73-10c-6 - Credit enhancement agreement -- Provisions for use of funds. - Utah Statutes

73-10c-6. Credit enhancement agreement -- Provisions for use of funds.
(1) (a) A credit enhancement agreement may be made for the purpose of facilitatingfinancing for political subdivisions.
(b) A credit enhancement agreement may provide for the use of funds from the securityfund to accomplish the purposes specified in Section 73-10c-4.
(2) (a) The political subdivision, prior to the sale or issuance of a drinking water or awastewater project obligation, shall:
(i) apply to the Drinking Water Board or Water Quality Board to have its drinking wateror wastewater project obligation or both, as desired, designated as covered by a creditenhancement agreement; and
(ii) have entered into a credit enhancement agreement with the Drinking Water Board orWater Quality Board setting forth the terms and conditions of the security or other forms ofassistance provided by the agreement.
(b) The Drinking Water Board and Water Quality Board may not designate any drinkingwater or wastewater project obligation as covered by the credit enhancement agreement:
(i) unless immediately after the designation there is on deposit in the security fund, basedon the purchase or then market price of the investments therein, whichever is lower, an amountdetermined by the Drinking Water Board or Water Quality Board to be sufficient to:
(A) reasonably improve the security for and marketability of the drinking water orwastewater project obligation, or both; and
(B) comply with the terms and provisions of all existing credit enhancement agreements;and
(ii) while held by the state, any agency of the state, the federal government, or anyagency of the federal government.
(c) A drinking water project obligation may not be designated as covered by a creditenhancement agreement unless the drinking water project for which it was issued by the politicalsubdivision has been approved by the Department of Environmental Quality, acting through theDrinking Water Board.
(d) A wastewater project obligation may not be designated as secured by a creditenhancement unless the wastewater project for which it was issued by the political subdivisionhas been approved by the Department of Environmental Quality, acting through the WaterQuality Board.
(3) (a) A credit enhancement agreement must provide that the security provided underthis chapter and the credit enhancement agreement:
(i) is limited to the money available in the security fund; and
(ii) does not constitute a pledge of or charge against the general revenues, credit, ortaxing powers of the state or any political subdivision.
(b) A credit enhancement agreement which obligates the state to pay principal of orinterest on any drinking water or wastewater project obligation, including any credit enhancementagreement entered into under Section 73-10c-4, may provide that:
(i) the political subdivision or its agent will notify the council whenever it is not able topay principal of or interest on the drinking water or wastewater project obligation covered by thecredit enhancement agreement and request payment from the security fund; and
(ii) money in the security fund needed to make the payment requested by the politicalsubdivision may be segregated within the security fund and held until the requested payment is

made.
(c) A default of the political subdivision under the drinking water or wastewater projectobligation may not alter, in any manner, the obligations of the state as provided in the creditenhancement agreement.
(d) Any drinking water or wastewater project obligation covered by the creditenhancement agreement which is represented by a bond, note, or other written instrument shallbear a legend which states these provisions and makes reference to this chapter and the creditenhancement agreement pursuant to which the obligation is secured.
(4) Any credit enhancement agreement for a drinking water or wastewater projectobligation may provide that the Drinking Water Board or Water Quality Board:
(a) purchase from the money in the security fund the obligation which the politicalsubdivision is unable to pay, whereupon the Drinking Water Board or Water Quality Board, onbehalf of the state, will become the holder of the obligation and entitled to all rights of a holderunder the terms of the obligation;
(b) pay, as a loan to the political subdivision from the money in the security fund, to theholder of the obligation the principal or interest, or both, due or to become due on the obligationwhich the political subdivision is unable to pay;
(c) take both actions referred to in Subsections (4)(a) and (b) relating to any issue ofobligations; or
(d) take any other action specified in or contemplated by the credit enhancementagreement.
(5) (a) Any credit enhancement agreement must require that the political subdivisionrepay to the state any loan of money made from the security fund to make any payments specifiedin the credit enhancement agreement, which repayment obligation may also be evidenced bybonds or notes of the political subdivision, as the Drinking Water Board or Water Quality Boardmay determine.
(b) The loan may be for a term, may bear interest at a rate or rates or may bear nointerest, as the Drinking Water Board or Water Quality Board may determine, and may besecured by any security the Drinking Water Board or Water Quality Board may determine.
(c) The interest rate for any loan contemplated by, but not made at the time the creditenhancement agreement is executed, may be specified in relationship to a prime rate or otheridentifiable rate existing at the time the loan is made.
(d) The term of the loan may be specified in the credit enhancement agreement as amaximum term and the actual term stated when the loan is made.
(e) Any security for the loan may include:
(i) a pledge of the revenues from the particular drinking water project or wastewaterproject;
(ii) an assignment from the holder or holders of the drinking water or wastewater projectobligation of the holders' interest in any security for the obligation in the amount needed to servicethe indebtedness represented by the loan; or
(iii) any other security device.
(f) The Drinking Water Board or Water Quality Board, on behalf of the state, issubrogated to all rights of the holder of the drinking water or wastewater project obligationagainst the political subdivision which issued the obligation with respect to the collection of theamount of the loan, but the state is not relieved by this subrogation from its obligation to make

payments from the security fund as provided in its credit enhancement agreement with thepolitical subdivision.
(6) Prior to entering into a credit enhancement agreement, the Drinking Water Board orWater Quality Board shall obtain an opinion of counsel experienced in bond matters to the effectthat the drinking water or wastewater project obligation to be purchased or with respect to whicha loan is to be made, is a valid and binding obligation of the political subdivision which issued it.
(7) Prior to making any payment under the credit enhancement agreement, the DrinkingWater Board or Water Quality Board shall:
(a) verify the correctness of the information in any notification referred to in Subsection(3); and
(b) determine that funds in the security fund are adequate to purchase the drinking wateror wastewater project obligations or to make any loan of funds provided by the creditenhancement agreement.

Amended by Chapter 175, 2001 General Session