18 AAC 76.252. Loan classifications

(a) The department will determine an applicant to be qualified for a low-risk loan under this subsection if the applicant provides an unencumbered pledge as security for the loan. The pledge may be provided in the form of a general obligation bond from a municipality or an obligation from a privately-owned utility. An obligation from a privately-owned utility must be rated investment grade by a rating service. The municipality's general obligation bond must be backed by the full faith and credit of the municipality and be supported by unlimited ad valorem taxing power as described in AS 29.47.200 . The department will qualify a loan disbursed under this section for a discount of one half of one percent from the finance charge assessed in 18 AAC 76.255(b) (1). As the department determines necessary in order to adequately protect the Alaska drinking water fund, reduce the department's risk, and ensure repayment, the department will attach conditions to the loan that include

(1) an unconditional obligation to pay from specific revenues, unless the obligation is used for the letter of credit described in (6) of this subsection;

(2) a rate covenant equal to the coverage requirements of the loan and all liens;

(3) the obligation to impose and collect revenues sufficient to pay

(A) system operation, maintenance, and replacement costs;

(B) debt service; and

(4) a requirement to establish a reserve that is dedicated to the repayment of the loan, and that is fully funded with cash or an approved equivalent;

(5) for a municipality, or for a municipality and a privately-owned utility applying jointly, the obligation to comply with the state aid intercept provisions of AS 37.15.575 ; and

(6) for a privately-owned utility, a requirement that the utility maintain a current irrevocable standby letter of credit issued by a bank, in an amount sufficient to cover the department's loan exposure, until the loan agreement has been in force for four years, the project is complete, and the project is expected to continue to have operational revenues sufficient to cover the department's loan exposure.

(b) The department will determine an applicant to be qualified for a standard loan under this subsection if the applicant is unable or unwilling to qualify for the loan type described in (a) of this section, and if the department determines that the applicant has a credit rating and that risk factors do not exist with the applicant's credit. As the department determines necessary in order to adequately protect the Alaska drinking water fund, reduce the department's risk, and ensure repayment, the department will attach conditions to the loan that include

(1) dedicated pledged revenues with a parity or greater position unless the pledged revenues are used for the irrevocable standby letter of credit in (5) of this subsection;

(2) a rate covenant equal to the coverage requirements of the loan and all prior liens;

(3) the obligation to impose and collect revenues sufficient to pay

(A) system operation, maintenance, and replacement costs;

(B) any debt service; and

(4) for a municipality, or for a municipality and a privately-owned utility applying jointly, the obligation to comply with the state aid intercept provisions of AS 37.15.575 ; and

(5) for a privately-owned utility, a requirement that the utility maintain a current irrevocable standby letter of credit issued by a bank, in an amount sufficient to cover the department's loan exposure, until the loan agreement has been in force for four years, the project is complete, and the project is expected to continue to have operational revenues sufficient to cover the department's loan exposure.

(c) The department will determine an applicant to be qualified for a discretionary loan under this subsection if the applicant does not have a credit rating or if the department determines that risk factors exist with the applicant's credit. The department will not approve a loan under this subsection if the total principal amount of all the outstanding loans of the discretionary type exceeds five percent of the total assets of the Alaska drinking water fund. The department will attach to a loan disbursed under this subsection a surcharge of two and one-half percent in addition to the finance charge assessed in 18 AAC 76.255(b) (1) or (2), as appropriate. As the department determines necessary in order to adequately protect the Alaska drinking water fund, reduce the department's risk, and ensure repayment, the department will attach conditions to the loan that include

(1) pledged revenues that are sufficient to repay the loan; those pledged revenues need not be necessarily sufficient to pay all system operation, maintenance, and replacement costs;

(2) dedicated sources of revenue to repay the loan that may have encumbrances or a less than parity position,

(3) for a municipality or a municipality and a privately-owned utility applying jointly,

(A) the obligation to comply with the state aid intercept provisions of AS 37.15.575 ; and

(B) demonstration, by ordinance or resolution, of economic and political support for the project, as determined by the department;

(4) for a privately-owned utility, a requirement that the utility

(A) maintain a current irrevocable standby letter of credit issued by a bank, in an amount sufficient to cover the department's loan exposure, until the loan agreement has been in force for four years, the project is complete, and the project is expected to continue to have operational revenues sufficient to cover the department's loan exposure; and

(B) pledge unencumbered assets as collateral.

(d) For purposes of this section, an irrevocable standby letter of credit must be an approved arrangement where a bank makes a payment to the department on behalf of the applicant, if the terms and conditions of the loan agreement are not complied with. The terms and conditions of the irrevocable standby letter of credit may not be changed unless the bank and the department agree.

History: Eff. 3/14/2002, Register 161

Authority: AS 37.15.575

AS 46.03.036

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