AgdaPkt 2012-06-18 Special - Laserfiche WebLink

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8.A. - Page 5 coverage has been quite high, averaging 4.5 times over the past five years. By design, the Port has been accumulating cash reserves over this period in order to fund, in part, this and other, major improvements contemplated in its capital improvement program. As the Port moves forward with its debt issuance program it expects to maintain debt service coverage of no less than 1.75 times GE has additionally requested the following, to which the Port has agreed: The Port will maintain an operating reserve (equal to 100% of annual expenses) and a contingency reserve (equal to 50% of annual expenses) and it will make every reasonable effort to replace such reserves if they are drawn down for expenditure. The Port currently maintains reserves in these amounts. This requirement is consistent with the Port's existing reserve policy and does not place a new burden on the Port. The Port will agree to provide additional financial reporting information to GE on a quarterly basis in the event that debt service coverage falls below 1.4 times. In the event debt service coverage falls below 1.2 times, the Port will employ a consultant to make recommendations as to a revision of rates, fees and charges of the Port or the methods of operation to increase debt service coverage to at least 1.2 times. The Port will agree to adopt those measures it deems reasonable. Under the existing indenture for the 1999 Bonds, failure to maintain debt service coverage of 1.2 times is an event of default; provided, however, the Port has the ability to cure this covenant default as long as it diligently pursues a remedy to increase debt service coverage. This feature will still apply; however, failure to maintain debt service coverage of 1.0 for two consecutive years will trigger an event of default, with no further opportunity to cure prior to entering default. As the bonds are not subject to acceleration, the practical effect of a covenant default (such as failure to maintain a required coverage ratio) is the possible introduction of judicial remedies for creditors. Such judicial remedies might include court-ordered revisions of rates, fees and charges of the Port or methods of operation that the Port Board of Commissioners was unwilling to implement. In the event the Port takes an action (or fails to take an action), or Congress enacts legislation or the IRS promulgates regulations that make the bonds taxable, the Port has agreed to an increase in the rate on the bonds to a taxable equivalent rate. If the event of taxability is due to an act of Congress or the IRS, the Port may prepay the bonds during the Lock Out Period by paying a prepayment penalty. FISCAL IMPACT Limited Obliqation — Revenue bonds issued by the Port are limited obligations of the City secured solely by the Net Revenues of the Port enterprise fund. The Port's assets are not pledged to the bonds, nor are they at risk in the event of default. Should the Port default on its bonds, bondholders may not force a liquidation of Port assets by accelerating the bonds and demanding payment in full. Under no circumstances is the City's general fund obligated to pay debt service on the bonds.