HomeMy WebLinkAbout2002-090 Loan Agrmt - US Bank LOAN AGREEMENT
(AFN Financing)
by and between
U.S. Bank National Association, as Lender
and
City of Ashland, as Borrower
dated as of August 25, 1999
Loan Agreement
(AFN Financing)
This Loan Agreement is entered into between the City of Ashland, Oregon, and U.S. Bank
National Association as of this 25th day of August, 1999.
Section 1. Definitions.
For purposes of this Loan Agreement the following capitalized terms shall have the following
meanings, unless the context clearly requires otherwise:
"AFN" means the Ashland Fiber Network, which is a high-speed hybrid fiber optic/coaxial cable
network.
"AFN Net Operating Revenues" means the gross revenues of the City's AFN remaining after
payment of the ordinary operating and maintenance expenses incurred by the City in its AFN
operations.
"Annual Debt Service" means all payments of principal, interest and premium, if any, which are
scheduled to be paid in a fiscal year on outstanding Obligations.
"Bank" means U.S. Bank National Association or its successors.
"Base Period" means any twelve consecutive months from the eighteen month period preceding
the issuance of a series of Parity Obligations.
"Business Day" means any day which is not a Saturday, Sunday, legal holiday or a day on which
the office of banks in Oregon are authorized or required by law or executive order to remain
closed.
"City" means the City of Ashland, Oregon.
"City Official" means the Director of Finance of the City or the City Administrator or a person
designated by the Director of Finance or the City Administrator to act on behalf of the City under
the Resolution.
"Direct Obligations" means direct obligations of the United States, and any obligations the
payment of which is fully and unconditionally guaranteed by the United States.
"Electric System" means all property owned or used by the City to provide electric power and
related services.
"Electric System Net Operating Revenues" means the gross revenues of the Electric System
remaining after payment of the ordinary operating and maintenance expenses incurred by the
City in its Electric System operations.
"Event of Default" means the declaration by the Bank of an event of default as a result of a
determination by the Bank that there has been: (i) a failure to pay principal or interest on the
Note when due, as provided in the Note and this Loan Agreement; or (ii) a failure by the City to
comply with any of its other obligations, or to perform any of its other duties, under this Loan
Agreement or the Note, which failure continues, and is not cured, for a period of more than 60
days after the Bank has made written demand on the City to cure such failure; or, (iii) a material
misrepresentation by the City in this Loan Agreement or the Note. However, it shall not
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constitute an Event of Default under clause (ii) of the preceding sentence if the City has
commenced action to cure the failure, and continues to work diligently to cure the failure until
the failure is cured.
"Fiscal Year" means the period beginning July 1 of each year and ending on the next succeeding
June 30, or as otherwise defined by Oregon Law.
"Loan Agreement" means this Loan Agreement (AFN Financing).
"Net Revenues" means the AFN Net Operating Revenues plus the Electric System Net Operating
Revenues.
"Note" means the note evidencing the amounts owed under this Loan Agreement, which shall be
in substantially the form attached hereto as Appendix A.
"Note Counsel" means Preston Gates & Ellis LLP or another law firm having knowledge and
expertise in the field of municipal law and whose opinions are generally accepted by purchasers
of municipal bonds.
"Obligations" means the Loan Agreement and Note, and any future Parity Obligations.
"Owner" means a person entitled to be paid principal or interest on an Obligation by the City.
Owner includes the Bank.
"Parity Obligations" means any obligation payable from the AFN Net Operating Revenues which
is issued in accordance with Section 12.
"Project" means the designing, equipping, constructing and implementing of the AFN.
"Resolution" means City Resolution No. __, adopted August 17, 1999, authorizing this Loan
Agreement and the Note.
Section 2. Recitals.
The City Council has adopted the Resolution which authorizes the City to enter into a loan
agreement to finance the Project in a maximum amount of $5,800,000.
Section 3. Loan Agreement.
(A) The Bank hereby agrees to make a loan to the City under this Loan Agreement in the
aggregate principal amount of $5,800,000, subject to the terms and conditions of this
Loan Agreement.
(B) The loan shall bear interest at the rate of Five and Fourteen Hundredths Percent (5.14%)
per annum, calculated on a 30/360-day basis and shall be payable semi-annually on
February 1 and August 1 of each year, commencing February 1, 2000, with the following
annual principal payments as follows:
Payment Date Principal Amount
August 1,2001 $100,000
August 1, 2002 $300,000
August 1, 2003 $568,000
August 1, 2004 $594,000
August 1, 2005 $630,000
August 1, 2006 $659,000
August 1, 2007 $688,000
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August 1, 2008 $719,000
August 1, 2009 $752,000
August 1, 2010 $790,000
Section 4. Prepayment.
(A) Principal may be prepared on any date, in whole or in part, upon one Business Day's
notice by the City to the Bank, during the following times at the following prices
(expressed as a percentage of the principal amount which is prepaid):
102% during the first, second and third years;
101% during the fourth, fifth and sixth years; and,
100% during and after the seventh year.
(B) Payments by the City to the Bank shall be applied first, to pay accrued interest, and
second, to reduce the unpaid principal amount of the Note.
Section 5. Security for Loan Agreement; Release of Security.
(A) This Loan Agreement is a special obligation of the City, which is payable solely from the
Net Revenues. The City shall pay the amounts due under this Loan Agreement from the
AFN Net Operating Revenues. To provide additional security for this Loan Agreement,
if the AFN Net Operating Revenues are not sufficient to pay the amounts due under this
Loan Agreement, the City agrees to pay those amounts from the Electric System Net
Operating Revenues. The Loan Agreement does not constitute, and shall be construed so
that it is not, a borrowing upon the credit of the City which is subject to the limitations of
Sections 5 and 6 of Article IX of the City Charter.
(B) The City hereby pledges the AFN Net Operating Revenues and the Electric System Net
Operating Revenues to the payment of principal of, premium (if any) and interest on all
Obligations. Pursuant to ORS 288.594, these pledges of the Net Revenues shall be valid
and binding from the time of execution of this Loan Agreement. The amounts so pledged
and hereafter received by the City shall immediately be subject to the lien of such pledge
without any physical delivery or further act, and the lien of the pledge shall be superior to
all other claims and liens whatsoever to the fullest extent permitted by ORS 288.594(2).
Section 6. Deposit and Use of Loan Agreement Proceeds.
The City shall deposit the proceeds of this Loan Agreement in a separate account (the "Proceeds
Account"), and shall use those proceeds solely to finance the Project and costs associated with
this Loan Agreement, and to pay amounts due under this Loan Agreement. The City hereby
pledges the amounts in the Proceeds Account to pay the amounts due under this Loan
Agreement.
Section 7. Tax Covenants.
The City covenants to operate the real or personal property financed with the Note, to invest the
proceeds of the Note, and to pay any required rebates to the United States, so that the Note is not
a "private activity bond" under Section 141 of the Internal Revenue Code of 1986, as amended
(the "Code"), the Note is not an "arbitrage bond" under Section 148 of the Code, and interest due
on the Note is excludable from gross income under Section 103 of the Code.
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Section 8. Default.
If an Event of Default occurs, the Bank may: declare the unpaid principal amount of the Note
immediately due and payable, together with interest accrued thereon to the date of payment; or
exercise any remedy available at law or in equity. No remedy shall be exclusive. The Bank may
waive any Event of Default, but no such waiver shall extend to a subsequent Event of Default.
Section 9. Fees, Costs and Expenses.
(A) Bank Fees. The City shall pay the Bank an origination fee of $1,500.
(B) Bank Costs of Enforcement. If the Bank incurs any expenses in connection with
enforcing this Loan Agreement, or if the Bank takes collection action under this Loan
Agreement, the City shall pay to the Bank, on demand, the Bank's reasonable costs and
reasonable attorneys' fees, whether at trial, on appeal or otherwise, including any
allocated costs of in-house counsel.
(C) Other Fees and Costs. Th~ City shall pay the fees and costs of Note Counsel, the Bank's
legal fees and inspection fees, and any other expenses and costs which the City incurs in
connection with this Loan Agreement.
Section 10. Rate Covenant.
The City shall impose rates, fees and charges for its AFN and its Electric System which are
sufficient to produce Net Revenues each fiscal year which are at least equal to one hundred
twenty-five percent (125.00%) of the Annual Debt Service for that Fiscal Year.
Section 11. Other Covenants.
So long as any Obligations are outstanding, the City shall:
(A) Operate the Electric System and maintain it in good condition;
(B) Operate the AFN and maintain it in good condition, unless the City reasonably concludes
that the AFN can not be operated to produce substantial AFN Net Operating Revenues.
(C) The City shall maintain complete books and records relating to the operation of the AFN
and the Electric System and all City funds and accounts in accordance with generally
accepted accounting principles applicable to those systems, and shall cause such books
and records to be audited annually at the end of each fiscal year, and an audit report
prepared and made available for the inspection of Owners. When this Loan Agreement
requires that amounts of net operating revenues, expenses and similar amounts be
determined, those amounts shall be determined using generally accepted accounting
principles which apply to enterprises such as the AFN and the Electric System.
(D) The City shall not issue any obligations which have a lien or claim on the AFN Net
Operating Revenues which is superior to the lien of the Loan Agreement and Note.
(E) The City shall operate the AFN and the Electric System in a sound, efficient and
economic manner, and shall not provide services at a discount from published rate
schedules except in case of emergencies.
(F) The City shall at all times maintain with responsible insurers all such insurance on the
AFN and the Electric System as is customarily maintained with respect to works and
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properties of like character against accident to, loss of or damage to such works or
properties.
(1) The net proceeds of insurance against accident to or destruction of the Electric
System shall be used to repair, rebuild, improve or expand the Electric System,
and to the extent not so applied, shall be applied to the payment or redemption of
the Obligations on a pro rata basis.
(2) The net proceeds of insurance against accident to or destruction of the AFN shall
be used to repair, rebuild, improve or expand the AFN, and to the extent not so
applied, shall be applied to the payment or redemption of the Obligations on a pro
rata basis.
(3) Insurance described in Section 11(F) shall be in the form of policies or contracts
for insurance with insurers of good standing and shall be payable to the City, or in
the form of self-insurance by the City. The City shall establish such fund or funds
or reserves which it deems are necessary to provide for its share of any such
self-insurance.
(G) The City shall not, nor shall it permit others to, sell, mortgage, lease or otherwise dispose
of or encumber all or any portion of the Electric System except:
(1) The City may dispose of all or substantially all of the Electric System, only if the
City pays or defeases all Obligations or defeases them pursuant to Section 14.
(2) Except as provided in Section 11 (G)(3), the City shall not dispose of any part of
the Electric System in excess of ten percent (10.0%) of the value of the Electric
System in service unless prior to such disposition either:
(a) there has been filed with the City a certificate of a independent
professional engineer or economist stating that such disposition shall not
impair the ability of the City to comply with the rate covenants contained
in Section 10 and Section 12(A)(2); or
(b) provision is made for the payment, redemption or other defeasance of a
principal amount of Obligations equal to the greater of the following
amounts:
(i) An amount which shall be in the same proportion to the net
principal amount of Obligations then Outstanding that the Net
Revenues attributable to the part of the Electric System sold or
disPosed of for the 12 preceding months bears to the total Net
Revenues for such period; or
(ii) An amount which shall be in the same proportion to the net
principal amount of Obligations then Outstanding that the book
value of the part of the Electric System sold or disposed of bears to
the book value of the Electric System immediately prior to such
sale or disposition.
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(3) The City may dispose of any portion of the Electric System that has become
unserviceable, inadequate, obsolete, or unfit to be used or no longer necessary for
use in the operation of the Electric System.
(4) If the ownership of all or part of the Electric System is transferred from the City
through the operation of law, the City shall to the extent authorized by law,.
reconstruct or replace such transferred portion using any proceeds of the transfer
unless the City Council reasonably determines that such reconstruction or
replacement is not in the best interest of the City and the Owners, in which case
any proceeds shall be used for the payment, redemption or defeasance of the
Obligations.
(H) The City shall not, nor shall it permit others to, sell, mortgage, lease or otherwise dispose
of or encumber all or any portion of the AFN except:
(1) Except as provided in Section 1 l(G)(3), the City shall not dispose of any part of
the AFN in excess often percent (10.0%) of the value of the AFN in service
unless prior to such disposition either:
(a) there has been filed with the City a certificate of a independent
professional engineer or economist stating that such disposition shall not
impair the ability of the City to comply with the rate covenants contained
in Section 10 and Section 12(A)(2); or
(b) provision is made for the payment, redemption or other defeasance of a
principal amount of Obligations equal to the greater of the following
amounts:
(i) An amount which shall be in the same proportion to the net
principal amount of Obligations then Outstanding that the Net
Revenues attributable to the part of the AFN sold or disposed of
for the 12 preceding months bears to the total Net Revenues for
such period; or
(ii) An amount which shall be in the same proportion to the net
principal amount of Obligations then Outstanding that the book
value of the part of the AFN sold or disposed of bears to the book
value of the AFN immediately prior to such sale or disposition.
(2) The City may dispose of any portion of the AFN that has become unserviceable,
inadequate, obsolete, or unfit to be used or no longer necessary for use in the
operation of the AFN.
(3) If the ownership of all or part of the AFN is transferred from the City through the
operation of law, the City shall to the extent authorized by law, reconstruct or
replace such transferred portion using any proceeds of the transfer unless the
Board of Commissioners reasonably determines that such reconstruction or
replacement is not in the best interest of the City and the Owners, in which case
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any proceeds shall be used for the payment, redemption or defeasance of the
Obligations.
Section 12. Parity Obligations.
(A) General Requirements. The City may issue Parity Obligations, but only if:
(1) No Event of Default under this Loan Agreement has occurred and is continuing;
(2) The resolution authorizing the issuance of the Parity Obligations contains a
covenant requiring the City to impose rates, fees and charges for its AFN and its
Electric System which are sufficient to produce Net Revenues each fiscal year
which are at least equal to one hundred twenty-five percent (125.00%) of the
Annual Debt Service due in that Fiscal Year; and,
(3) There shall have been filed with the City a certificate of the City Official stating
that Net Revenues for the Base Period were not less than one hundred twenty-five
percent (125.00%) of the average Annual Debt Service of all outstanding
Obligations, with the proposed Parity Obligations treated as outstanding.
(B) Refunding Exception. The City may issue Parity Obligations to refund outstanding
Obligations if:
(1) the refunded obligations are defeased on the date of delivery of the refunding
Parity Obligations; and,
(2) the Annual Debt Service for the refunding Parity Obligations does not exceed the
Annual Debt Service for the refunded Obligations in any year by more than
$5,000.
(C) Lien of Parity Obligations on AFN Net Operating Revenues. All Parity Obligations
issued in accordance with this Section shall have a lien on the AFN Net Operating
Revenues which is equal to the lien of all other outstanding Obligations, including this
Loan Agreement.
Section 13. Subordinate Obligations.
The City may issue obligations which are subordinate to the lien of this Loan Agreement on the
AFN Net Operating Revenues without restriction or limitation. Such subordinate obligations
shall state clearly that they are secured by a lien on or pledge of the AFN Net Operating
Revenues which is subordinate to the lien on and pledge of the AFN Net Operating Revenues of
this Loan Agreement.
Section 14. Defeasance
The City may defease and deem all or any portion of the outstanding Obligations to be paid by:
(A) Irrevocably depositing cash or noncallable, nonprepayable Direct Obligations in escrow
with an independent escrow agent which are calculated to be sufficient for the payment of
Obligations which are to be defeased; and,
(B) Filing with the escrow agent an opinion from a certified public accountant or other
qualified professional to the effect that the money and the principal and interest to be
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received from the Direct Obligations are calculated to be sufficient, without further
reinvestment, to pay the defeased Obligations when due; and,
(C) Filing with the escrow agent an opinion of nationally recognized bond counsel that the
proposed defeasance shall not cause interest on the defeased Obligations to be includable
in gross income under the Code.
If Obligations are defeased under this Section, all obligations of the City with respect to those
defeased Obligations shall cease and terminate, except for the obligation of the City, the escrow
agent and any paying agent to pay the defeased Obligations from the amounts deposited in
escrow, and the obligation of any paying agent to continue to transfer ObligatiOns as provided in
their authorizing documents.
Section 15. Representations, Warranties and Agreements of the City for the Bank.
By executing this Loan Agreement in the space provided below, the City represents and warrants
to, and agrees with the Bank that:
(A) The City is authorized under the Constitution and laws of the State of Oregon and its
Charter to enter into this Loan Agreement and to perform all of its obligations hereunder.
(B) The City will do or cause to be done all things necessary to remain in existence
throughout the term of this Loan Agreement.
(C) The City has been duly authorized to execute and deliver this Loan Agreement by proper
action by its City Council, and has complied with all requirements and procedures which
are necessary to ensure the validity and enforceability of this Loan Agreement.
(D) The City will comply with all applicable provisions of the Code, so that the interest on
the Note will be excludable from gross income under the Code. The City specifically
covenants that it will comply with the "arbitrage" provisions of Section 148 of the Code,
and will pay any rebates due to the United States thereunder, and that it will use the
Project so that this Loan Agreement and the Note are not "private activity bonds" under
Section 141 of the Code.
(E) The City has designated the Loan Agreement as a "qualified tax-exempt obligation"
pursuant to Section 265(b)(3) of the Code.
(F) The City has reviewed and assessed its business operations and computer systems and
applications to address "year 2000 problem" ~(that is, that computer applications and
equipment used by the City, directly, or indirectly through third parties, may be unable to
properly perform date-sensitive functions before, during and after January 1, 2000). The
City reasonably believes that the year 2000 problem will not result in a material adverse
change in the City's business condition (financial or otherwise), operations, properties or
prospects or ability to repay the Bank. The City agrees that this representation will be true
and correct and shall be deemed made by the City on each date the City requests any
advance under this Loan Agreement or delivers any information to the Bank. The City will
promptly deliver to the Bank such information relating to this representation as the Bank
requests from time to time.
(G) there is no action, suit, proceeding or investigation at law or in equity before or by any court
or government, city or body pending or, to the best of the knowledge of the City, threatened
against the City to restrain or enjoin the adoption of the Resolution or the execution and
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delivery of this Loan Agreement and the Note, or the collection and application of funds as
contemplated by this Loan Agreement or the Note, which, in the reasonable judgment of the
City, would have a material and adverse effect on the ability of the City to pay the amounts
due under the Note, and
(H) the adoption of the Resolution and the execution and delivery of this Loan Agreement and
the Note do not and will not conflict in any material respect with or constitute on the part of
the City a breach of or default under any law, charter provision, court decree, administrative
regulation, resolution, ordinance or other agreement or instrument to which the City is a
party or by which it is bound;
Section 16. Financial Statements; Notice of Adverse Developments; Budgets.
While this Loan Agreement is in effect:
(A) The City shall provide the Bank promptly with a copy of each of the City's final, annual
audited financial statements promptly after the end of each fiscal year, together with a
statement of the Net Revenues for that fiscal year.
(B) The City shall promptly notify the Bank if: any event occurs which is likely, in the
reasonable judgment of the City, to have a material adverse effect on the Net Revenues;
or any litigation is filed against the City which seeks recovery of more than $500,000
from the City and which is not covered by insurance.
Section 17. Notices.
Any notices required to be given pursuant to this Loan Agreement shall be given to the following
addresses:
City: Ms. Jill Turner, Director of Finance
City of Ashland
20 East Main Street
Ashland, OR 97520
Bank: U.S. Bank National Association
1420 Fifth Avenue, 9th Floor
Seattle, WA 98101
Attention: Ron Olsen
Section 18. Survival; Loan Agreement Constitutes Contract.
The City or the Bank may not assign this Loan Agreement. All representations, warranties, and
agreements contained in this Loan Agreement shall survive the execution, delivery and payment
of this Loan Agreement. This Loan Agreement and the Note shall constitute a contract between
the City and the Bank. The Bank's extension of credit hereunder is expressly made in reliance on
such contract.
Section 19. Applicable Law.
This Loan Agreement shall be governed and interpreted in accordance with the laws o-f the State
of Oregon.
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Section 20. Severability and Waivers.
If any part of this Loan Agreement is not enforceable, the rest of this Loan Agreement may be
enforced. The Bank retains all fights, even if it makes a loan after default. If the Bank waives a
default, it may enforce a later default. Any consent or waiver under this Loan Agreement must
be in writing.
Section 21. Counterparts.
This Loan Agreement may be executed simultaneously in several counterparts, each of which
shall be an original and all of which shall constitute one and the same agreement.
Section 22. Written Agreements.
Under Oregon law, most agreements, promises and commitments made by the Bank after
October 3, 1989, concerning loans and other credit extensions which are not for personal, family
or household purposes or secured solely by the borrower's residence must be in writing, express
consideration and be signed by the Bank to be enforceable.
DATED as of this 25'h day of August, 1999.
U.S. BANK NATIONAL ASSOCIATION
By:
Authorized Officer
CITY OFASHLAND, OREGON
mill Turner, Director of Finance
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