SECTION 375.91. Financial Assistance Secured by Bonds or Other Authorized Securities

(a) Applicability and required documents. This section applies to closings for financial assistance with entities issuing bonds or other authorized securities. The following documents and conditions are required for closing financial assistance secured by bonds or other authorized securities:

(1) evidence that applicable requirements and regulations of all identified local, state, and federal agencies having jurisdiction have been met, including but not limited to permits and authorizations;

(2) a certified copy of the ordinance or resolution adopted by the governing body authorizing the issuance of debt to be sold to the Board that is acceptable to the executive administrator. The ordinance or resolution must have sections provided as follows:

(A) if financial assistance proceeds are to be deposited into an escrow account at the time of closing then an escrow account separate from all other accounts and funds must be created, as follows:

(i) the account must be maintained by an escrow agent as defined in §375.1 of this title (relating to Definitions);

(ii) funds cannot be released from the escrow without prior written approval from the executive administrator, who shall issue written authorization for release of the funds;

(iii) escrow account statements must be provided to the executive administrator upon request.

(iv) the investment of any financial assistance proceeds deposited into an approved escrow account must be handled in a manner that complies with the Public Funds Investment Act, Texas Government Code Chapter 2256; and

(v) the escrow account must be adequately collateralized in a manner sufficient to protect the Board’s interest in the project and in compliance with the Public Funds Collateral Act, Texas Government Code Chapter 2257;

(B) the Applicant shall fix and maintain rates in accordance with state law, and collect charges to provide adequate operation and maintenance of the project;

(C) a construction account must be created and must be kept separate from all other accounts and funds of the Applicant;

(D) bonds must be closed in book-entry-only form;

(E) the use of a paying agent/registrar that is a Depository Trust Company (DTC) participant is required;

(F) the payment of all DTC closing fees assessed by the Board’s custodian bank must be directed to the Board's custodian bank by the Applicant;

(G) the Applicant must provide evidence that one fully registered bond has been sent to the DTC or to the Applicant's paying agent/registrar prior to closing;

(H) all payments, including the origination fee, must be made to the Board via wire transfer at no cost to the Board;

(I) insurance coverage must be obtained and maintained in an amount sufficient to protect the Board's interest in the project;

(J) the Applicant, or an obligated person for whom financial or operating data is presented, either individually or in combination with other issuers of the Applicant's obligations or obligated persons, must undertake in a written agreement or contract to comply with requirements for continuing disclosure on an ongoing basis as required by Securities and Exchange Commission (SEC) rule 15c2-12 and determined as if the Board were a Participating Underwriter within the meaning of such rule. Such continuing disclosure undertaking is for the benefit of the Board and the beneficial owner of the political subdivision's obligations if the Board sells or otherwise transfers such obligations, and the beneficial owners of the Board's bonds if the political subdivision is an obligated person with respect to such bonds under rule 15c2-12. The ordinance or resolution required in subsection (a)(2) of this section must also contain any other requirements of the SEC or the IRS relating to arbitrage, private activity bonds, or other relevant requirements regarding the securities held by the Board;

(K) current, accurate, and complete records and accounts must be maintained in accordance with generally accepted accounting principles to demonstrate compliance with requirements in the financial assistance documents;

(L) the Applicant must annually submit an audit prepared by a certified public accountant in accordance with generally accepted auditing standards;

(M) the Applicant must submit a final accounting within 60 days of project completion.

(N) the Applicant must document the adoption and implementation of an approved water conservation plan for the duration of the financial assistance;

(O) the Applicant must comply with special environmental conditions specified in the Board's environmental finding as well as with any applicable Board laws or rules relating to use of the financial assistance;

(P) the Applicant must establish a dedicated source of revenue for repayment of the financial assistance;

(Q) interest payments must commence no later than one year after the date of closing;

(R) annual principal payments must commence no later than one year after completion of project construction;

(S) any other recitals mandated by the executive administrator;

(3) unqualified approving opinions of the attorney general of Texas and, if bonds or other authorized securities are issued, a certification from the comptroller of public accounts that such debt has been registered in that office;

(4) an unqualified approving opinion by a recognized bond attorney;

(5) assurances that the Applicant will comply with any special conditions specified by the Board's environmental finding;

(6) a Private Placement Memorandum containing a detailed description of the issuance of debt to be sold to the Board. The Applicant must submit a draft Private Placement Memorandum at least 30 days before closing of the financial assistance; a final electronic version of the Memorandum must be submitted no later than seven days before closing;

(7) when any portion of the financial assistance is to be held in an escrow account, the Applicant must execute an escrow agreement approved as to form and substance by the executive administrator;

(8) if applicable, a home rule municipality pursuant to Texas Local Government Code Chapter 104 must execute a Certification of Trust as defined in §375.1 of this title; and

(9) any additional information specified in writing by the executive administrator.

(b) Certified bond transcript. Within sixty (60) days of closing the financial assistance, the Applicant shall submit a transcript of proceedings relating to the debt purchased by the Board which must contain those instruments normally furnished by a purchaser of debt.

(c) Phased closing. The executive administrator may determine that closing the financial assistance in phases is appropriate when:

(d) Financial assistance consisting of 100 percent principal forgiveness. Notwithstanding subsection (a) of this section, the following documents are required for closing financial assistance consisting of 100 percent principal forgiveness:

(1) evidence that applicable requirements and regulations of all identified local, state, and federal agencies having jurisdiction have been met, including but not limited to permits and authorizations;

(2) an executed principal forgiveness agreement adopted by the governing body that is acceptable to the executive administrator. The agreement must have the following sections:

(A) if financial assistance proceeds are to be deposited into an escrow account at the time of closing then an escrow account separate from all other accounts and funds must be created, as follows:

(i) the account must be maintained by an escrow agent as defined in §375.1 of this title;

(ii) funds cannot be released from the escrow account without prior written approval from the executive administrator, who shall issue written authorization for the release of funds;

(iii) escrow account statements must be provided to the executive administrator upon request;

(iv) the investment of any financial assistance proceeds deposited into an approved escrow account must be handled in a manner that complies with the Public Funds Investment Act, Texas Government Code Chapter 2256; and

(v) the escrow account must be adequately collateralized in a manner sufficient to protect the Board's interest in the project and that complies with the Public Funds Collateral Act, Texas Government Code Chapter 2257;

(B) the Applicant must fix and maintain rates in accordance with state law, and collect charges to provide adequate operation and maintenance of the project;

(C) a construction account separate from all other accounts and funds of the Applicant must be created;

(D) insurance coverage must be obtained and maintained in an amount sufficient to protect the Board's interest in the project;

(E) the Applicant, or an obligated person for whom financial or operating data is presented, either individually or in combination with other issuers of the Applicant's obligations or obligated persons, must undertake in a written agreement or contract to comply with requirements for continuing disclosure as required by Securities and Exchange Commission (SEC) rule 15c2-12 and determined as if the Board were a Participating Underwriter within the meaning of such rule. Such continuing disclosure undertaking is for the benefit of the Board and the beneficial owner of the political subdivision's obligations if the Board sells or otherwise transfers such obligations, and the beneficial owners of the Board's bonds if the political subdivision is an obligated person with respect to such bonds under rule 15c2-12. The ordinance or resolution required in subsection (a)(2) of this section, above, must also contain any other requirements of the SEC or the IRS relating to arbitrage, private activity bonds, or other relevant requirements regarding the securities held by the Board;

(F) current, accurate, and complete records and accounts must be maintained in accordance with generally accepted accounting principles to demonstrate compliance with requirements in the financial assistance documents;

(G) the Applicant must annually submit an audit prepared by a certified public accountant in accordance with generally accepted auditing standards;

(H) the Applicant must submit a final accounting within 60 days of the completion of the project;

(I) the Applicant must document the adoption and implementation of an approved water conservation plan for the duration of the financial assistance;

(J) the Applicant must comply with special environmental conditions specified in the Board's environmental finding as well as with any applicable Board laws or rules relating to use of the financial assistance;

(3) assurances that the Applicant will comply with any special conditions specified by the Board's environmental finding;

(4) if the project will result in the development of surface water or groundwater resources, the Applicant must provide information showing that it has the legal right to use the water that the project will provide. Upon receipt of the information, the executive administrator will prepare a finding that the Applicant has a reasonable expectation of obtaining the water rights to the water that the project will provide prior to any release of funds for planning, land acquisition, and design activities. Prior to the release of funds for construction, a written water rights certification will be prepared by the executive administrator. The certification will be based upon the Applicant's information showing the necessary water rights have been acquired;

(5) evidence that the Applicant has the technical, managerial, and financial capacity to maintain the system unless the use of the funds will be to ensure that the system has the technical, managerial, and financial capacity to comply with the national primary or applicable state drinking water regulations over the long term;

(6) when any portion of the financial assistance is to be held in an escrow account, the Applicant must execute an escrow agreement, approved as to form and substance by the executive administrator;

(7) if applicable, a home rule municipality pursuant to Texas Local Government Code Chapter 104 must execute a Certification of Trust as defined in §375.1 of this title; and

(8) any additional information specified in writing by the executive administrator.

Source Note: The provisions of this §375.91 adopted to be effective September 8, 2010, 35 TexReg 8126; amended to be effective July 30, 2012, 37 TexReg 5615; amended to be effective July 4, 2016, 41 TexReg 4853; amended to be effective March 18, 2019, 44 TexReg 1445; amended to be effective June 10, 2020, 45 TexReg 3869