make payments to the holder upon any such tender may be secured by (i) a credit or liquidity facility from a financial institution in an amount at least equal to the principal amount of the Debt subject to tender, (ii) a liquidity or similar account into which the Issuer shall deposit and maintain an amount at least equal to the principal amount of the Debt subject to tender, or (iii) other means of self-liquidity that the Issuer deems prudent. H) Multi-Modal Debt The Issuer may issue Debt that may be converted between two or more interest rate modes without the necessity of a refunding. Such interest rate modes may include, without limitation: daily interest rates, weekly interest rates, other periodically variable interest rates, commercial paper rates, auction rates, fixed rates for a term and fixed rates to maturity (in each case with or without tender options). I) Debt Service Reserve Funds The Issuer may issue Debt that is secured by amounts on deposit in or credited to a debt service reserve fund or account in order to minimize the net cost of borrowing and/or to provide additional reserves for debt service or other purposes. Debt service reserve funds may secure one or more issues of Debt, and may be funded by proceeds of Debt, other available moneys of the Issuer, and/or by surety policies, letters or lines of credit or other similar instruments. Surety policies, letters or lines of credit or other similar instruments may be substituted for amounts on deposit in a debt service reserve fund if such amounts are needed for capital projects or other purposes. Amounts in the debt service reserve funds shall be invested in accordance with the requirements of the applicable Debt documents in order to (i) maximize the rate of return on such amounts; (ii) minimize the risk of loss; (iii) minimize volatility in the value of such investments; and (iv) maximize liquidity so that such amounts will be available if it is necessary to draw upon them. 9 DocuSign Envelope ID: 5AB20026-8B88-4E45-B85D-9E4A 1 EBAS00F J) Lien Levels The Issuer may create senior and junior lien pledges, as well as pledges at various lien priority levels, for each fund source which secures Debt repayment in order to optimize financing capacity. vm. Maintenance of Liquidity; Reserves The Issuer may maintain unencumbered reserves in amounts sufficient in the determination of the Issuer to cover unexpected revenue losses, extraordinary payments and other contingencies, and to provide liquidity in connection with the Issuer's outstanding Debt. IX. Investment of Debt Proceeds and Related Moneys Proceeds of Debt and amounts in the Issuer's debt service, project fund and debt service reserve funds with respect to outstanding Debt shall be invested in accordance with the terms of the applicable Debt documents and other applicable agreements of the Issuer. X. Third Party Credit Enhancement The Issuer may secure credit enhancement for its Debt from third-party credit providers to the extent such credit enhancement is available upon reasonable, competitive and cost- effective terms. Such credit enhancement may include municipal bond insurance ("Bond Insurance"), letters of credit and lines of credit (collectively and individually, "Credit Facilities"), as well as other similar instruments. A) Bond Insurance All or any portion of an issue of Debt may be seemed by Bond Insurance provided by municipal bond insurers ("Bond Insurers") if it is economically advantageous to do so, or if it is otherwise deemed necessary or desirable in connection with a particular issue of Debt. The relative cost or benefit of Bond Insurance may be determined by comparing the amount of the Bond Insurance premium to the present value of the estimated interest savings to be derived as a result of the insurance. B) Credit Facilities The issuance of certain types of Debt requires a letter of credit or line of credit (a "Credit Facility") from a commercial bank or other qualified financial institution to provide liquidity and/or credit support. The types of Debt where a Credit Facility may be necessary include commercial paper, variable rate Debt with a tender option and Debt that could not receive an investment grade credit rating in the absence of such a facility. The criteria for selection of a Credit Facility provider shall include the following: DocuSign Envelope ID: 5AB20026-8B88-4E45-B85D-9E4A 1 E8A500F 1) Long-term ratings from at least two nationally recognized credit rating agencies ("Rating Agencies") preferably to be equal to or better than those of the Issuer, if any; 2) Short-term ratings as appropriate for the type of Debt being issued; 3) Experience providing such facilities to state and local government issuers; 4) Fees, including without limitation initial and ongoing costs of the Credit Facility; draw, transfer and related fees; counsel fees; termination fees and any trading differential; and 5) Willingness to agree to the terms and conditions proposed or required by the Issuer. XI. Use of Derivatives Derivative products include but are not limited to interest rate swaps, interest rates caps and collars and forward or other hedging agreements. Derivative products will be considered in the issuance or management of debt only in instances where it has been demonstrated that the derivative product will either provide a hedge that reduces risk of fluctuations in expense or revenue, or, alternatively, where it will reduce total debt service cost in a manner that exceed the risks. Derivative products will only be utilized following the adoption of derivative product policy and with prior Board approval. In addition, an analysis of early termination costs and other conditional terms must be completed by the Issuer's municipal advisor prior to the approval of any derivative product by the Board. Such analysis will document the risks and benefits associated with the use of the particular derivative product. Xll. Methods of Sale and Pricing of Debt There are three principal methods for the sale of Debt: (i) competitive; (ii) negotiated and (iii) private placement. In addition, Debt may be incurred as a direct loan. The Issuer shall utilize the method of sale that (a) is reasonably expected to produce the most advantageous interest cost with respect to the Debt and (b) provides the Issuer with the flexibility most desirable in connection with the strncturing, timing or terms of such Debt. The Issuer shall utilize such method that is likely to provide the most advantageous borrowing costs and execution on behalf of the Issuer. Debt may be sold at such prices, including at par, a premium or a discount, as the Issuer, in consultation with its municipal advisor, may determine is likely to produce the most advantageous interest cost under then prevailing market conditions, subject to compliance with applicable State law and Federal securities laws. 11 DocuSign Envelope ID: 5AB20026-8B88-4E45-B85D-9E4A 1 E8AS00F A) Competitive Sale The competitive method of sale is appropriate when: 1) Bond prices are stable and/or there is strong demand for the bonds; 2) Market timing and interest rate sensitivity are not critical to the pricing; 3) Issuer has a strong credit rating and is well known to investors; 4) The Issuer has straightforward political and organizational structure, and the project, funding, and credit quality are easy to understand and market to potential investors; and 5) The Debt type and structure are conventional and the transaction size is manageable. B) Negotiated Sale A negotiated sale is appropriate when: 1) There is market volatility and/or weak demand and high supply of competing financings; 2) The Debt structure is complex; 3) Issuer has lower or weakening credit rating and is not well known to investors; 4) The Debt has non-standard structural features, such as a forward delivery, issuance of variable rate bonds, use of derivative products, or possesses a specific structuring feature that benefits from a negotiated sale; 5) Early structuring and market participation by underwriters are desired and there is strong projected retail demand for the Debt; and 6) The Debt size is significantly larger and would limit competition. For a negotiated bond sale, the Issuer, with the assistance of its municipal advisor, will conduct a competitive underwriter selection process for either a specific Debt issue or through the establishment of an underwriter pool from which to choose over a defined period of time. C) Private Placement A private placement is structured for one purchaser or a group of purchasers, who are typically qualified institutional buyers, in a non-public offering conducted by an 12 DocuSign Envelope ID: 5AB20026-8B88-4E45-885D-9E4A 1 E8A500F underwriting firm serving as placement agent. Since no public offering is involved, securities disclosure requirements are not as heavy. If a private placement is considered as the optimal sale method for the Issuer, the municipal advisor will conduct a competitive selection process to recommend the placement agent. D) Direct Purchase; Direct Loan; Revolving Obligations A direct purchase or direct loan is structured specifically for one bank ( or a syndicate of banks), putting the Issuer and bank in a bilateral borrower-lender relationship. Examples include a direct purchase agreement or revolving credit facility. Securities disclosure requirements are the least burdensome for this structure. A direct purchase or direct loan may be advisable if the Issuer is unable to access the municipal capital markets or for other reasons. If a direct purchase or direct loan is contemplated, a municipal advisor, if any, should conduct a competitive selection process to recommend the bank. Selection criteria will include: 1) A term sheet to be provided along with the request for qualifications, with any requested modifications to be highlighted by the bank and taken into consideration in the evaluation process; 2) A representative list of clients for whom the bank has provided similar agreements; and 3) Evaluation of fees, specifically, cost of the agreement including index, spread, and other administrative charges. The evaluation of fees, terms and conditions will be compared to other alternative financing methods. :xm. Debt Redemption Programs The Issuer may establish from time-to-time a plan or program for the payment and/or redemption of outstanding Debt and/or interest thereon from revenues and/or other available funds pursuant to a recommendation from the Chief Financial Officer. Such plan or program may be for the purposes of reducing outstanding Debt, managing the amount of debt service payable in any year, or other suitable purposes, as determined by the Issuer. XN. Professional Services The Issuer may retain professional services providers as necessary or desirable in connection with: (i) the structuring, issuance and sale of its Debt; (ii) monitoring of and advice regarding its outstanding Debt; and (iii) the negotiation, execution and monitoring of related agreements, including without limitation Bond Insurance, Credit Facilities, Derivatives and investment agreements; and (iv) other similar or related matters. Professional service providers may include municipal advisors, bond counsel, disclosure counsel, Issuer consultants, bond trnstees and Federal arbitrage rebate services providers, 13 DocuSign Envelope ID: 5AB20026-8B88-4E45-B85D-9E4A 1 E8A500F and may include, as appropriate, underwriters, feasibility consultants, remarketing agents, auction agents, broker-dealers, escrow agents, verification agents and other similar parties. The Issuer shall require that its Municipal Advisors, bond and disclosure counsel and other Issuer consultants be free of any conflicts of interest, or that any necessary or appropriate waivers or consents are obtained. A) Municipal Advisors The Issuer may utilize one or more municipal advisors to provide ongoing advisory services with respect to the Issuer's outstanding and proposed Debt and related agreements, including without limitation Bond Insurance, Credit Facilities, Derivatives, investment agreements and other similar matters. Municipal advisors must be registered with the Municipal Securities Rulemaking Board and as a municipal advisor as such term is defined in the Securities Exchange Act of 1934 and shall be required to disclose any conflicts of interest. B) Bond Counsel, Disclosure Counsel and Other Legal Counsel 1) Bond Counsel. The Issuer may utilize one or more bond counsel firms to provide ongoing legal advisory services with respect to the Issuer's outstanding and proposed Debt and related agreements, including without limitation Credit Facilities, Derivatives, investment agreements and other similar matters. All Debt issued by the Issuer shall require a written opinion from the Issuer's bond counsel, as appropriate, regarding (i) the validity and binding effect of the Debt, and (ii) the exemption of interest from Federal and State income taxes. 2) Disclosure Counsel. The Issuer may utilize a disclosure counsel firm to provide ongoing legal advisory services with respect to initial and continuing disclosure in connection with the Issuer's outstanding and proposed Debt. Such firm may be one of the Issuer's bond counsel firms. 3) Other Legal Counsel. The Issuer may encourage or require, as appropriate, the retention and use of legal counsel by other parties involved in the issuance of Debt and the execution of related agreements which are approved by the Issuer. C) Issuer Consultant The Issuer may utilize one or more outside Issuer consultants to provide ongoing advisory services with respect to the Issuer's outstanding and proposed Debt, Issuer fares, strategic business and financial decisions and such other matters as the Issuer requires. 14 DocuSign Envelope ID: 5AB20026-8B88-4E45-885D-9E4A 1 E8A500F D) Trustees and Fiscal Agents The Issuer may engage bond trustees and/or fiscal agents, paying agents and tender agents, as necessary or appropriate, in connection with the issuance of its Debt. E) Underwriters/Remarketing Agents/Broker-Dealers The Issuer may engage an underwriter or a team of underwriters, including a senior managing underwriter, in connection with the negotiated sale of its Debt. The Issuer al so may engage one or more underwriters, as necessary or appropriate, to serve as remarketing agents, broker-dealers or in other similar capacities with respect to variable rate, auction, tender option, commercial paper and other similar types of Debt issued by the Issuer. F) Feasibility Consultants The Issuer may retain feasibility consultants in connection with proposed project, programs, facilities or activities to be financed in whole or in part from proceeds of Debt. The criteria for the selection of such feasibility consultants, in addition to those set forth above, shall include their expertise and experience with projects, programs, facilities or activities similar to those proposed to be undertaken by the Issuer. G) Arbitrage Rebate Services Providers Because of the complexity of the Federal arbitrage rebate statutes and regulations, and the severity of potential penalties for non-compliance, the Issuer may retain an arbitrage rebate services provider in connection with its outstanding and proposed Debt, and may also solicit related legal and tax advice from its bond counsel or separate tax counsel. The responsibilities of the arbitrage rebate services provider shall include: (i) the periodic calculation of any accrued arbitrage rebate liability and of any rebate payments due under and in accordance with the Code and the related rebate regulations; (ii) advice regarding strategies for minimizing arbitrage rebate liability; (iii) the preparation and filing of periodic forms and information required to be submitted to the Internal Revenue Service; (iv) the preparation and filing of requests for reimbursement of any prior overpayments; and (v) other related matters as requested by the Issuer. The Issuer shall maintain necessary and appropriate records regarding (i) the expenditure of proceeds of Debt, including the individual projects and facilities financed and the amounts expended thereon, and (ii) investment earnings on such Debt proceeds. The Issuer shall maintain such records for such period of time as shall be required by the Code. 15 DocuSign Envelope ID: 5AB20026-8B88-4E45-B85D-9E4A 1 E8A500F H) Other Professional Services The Issuer may retain such other professional services providers, including without limitation verification agents, escrow agents, auction agents, as may be necessary or appropriate in connection with its Debt. XV. Budgeting and Capital Planning The Issuer's budgeting process, including its budgeting process for capital expenditures, shall provide a framework for evaluating proposed Debt issuances. XVI. Credit Rating Objectives The Issuer shall seek to preserve and enhance the credit ratings with respect to its outstanding Debt, if any, to the extent consistent with the Issuer's current and anticipated business operations and financial condition, strategic plans and goals and other objectives, and in accordance with any developed credit strategies. XVII. Debt Affordability The Issuer shall periodically review its debt affordability levels and capacity for the undertaking of new financing obligations to fund its expenditure plans. Debt affordability measures shall be based upon the credit objectives of the Issuer, criteria identified by rating agencies, comparison of industry peers and other internal factors of the Issuer. XVIII. Relationships with Market Participants The Issuer shall seek to preserve and enhance its relationships with the various participants in the municipal bond market, including without limitation, the Rating Agencies, Bond Insurers, credit/liquidity providers and current and prospective investors, including through periodic communication with such participants. The Issuer shall prepare or cause to be prepared appropriate disclosures as required by the Securities and Exchange Commission Rule 15c2-12, the federal government, the State of California, rating agencies and other persons or entities entitled to disclosure to ensure compliance with applicable laws and regulations and agreements to provide ongoing disclosure. XIX. Periodic Review The Chief Financial Officer shall review this Debt Policy on a periodic basis and recommend any changes to the Board for consideration. 16