HomeMy WebLinkAboutItem No. 16 CFD No. 2003-2 Canyon HillsText File
City of Lake Elsinore 130 South Main Street
Lake Elsinore, CA 92530
www.lake-elsinore.org
File Number: RES 2014-080
Agenda Date: 4/10/2018 Status: BusinessVersion: 1
File Type: ResolutionIn Control: City Council / Successor Agency
Agenda Number: 16)
Page 1 City of Lake Elsinore Printed on 4/5/2018
Report to City Council
To:Honorable Mayor and Members of the City Council
From:Grant Yates, City Manager
Prepared by: Jason Simpson, Assistant City Manager
Date:April 10, 2018
Subject:Community Facilities District (CFD) No. 2003-2 (Canyon Hills) Authorizing
the Issuance of its Special Tax Bonds, Series 2018 (Improvement Area E)
Recommendation
adopt A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF LAKE ELSINORE,
CALIFORNIA, ACTING AS THE LEGISLATIVE BODY OF CITY OF LAKE ELSINORE
COMMUNITY FACILITIES DISTRICT NO. 2003-2 (CANYON HILLS) AUTHORIZING THE
ISSUANCE OF ITS SPECIAL TAX BONDS, SERIES 2018 (IMPROVEMENT AREA E) IN A
PRINCIPAL AMOUNT NOT TO EXCEED THREE MILLION DOLLARS ($3,000,000) AND
APPROVING CERTAIN DOCUMENTS AND TAKING CERTAIN OTHER ACTIONS IN
CONNECTION THEREWITH
Background
On January 13, 2004, the City of Lake Elsinore (City) formed the CFD No. 2003-2 (District) by
the adoption of Resolution No. 2004-6. The District initially consisted of four improvement areas
(Improvement Areas A through D). Then, on March 18, 2016, the Council adopted Resolution
No. 2016-021, stating its intention to annex certain property to the District and designate such
property as Improvement Area E (Improvement Area) and to incur bonded indebtedness for the
Improvement Area in an amount not to exceed $3,000,000 for the purpose of financing the
acquisition, construction, expansion, improvement, or rehabilitation of certain public facilities.
Improvement Area E consists of 21.6 gross acres and 14.5 net acres located in the eastern
portion of the City, east of Hermosa Drive, west of Anna Lane and southeast of Railroad
Canyon Road. The property within Improvement Area E has been developed by Pardee Homes
into a residential development of 74 single family detached homes. All 74 homes have been
completed and conveyed to individual homeowners, with the final home closing in December
2017.
CFD No. 2003-2 IA E (Canyon Hills)
Page 2 of 3
Discussion
The proposed Special Tax Bonds, Series 2018 (2018 Bonds) are expected to be issued in a par
amount of approximately $2,320,000 with a final maturity of 2048. Proceeds from the 2018
Bonds will be primarily used to finance public facilities benefitting the District. Final interest rates
and par amount will be determined when the 2018 Bonds are priced and sold which is expected
to be in late April, depending on market conditions. The table below highlights a few estimated
financing statistics of the 2018 Bonds (based on current market conditions).
Summary of Financing Statistics*
Par Amount $2,320,000
Average Bond Yield 4.12%
Average Annual Debt Service (over 30-Years)$154,789
Average Annual Debt Service Per Parcel $2,091
*Preliminary; Subject to Change; Based on Current Market Conditions
As required under Section 5852.1 of the California Government Code (Code), below are the
good faith estimates as provided by the Municipal Advisor and Underwriter:
1) As illustrated above, the true interest cost of the bonds is estimated at 4.12%, calculated
as provided in Section 5852.1(a)(1)(A) of the Code.
2) The finance charge of the 2018 Bonds, including underwriter’s discount and all other
fees and charges paid to third parties, is estimated at $275,000.
3) Proceeds of the 2018 Bonds received by the District for the sale of the 2018 Bonds,
including the estimated principal amount of the proposed 2018 Bonds of $2,320,000 less
the finance charges set forth in (b) above and an estimated amount of $160,000 to be
deposited into the reserve account under the Indenture, is equal to $1,885,000, which
will be available to finance the project.
4) The total payment amount calculated as provided in Section 5852.1(a)(1)(D) of the Code
is estimated at $4,200,000.
The foregoing are estimates and the final costs will depend on market conditions and can be
expected to vary from the estimated amounts set forth above.
Documents to be Approved
Approval of the attached resolution will approve and authorize the execution of the following
financing documents:
Bond Indenture
Bond Purchase Agreement
Continuing Disclosure Certificate; and
Preliminary Official Statement
Bond Counsel and the City Attorney have reviewed the attached financing documents on behalf
of the District. If this resolution is approved, City staff will continue to work with the financing
team to finalize all of the aforementioned documents. As previously mentioned, the pricing date
would be targeted for some time in late April, depending on market conditions.
CFD No. 2003-2 IA E (Canyon Hills)
Page 3 of 3
Fiscal Impact
There is no fiscal impact to the City’s General Fund. The City will however be required to
provide administration for the District, which will be funded as part of the annual assessments
process.
The average annual debt service attributable to each parcel, and paid by the property owner,
will be approximately $2,091 over the life of the 2018 Bonds, as illustrated on the previous page.
These figures are preliminary and subject to prevailing market conditions at the time of sale.
Exhibits:
A - Resolution
B – Appraisal Report
C - Bond Indenture
D - Bond Purchase Agreement
E - Continuing Disclosure Certificate
F - Preliminary Official Statement
G - Project Map
RESOLUTION NO. 2018-___
RESOLUTION OF THE CITY COUNCIL OF THE CITY OF LAKE ELSINORE,
CALIFORNIA, ACTING AS THE LEGISLATIVE BODY OF CITY OF LAKE ELSINORE
COMMUNITY FACILITIES DISTRICT NO. 2003-2 (CANYON HILLS) AUTHORIZING
THE ISSUANCE OF ITS SPECIAL TAX BONDS, SERIES 2018 (IMPROVEMENT
AREA E) IN A PRINCIPAL AMOUNT NOT TO EXCEED THREE MILLION DOLLARS
($3,000,000) AND APPROVING CERTAIN DOCUMENTS AND TAKING CERTAIN
OTHER ACTIONS IN CONNECTION THEREWITH
Whereas, the City Council (Council) of the City of Lake Elsinore (City), has heretofore
undertaken proceedings and declared the necessity to issue bonds on behalf of City of Lake
Elsinore Community Facilities District (CFD) No. 2003-2 (Canyon Hills) (District) pursuant to the
terms and provisions of the Mello-Roos Community Facilities Act of 1982, as amended, being
Chapter 2.5, Part 1, Division 2, Title 5 of the Government Code of the State of California (Act);
and,
Whereas, pursuant to Resolution Nos. 2016-032 and 2016-033 adopted by the legislative body
of the District on April 12, 2016, certain bond propositions were submitted to the qualified
electors within Improvement Area E of the District (Improvement Area E), and were approved by
more than two-thirds of the votes cast at the election held on April 12, 2016; and,
Whereas, the legislative body of the District desires to issue a first series of bonds for
Improvement Area E at this time under the Act to finance certain public facilities which the
District is authorized to finance; and,
Whereas, the District desires to accomplish the financing of certain public facilities through the
issuance of bonds in an aggregate principal amount not to exceed $3,000,000 designated as
the “City of Lake Elsinore Community Facilities District No. 2003-2 (Canyon Hills) Special Tax
Bonds, Series 2018 (Improvement Area E)” (Bonds); and,
Whereas, in order to affect the issuance of the Bonds, the District desires to enter into various
agreements and approve certain documents in substantially the forms presented herein; and,
Whereas, based on the appraisal of real property prepared by Kitty Siino & Associates, Inc.
(Appraisal) with respect to the Bonds, the value of the real property in Improvement Area E
subject to the special tax to pay debt service on the Bonds is more than three times the sum of
the principal amount of the Bonds and the principal amount of all other bonds outstanding that
are secured by a special tax levied pursuant to the Act or a special assessment levied on
property within Improvement Area E as calculated in the manner set forth in Section 53345.8(a)
of the Act; and,
Whereas, the Council has determined in accordance with Section 53360.4 of the Act that a
negotiated sale of the Bonds to Stifel, Nicolaus & Company, Incorporated (Underwriter) in
accordance with the terms of the Bond Purchase Agreement for the Bonds to be entered into by
the District and the Underwriter (Bond Purchase Agreement) approved as to form by this City
Council herein will result in a lower overall cost to the District than a public sale.
NOW, THEREFORE, THE CITY COUNCIL, ACTING AS THE LEGISLATIVE BODY OF CITY
OF LAKE ELSINORE COMMUNITY FACILITIES DISTRICT NO. 2003-2 (CANYON HILLS),
DOES HEREBY RESOLVE, DETERMINE AND ORDER AS FOLLOW:
Reso. No. 2018-
Page 2 of 4
2
Section 1. Each of the above recitals is true and correct.
Section 2. The issuance of the Bonds is hereby authorized in an aggregate principal amount
not to exceed $3,000,000, with the exact principal amount to be determined by the official
signing the Bond Purchase Agreement in accordance with Section 5 below. The Council hereby
determines that it is prudent in the management of the District’s fiscal affairs to issue the Bonds.
The Bonds shall mature on the dates and pay interest at the rates set forth in the Bond
Purchase Agreement to be executed on behalf of the District in accordance with Section 5
hereof. All other provisions of the Bonds shall be governed by the terms and conditions of the
Bond Indenture (Indenture), which Indenture shall be substantially in the form on file with the
City Clerk, with such additions thereto and changes therein as the officer or officers executing
the same deem necessary to enhance the security for the Bonds, to cure any ambiguity or
defect therein, to insert the offering price(s), interest rate(s), selling compensation, principal
amount per maturity, redemption dates and prices and such other related terms and provisions
as limited by Section 5 hereof or to conform any provisions therein to the Bond Purchase
Agreement or the Official Statement delivered to the Underwriter of the Bonds. Approval of
such changes shall be conclusively evidenced by the execution and delivery of the Indenture by
one of the following: the Mayor, the City Manager, the Assistant City Manager, or their written
designees (each, an Authorized Officer and collectively, the Authorized Officers), each of whom
is authorized to execute the Indenture. Capitalized terms used in this Resolution which are not
defined herein have the meanings ascribed to them in the Indenture.
Section 3. The Bonds shall be executed on behalf of the District by the manual or facsimile
signature of the Mayor of the City or his or her written designee and be attested by the manual
or facsimile signature of the City Clerk. Wilmington Trust, National Association is hereby
appointed to act as trustee, registrar and transfer agent for the Bonds.
Section 4. The covenants set forth in the Indenture to be executed in accordance with
Section 2 above are hereby approved, shall be deemed to be covenants of the City Council and
shall be complied with by the District and its officers. The Indenture shall constitute a contract
between the District and the Owners of the Bonds.
Section 5. The form of the Bond Purchase Agreement presented at this meeting is hereby
approved and each of the Authorized Officers is hereby authorized to execute the Bond
Purchase Agreement, with such additions thereto and changes therein relating to dates and
numbers as are necessary to conform the Bond Purchase Agreement to the dates, amounts
and interest rates applicable to the Bonds as of the sale date. Approval of such additions and
changes shall be conclusively evidenced by the execution and delivery of the Bond Purchase
Agreement by one or more of such Authorized Officers; provided, however, that the Bond
Purchase Agreement shall be signed only if the Underwriter’s discount (exclusive of original
issue discount) does not exceed 2.00% of the principal amount of the Bonds and only if the true
interest cost on the Bonds does not exceed 5.00%. Each of the Authorized Officers is
authorized to determine the day on which the Bonds are to be priced in order to attempt to
produce the lowest borrowing cost for the District and may reject any terms presented by the
Underwriter if determined not to be in the best interest of the District.
Section 6. The form of the Continuing Disclosure Certificate presented at this meeting is
hereby approved and each of the Authorized Officers is hereby authorized and directed to
execute the Continuing Disclosure Certificate in the form hereby approved, with such additions
therein and changes thereto as the officer or officers executing the same deem necessary to
Reso. No. 2018-
Page 3 of 4
3
cure any defect or ambiguity therein, with such approval to be conclusively evidenced by the
execution and delivery of such certificate.
Section 7. The form of the Preliminary Official Statement presented at this meeting is hereby
approved and the Underwriter is hereby authorized to distribute the Preliminary Official
Statement to prospective purchasers of the Bonds in the form hereby approved, together with
such additions thereto and changes therein as are determined necessary by the Authorized
Officers to make such Preliminary Official Statement final as of its date for purposes of
Rule 15c2-12 of the Securities and Exchange Commission. Each of the Authorized Officers is
hereby authorized to execute a final Official Statement in the form of the Preliminary Official
Statement, together with such changes as are determined necessary by the Authorized Officers,
to make such Official Statement complete and accurate as of its date. The Underwriter is
further authorized to distribute the final Official Statement for the Bonds and any supplement
thereto to the purchasers of the Bonds upon the execution of the final Official Statement as
described above.
Section 8. In accordance with the requirements of Section 53345.8 of the Act, based on the
Appraisal, the legislative body of the District hereby determines that the value of the real
property in Improvement Area E subject to the special tax to pay debt service on the Bonds is
more than three times the principal amount of the Bonds and the principal amount of all other
bonds outstanding that are secured by a special tax levied pursuant to the Act or a special
assessment levied on property within Improvement Area E, all as calculated in the manner
provided in Section 53345.8(a) of the Act.
Section 9. Each Authorized Officer is authorized to provide for all services necessary to affect
the issuance of the Bonds. Such services shall include, but not be limited to, printing the Bonds,
obtaining legal services, trustee and paying agent services and any other services deemed
appropriate as set forth in a certificate of such Authorized Officer. Each Authorized Officer is
authorized to pay for the cost of such services, together with other costs of issuance, from Bond
proceeds deposited pursuant to the Indenture.
Section 10. The Authorized Officers, the Clerk of the City and the other officers and staff of the
City and the District responsible for the fiscal affairs of the District are hereby authorized and
directed to take any actions and execute and deliver any and all documents as are necessary to
accomplish the issuance, sale and delivery of the Bonds in accordance with the provisions of
this Resolution and the fulfillment of the purposes of the Bonds as described in the Indenture,
including providing certificates to the Underwriter as to the accuracy of any information relating
to the District which is included within the Official Statement. Any document authorized herein
to be signed by the Clerk of the City may be signed by a duly appointed deputy clerk.
Section 11.This Resolution shall be effective upon its adoption.
Passed and Adopted on this 10th day of April, 2018.
_____________________________
Natasha Johnson, Mayor
Reso. No. 2018-
Page 4 of 4
4
Attest:
_____________________________
Susan M. Domen, MMC
City Clerk
STATE OF CALIFORNIA)
COUNTY OF RIVERSIDE) ss.
CITY OF LAKE ELSINORE)
I, Susan M. Domen, MMC, City Clerk of the City of Lake Elsinore, California, do hereby certify
that Resolution No. 2018-______ was adopted by the City Council of the City of Lake Elsinore,
California, at the Regular meeting of April 10, 2018, and that the same was adopted by the
following vote:
AYES:
NOES:
ABSENT:
ABSTAIN:
___________________________
Susan M. Domen, MMC
City Clerk
APPRAISAL REPORT
COMMUNITY FACILITIES DISTRICT NO. 2003-2
(CANYON HILLS – SENTERRA BY PARDEE HOMES)
IMPROVEMENT AREA “E”
OF THE CITY OF LAKE ELSINORE
Improvement Area E (Senterra) of Canyon Hills
City of Lake Elsinore, Riverside County, California
(Appraiser’s File No. 2018-1173)
Prepared For
City of Lake Elsinore
130 S. Main Street
Lake Elsinore, CA 92530
Prepared By
Kitty Siino & Associates, Inc.
115 East Second Street, Suite 100
Tustin, California 92780
KITTY SIINO & ASSOCIATES, INC.
REAL ESTATE APPRAISERS & CONSULTANTS
March 22, 2018
Mr. Jason Simpson, Assistant City Manager
City of Lake Elsinore
130 S. Main Street
Lake Elsinore, CA 92530
Reference: Appraisal Report – Community Facilities District No. 2003-2 IA “E”
Of the City of Lake Elsinore
(Canyon Hills – Senterra)
South Side of Canyon Hills Road/Holland Road one parcel east of Hermosa,
City of Lake Elsinore, California
Dear Mr. Simpson:
At the request and authorization of the City of Lake Elsinore, we have completed an Appraisal Report for Community Facilities District No. 2003-2 Improvement Area “E” of the City of Lake Elsinore (“Lake Elsinore CFD No. 2003-2 IA E”). Lake Elsinore CFD No. 2003-2 IA E consists of 74 single family detached homes within Tract No. 36682 in the master planned community of Canyon Hills. The 74 homes are known as “Senterra” and were built by Pardee Homes. All homes are complete and have sold and closed to individuals between December 2016 and December 2017. The valuation method used in this report is the Sales Comparison Approach along with a mass appraisal technique as defined within this report. The fee simple estate of the subject property has been valued subject to the Lake Elsinore CFD No. 2003-2 IA E special tax lien. This report is written with the hypothetical condition that the subject property is enhanced by the improvements and/or fee credits to be funded by bonds issued by Lake Elsinore CFD No. 2003-2 IA E. As a result of our investigation, the concluded market value for the subject property is:
Individual Owners (74 houses) $ 33,748,930
The above values are stated subject to the Assumptions and Limiting Conditions of this
report, the Appraiser’s Certification and as of March 1, 2018.
Some supporting documentation concerning the data, reasoning and analyses may be retained in the appraiser’s files. The information contained in this report is specific to the needs of the client and for the intended use stated in this report. This Appraisal Report is intended to comply with both the Uniform Standards of Professional Appraisal Practice (“USPAP” January 2016) and with the Appraisal Standards of the California Debt and Investment Advisory Commission (“CDIAC”). The appraiser is not responsible for unauthorized use of this report. 115 East Second Street, Suite 100, Tustin, California 92780
(714) 544-9978 - Phone, (714) 544-9985 – Fax, E-Mail: kssiino@msn.com
Mr. Jason Simpson
City of Lake Elsinore
March 22, 2018
Page Two
The appraised value contained within this report is being estimated with the hypothetical
condition of the special tax lien of Lake Elsinore CFD No. 2003-2 IA E.
This letter of transmittal is part of the attached report, which sets forth the data and
analyses upon which our opinion of value is, in part, predicated.
Respectfully submitted,
KITTY SIINO & ASSOCIATES, INC.
Kitty S. Siino, MAI
California State Certified General
Real Estate Appraiser (AG004793)
TABLE OF CONTENTS
Assumptions and Limiting Conditions............................................................................... i
Hypothetical Condition .................................................................................................... iii
Extraordinary Assumption ............................................................................................... iii
Aerial Photo of Lake Elsinore CFD No. 2003-2 IA E ....................................................... iv
Purpose of the Appraisal ................................................................................................ 1
The Subject Property ...................................................................................................... 1
Intended Use of the Report ............................................................................................ 1
Definitions ...................................................................................................................... 1
Property Rights Appraised ............................................................................................. 3
Effective Date of Value ................................................................................................... 3
Date of Report ................................................................................................................ 3
Scope of Appraisal ........................................................................................................ 3
Regional Area Map.......................................................................................................... 6
County of Riverside Area Description ............................................................................. 7
Lake Elsinore Area Map ................................................................................................ 15
City of Lake Elsinore Description .................................................................................. 16
Canyon Hills Master Planned Community Description .................................................. 20
Immediate Surroundings ............................................................................................... 22
Community Facilities District No. 2003-2 IA E ............................................................... 23
Subject Property Descriptions ....................................................................................... 24
Riverside County Housing Market ................................................................................. 30
Highest and Best Use Analysis ..................................................................................... 39
Valuation Analyses and Conclusions ............................................................................ 43
Appraisal Report Summary ........................................................................................... 48
Appraiser’s Certification ............................................................................................... 49
ADDENDA
CFD No. 2003-2 IA E Boundary Maps
Tract Map 36682
Improved Residential Sales Map and Summary Chart
Appraiser’s Qualifications
_________________________________________________________________________________________________________
Lake Elsinore CFD No. 2003-2 IA E – Senterra
City of Lake Elsinore
Kitty Siino & Associates, Inc. Page i
ASSUMPTIONS AND LIMITING CONDITIONS
1. This report is an Appraisal Report that is intended to comply with the reporting
requirements set forth under Standard Rule 2 of the Uniform Standards of
Professional Appraisal Practice. The information contained in this report is specific
to the needs of the client and for the intended use stated in this report. The appraiser
is not responsible for unauthorized use of this report.
2. No responsibility is assumed for legal or title considerations. Title to the property is
assumed to be good and marketable unless otherwise stated in this report.
3. The property is appraised subject to the special tax lien of City of Lake Elsinore CFD
No. 2003-2 IA E.
4. Responsible ownership and competent property management are assumed unless
otherwise stated in this report.
5. The information furnished by others is believed to be reliable, however, no warranty
is given for its accuracy.
6. All engineering is assumed to be correct. Any plot plans and illustrative material used
in this report are included only to assist the reader in visualizing the property and
may not be to scale.
7. It is assumed that there are no hidden or unapparent conditions of the property,
subsoil or structures that would render it more or less valuable. No responsibility is
assumed for such conditions or for arranging for engineering studies that may be
required to discover them.
8. It is assumed that there is full compliance with all applicable federal, state and local
environmental regulations and laws unless otherwise stated in this report.
9. It is assumed that all applicable zoning and use regulations and restrictions have
been complied with, unless nonconformity has been stated, defined and considered
in this appraisal report.
10. It is assumed that all required licenses, certificates of occupancy or other legislative
or administrative authority from any local, state or national governmental or private
entity or organization have been or can be obtained or renewed for any use on which
the value estimates contained in this report are based.
11. Any sketch included in this report may show approximate dimensions and is included
only to assist the reader in visualizing the properties. Maps and exhibits found in this
report are provided for reader reference purposes only. No guarantee regarding
accuracy is expressed or implied unless otherwise stated in this report. No survey
has been made for the purpose of this report.
_________________________________________________________________________________________________________
Lake Elsinore CFD No. 2003-2 IA E – Senterra
City of Lake Elsinore
Kitty Siino & Associates, Inc. Page ii
12. It is assumed that the utilization of the land and improvements are within the
boundaries or property lines of the property described and that there is no
encroachment or trespass unless otherwise stated in this report.
13. The appraiser is not qualified to detect hazardous waste and/or toxic materials. Any
comment by the appraiser that might suggest the possibility of the presence of such
substances should not be taken as confirmation of the presence of hazardous waste
and/or toxic materials. Such determination would require investigation by a qualified
expert relating to asbestos, urea-formaldehyde foam insulation or other potentially
hazardous materials that may affect the value of the property. The appraiser’s value
estimate is predicated on the assumption that there is no such material on or in the
property that would cause a loss in value unless otherwise stated in this report. No
responsibility is assumed for any environmental conditions or for any expertise or
engineering knowledge required to discover them. The appraiser’s descriptions and
resulting comments are the result of the routine observations made during the
appraisal process.
14. Proposed improvements, if any, are assumed to be completed in a good
workmanlike manner in accordance with the submitted plans and specifications.
15. The distribution, if any, of the total valuation in this report between land and
improvements applies only under the stated program of utilization. The separate
allocations for land and buildings, if any, must not be used in conjunction with any
other appraisal and are invalid if so used.
16. The Americans with Disabilities Act (“ADA”) became effective on January 26, 1992.
The appraiser has made no specific compliance survey and analysis of the property
to determine whether they conform to the various detailed requirements of the ADA,
nor is the appraiser a qualified expert regarding the requirements of the ADA. It is
possible that a compliance survey of the property, together with a detailed analysis
of the requirements of the ADA, could reveal that the property is not in compliance
with one or more of the requirements of the ADA. If so, this fact could have a negative
effect upon the value of the property. Since the appraiser has no direct evidence
relating to this issue, a possible noncompliance with requirements of the ADA in
estimating the value has not been considered.
17. It is assumed there are no environmental concerns that would slow or thwart
development of the subject property and that the soils are adequate to support the
highest and best use conclusion.
18. Possession of this report, or a copy thereof, does not carry with it the right of
publication. It may not be used for any purpose by any person other than the party
to whom it is addressed without the written consent of the appraiser, and in any
event, only with proper qualification and only in its entirety. Permission is given for
this appraisal to be published as a part of the Official Statement or similar document
in association with the Lake Elsinore CFD No. 2003-2 IA E Special Tax Bonds.
_________________________________________________________________________________________________________
Lake Elsinore CFD No. 2003-2 IA E – Senterra
City of Lake Elsinore
Kitty Siino & Associates, Inc. Page iii
HYPOTHETICAL CONDITION
1. It is assumed that all improvements and/or benefits to the subject properties, which
are to be funded by the Lake Elsinore CFD No. 2003-2 IA E Special Tax Bond
proceeds, are completed and in place or have accrued to the property.
_________________________________________________________________________________________________________
Lake Elsinore CFD No. 2003-2 IA E – Senterra
City of Lake Elsinore
Kitty Siino & Associates, Inc. Page iv
_________________________________________________________________________________________________________
Lake Elsinore CFD No. 2003-2 IA E – Senterra
City of Lake Elsinore
Kitty Siino & Associates, Inc. Page 1
PURPOSE OF THE APPRAISAL
The purpose of this appraisal report is to estimate the value of the fee simple interest of
the subject property, subject to the special tax lien of the Lake Elsinore CFD No. 2003-2
IA E Special Tax Bonds.
THE SUBJECT PROPERTY
The subject property consists of 74 single-family homes on which are covered by Tract
Map 36682 and were developed into a neighborhood known as Senterra by Pardee
Homes. The neighborhood is detailed as follows:
Tract and Lot Numbers
No.
Lots
Ownership
Condition
Senterra by Pardee Homes
Lots 1-74 of Tract 36682 74 Individuals Completed Homes
TOTAL 74
INTENDED USE OF THE REPORT
It is the appraiser’s understanding that the client, the City of Lake Elsinore, will utilize this
report in disclosure documents associated with selling bonds for Lake Elsinore CFD No.
2003-2 IA E and that this report is to be included in the Official Statement or similar
document to be distributed in connection with the offering of the bonds. It is the appraiser’s
understanding that there are no other intended uses of this report.
DEFINITIONS
Market Value
The term “Market Value” as used in this report is defined as:
"The most probable price which a property should bring in a competitive and
open market under all conditions requisite to a fair sale, the buyer and seller
each acting prudently, knowledgeably and assuming the price is not
affected by undue stimulus. Implicit in this definition is the consummation
of a sale as of a specified date and the passing of title from seller to buyer
under conditions whereby:
1. buyer and seller are typically motivated;
_________________________________________________________________________________________________________
Lake Elsinore CFD No. 2003-2 IA E – Senterra
City of Lake Elsinore
Kitty Siino & Associates, Inc. Page 2
2. both parties are well informed or well advised, and each acting in what
he or she considers his or her own best interest;
3. a reasonable time is allowed for exposure in the open market;
4. payment is made in terms of cash in U.S. dollars or in terms of financial
arrangements comparable thereto; and
5. the price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions granted
by anyone associated with the sale.”1
Inherent in the Market Value definition is exposure time or the time the property
would have had to have been exposed on the open market prior to the appraisal
in order to sell at the concluded values. In the case at hand and considering current
market conditions the exposure time for each individually owned home is under six
months.
Minimum Market Value
The term “Minimum Market Value” as used in this report is defined as:
“The base market value of a home. That is, most buyers purchase some
upgrades, options and/or lot premiums when purchasing a new home. The
sales price for the new home typically includes the base price for the plan,
plus any upgrades, options or lot premiums, less concessions, if any, which
were given or paid for by the builder. The concluded minimum market value
is for the base value of the plan only, not taking into consideration any
upgrades, options or premiums.”
Mass Appraisal
The term “Mass Appraisal” as used in this report is defined as:
“The process of valuing a universe of properties as of a given date using
standard methodology employing common data and allowing for statistical
testing”2
In the case at hand, the statistical testing included reviewing all original builder sales,
reviewing the Multiple Listing Service for re-sales and current escrows (if any) and
determining the actual range of sales and escrow prices for each plan type which is
utilized in the valuation process.
1 The Appraisal of Real Estate, 13th Edition
2 USPAP 2016-2017 Edition
_________________________________________________________________________________________________________
Lake Elsinore CFD No. 2003-2 IA E – Senterra
City of Lake Elsinore
Kitty Siino & Associates, Inc. Page 3
Hypothetical Condition
The Term “Hypothetical Condition” is defined by USPAP as:
“That which is contrary to what exists but is supposed for the purpose of the
analysis”
The Hypothetical Condition within this report is that subject property is enhanced by the
improvements and/or fee credits to be funded by bonds issued by Lake Elsinore CFD No.
2003-2 IA E.
PROPERTY RIGHTS APPRAISED
The property rights being appraised are of a fee simple interest, subject to easements of
record and Lake Elsinore CFD No. 2003-2 IA E. The definition of “fee simple estate” is
defined by USPAP as:
“absolute ownership unencumbered by any other interest or estate, subject
only to the limitations imposed by the governmental powers of taxation,
eminent domain, police power, and escheat.”
EFFECTIVE DATE OF VALUE
The subject property is valued as of March 1, 2018.
DATE OF REPORT
The date of this report is March 22, 2018.
SCOPE OF APPRAISAL
As previously stated, the purpose of this appraisal is to report the appraiser’s best
estimate of the market value for the subject properties. This appraisal will be presented
in the following format:
• County of Riverside Description
• City of Lake Elsinore Description
• Immediate Surroundings Description
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• Brief Description of Lake Elsinore CFD No. 2003-2 IA E
• Subject Property Description
• Riverside County Housing Market Discussion
• Highest and Best Use Analysis
• Valuation Procedures, Analyses and Conclusions
• Appraisal Report Summary
The subject property consists of 74 single-family homes. All 74 of these homes have been
completed and closed to individuals. In valuing the subject property, the value estimates
will be based upon the highest and best use conclusion using the Sales Comparison
Approach. The Sales Comparison Approach to value is defined as:
“…a set of procedures in which a value indication is derived by comparing the
property being appraised to similar properties that have been sold recently, then
applying appropriate units of comparison and making adjustments to the sale
prices of the comparables based on the elements of comparison. The sales
comparison approach may be used to value improved properties, vacant land, or
land being considered as though vacant; it is the most common and preferred
method of land valuation when an adequate supply of comparable sales is
available.”3
In the Sales Comparison Approach, market value is estimated by comparing properties
similar to the subject property that have recently been sold, are listed for sale or are under
contract. Neither a cost or income approach was utilized as they were not considered
necessary to arrive at credible results.
The due diligence of this appraisal assignment included the following:
1. Compiled demographic information and related that data to the subject properties to
perform a feasibility/demand analysis.
2. Gathered and analyzed information on the subject marketplace, reviewed several real
estate brokerage publications on historical and projected growth in the subject market
and researched the micro and macroeconomics within Riverside County and the Lake
Elsinore area.
3. Inspected the subject property between January 10, 2018 and March 1, 2018.
4. Had the property flown for an aerial photograph on February 17, 2018.
5. Interviewed representatives from the builder to obtain available information on the
subject property.
3Dictionary of Real Estate Appraisal, 4th Edition, 2002
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6. Reviewed preliminary title reports on portions of the subject property.
7. Reviewed a soils report and a report on regulatory services on the property.
8. Searched the area for relevant comparable new home residential projects, including
sales prices and concessions and interviewed representatives from each comparable
neighborhood.
9. Reviewed the market area for relevant comparable commercial land sales and
interviewed representatives, when available, regarding the sales.
10. Reviewed sales brochures and sales information on each of the subject
neighborhoods.
11. Reviewed actual developer sales information on all closed homes and current
escrows.
12. Reviewed Multiple Listing Service (“MLS”) information on re-sales and current listings
of existing homes within Lake Elsinore CFD No. 2003-2 IA E.
13. Inspected the subject property for any for-sale or property listing signs that may not
be listed on the MLS yet.
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Riverside County Regional Area Map
(Red Star is approximate subject location)
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COUNTY OF RIVERSIDE AREA DESCRIPTION
Location
The subject property is located in the southern portion of Riverside County (the “County”)
northwest of the merging of Interstate 15 (“I-15”) and Interstate 215 (“I-215”) and
southeast of the community of Canyon Lake. The area is located near the eastern
boundary of the City of Lake Elsinore (the “City”).
The County encompasses approximately 7,300 square miles, which includes large
expanses of undeveloped deserts, valleys, canyons and mountains. The County is the
major recipient of outward urban pressure from Orange and Los Angeles Counties as well
as northerly growth from San Diego County. Although located at the periphery of most
urban activity in Southern California, Riverside County, in particular the south and
westerly region, is clearly perceived by most observers as a major growth area well into
the foreseeable future. Because of mountain ranges limiting road access into Los Angeles
and Orange Counties, Riverside and San Bernardino Counties belong to the same
Metropolitan Statistical Area (“MSA”). This MSA is designated as (and commonly referred
to as) the Inland Empire.
Transportation
The subject property is situated north of I-15 and west of I-215 along both the north and
south of Newport Road, east of Railroad Canyon Road within the master planned
community of Audie Murphy Ranch. I-15 travels in a northerly/southerly direction and
provides access to Barstow and Nevada to the north and San Diego to the south. Highway
74 is approximately six miles northwest and provides access to the west into Orange
County on what is also known as Ortega Highway. Interstate 215 is approximately two
and one-half miles east, travels in a northerly/southerly direction within the County,
branching off from I-15 and heading generally north where it parallels I-15 to the east and
merges back into I-15 approximately 32 miles northwest of the subject in San Bernardino
County. In addition, the 60 Freeway runs in an east west direction approximately 18 miles
north of the subject providing access into Los Angeles County to the west and merges
with Interstate 10 to the east which provides access across California.
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The County is served by Amtrak and Metrolink as well as several rail freight lines. The
Ontario International Airport provides regional air service and is located approximately 40
miles northwest of the subject property while the Orange County Airport is located
approximately 37 miles west and the San Diego International Airport is located about 65
miles south. In addition, the County has extensive trucking corridors along the previously
referred to interstates, highways and state freeways.
Population
The County has experienced population growth for several decades and is anticipated to
continue to do so in the foreseeable future. Per the California Department of Finance, the
January 1, 2017 County population was 2,384,783. This represents a one-year increase
of 1.6 percent and an average annual growth rate of approximately 2.5 percent for the
previous sixteen-year period. Current County projections suggest the population is
anticipated to reach approximately 2.546 million by 2020 and 2.862 million by 2030,
indicating an average annual increase of approximately 2.20 percent for the next three
years and an average annual increase of approximately 1.41 over the next 13 years. The
current growth of 1.6 percent is lower than the previous 16 years average likely due to
the Great Recession, however higher than the previous year (1.3 percent). The future
growth is predicted assuming a more stable market than was seen prior to the Great
Recession.
Economy
As with the rest of the nation, the Inland Empire experienced a significant multi-year
recession, now known as the Great Recession, between 2007 and mid-2012. The MSA,
which had strong employment over the previous decade, saw unemployment rates
increase significantly between 2007 and 2010. Unemployment has declined substantially
since that time with recent reports showing historical low unemployment. The unadjusted
unemployment rate for the MSA was estimated at 4.1 percent (per the December 2017
Employment Development Department, released January 19, 2018, the latest data
available) which is lower than the pre-recession low of 4.3 percent in January 2006 and
a significant decrease since the unemployment peak in July 2010 of 15.1 percent. As of
December 2017, Riverside County had a 4.3 percent unemployment rate while San
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Bernardino County had a 3.9 percent rate. The current MSA unemployment rate of 4.1
percent is slightly lower than the current California statewide unemployment rate of 4.2
percent and the same as the January 2018 National unemployment rate of 4.1 percent.
Below is a table comparing Riverside County’s unemployment rates to the unemployment
rates of the surrounding counties.
Jurisdiction As of Unemployment Rate
Los Angeles County 12/17 4.2%
Riverside County 12/17 4.3%
San Bernardino County 12/17 3.9%
Orange County 12/17 2.8%
San Diego County 12/17 3.3%
Source: State of California E.D.D. December 2017 Report
Over the past 20 years, the Riverside County economy has had significant cycles with
home prices almost doubling from 1995 to 2005, then falling by over 50 percent during
the Great Recession, taking prices back to 2002 levels. Home values appeared to hit
bottom in 2009 then remained essentially flat for two to three years with the majority of
the Riverside County housing market seeing an improvement beginning in mid-2012.
While coastal Southern California housing enjoyed significant increases over the past six
years, the Inland Empire has bounced back slower. Riverside County is still not yet at
the previous median home price peak and sales are significantly slower than prior to the
recession. In late 2016 Riverside County saw builder land purchases increase as sales
of new homes picked up. In 2017, the County saw good increases in both sales and
pricing. These upward trends are continuing into 2018.
The Federal Government attempted to correct the struggling economy by implementing
several economic stimulus packages during the Great Recession. The Federal Reserve
Board (“Board”) kept interest rates below historical averages, dropping rates to zero in
December 2008 until the December 2015 Board meeting, when interest rates were raised
one quarter of a percent, followed by a quarter percent rate hike in December 2016 and
three one-quarter percent increases in 2017 bringing the benchmark interest rate to 1.25
percent. Current estimates are for three additional increases in 2018. This signifies the
possibility for robust growth nationally.
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While the U.S. economy has been growing, concerns of global weakness emerged. The
European Central Bank began its own quantitative easing in the summer of 2015; while
growth in China had been slowing for a couple years with a correction in China’s stock
market of 40 percent, followed by a devaluation of their currency, also in summer of 2015.
The summer of 2016 brought BREXIT (Britain’s exit of the European Union). In addition,
oil prices plunged in 2015 and 2016 and, while lower oil prices give U.S. consumers more
money, the lower prices can negatively affect U.S. oil companies and their workers along
with other oil dependent countries. In November 2016, the U.S. Election voted in a new
Administration that has recently approved the Tax Cuts and Jobs Act which limits the
ability of homeowners to deduct over mortgage interest expense and real property taxes
over certain thresholds from federal gross income. The majority of homes in the Inland
Empire should not be hurt by the mortgage interest expense and real property taxes
limitations.
The 2016 election of Donald Trump into the United States Presidency is anticipated to
have a profound effect on the economy. While the Trump Administration aimed to boost
the national economy with plans to roll back financial regulations, implement tax cuts,
enact new taxes on imports, and increase infrastructure spending, the national and
international skepticism of the new administration’s economic policy has been abundant.
The December 2017 approval of the Tax Cuts and Jobs Act (“TCJA”) is the first major
approval within the new administration. While the TCJA limits the ability of homeowners
to deduct mortgage interest expense and real property taxes over certain thresholds, the
thresholds of $750,000 for a mortgage and $10,000 in local, income and property taxes
should not affect the majority of homes in the Inland Empire.
California’s labor markets make it easy to understand why the mid-2000s downturn is
being called the Great Recession. After peaking at 15.454 million non-farm jobs in June
2007, the State shed over 1.33 million non-farm positions by February 2010. Since hitting
bottom, California has now added back 2.80 million jobs for a total of 16.98 million non-
farm jobs as of December 2017, per the California Employment Development
Department. This well surpasses the previous peak, however, there are a high number of
part-time jobs included in this number.
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According to the most recent UCLA Anderson Forecast (“Forecast” – December 6, 2017),
there is a mixed outlook. For the nation, the near-term outlook is optimistic anticipating
three percent growth in 2018 however by the end of 2019 they believe real GDP growth
could be running at a rate below 1.5 percent. They believe the momentum coming from
the recent strength in 2017 of strong equipment spending and the occurrence of the tax
cut will carry consumer confidence through 2018. They also believe defense spending
will likely be on the rise over the next several years, increasing by 2.7 percent in 2018
and 2019 respectively. Possible risks include the consequences of the Fed’s reducing its
balance sheet and the potential failure of the ongoing North American Free Trade
Agreement (“NAFTA”) negotiations (which would hit the U.S. automobile industry). If the
US leaves NAFTA, the outlook would deteriorate and the chance of a recession in late
2018 or 2019 would increase. The Administration recently announced possible trade
tariffs, however it is too early to know the outcome of this possibility. The Forecast states
that in order to “Make America Great Again”, we need to solve three problems: (1) how
to increase the rate of growth of the working age population; (2) how to increase the rate
of growth of hours by making more of the new jobs full-time and not part-time; and (3)
how to increase the rate of growth of productivity in the nation.
In discussing the National Housing Outlook, the Forecast notes that the housing industry
continues to slowly grind higher as it has since the cyclical bottom in 2009. This mid-year
Forecast upped the total number of units to be built forecasted from 1.27 million to 1.34
million in 2017 and 1.37 million units in 2018 and 2019, that level of activity remains below
the 1.4 to 1.5 million units per year we estimate to be consistent with long-run demand.
The puzzling thing about the under-building is that it is occurring against a backdrop of
modest economic and employment growth and a sustained period of very low mortgage
interest rates. Explanations for the long, slow recovery in housing include slow income
growth, much tighter credit standards and the millennial generation’s reluctance to making
long-term commitments. In addition, regressive zoning and environmental regulations
have played a role in reducing the overall supply of housing. The Forecast anticipated
household formations averaged 1.2 million per year from 2012 to 2017, and are forecast
to accelerate to about 1.5 million in 2018 and 2019, well above the forecast of the number
of units.
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The UCLA California Forecast for December 2017 states the state forecast differs from
the national forecast in two ways. First the new tax bill may dampen the housing market
which would reduce economic growth in the state. Second the investment incentive
(bringing forward investment because of expensing) increases the forecasted growth rate
for employment and income in 2018, though reduces it slightly by the end of 2019. They
state California’s unemployment rate will fall to 4.6 percent by the end of the forecast
period (2019), however the current rate is 4.2 percent, well below their forecasted rate
suggesting a stabilization in the 4.5 percent range.
The Forecast states that homebuilding in California will continue at about 118,000 units
per year. Los Angeles’ increasingly expensive and unaffordable home prices (particularly
for first-home buyers in coastal Southern California) is making it tough for both buyers
and renters. Housing market research suggests that limited supply is one of the major
causes of high home prices in coastal California. According to the Forecast, despite its
stronger economic recovery, California has relatively limited housing supply because of
its stringent regulations (such as CEQA – California Environmental Quality Act as well as
a NIMBY (not in my back yard) culture. It should be noted that the December Forecast
was done prior to the approval of the TCJA.
According to John Husing’s Inland Empire Economic Partnership’s Quarterly Economic
Report dated January 2018, the Inland Empire is posed for job growth that is better
balanced than the State. The Inland Empire has added 292,797 jobs since 2011 with
approximately 75 percent of those jobs in the moderate paying ($45,000 - $60,000) and
good paying sector ($60,000 plus) while in overall California the moderate and good
paying new jobs captured 61 percent. The 2017 data on job growth in the Inland Empire
remains strong with over 43,000 new jobs this past year. The region is headed for a new
employment record (1,445,667 – an increase of 3 percent) with job quality as good as
before the recession. This is in contrast to the State’s record were middle income sectors
are growing weakly.
John Husing also reports on the housing industry stating within the Inland Empire’s home
market, price rises continue however volume of home sales remains flat. In the fourth
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quarter 2017 the Inland Empire recorded 16,493 existing and new home sales which
results in volume being essentially flat for the past eight years. However, Husing predicts
that 2018 will bring about added volume growth returning to the market. Price trends,
however have increased over six percent in the past year with the median existing home
price in the Inland Empire rising to $334,697 and the new home price in the Inland Empire
rising to $439,612 over the past year. The existing home price is still 14.2 percent below
the 2006 peak ($389,924).
As a final indicator of overall economic activity for the region, we have reviewed the rise
or fall of TEUs (Twenty-foot Equivalent Units – i.e., containers) being processed in the
local ports. This is especially important for the inland communities as it represents much
of the growth in development of West Coast distribution centers and warehouses linked
to supply-chain nodes in the Pacific Rim. The chart below shows TEU activity at the Port
of Long Beach. The activity resulted in a flattening of TEUs during 2006 and 2007,
decreases occurring in 2008 and 2009, and an increase in 2010 followed by stabilization
until 2013 with increases until 2016 which showed a 5.7 percent slowdown. The year
2017 showed a ten percent increase over 2016 with 7.45 million TEUs. The chart below
shows historical TEU activity with the new 2017 peak.
Government
A Board of Supervisors oversees the County as the governing body of the County, certain
County special districts, and the County Housing Authority. The Board enacts ordinances
and resolutions, adopts the annual budget, approves contracts and appropriates funds,
determines land use zoning for unincorporated areas, and appoints certain County
6.71
7.29 7.31
6.48 5.07
6.26 6.06 6.04
6.73 6.82 7.19 6.78
7.45
4.00
5.00
6.00
7.00
8.00
2004 2006 2008 2010 2012 2014 2016 2018in millionsYear
Port of Long Beach TEUs
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officers and members of various boards and commissions. The Board of Supervisors is
elected from five different districts within the County.
Education
The subject area is served by the Lake Elsinore Unified School District which operates
eleven elementary schools, two K-8 schools, four middle schools, three high schools, one
continuation school, one adult school and one alternative school. Higher education is
available within an hour’s drive at the University of California campuses at Riverside and
Irvine or California State University campuses in San Bernardino, San Marcos, Fullerton
and Pomona along with several additional private colleges. The closest community
college is Mt. San Jacinto College.
Conclusion
Population in the County has increased over the past 30 years with predictions for
continued population growth. The nation’s economy stalled starting in 2006 due to the
housing downturn, unemployment and the credit crisis. The housing market saw a
resurgence beginning the second half of 2012 with prices and sales increasing by double
digits through 2013 with pricing growth slowing to more normal levels and sales
essentially flat since then. This slowdown in price growth was considered a benefit as
most economists opine that double digit increases in housing prices are not sustainable.
However, prices in 2017 and thus far in 2018 are growing faster than normal, once again.
The economy typically has cycles and most signs are suggesting the U.S. economy and
Riverside County’s economy is on an upswing. However, unlike previous recovering
economies, housing growth has been slower to bounce back. While the new
Administration is suggesting there will be changes in the economy, time will tell how fast
the changes actually occur. The year 2017 brought new optimism from economists in
terms of the Inland Empire housing market which has continued into 2018. The region’s
affordability coupled with the rising prices of the coastal market is setting up for a potential
boom in the Inland Empire. In conclusion, the County is expected to continue to grow in
population due to its Southern California location, the availability of land and the relatively
lower land prices in comparison to adjacent Orange, Los Angeles and San Diego
Counties.
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Lake Elsinore Area Map
(Red Star is approximate subject location)
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CITY OF LAKE ELSINORE DESCRIPTION
The subject property is located within the master planned community of Canyon Hills, in
the easterly portion of the City of Lake Elsinore (“City”). Lake Elsinore is approximately
half way between the cities of Los Angeles and San Diego, about 25 miles east of the
Pacific Ocean. Downtown Riverside, which houses the County seat, is approximately 20
miles north. The City is situated along I-15 at the intersection of State Route 74 and
encompasses an estimated 41 square miles. It is generally surrounded by unincorporated
County lands to the north and east, the City of Wildomar to the south and the Ortega
Mountains and the Cleveland National Forest to the west.
History
The Luiseno Native Americans are the earliest known inhabitants of the Elsinore Valley
prior to when settlers came in the early 1800s due to the natural springs which were said
to have healing qualities. In the 1850s, the area housed a stagecoach stop for the
Butterfield Overland Mail route between the Temecula station (20 miles south) and the
Temescal Station (10 miles north). The rich and fertile farm lands and natural resources
of clay, coal, sand and gravel within the Elsinore Valley kept people in the area. At
incorporation in 1888 the City was originally in San Diego County however became part
of Riverside County upon its creation in 1893. The City was named Elsinore after a city
in Denmark which is featured in the Shakespeare play, Hamlet. In the 1920s and 1930s,
the area became a Hollywood getaway with many stars building homes in the hills
surrounding the Lake.
Lake Elsinore (the “Lake”) was originally known as Laguna Grande and is the largest
natural lake in Southern California. The Lake is situated at the lowest point within the 750-
mile San Jacinto River watershed with headwaters from the western slopes of San Jacinto
Peak and Lake Hemet. Lake Elsinore levels are at 1,244 feet above sea level with a
volume of 30,000-acre feet that use to change substantially prior to federal grants to
prevent the flooding and ebbing of the lake. The largest flooding came in the 1930s when
the Lake rose from 8,000-acre feet to 92,000-acre feet. In 1951, the Lake dried up and
remained dry for about 10 years. In 1981 and 1983, the El Nino rains again flooded the
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area and in 1984 the City was successful in obtaining Federal grants for the major project
to regulate the Lake and end the cycle of flooding and drying. Now at 1,255 feet, the Lake
spills into the outflow channel known as the Temescal Wash, flowing northwest along I-
15 to Temescal Creek which dumps into the Santa Ana River near the city of Corona and
flows to Orange County and out into the Pacific Ocean.
Population
The City had enjoyed rapid population growth in the mid-2000’s which altered the
appearance of the City from a small lakeside town of 3,800 people in 1976, to a bedroom
community of upper middle-class professionals. From 2000 to 2008 the City was known
as the 12th fastest growing city in the State going from 28,928 residents in 2000 to 51,821
residents in 2010 which suggests an average annual increase of 6.0 percent. Between
2010 and 2015 the city increased to 59,142 residents (average annual increase of 2.67
percent) and between January 2016 and January 2017 the City experienced a 2.0 percent
population increase, with a January 2017 population estimate of 62,092. This significant
growth between 2000 and 2010 includes the residential boom prior to the Great
Recession while the slowdown between 2010 and 2015 reflects the Great Recession.
The past year’s growth is partially due to the increase of available new homes in the area,
including the master planned communities of Summerly, Canyon Hills (subject) and
Alberhill Ranch. The growth in the City is due to the more affordable housing with
convenient access along the I-15 corridor providing access to the employment centers in
Riverside, Orange, Los Angeles and San Diego Counties. The population has a very
diverse racial make-up with the median age estimated at 30.7 years old.
There are three master planned communities currently selling homes in the City:
Summerly, Alberhill Ranch and Canyon Hills (subject). Summerly consists of a total of
700 acres and is proposed for about 1,500 residential units and is approximately 50
percent complete. Alberhill Ranch is currently proposed for around 1,000 residential units
and is about 30 percent built-out. Canyon Hills (subject) is proposed for approximately
4,300 residential units and is approximately 95 percent built out.
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Economy
The City of Lake Elsinore has enjoyed industrial and commercial development along the
I-15 Corridor including the Lake Elsinore Outlet Center which was opened in the 1990s
as one of the first Outlet Malls in Southern California. The City has been promoting its
economic platform by becoming more business friendly. The 2016 estimated median
household income (most recent data per Census.gov) is $63,306 as compared to $57,972
for the County and $63,783 for the State. Per the City of Lake Elsinore’s 2017
Comprehensive Annual Financial Report, the top employers were as reported below.
Summary of Major Employers
Employer No. of Employees
Lake Elsinore Unified School District 2,644
M & M Framing 500
Stater Bros (3 locations) 319
Lake Elsinore Hotel & Casino 275
Costco 259
Walmart 234
Riverside County (Dept. of Social Services) 173
EVMWD 154
Home Depot 150
Target 150
Entertainment
While the area was a get-away from the movie industry in the 1920s, the area also began
emerging as an entertainment/sports area when it hosted Olympic teams for training
along with high speed boat racing on the Lake. In 1964 the Skylark Airport (located
approximately three miles south of the subject) emerged as a world class skydiving drop
zone due to the thermals from the surrounding mountains. This is still one of the most
prominent drop zones in Southern California. The Lake Elsinore Motorsports Park for off-
road racing is located three miles southwest of the subject lands. In 1991, the Lake
Elsinore Outlet Center opened boasting 100 outlets while in 1994 Diamond Stadium was
constructed which is the home of the Lake Elsinore Storm, an affiliate of minor league
baseball. Diamond Stadium is located about three miles west of the subject, adjacent to
the master planned community of Summerly.
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Transportation
Interstate 15 is the major access for the City with State Route 91 approximately 20 miles
north and I-215 about 10 miles south. I-15 provides access to State borders to the north
in Nevada and to the south where it merges with I-5 before going into Mexico. State Route
91 (20 miles north on I-15) provides freeway access into Orange and Los Angeles
Counties to the west and to San Bernardino County to the east. I-215 provides northerly
access connecting to State Route 60 which provides access to the west into Los Angeles
and to the east where it merges with I-10 and provides access to the State border with
Arizona. The nearest freeway intersection to the subject property is the Newport Road
exit (less than three miles away) from I-215, located to the east of the subject. From the
I-15, the closest intersection is the Diamond Drive/Railroad Canyon Road exit (less than
five miles west) where the arterial is Diamond Drive to the west of I-15 and Railroad
Canyon Road to the east. State Route 74 is a winding road through the Ortega Mountains
(also known as Ortega Highway west of Lake Elsinore) that provides a more direct access
into South Orange County which is located approximately 10 miles west.
Conclusion
In summary, the City of Lake Elsinore experienced above average growth over the past
17 years. Future growth of the City should continue, although at a slower rate than what
has previously occurred. Lake Elsinore’s housing market is currently healthy and the
subject’s community of Senterra was well received in the marketplace. The City’s
abundant recreation, expanding employment opportunities, location, reasonable land
prices and the availability of land for development combine to make the City a prime area
for future growth.
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THE MASTER PLANNED COMMUNITY OF CANYON HILLS
The subject property, known as Senterra, was not included in the original Canyon Hills
Master Planned Community but rather approved as an adjacent single tract and then
annexed into the Canyon Hills Homeowner’s Association. As it is most closely associated
with Canyon Hills, we will describe the entire community.
Canyon Hills was originally approved as the Cottonwood Hills Specific Plan. The site was
annexed into the City of Lake Elsinore per Re-Zone and Annexation No. 88-1. In addition,
General Plan Amendment No. 88-1 included the Cottonwood Hills Specific Plan in the
Lake Elsinore General Plan’s Land Use Map. The Cottonwood Hills Specific plan was
originally approved by the City of Lake Elsinore in 1989. The original Specific Plan
allowed for 4,275 dwelling units on 1,968 acres for an overall density of 2.17 dwelling
units per acre. The first amendment to the Cottonwood Hills Specific Plan was approved
in April 2003 and changed the name to Canyon Hills along with realigning entitlements to
the current market. The second amendment was approved in May 2007 and again
realigned the land use to the current market. Below is a Map showing all of Canyon Hills
with the subject property identified by the red star.
The third and latest amendment to the Specific Plan was approved in 2009 and included
approvals for Westridge (the western portion of the master plan outlined in blue) and the
east portion of the property known as The Meadows (eastern portion of the master plan).
Phases one through five were developed prior to the great recession and included 2,529
dwelling units, which have been built and sold. Phases 6 and 7 included an additional
831 units that have generally been constructed and sold out. Phase 8, which was
originally slated for 915 dwelling units, has now been mapped and is entitled for 456
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dwelling units and a commercial parcel and is known as Westridge at Canyon Hills.
Westridge is a gated community with five neighborhoods currently selling along with a
future commercial parcel.
The subject property is located within The Meadows on the above map and includes 74
completed single family homes which is known as Senterra. Senterra included four
distinct floorplans that sold out and closed between December 2016 and December 2017.
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Lake Elsinore CFD No. 2003-2 IA E – Senterra
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IMMEDIATE SURROUNDINGS
The subject property consists of Improvement Area E of City of Lake Elsinore CFD No.
2003-2 known as Senterra. Senterra is located at the most eastern part of Canyon Hills
and the most eastern part of the City of Lake Elsinore; adjacent to the border of Menifee.
More specifically, Senterra is one parcel east of Hermosa to the west and one parcel west
of Anna Lane to the east. The project is located southeast of Newport/Railroad Canyon
Road, which is the more direct artery to both the I-15 and the I-215.
Senterra is adjacent to existing rural residential homes to the east and south, open space
to the north (on the other side of Holland/Canyon Hills Road), and recently developed
homes in the Meadows portion of Canyon Hills to the west. The homes to the south
includes rural housing on very large lots, with a lot of open space. The master planned
community of Audie Murphy Ranch is located north of the subject, with the remainder of
the Canyon Hills developments located to the west and Canyon Lake located to the north
west. Canyon Lake Country Club and Golf Course are located northeast of the subject.
The closest shopping is Canyon Hills Marketplace (anchored by a Stater Brothers
Market), which is located at the corner of Railroad Canyon Road and Canyon Hills Road,
less than three miles west of the subject. Lake Elsinore City Center which includes a
Walmart, Starbucks, Vons, UPS Store, Wells Fargo, and several restaurants is located
west of the subject at the intersection of Railroad Canyon Road and I-15 within five miles
of the subject. Menifee Town Center and Menifee Countryside Marketplace are the
closest easterly shopping centers to the subject, located approximately three miles
northeast at the intersection of Newport Road and I-215.
Senterra, which was developed by Pardee Homes, began construction in July of 2016
with all construction completed by November of 2017 with the last closing in December
2017. Pardee is the master developer of all of Canyon Hills, which is nearing build out.
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Lake Elsinore CFD No. 2003-2 IA E – Senterra
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Kitty Siino & Associates, Inc. Page 23
CITY OF LAKE ELSINORE CFD NO. 2003-2 IMPROVEMENT AREA “E”
On March 8, 2016, the City Council of the City of Lake Elsinore adopted a Resolution of
Intention to form Community Facilities District No. 2003-2 Improvement Area E via
Resolution No. 2016-21. We have reviewed the Community Facilities District Report for
the City of Lake Elsinore 2003-2 Improvement Area E, prepared by Webb Associates and
dated April 12, 2016 (“CFD Report”). Per the CFD Report there were plans to construct
74 residential dwelling units within Tract 36682 on 21.870 gross acres. The types of
facilities that are proposed to be financed by Lake Elsinore CFD No. 2003-2 IA E consist
of the construction, purchase, modification, expansion, rehabilitation and/or improvement
of:
• Drainage, library, park, roadway and other public facilities of the City of Lake
Elsinore including the foregoing public facilities which are included in the City’s fee
programs with respect to such facilities and authorized to be financed under the
Act, as amended, and;
• Water and sewer facilities including the acquisition of capacity in the sewer system
and/or water system of the Elinore Valley Municipal Water District (“EVMWD”)
which are included in EVMWD’s water and sewer capacity and connection fee
programs, and all appurtenances and appurtenant work in connection with the
foregoing facilities, including the cost of engineering, planning, designing,
materials testing, coordination, construction staking, construction management
and supervision for such facilities.
The cost estimate, including incidental expenses, to be financed through the issuance of
CFD No. 2003-2 IA E bonds, at time of the CFD Report, was estimated at $1,915,000.
The current estimated proceeds to be generated from the sale of the Lake Elsinore CFD
No. 2003-2 IA E Bonds per the latest CFD Bond Sizing is $1,900,155 with an additional
$452,469 of incidental expenses (includes Debt Service reserve fund and costs of
issuance) associated with the formation and issuance of the Bonds (all amounts are
subject to change). A copy of the Lake Elsinore CFD No. 2003-2 boundary map is located
in the Addenda for your review.
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Lake Elsinore CFD No. 2003-2 IA E – Senterra
City of Lake Elsinore
Kitty Siino & Associates, Inc. Page 24
SUBJECT PROPERTY DESCRIPTION
The subject property consists of 74 single-family homes on which are covered by Tract
Map 36682 and were developed into a neighborhood known as Senterra by Pardee
Homes. The neighborhood is described below.
Location: Southeast corner of Holland/Canyon Hills Road and Hermosa, Lake
Elsinore, California.
GPS Coordinates: 33.668964, -117.218004
Legal Description: Lots 1-74 of Tract 36682 located in City of Lake Elsinore, County of
Riverside, California
Owner of Record: Individual owners as to Lots 1-74 of Tract 36682.
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Lake Elsinore CFD No. 2003-2 IA E – Senterra
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Kitty Siino & Associates, Inc. Page 25
Three-Year
Sales History: Senterra is closed out. 74 homes have closed escrow to individuals.
Pardee Homes was the developer of Senterra and sold the homes
to the individual homeowners. Pardee Homes had held the land for
over three years prior to development. They purchased the site
September 3, 2014 from the Christensen Trust.
Assessor’s Parcel
Numbers: Tract 36682 is shown as 358-710-001 through -041; 358-711-001
through -007 and 358-712-001 through -026.
Property Taxes: Per the Riverside County Assessor’s Office the 2017/2018 taxes for
APN 358-710-006-4 (sample property at 36618 Aloe Drive) the
overall property taxes are $8,906.26. The assessed value is
$468,839 with ad valorem taxes of $5,317.80 and $3,588.46 in
Special Assessments and Fixed Charges. Included in the Special
Assessments are CFD 2003-2 Canyon Hills IA E (subject) for
$2,161.30, CFD 92-1 Perris Union HS for $292.74, CFD 2015-2
Maint. Tax Zone 2 for $363.48 and CFD 2015-1 LK Elsinore Safety
in the amount of $712.40 along with miscellaneous fixed charges of
$58.54.
Flood Zone: Per the County of Riverside a flood plain review is not required on
the property.
Size and Shape: The subject property is generally rectangular in shape and contains
21.870 acres per Tract Map No. 38862.
Zoning: Per both the City General Plan Land Use Map and the City Zoning
Map, the subject property is designated Medium Density Residential.
Entitlements: The subject property is covered by Tract Map 36682 which recorded
June 22, 2016. A copy of the Tract Map is located within the
Addenda of this report. Tract Map 36682 allows for 74 single family
detached lots with a minimum lot size of 7,200 square feet and a
detention basin located at the northwest corner of the tract.
Topography: The original topography appears to have been relatively flat, and the
subject property is at street level of the surrounding streets. The
lands have been developed into single family detached lots.
Drainage is within an engineered street drainage system with a
detention basin on site.
Soils Condition: We have not received a soils report for our review. It is an assumption
of this report that the soils are adequate to support the highest and
best use conclusion and that all recommendations made within any
soils reports were adhered to during construction. This is supported
by existing development on the subject lands.
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Lake Elsinore CFD No. 2003-2 IA E – Senterra
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Kitty Siino & Associates, Inc. Page 26
Seismic
Conditions: Per the State of California Department of Conservation the property
is not located within an Alquist Priolo Earthquake Study Zone.
Environmental
Concerns: We have reviewed a Phase I Environmental Site Assessment (ESA)
Report for the subject as well as the Limited Phase II ESA Report,
both prepared by Converse Consultants of Redlands, California and
prepared August 2013 and September 2013 respectively. Both
reports found no evidence of recognized environmental conditions
(except for the observation of the property being historically used for
livestock grazing) and no further action was recommended.
We have also reviewed an Archaeological Constraint Analysis on the
site which determined the only mitigation needed would be
monitoring during grading of the sitse.
In addition, we have reviewed a Burrowing Owl Survey Report that
resulted in no burrowing owls or burrowing owl signs being observed
on the site.
This appraisal assumes that there are no environmental issues that
would slow or thwart development of the site. This is supported by
existing development on the subject lands which was overseen by
City inspectors.
Easements/
Encumbrances: We have reviewed a Preliminary Title Report prepared by First
American Title Company as Order Number 4460087-A and dated
April 1, 2016. The report is on Tract 36682, is summarized below
and had the following exceptions.
Item Nos. 1 through 3 pertain to property taxes. Item No. 4 is in
regards to the property being within CFD 05-8, however this CFD
does not show up on the property tax bill and is not related to the
subject property. Item No. 5 refers to rights, right of ways,
reservations and exceptions in a patent recorded in 1894. Item No.
6 is in regards to Resolution No. 2002-239 recorded in 2002 on the
property. Item No. 7 refers to Certificate of Completion - LAFCO
2007-32-3 which recorded November 1, 2007. Item No. 8 refers to
the rights of the public in regards to public streets and roads. Item
No. 9 pertains to water rights. Item No. 10 and 15 are in regards to
AD 93-1 and CFD 98-1, neither of which show up on our sample
property tax bill. Item Nos. 12 and 14 refer to CFDs 2003-1 and 2009-
1, again none of which show up on the sample property tax bill and
are not related to the subject property. Item No. 13 refers to CFD
2003-2, the subject CFD. Item Nos. 16 and 18 are in regards to water
rights. Item No. 17 pertains to CC & Rs which recorded on the
property in 1912. Item No. 19 refers to a Development Agreement
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Lake Elsinore CFD No. 2003-2 IA E – Senterra
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between the City and Pardee. Item No. 20 pertains to a SB 50
Finance Agreement with the Lake Elsinore Unified School District.
Item No. 21 refers to a Memorandum of Agreement between the City
and Pardee. Item No. 22 refers to the streets on said tract map to be
dedicated. Item No. 23 refers to abutter’s rights on ingress and
egress to or from Canyon Hills Road. Item Nos. 23 thru 26 and 28
and 29 refer to easements for public utilities and streets and
incidental purposes. Item No. 27 is in regards to CC & Rs
establishing solar shading restrictions.
It is an assumption of this report that the subject property is free and
clear of any liens and/or encumbrances with the exception of City of
Lake Elsinore CFD No. 2003-2 IA E.
Utilities: All normal utilities serve the subject site by the following companies:
• Electrical: Southern California Edison Company
• Natural Gas: Southern California Gas Company
• Sewer/Water: Elsinore Valley Municipal Water District
• Schools: Menifee Union School District /
Perris Union High School District
Streets/Access: There are various access routes to the subject property via either I-
215 or I-15. From I-215 go west on Newport Road to Murrieta Road
(approximately two miles). Turn left (west) onto Holland/Canyon Hills
Road and the subject will be located approximately one mile west,
on the south side of Holland/Canyon Hills Road. The subject is
located at the southeast corner of Holland/Canyon Hills Road and
Hermosa, in the City of Lake Elsinore. From I-15, go east on Railroad
Canyon Road (turns into Newport Road at City limits) to Canyon Hills
Road (approximately two and a half miles). The subject is located
on the south side of Canyon Hills Road (turns into Holland Road at
the subject) approximately three miles from Railroad Canyon Road.
I-215 is a major Southern California Freeway beginning at the I-15 in
Murrieta in Southern Riverside County and providing access north
through Riverside and into San Bernardino where it combines with I-
15 once again. Currently I-215 is undergoing a widening between
Newport Road and I-15. I-215 has been a four to six lane divided
freeway (two-three lanes each way) while the new construction is
proposed for a six to eight lane divided freeway.
Newport Road is a major commercial arterial through the City of
Menifee with on/off ramps to I-215. West of the Freeway at the City
limits Newport Road becomes Railroad Canyon Road providing
access into the City of Lake Elsinore and to the City of Canyon Lake.
East of the Freeway Newport Road becomes Domenigoni Parkway
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Lake Elsinore CFD No. 2003-2 IA E – Senterra
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and provides access into the area of Hemet and to Diamond Valley
Lake, a large reservoir in Riverside County. Newport Road was
recently realigned.
Canyon Hills Road/Holland Road is an access road into Canyon
Hills; Tract 36682 lies on the south side of the road where it changes
from Canyon Hills to Holland Road.
I-15 is a major north/south freeway, which provides access to both
international borders with Mexico and Canada.
Railroad Canyon Road has on/off ramps to I-15 in the City of Lake
Elsinore. South of I-15 Railroad Canyon is known as Diamond Drive
and provides access to the Lake Elsinore minor league ballpark and
into the new community of Summerly, along the banks of Lake
Elsinore, a recreation lake. North of I-15 Railroad Canyon provides
access to several commercial centers located at the intersection with
I-15, and access to the northeast to Canyon Hills, a master planned
community and Canyon Lake, a gated City developed around
another recreation lake. At the City limits of Menifee, Railroad
Canyon Road becomes Newport Road, northwest of the subject
property.
Internal streets within Tract 36682 include Geranium Drive, Aloe
Drive, Boxwood Way, Lobelia Court, Daffodil Court, Obaria Way, and
Braken Way.
Current Condition: The subject property has been developed into 74 single family
homes. The lots are in a physically finished condition with streets
complete and utilities stubbed to each lot and completed homes on
each lot. All 74 homes have closed to individuals.
Remaining
Costs: All homes are complete; the lots are in a physically finished condition
with no remaining fees. Per our visual inspection, it does not appear
there are any remaining hard costs within Tract 36682. Per Pardee
Homes, the master developer there is still an offsite road (Corson
Avenue (south side of Tract 36682) which needs to be improved per
their development agreement with the City. However, there are
impediments to the finalizing of the construction which are out of the
developer’s hands. Thus, the City has allowed all certificate of
occupancies to be obtained. This condition does not “run with the
land” but is rather is an obligation of the master developer and does
not affect the subject 74 homes.
Improvement
Description: Tract 36682 has been built out as Senterra at Canyon Hills by Pardee
Homes. There are four plans with sizes ranging from 2,392 to 4,010
square feet. There is a Plan 4X which increases the square footage
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of Plan 4 from 4,010 to 4,226 and creates a GenX lounge out of a
portion of the garage with a separate entry. We did not receive which
Plan 4s had the optional room, thus our valuation for the Plan 4 will
be based on the base size of 4,010 square feet. The homes are of
Spanish, Italian and Craftsman architecture and are of either one or
two stories with three to four-car garages, concrete tile roofs, roll-up
garage doors, gourmet kitchens, interior laundry and master suites.
All 74 of the homes have closed to individual homebuyers with
closing dates between December 2, 2016 until December 29, 2017.
Actual sales prices (including premium, upgrades, options and
incentives) within Senterra ranged from $394,000 to $599,638. Our
search of the MLS revealed there have no re-sales and there are no
current listings within Senterra. Our physical search noted all homes
appear to be in excellent condition. The plans are detailed below.
Senterra
Plan
Bd/Ba
Floors/
Parking
Sq. Ft.
Ind.
Owned
Bldr.
Owned
1 4 / 3 1 / 3 2,392 19 0
2 6 / 4 2 / 3 3,242 17 0
3 4 / 5 2 / 3 3,657 18 0
4 7 / 4.5 2 / 4 4,010 20 0
Total 74 0
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Lake Elsinore CFD No. 2003-2 IA E – Senterra
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Kitty Siino & Associates, Inc. Page 30
RIVERSIDE COUNTY HOUSING MARKET
In analyzing the County’s housing market, population growth and economic conditions
need to first be considered.
Population
The County population grew at a 1.28 percent increase over the past year. This compares
to the 2.5 percent average annual percentage increase over the previous sixteen years.
The slowdown in population growth is primarily due to the sluggish national economy.
This slowdown is similar to other Southern California counties during this time period.
Predictions are for the County to grow at an average annual rate of 1.4 percent over the
next four years. This equates to an increase of approximately 35,000 residents per year
suggesting the need for about 10,000 homes per year within the County.
Economic Conditions
Over the past twenty-five years the Inland Empire has seen various cycles in the housing
market. The recession of the early 1990s impacted the Inland Empire significantly and
resulted in a longer recovery period than in other areas of Southern California. The rise
and then fall of housing prices in the Inland Empire between 2004 and 2009 was
considerably steeper than almost anywhere in the state. Unfortunately, this meant that
the people who bought near the peak of the market likely faced significant negative equity.
After essentially remaining flat for a few years, housing prices began to increase in late
2012. The significant 2012-2013 price appreciation followed by continued growth (albeit
slower) in the housing market since then helped alleviate the negative equity situation in
the Inland Empire. The past year has seen low inventory and increased demand which
has increased home prices.
Economic growth in the Inland Empire was strong between 2002 and 2007. Job losses
occurred between 2007 and 2009, with a leveling out in 2010, a slight upturn in 2011, and
generally increases since that time with current rates near all-time lows. The
unemployment rate for Riverside County was 4.3 percent (per the December 2017
Employment Development Department), significantly lower than the high of 15.1 percent
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in July 2010. The current rate is slightly higher than California’s unemployment rate of
4.2 percent and slightly higher than the January 2018 National rate of 4.1 percent.
The housing market was a significant factor in strengthening the impact of the Great
Recession. Due to increased interest rates and rising home prices between June 2004
and mid-2006, the market reaction was to create non-conventional financing alternatives,
such as sub-prime and non-conventional mortgages, to artificially maintain the boom
housing market of 2004 and 2005. In 2007 the housing market saw a shake-up due to
the problems in the sub-prime and non-conventional mortgage markets. In March 2007,
the Federal Government initiated efforts to stop or limit sub-prime mortgages.
Unfortunately, the damage had already been done with sub-prime mortgages playing a
role in the 2008 shake out of Wall Street and contributing significantly to the U.S.
economic downturn. Due to stricter income verification on new loans and the lack of
available credit, coupled with job losses and declining home prices, sales of new homes
slowed for the next few years. With the exception of a small increase in 2010, primarily
due to government offered homebuyer credits, prices/sales essentially remained flat until
mid-2012, when prices began a steady climb with double-digit increases into 2013, with
a slower appreciation since that time. The increase of the housing market generally
follows the lowering of the unemployment rate – as jobs grow, so do home sales and
prices.
There were several factors adding to the recent price appreciation including limited supply
and constrained lending. The main factor in prices rising is an imbalance in supply and
demand. Near the bottom of this past real estate cycle it was not financially feasible to
develop land and build a house in portions of Riverside County. Thus, land development
slowed, significantly restricting supply. Home ownership across the U.S. has declined to
64.2 percent (Fourth Quarter 2017 Census.gov) from a high of 69.2 percent in 2004 and
up from the low of 63 percent in 2016. One major cause of slow sales of new homes in
the area is thought to be the FHA Loan Limits. During the recession, the FHA Loan Limits
were increased in order to make financing via the Federal Housing Authority easier.
However, in January 2015 the FHA loan limits were reduced in Riverside County to
$356,500. The 2018 FHA Loan Limits were recently announced, with Riverside county’s
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single-family home limit at $405,950. This is a step in the right direction from the 2015
limit, but still not completely in tune with the Riverside County housing market. A three
percent down payment (minimum allowed with FHA financing) suggests the maximum
price paid for a home purchased through FHA financing would be in the $418,000 range.
With Riverside County’s fourth quarter 2017 median new home price at $422,500 (up
0.6% from fourth quarter 2016), it is obvious that there is a slight disconnect. The subject
property features base home prices from $400,000 to $525,000, with the majority of
floorplans priced outside of the FHA loan limits. Within Riverside County the current
median detached home price (existing – not new) is $383,000, within the FHA home loan
limits, which reflects an increase of 8.7 percent from one year prior (California Association
of Realtors).
The recent approval of the TCJA by the Federal Government is causing concern that
home sales may slow once again. The two largest changes for homes owners is the
limitation at $10,000 for the deduction for state income, sales taxes and property taxes
(SALT) along with a limitation on the mortgage deduction for loans that exceed $750,000.
While this amount does not affect most people looking at subject-type homes in the Inland
Empire (in the $400,000 to $525,000 range), the SALT deduction may limit their
deductions. It is still too early to tell how much the TCJA will actually affect the new home
market, however it is thought that it won’t affect the Inland Empire as much as the
California coastal cities where mortgages are generally larger due to higher priced homes
and therefore may be affected.
Home loan mortgage rates were playing a large part in the housing market. The Federal
Reserve had held mortgage rates at all-time lows for the past few years in an attempt to
assist the housing market. Low rates appeared to help for quite a while however first-
time buyers are now having an extremely hard time entering the housing market. The
Federal Reserve Board (“Board”) has kept interest rates below historical averages
dropping rates to zero in December 2008 until the December 2015 Board meeting when
interest rates were raised one quarter of a percent. In March, June, and December of
2017, the Board increased its benchmark interest rate one quarter point with projection
sthat 2018 will have an additional three increases. This signifies the possibility for robust
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growth nationally. Unlike the 2008 to 2015 decisions to maintain the rates at zero, regular
hikes are anticipated for the foreseeable future. The current quoted rates for a 30-year
fixed mortgage per FRED (Federal Reserve Economic Data) as of March 1, 2018 are
4.43 percent. This is up from an average of 3.65 percent over 2016 due to the past year
rate increases.
Residential Land Development
While there had been little land development going on in most of the Inland Empire during
the years 2008-2011, the second half of 2012 saw a resurgence. From 2013 to 2017,
there has been a general incline in amount of actively selling projects and pricing, which
had prompted an increase in land development actively. The increase in housing prices
coupled with the limited availability of supply made land development feasible once again
for homebuilders. In recent years in the subject’s immediate area, master planned
community activity includes Canyon Hills, Summerly, Alberhill Ranch, Audie Murphy
Ranch, Pacific Mayfield and Menifee Town Center, all within ten miles. Within Audie
Murphy Ranch they had three land sales in 2017, one to DR Horton, one to Meritage and
one to Brookfield.
According to The Ryness Report, a real estate consulting company, there are 37 new
home selling projects within the “South Riverside” market which includes the communities
of Menifee, Winchester, French Valley, Wildomar and Lake Elsinore.
New Home Sales and Pricing
We have researched new single-family homes within the subject real estate market in
order to reflect residential trends. Due to the limited availability of new homes in the
immediate area, our search was expanded to include Lake Elsinore, Wildomar and
Menifee. While overall new home sales in Riverside County were down 2.1 percent year
over year (from 5,178 new home sales in 2016 to 5,069 sales in 2017), this slight
downturn is not considered significant, as the general trend for new home sales in
Riverside County appears to be rising. It should be noted these sales numbers and prices
pertain to new home sales while later in this section we discuss existing home sales.
Below is a graph showing Riverside County new home sales (both attached and detached
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SFR) between 2004 and 2017. It is interesting to note that average annual home sales
are still at a level that is approximately one-third of the average annual sales between
2003 and 2006. It is thought the downturn between 2016 and 2017 is due to limited
availability rather than limited demand.
New single-family detached home pricing in Riverside County has also seen changes,
however, not as drastic as the changes in sales numbers. The median new home price
changed from $520,152 in the third quarter of 2006 to $275,000 in the first quarter of 2009
(decrease of 47 percent) while the current new home median price is $422,500 per John
Husing, an area economist’s fourth quarter 2017 information. This reflects an increase
of over 54 percent from the bottom of the cycle and an increase of 0.6 percent year-over-
year. New home sale prices fluctuate based on the land value more than the cost of
building the home. While finishes and sizes of homes can change, the basic costs on a
per square foot basis do not fluctuate as much as land values, however there have been
inflationary increases in construction costs adding to this increase.
Our search for comparable new home projects within the competitive market area
resulted in seven new home Single Family Detached projects with pricing generally
ranging from $380,000 to $550,000.
24467
15575
9824
4947 4346 3575 3233 3639 4449 4500 4899 5178 5069
0
5000
10000
15000
20000
25000
30000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017No. of SalesYear
Riverside County New SFD Sales
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Existing Home Sales and Pricing
The median existing detached home price in Riverside County of $370,000 (as of January
2017 per CoreLogic) is up over 100 percent from the low in second quarter 2009
($155,100) and up 12.1 percent from the previous year. It should be noted that the
median existing home price in Riverside County is still down approximately 4.6 percent
from the median price at the peak in 2006 ($388,000). Thus, even though the housing
market is recovering, it is still below the previous cycle’s peak.
According to CoreLogic, within Southern California (Los Angeles, Riverside, San Diego,
Ventura, San Bernardino and Orange counties), the median price paid for a home (both
new and existing) in January 2018 ($507,000) is down 0.5 percent month over month
from the revised all-time high of $509,500 in December 2017, but up 11.4 percent year
over year from $455,000 in January 2017. The current median existing home price in
overall Southern California is above to the peak in mid-2007 when the median price was
$505,000 and up more than 100 percent from the low point of the cycle which was a
$247,000 median price in April 2009. However, when adjusted for inflation, the January
2018 median sales price is 13.6 percent below the 2007 peak. Home sales in Southern
California were down 1.5 percent overall in Southern California in January 2018 based
on a year-over-year change. Shown below is a table comparing January 2017 to January
235
278
367 388 370
200
155 180 172
221
275 277 310 332 365 370
0
50
100
150
200
250
300
350
400
450
2003 2005 2007 2009 2011 2013 2015 2017
Riverside County Median Existing Home Prices
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Lake Elsinore CFD No. 2003-2 IA E – Senterra
City of Lake Elsinore
Kitty Siino & Associates, Inc. Page 36
2018 for both new and existing home sales and pricing in Southern California by county
and for Southern California as a whole. The decrease in sales numbers is in relation to
fewer homes for sale rather than fewer buyers on the market. This limited supply is
putting pressure on prices which is seen in the table below.
Southern California (New and Used) Home Sales
County
No. Sold
Jan. 17
No. Sold
Jan. 18
Percent
Change
Median
Jan. 17
Median
Jan. 18
Percent
Change
Los Angeles 5,188 4,847 -6.6% $525,000 $565,000 7.6%
Orange 2,336 2,234 -4.4% $634,000 $690,000 8.8%
Riverside 2,654 2,787 5.0% $330,000 $370,000 12.1%
San Bernardino 2,164 2,104 -2.8% $282,000 $312,500 10.8%
San Diego 2,478 2,622 5.8% $495,000 $529,000 6.9%
Ventura 655 653 -.03% $510,000 $560,000 9.8%
SoCal 15,475 15,247 -1.5% $455,000 $507,000 11.4%
Source: CoreLogic January 2018 Data Brief (most recent Data Brief)
Based on January 2018 median new and existing homes prices, in comparison to the
majority of the surrounding counties, Riverside County has a definite price advantage.
The “Riverside County Advantage” (price difference between Riverside and surrounding
counties) is $159,000 as compared to San Diego County, $195,000 as compared to Los
Angeles County, $190,000 as compared to Ventura County and $320,000 as compared
to Orange County. That is, in January 2018, the median priced home in Riverside County
was $320,000 less (or 46 percent less) than the median priced home in Orange County
($690,000). However, San Bernardino County has a $57,500 price advantage over
Riverside County. As the price advantage widens, homebuyers are more open to
commuting to further out areas.
In a separate attempt to capture the increase in home prices, the resale activity of existing
homes in the subject area (per CoreLogic) has been reviewed. The number of sales and
sale prices of existing homes within market areas in the immediate area of the subject
are shown in the table on the following page.
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Lake Elsinore CFD No. 2003-2 IA E – Senterra
City of Lake Elsinore
Kitty Siino & Associates, Inc. Page 37
Community
Name
Zip
Code
Border
To
Subject
Sales of
SFD
Homes
Jan. 2018
Jan. 2018
Price
Median
SFR
Jan. 2018
PSF
Median
SFR
Price %
Change
from Jan.
2017
Lake Elsinore 92532 Subject 22 $375,000 $159 8.7%
Menifee 92584 North/Northeast 57 $389,000 $174 13.3%
Menifee/Sun City 92585 North/Northeast 21 $382,000 $175 21.7%
Canyon Lake 92587 West/Northwest 20 $373,000 $202 -0.7%
Wildomar 92595 South 24 $420,000 $158 17.1%
Murrieta 92563 Southeast 50 $420,000 $178 10.5%
Murrieta 92562 South 72 $435,000 $188 9.3%
Source: CoreLogic Southern California Home Resale Activity January 2018
The median home price of a detached resale home in the subject’s zip code is $375,000,
in the bottom half of the median price. The above price increases relate to CoreLogic’s
overall Riverside County increase of 12.1 percent year over year from January 2017 to
January 2018.
Canyon Hills Sales and Pricing
Within Canyon Hills there are only four remaining and actively selling neighborhoods –
Vantage, Starling, Overlook, and Aura. All four neighborhoods are being built by Pardee
Homes and are located about three miles west of the subject in the Westridge
neighborhood of Canyon Hills. Vantage home square footage range from 2,539 to 2,883
with pricing ranging from $384,000 to $401,000. Starling home square footage range from
2,936 to 3,255 with pricing ranging from $418,000 to $429,000. Overlook only has the
models left to sell from a home square foot range of 1,798 to 2,203. Aura has a home
square footage range of 2,151 to 2,493 with a pricing range of $364,000 to $378,000. All
four projects have a much smaller lot size than Senterra, ranging from 2,500 to 5,000
square feet. All four projects have sales rates between 2.8 and 5.96 sales per month
which is considered good for the area. The absorption numbers within Westridge at
Canyon Hills suggest that the smaller, less expensive homes are selling at a faster rate
than the larger, more expensive homes which is typical for Inland Empire projects.
Summary
Riverside County saw a substantial increase in both sales and pricing between mid-2012
and late 2013. It appears the significant appreciation of homes slowed to a more normal
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Lake Elsinore CFD No. 2003-2 IA E – Senterra
City of Lake Elsinore
Kitty Siino & Associates, Inc. Page 38
sustainable rate in 2014 through mid-2016 with a more significant increase since then.
New home prices are still slightly below the previous peak but have recently began
increasing at a higher rate than the previous few years. The Lake Elsinore residential
market has remained strong with fourteen detached new home neighborhoods within the
city currently active in the market. Communities within the Lake Elsinore submarket are
experiencing above average sales rates. While loans are still difficult to obtain and rates
have risen slowly, rates have continued to be at historical lows. Despite some uncertainty
still clouding the current housing market, most observers are in agreement that the
housing market is still gaining strength and healthy population growth is occurring in the
County. It is believed that as population continues to increase, housing growth will also
continue.
_________________________________________________________________________________________________________
Lake Elsinore CFD No. 2003-2 IA E – Senterra
City of Lake Elsinore
Kitty Siino & Associates, Inc. Page 39
HIGHEST AND BEST USE ANALYSIS
The highest and best use is a basic concept in real estate valuation due to the fact that it
represents the underlying premise (i.e., land use) upon which the estimate of value is
based. In this report, the highest and best use is defined as:
"the reasonably probable and legal use of vacant land or an improved
property, which is physically possible, appropriately supported, financially
feasible, and that results in the highest value”4
Proper application of this analysis requires the subject properties to first be considered
“As If Vacant” in order to identify the “ideal” improvements in terms of use, size and timing
of development. The existing improvements (if any) are then compared to the “ideal”
improvements to determine if the use should be continued, altered or demolished
preparatory to redevelopment of the site with a more productive or ideal use.
“As If Vacant”
In the following analysis, we have considered the site’s probable use, or those uses which
are physically possible; the legality of use, or those uses which are allowed by zoning or
deed restrictions; the financially feasible uses, or those uses which generate a positive
return on investment; and the maximally productive uses, or those probable permissible
uses which combine to give the owner of the land the highest net return on value in the
foreseeable future.
Physically Possible Uses
The subject property consists of a 21.870-acre parcel located adjacent to Canyon Hills
Road (also known as Holland Road at the subject) at the east boundary of the Canyon
Hills Specific Plan. Canyon Hills Road connects the Canyon Hills master planned
community in the City of Lake Elsinore to the City of Menifee. The property has good
access from I-15 via Railroad Canyon Road. The property has been graded and
developed into single family detached lots, with internal streets completed and all utilities
installed and servicing the property. The site is surrounded by older existing rural homes
4 The Appraisal of Real Estate, 11th Edition
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Lake Elsinore CFD No. 2003-2 IA E – Senterra
City of Lake Elsinore
Kitty Siino & Associates, Inc. Page 40
on large lots to the south and east, vacant mountainous lands to the north (beyond
Canyon Hills Road) and existing new homes within Canyon Hills to the west. We did not
receive a soils report to review however all environmental assessments received were
reviewed. It is an assumption of this report that the soils are adequate to support the
highest and best use conclusion and that there are no environmental issues which would
slow or thwart development of the site. This is evidenced by City approvals along with
City inspectors on site during construction. An engineered drainage system and an on-
site detention basin appear to have been designed to alleviate any potential flooding
problems and to control project water runoff. All standard utilities serve the subject
property. The site has good access via I-15 to Railroad Canyon Road to Canyon Hills
Road. There is neighborhood shopping within three miles of the subject site.
Based on the physical analysis, the size, access and topography make the subject
property physically suited for numerous types of development; however, the grading and
development that has occurred on the site along with the surrounding uses, suggests
single-family residential use.
Legality of Use
The subject property is located within the City of Lake Elsinore, the entity responsible for
land use and zoning regulation. Per the City General Plan and Zoning Map the subject
site is designated for Medium Density Residential land use. In addition Tract Map No.
38862 was recorded on the property. Tract 38862 subdivides the property into 74 single
family detached lots with a minimum lot size of 7,200 square feet. The approved mapping
is consistent with the current zoning on the property. Based on the legality of use analysis,
the type of development for which the subject properties can be utilized is narrowed to
residential use. This is consistent with the findings of the physically possible uses.
Feasibility of Development
The third and fourth considerations in the highest and best use analysis are economic in
nature, i.e., the use that can be expected to be most profitable. As discussed under the
Riverside County Housing Market section earlier within this report, the market has
showed strong increases in both sales and pricing in 2017. Within Lake Elsinore CFD No.
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Lake Elsinore CFD No. 2003-2 IA E – Senterra
City of Lake Elsinore
Kitty Siino & Associates, Inc. Page 41
2003-2 IA E, all 74 homes closed between December 2016 and December 2017. All
structures appear to be in excellent condition with no physical depreciation apparent.
Within the new home market in the subject area we found seven projects to be most
comparable to the subject however there are many additional new homes projects in the
market area. The nearby community of Audie Murphy Ranch in Menifee (within three
miles of the subject lands) had three additional land sales to builders in 2017. Population
growth is still occurring in the area and will continue to create the need for housing.
Based on the above analysis, the highest and best use for the subject property appears
to be for single-family detached residential development at the right price points.
Maximum Productivity
The current housing market is still giving some mixed messages. Market conditions of a
sluggish economy and limited credit availability had kept sales slow in 2014 and 2015
with an uptick in sales in 2016, strong sales in 2017 and a strong start showing for 2018.
However, sales are still significantly slower than the average few years prior to the
recession. The limited availability of homes for sale created higher prices and attracted
developers to begin new projects which is seen in the increasing number of new home
projects in the area. Based on the current active projects in the area coupled with
population growth projected in the subject marketplace, it is our opinion that the subject
property, as if vacant, is feasible for residential development.
Highest and Best Use Conclusion – “As If Vacant”
The final determinant of highest and best use, as if vacant, is the interaction of the
previously discussed factors (i.e., physical, legal, financial feasibility and maximum
productivity considerations). Based upon the foregoing analysis, it is our opinion that the
highest and best use for the subject property “As if Vacant” is for residential development.
Highest and Best Use – “As Improved”
The subject property consists of the neighborhood of Senterra, built out by Pardee Homes
in 2016 and 2017. There is a total of 74 houses with all homes sold between April 2016
(when project opened for sale) and October 2017 with closings of all homes between
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Lake Elsinore CFD No. 2003-2 IA E – Senterra
City of Lake Elsinore
Kitty Siino & Associates, Inc. Page 42
December 2016 and December 2017. This suggests an average overall sales rate within
Senterra of 3.89 homes per month. This is considered to be a good sales rate within the
Inland Empire. Our search within the subject area found seven projects considered to be
comparable with similar sized homes. The sales rates within these projects ranged from
2.42 sales per month to 4.0 sales per month with the average of the seven projects sales
rate at 3.19 units per month. The subject’s average absorption of 3.89 homes per month
was higher than the average of the comparable projects. Our search of the Multiple Listing
Service and on-site inspection revealed no re-sales within the community of Senterra.
The sales rate within the subject and the competitive projects in the immediate area
suggest there is demand for new homes in the current market at the right price points.
All of the homes are of good design and appear to be of good quality workmanship.
Based on the subject neighborhood’s sales rate, it is our conclusion that the highest and
best use for the subject property is for the continued use, as improved.
_________________________________________________________________________________________________________
Lake Elsinore CFD No. 2003-2 IA E – Senterra
City of Lake Elsinore
Kitty Siino & Associates, Inc. Page 43
VALUATION ANALYSIS AND CONCLUSIONS
The Sales Comparison Approach will be used to value the subject property. This
approach compares similar properties that have recently sold or are in escrow. In
determining the value for the property, a unit of comparison needs to be addressed. There
are no remaining lots within the subject project, thus only the 74 homes will be valued.
For recently purchased new, single family homes the best comparable is another new,
single family home. Our search is for comparable sized new home projects in the same
market area. In determining the value for each existing house, a base value is concluded
for each plan which will be considered a minimum market value as most buyers typically
purchase some premiums, upgrades or options which increase the price of the home.
Our analysis will also include a mass appraisal technique which included analyzing the
74 new home sales information and deriving statistical information on the various plans.
In determining the concluded base value, new home sales in the area will be reviewed
and compared with sales of the subject completed homes using standard methodology
and statistical testing. All of the value conclusions will take into consideration
improvements funded by the Lake Elsinore CFD No. 2003-2 IA E Special Tax Bonds and
their lien. A summary of the final value conclusions will be reported at the end of this
valuation section.
Senterra by Pardee Homes
Senterra consists of 74 individually owned homes. Below is a summary of the floor plans
within Senterra. A listing of the improved residential comparable properties is located in
the Addenda of this report. All of the improved residential properties are located within
Lake Elsinore, Menifee, and Wildomar.
Senterra
Plan
Bd/Ba
Floors/
Parking
Sq. Ft.
Ind.
Owned
Bldr.
Owned
1 4 / 3 1 / 3 2,392 19 0
2 6 / 4 2 / 3 3,242 17 0
3 4 / 5 2 / 3 3,657 18 0
4 7 / 4.5 2 / 4 4,010 20 0
Total 74 0
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Lake Elsinore CFD No. 2003-2 IA E – Senterra
City of Lake Elsinore
Kitty Siino & Associates, Inc. Page 44
The most appropriate new home comparable data for Senterra Plan 1 are shown below.
Data Model Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF
Subj. 1 4 / 3 1 / 3 2,392 --
2 1 4 / 2.5 1 / 2 2,949 $147.84
3 1 4 / 2.5 1 / 3 2,480 $165.32
4 1 4 / 3.5 1 / 3 2,338 $171.79
5 1 4 / 3 1 / 2 2,558 $157.15
6 1 4 / 2 1 / 3 2,659 $169.46
All new home comparables are located within Lake Elsinore and Menifee. All are of similar
quality, design and appeal. Adjustments were considered (when applicable) for location,
master plan amenities, lot size, stories, sales concessions, CFD taxes, common area
benefits, total square footage, room count, garage space and other amenities. The Senterra
Plan 1 is sold out. The new homes comparables have a base price less concessions range
from $147.84 to $171.79 per square foot. There have been 19 closings of Plan 1 with sales
prices ranging from $164.72 to $198.17 per square foot. It should be noted that the reported
sales prices include upgrades, premiums and options along with any concessions given by
the builder while the concluded value relates to a base price for the plan. All of the homes
appear to be in excellent condition with no depreciation visible. Our search of the local MLS
resulted in no Plan 1 re-sales and none currently listed for sale. It has been concluded that
Plan 1 has a base current market value of $170.00 per square foot. This calculates as
follows:
2,392 sf x $170.00 = $406,640
The most appropriate new home comparable data for Senterra Plan 2 are shown below.
Data Model Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF
Subj. 2 6 / 4 2 / 3 3,242 --
1 2 5 / 3 2 / 3 3,037 $136.32
2 3 5 / 3.5 2 / 2 3,488 $135.60
3 4 5 / 3.5 2 / 3 3,300 $136.36
5 3 4 / 3 2 / 3 3,176 $130.56
7 1 3 / 2.5 2 / 3 3,055 $129.29
7 2 5 / 3.5 2 / 3 3,350 $129.84
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Lake Elsinore CFD No. 2003-2 IA E – Senterra
City of Lake Elsinore
Kitty Siino & Associates, Inc. Page 45
All new home comparables are located within Lake Elsinore, Menifee, and Wildomar. All
are of similar quality, design and appeal. Adjustments were considered (when applicable)
for location, master plan amenities, lot size, stories, sales concessions, CFD taxes, common
area benefits, total square footage, room count, garage space and other amenities. The
Senterra Plan 2 is sold out. The new homes comparables have a base price less
concessions range from $129.29 to $136.36 per square foot. There have been 17 closings
of Plan 2 with sales prices ranging from $128.04 to $150.48 per square foot. It should be
noted that the reported sales prices include upgrades, premiums and options along with any
concessions given by the builder while the concluded value relates to a base price for the
plan. All of the homes appear to be in excellent condition with no depreciation visible. Our
search of the local MLS resulted in no Plan 2 resales and none currently listed for sale. It
has been concluded that Plan 2 has a base current market value of $135.00 per square foot.
This calculates as follows:
3,242 sf x $135.00 = $437,670
The most appropriate new home comparable data for Senterra Plan 3 are shown below.
Data Model Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF
Subj. 3 4 / 5 2 / 3 3,657 --
1 3 5 / 3 2 / 3 3,255 $129.03
2 3 5 / 3.5 2 / 2 3,488 $135.60
3 4 5 / 3.5 2 / 3 3,300 $136.36
4 3 5 / 4.5 2 / 2 3,424 $162.09
7 4 5 / 3 2 / 3 3,815 $119.26
All new home comparables are located within Lake Elsinore, Menifee, and Wildomar. All
are of similar quality, design and appeal. Adjustments were considered (when applicable)
for location, master plan amenities, lot size, stories, sales concessions, CFD taxes, common
area benefits, total square footage, room count, garage space and other amenities. The
Senterra Plan 3 is sold out. The new homes comparables have a base price less
concessions range from $119.26 to $162.09 per square foot. There have been 18 closings
of Plan 3 with sales prices ranging from $125.75 to $141.84 per square foot. It should be
noted that the reported sales prices include upgrades, premiums and options along with any
concessions given by the builder while the concluded value relates to a base price for the
_________________________________________________________________________________________________________
Lake Elsinore CFD No. 2003-2 IA E – Senterra
City of Lake Elsinore
Kitty Siino & Associates, Inc. Page 46
plan. All of the homes appear to be in excellent condition with no depreciation visible. Our
search of the local MLS resulted in no re-sale of a Plan 3 and none currently listed for sale.
It has been concluded that Plan 3 has a base current market value of $130.00 per square
foot. This calculates as follows:
3,657 sf x $130.00 = $475,410
The most appropriate new home comparable data for Senterra Plan 4 are shown below.
Data Model Rm. Ct. Flrs/Pkg. Sq. Ft. Price/SF
Subj. 4 7 / 4.5 2 / 4 4,010 --
2 3 5 / 3.5 2 / 2 3,488 $135.60
3 4 5 / 3.5 2 / 3 3,300 $136.36
4 3 5 / 4.5 2 / 2 3,424 $162.09
7 4 5 / 3 2 / 3 3,815 $119.26
All new home comparables are located within Lake Elsinore, Menifee, and Wildomar. All
are of similar quality, design and appeal. Adjustments were considered (when applicable)
for location, master plan amenities, lot size, stories, sales concessions, CFD taxes, common
area benefits, total square footage, room count, garage space and other amenities. The
Senterra Plan 4 is sold out. The new homes comparables have a base price less
concessions range from $119.26 to $162.09 per square foot. The subject plan is larger than
all of the market data. There are few homes currently for sale over 4,000 square feet in the
area. There have been 20 closings of Plan 4 with sales prices based on the original 4,010
square feet ranging from $114.39 to $149.54 per square foot. It should be noted that the
reported sales prices include upgrades, premiums and options along with any concessions
given by the builder while the concluded value relates to a base price for the plan. All of the
homes appear to be in excellent condition with no depreciation visible. Our search of the
local MLS resulted in no re-sales of the Plan 4 and none currently listed for sale. It has been
concluded that Plan 4 has a base current market value of $125.00 per square foot. This
calculates as follows:
4,010 sf x $125.00 = $501,250
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Lake Elsinore CFD No. 2003-2 IA E – Senterra
City of Lake Elsinore
Kitty Siino & Associates, Inc. Page 47
Builder Owned Retail Values – Senterra by Pardee Homes
Within Senterra there are no remaining builder owned homes. The models are closed
out. As concluded above, the minimum market retail base value conclusions for the
individually owned homes in Senterra are calculated as follows:
Plan 1 (19 x $406,640) $7,726,160
Plan 2 (17 x $437,670) 7,440,390
Plan 3 (18 x $475,410) 8,557,380
Plan 4 (20 x $501,250) 10,025,000
Total Individually Ownership in Senterra $ 33,748,930
In an additional review, we have reviewed the original builder sales prices for the homes
within Senterra. Closings for the 74 homes occurred between December 2016 and
December 2017. The reported closing prices per the builder for the individually owned
homes total $35,215,156. The builder’s reported prices include premiums, upgrades and
purchased options as well as took into consideration the concessions given by the builder.
The above valuation is for the minimum market value as it takes into consideration the
base plan price only and does not take into account any options, premiums or upgrades
which were purchased by the buyers. The subject homes are more of a move-up
residence than a first-time buyer home which typically means the buyers purchased more
upgrades and options. That is, first-time buyers typically use their cash on the down
payment while move-up buyers are moving equity from their previous home and have
more cash to spend on upgrades. In addition, there has been appreciation on the homes
which sold in 2016 and 2017 which would offset some of the items purchased by the
homebuyers. When reviewing actual sales prices of the 2016 sales dates and 2017 sales
dates (includes options, upgrades and premiums) the prices increased between 1.6
percent and 3.1 percent on the Plan 1, 3 and 4 and decreased a minimal 0.3 percent on
Plan 2. While the sales prices reflect upgrades, options and lot premiums, the
increases/decreases may be skewed however overall this analysis suggests the prices
are increasing. The above concluded values are within 4.1 percent of the actual sales
prices within Senterra. It is our conclusion that the original builder sales prices further
substantiate the concluded minimum market value for the individually owned homes.
_________________________________________________________________________________________________________
Lake Elsinore CFD No. 2003-2 IA E – Senterra
City of Lake Elsinore
Kitty Siino & Associates, Inc. Page 48
APPRAISAL REPORT SUMMARY
The appraisal assignment was to value the subject property which is a portion of the lands
within Lake Elsinore CFD No. 2003-2 IA E consisting of a residential tract developed by
Pardee Homes known as Senterra. Pardee is also the master developer of Canyon Hills,
the adjoining master planned community. All 74 homes have closed to individuals with
home closings between December 2016 and December 2017.
Senterra is located adjacent to the master planned community of Canyon Hills and has
annexed into their home owner association so they enjoy all of the amenities of Canyon
Hills. We have reviewed the builder sales, completed statistical testing and reviewed the
areas Multiple Listing Service for any resales or current listings within the subject
property. Our search resulted in no resales or current listings within Senterra.
The subject property was valued using the Sales Comparison Approach to value and a
mass appraisal technique. A minimum value was determined for the existing homes by
concluding at a base value for each plan. The valuation took into account the
improvements/benefits to be funded by Lake Elsinore CFD No. 2003-2 IA E bond
proceeds along with the Lake Elsinore CFD No. 2003-2 IA E special tax lien. As a result
of our investigation, the concluded market value for the subject property is shown below.
Individual Owners (74 houses) $ 33,748,930
The above values are stated subject to the Assumptions and Limiting Conditions of this
report, the Appraiser’s Certification and as of March 1, 2018.
_________________________________________________________________________________________________________
Lake Elsinore CFD No. 2003-2 IA E – Senterra
City of Lake Elsinore
Kitty Siino & Associates, Inc. Page 49
APPRAISER’S CERTIFICATION
The appraiser certifies that to the best of his knowledge and belief:
1. The statements of fact contained in this report are true and correct.
2. The reported analyses, opinions and conclusions are limited only by the reported
assumptions and limiting conditions, and are my personal, unbiased, professional
analyses, opinions and conclusions.
3. The appraiser has no present or prospective interest in the property that is the subject of
this report, and no personal interest or bias with respect to the parties involved.
4. The appraiser’s compensation is not contingent upon the reporting of a predetermined
value or direction in value that favors the cause of the client, the amount of the value
estimate, the attainment of a stipulated result or the occurrence of a subsequent event.
5. This appraisal was not based on a requested minimum valuation, a specific valuation or
the approval of a loan.
6. The analyses, opinions and conclusions were developed, and this report was prepared, in
conformity with the Uniform Standards of Professional Appraisal Practice.
7. Kitty Siino has made a personal inspection of the property that is the subject of this report.
8. Kitty Siino has not performed any appraisal services on the subject property in the past
three years.
9. No other appraisers have provided significant professional assistance to the persons
signing this report.
10. The reported analyses, opinions and conclusions were developed, and this report was
prepared, in conformity with the requirements of the Appraisal Institute’s Code of
Professional Ethics and Standards of Professional Appraisal Practice, which include the
Uniform Standards of Professional Appraisal Practice.
11. The use of this report is subject to the requirements of the Appraisal Institute relating to
review by its duly authorized representatives.
12. As of the date of this report, Kitty Siino has completed the requirements of the continuing
education program of the Appraisal Institute.
Kitty S. Siino, MAI
State Certified General
Real Estate Appraiser (AG004793)
ADDENDA
CFD 2003-2 IA E BOUNDARY MAP
TRACT MAP 36682
IMPROVED RESIDENTIAL SALES MAP
& SUMMARY CHART
IMPROVED RESIDENTIAL SALES MAP
No. Project
1 Starling at Canyon Hills
2 Province at Audie Murphy Ranch
3 The Ridge at Audie Murphy Ranch
4 Claiborne at Summerly
5 Monarch Grove II at Summerly
6 Newport at Heritage Lake
7 Chapparal at The Ranch
1
5
4
2 3
7
6
IMPROVED RESIDENTIAL SALES SUMMARY CHART
No.
Project Name
Location / Developer
Plan
Room
Count
Floors /
Parking
Size
(SF)
Lot Size
Base
Sales
Price
Absorp.
Rate
Incentives/
Concessions
Price Less
Incentives
Price/SF
After
Incentives
1
Starling at Canyon Hills,
NW side of Railroad Cyn
Rd at Canyon Hills Road /
Pardee Homes
1
2
3
5 / 3
5 / 3
5 / 3
2 / 3
2 / 3
2 / 3
2,936
3,037
3,255
4,500
$418,000
$423,000
$429,000
4.0
$9,000 towards
closing with
preferred lender
$409,000
$414,000
$420,000
$139.31
$136.32
$129.03
2
Province, Audie Murphy
Ranch, Newport Road
and Buckstone Lane,
Menifee / Brookfield
Residential
1
2
3
4 / 2.5
3 / 2.5
5 / 3.5
1 / 2
1 / 2
2 / 2
2,949
3,122
3,488
8,000
$440,990
$411,000
$477,990
3.03
$5,000 towards
closing with
preferred lender
$435,990
$406,000
$472,990
$147.84
$130.04
$135.60
3
The Ridge, Audie Murphy
Ranch, Newport Road,
Menifee / Richmond Am.
1
2
3
4
3 / 2.5
3 / 2.5
5 / 3.5
5 / 3.5
1 / 3
1 / 3
2 / 3
2 / 3
2,480
2,800
3,150
3,300
6,500
$414,990
$435,990
$442,990
$454,990
4.0
$5,000 towards
closing with
preferred lender
$409,990
$430,990
$437,990
$449,990
$165.32
$153.93
$139.04
$136.36
4
Claiborne, Summerly,
SEC Hidden Trail and
Village Parkway, Lake
Elsinore / Van Daele
1
1X
2
3
4 / 3.5
5 / 3.5
4 / 3
5 / 4.5
1 / 3
2 / 3
2 / 3
2 / 2
2,338
3,014
2,954
3,424
6,000
$411,653
$539,990
$526,990
$564,990
3.23
$10,000 towards
closing with
preferred lender
$401,653
$529,990
$516,990
$554,999
$171.79
$175.84
$175.01
$162.09
5
Monarch Grove II,
Summerly, Railroad
Canyon and Diamond
Drive, Lake Elsinore /
CalAtlantic
1
2
3
4 / 2
4 / 3
4 / 3
1 / 2
2 / 3
2 / 3
2,558
2,842
3,176
6,000
$411,000
$437,470
$423,670
2.69
$9,000. $4,000
towards options,
$5,000 towards
closing costs
$402,000
$428,470
$414,670
$157.15
$150.76
$130.56
6
Newport, Heritage Lake,
McCall Boulevard and
Windsail, Menifee /
CalAtlantic Homes
1
2
3
4
4 / 3
4 / 4
4 / 4
5 / 4
1 / 2
2 / 3
2 / 3
2 / 3
2,550
3,002
3,172
3,426
7,200
$414,575
$426,310
$413,500
$422,500
2.99
$5,000 towards
closing with
preferred lender
$409,575
$421,310
$408,500
$417,500
$160.61
$140.34
$128.78
$121.86
7
Chapparal, The Ranch,
Palomar Street and Catt
Road, Wildomar /
Richmond American
Homes
1
2
3
4
3 / 2.5
5 / 3.5
5 / 3.5
5 / 3.5
2 / 3
2 / 3
2 / 3
2 / 3
3,055
3,350
3,460
3,815
7,200
$399,990
$439,990
$419,990
$459,990
2.42
$5,000 towards
closing with
preferred lender
$394,990
$434,990
$414,990
$454,990
$129.29
$129.84
$119.93
$119.26
APPRAISER’S QUALIFICATIONS
QUALIFICATIONS OF KITTY S. SIINO, MAI
Education
Bachelor of Arts in Business Administration, Financial Investments, California State
University, Long Beach, California (1980)
Post-Graduate Study, Real Estate Development, University of California, Irvine, California
Appraisal Institute Classes: Uniform Standards of Professional Appraisal Practice, A & B;
Appraisal Principles; Appraisal Procedures; Basic Income Capitalization; Advanced Income
Capitalization; Narrative Report Writing; Advanced Applications, Case Studies.
Successfully completed all classes in addition to successfully completing the writing of a
Demonstration Report and taking the Comprehensive Exam. Became a Member of the
Appraisal Institute in December 1996. Have completed over 100 hours of continuing
education through the Appraisal Institute every five years.
Employment
1988 - Present:
Self-Employed Real Estate Appraiser. Duties include the appraisal of various types of
properties such as commercial, retail, industrial and vacant land. More complex
assignments include easements, right-of-ways and special assessment districts. From
1996 to present, specialized in special assessment districts and community facilities
districts appraisals for public entities, including Jurupa Community Services District,
Corona Norco Unified School District, City of Corona, City of Chula Vista, City of San
Marcos and City of Moreno Valley.
1986-1988:
Project Manager of Development for Ferguson Partners, Irvine, California. Duties
included land acquisitions; review of fee appraisals and valuations; analysis of
proposed development; planning and design; and management of development,
construction and lease-up. The types of properties developed were commercial and
industrial. Duties ranged from raw, vacant site development through property
management of recently developed projects.
1981 - 1986
Manager of Finance, Construction for Community Development Division, The Irvine
Company, Irvine, California. Duties included originating and managing a newly formed
division of finance to bridge between the accounting functions and project
management functions. Worked with analysis and budgets for Community
Development Division. Coordinated with cities in forming new Assessment Districts
and Community Facilities Districts to finance major infrastructure improvements.
Types of properties were apartments and single-family residential lots on a for sale
basis to apartment and homebuilders.
1980 - 1981
Investment Counselor, Newport Equity Funds, Newport Beach, California. Duties
included obtaining private financing for residential properties, working with appraisals
of properties and analyzing the investments.
Licenses
Real Estate Sales Person, State of California, 1980
Certified General Appraiser, State of California (#AG004793)
Organizations
MAI #11145 - The Appraisal Institute
Public Financing
CASTOFF Meetings, 2006, 2007, 2008, 2009, 2010, 2011, 2013, 2014, 2015, 2016, 2017
and 2018
Speaker, Mello-Roos & Special Assessment Financing, UCLA Extension Public Policy
Program, February 2009 and March 2011
Stradling Yocca Carlson & Rauth
Draft of 4/2/18
BOND INDENTURE
Between
CITY OF LAKE ELSINORE
COMMUNITY FACILITIES DISTRICT NO. 2003-2 (CANYON HILLS)
and
WILMINGTON TRUST, NATIONAL ASSOCIATION,
as Trustee
Relating to
$_______
CITY OF LAKE ELSINORE
COMMUNITY FACILITIES DISTRICT NO. 2003-2 (CANYON HILLS)
SPECIAL TAX BONDS, SERIES 2018
(IMPROVEMENT AREA E)
Dated as of May 1, 2018
Table of Contents
Page
i
ARTICLE I
DEFINITIONS
Section 1.1.Definitions.....................................................................................................................1
ARTICLE II
GENERAL AUTHORIZATION AND BOND TERMS
Section 2.1.Amount, Issuance, Purpose and Nature of Bonds and Parity Bonds..........................10
Section 2.2.Type and Nature of Bonds and Parity Bonds..............................................................10
Section 2.3.Equality of Bonds and Parity Bonds and Pledge of Net Taxes...................................11
Section 2.4.Description of Bonds; Interest Rates ..........................................................................11
Section 2.5.Place and Form of Payment........................................................................................12
Section 2.6.Form of Bonds and Parity Bonds................................................................................13
Section 2.7.Execution and Authentication.....................................................................................13
Section 2.8.Bond Register..............................................................................................................14
Section 2.9.Registration of Exchange or Transfer.........................................................................14
Section 2.10.Mutilated, Lost, Destroyed or Stolen Bonds or Parity Bonds.....................................14
Section 2.11.Validity of Bonds and Parity Bonds ...........................................................................15
Section 2.12.Book-Entry System.....................................................................................................15
Section 2.13.Representation Letter..................................................................................................16
Section 2.14.Transfers Outside Book-Entry System .......................................................................16
Section 2.15.Payments to the Nominee...........................................................................................16
Section 2.16.Initial Depository and Nominee..................................................................................16
ARTICLE III
CREATION OF FUNDS AND APPLICATION OF PROCEEDS
Section 3.1.Creation of Funds; Application of Proceeds...............................................................16
Section 3.2.Deposits to and Disbursements from Special Tax Fund.............................................17
Section 3.3.Administrative Expense Account of the Special Tax Fund........................................18
Section 3.4.Interest Account and Principal Account of the Special Tax Fund..............................18
Section 3.5.Redemption Account of the Special Tax Fund...........................................................19
Section 3.6.Reserve Account of the Special Tax Fund..................................................................20
Section 3.7.Rebate Fund................................................................................................................21
Section 3.8.Surplus Fund...............................................................................................................24
Section 3.9.Acquisition and Construction Fund............................................................................24
Section 3.10.Investments.................................................................................................................25
ARTICLE IV
REDEMPTION OF BONDS AND PARITY BONDS
Section 4.1.Redemption of Bonds .................................................................................................27
Table of Contents
(continued)
Page
ii
Section 4.2.Selection of Bonds and Parity Bonds for Redemption ...............................................29
Section 4.3.Notice of Redemption.................................................................................................29
Section 4.4.Partial Redemption of Bonds or Parity Bonds............................................................30
Section 4.5.Effect of Notice and Availability of Redemption Money...........................................30
ARTICLE V
COVENANTS AND WARRANTY
Section 5.1.Warranty .....................................................................................................................31
Section 5.2.Covenants....................................................................................................................31
ARTICLE VI
AMENDMENTS TO INDENTURE
Section 6.1.Supplemental Indentures or Orders Not Requiring Owner Consent...........................34
Section 6.2.Supplemental Indentures or Orders Requiring Owner Consent..................................35
Section 6.3.Notation of Bonds or Parity Bonds; Delivery of Amended Bonds or Parity
Bonds..........................................................................................................................36
ARTICLE VII
TRUSTEE
Section 7.1.Trustee.........................................................................................................................36
Section 7.2.Removal of Trustee.....................................................................................................37
Section 7.3.Resignation of Trustee................................................................................................37
Section 7.4.Liability of Trustee .....................................................................................................38
Section 7.5.Merger or Consolidation.............................................................................................40
ARTICLE VIII
EVENTS OF DEFAULT; REMEDIES
Section 8.1.Events of Default ........................................................................................................41
Section 8.2.Remedies of Owners...................................................................................................41
Section 8.3.Application of Revenues and Other Funds After Default...........................................42
Section 8.4.Power of Trustee to Control Proceedings...................................................................42
Section 8.5.Appointment of Receivers..........................................................................................43
Section 8.6.Non-Waiver.................................................................................................................43
Section 8.7.Limitations on Rights and Remedies of Owners ........................................................43
Section 8.8.Termination of Proceedings........................................................................................44
Table of Contents
(continued)
Page
iii
ARTICLE IX
DEFEASANCE AND PARITY BONDS
Section 9.1.Defeasance..................................................................................................................44
Section 9.2.Conditions for the Issuance of Parity Bonds and Other Additional
Indebtedness................................................................................................................45
ARTICLE X
MISCELLANEOUS
Section 10.1.Cancellation of Bonds and Parity Bonds....................................................................47
Section 10.2.Execution of Documents and Proof of Ownership.....................................................47
Section 10.3.Unclaimed Moneys.....................................................................................................48
Section 10.4.Provisions Constitute Contract....................................................................................48
Section 10.5.Future Contracts..........................................................................................................49
Section 10.6.Further Assurances......................................................................................................49
Section 10.7.Severability.................................................................................................................49
Section 10.8.Notices........................................................................................................................49
Signatures ................................................................................................................................... S-1
EXHIBIT A FORM OF SPECIAL TAX BOND ..........................................................................A-1
EXHIBIT B REQUISITION FOR DISBURSEMENT OF PROJECT COSTS ...........................B-1
BOND INDENTURE
THIS BOND INDENTURE dated as of May 1, 2018, by and between CITY OF LAKE
ELSINORE COMMUNITY FACILITIES DISTRICT NO. 2003-2 (CANYON HILLS) (the
“District”) and WILMINGTON TRUST, NATIONAL ASSOCIATION, as trustee (the “Trustee”),
governs the terms of the City of Lake Elsinore Community Facilities District No. 2003-2 (Canyon
Hills) Special Tax Bonds, Series 2018 (Improvement Area E) and any Parity Bonds issued in
accordance herewith from time to time.
RECITALS :
A.The City Council of the City of Lake Elsinore, located in the County of Riverside,
California (the “City Council”), has undertaken proceedings and declared the necessity to issue bonds
on behalf of the District pursuant to the terms and provisions of the Mello-Roos Community Facilities
Act of 1982, as amended, being Chapter 2.5, Part 1, Division 2, Title 5, of the Government Code of
the State of California (the “Act”).
B.Based upon Resolution Nos. 2016-032 and 2016-033 adopted by the City Council on
April 12, 2016 and an election held on April 12, 2016 authorizing the levy of a special tax and the
issuance of bonds, the District is authorized to issue bonds in one or more series for the Improvement
Area (as defined herein) pursuant to the Act, in an aggregate principal amount not to exceed
$3,000,000.
C.The District intends to finance various Project Costs (as defined herein) through the
issuance of bonds in an aggregate principal amount of $_______ designated as the “City of Lake
Elsinore Community Facilities District No. 2003-2 (Canyon Hills) Special Tax Bonds, Series 2018
(Improvement Area E)” (the “Bonds”); and
D.The District has determined that all requirements of the Act for the issuance of the
Bonds have been satisfied.
NOW, THEREFORE, in order to establish the terms and conditions upon and subject to which
the Bonds are to be issued, and in consideration of the premises and of the mutual covenants contained
herein and of the purchase and acceptance of the Bonds by the Owners thereof, and for other valuable
consideration, the receipt of which is hereby acknowledged, the District does hereby covenant and
agree, for the benefit of the Owners of the Bonds and any Parity Bonds (as defined herein) which may
be issued hereunder from time to time, as follows:
ARTICLE I
DEFINITIONS
Section 1.1.Definitions. Unless the context otherwise requires, the following terms shall
have the following meanings:
Account. The term “Account” means any account created pursuant to this Indenture.
Act. The term “Act” means the Mello-Roos Community Facilities Act of 1982, as amended,
being Section 53311 et seq.of the California Government Code.
2
Acquisition and Construction Fund. The term “Acquisition and Construction Fund” means the
fund by that name established pursuant to Section 3.1 hereof.
Administrative Expense Account. The term “Administrative Expense Account” means the
account by that name created and established in the Special Tax Fund pursuant to Section 3.1 hereof.
Administrative Expenses. The term “Administrative Expenses” means the administrative costs
with respect to the calculation and collection of the Special Taxes, including all attorneys’ fees and
other costs related thereto, the fees and expenses of the Trustee, any fees and related costs for credit
enhancement for the Bonds or any Parity Bonds which are not otherwise paid as Costs of Issuance, any
costs related to the District’s compliance with state and federal laws requiring continuing disclosure of
information concerning the Bonds and the District, and any other costs otherwise incurred by City staff
on behalf of the District in order to carry out the purposes of the District as set forth in the Resolution
of Formation and any obligation of the District hereunder.
Administrative Expenses Cap. The term “Administrative Expenses Cap” means $35,000 per
Bond Year increasing at not more than 1% per year.
Alternate Penalty Account. The term “Alternate Penalty Account” means the account by that
name created and established in the Rebate Fund pursuant to Section 3.1 hereof.
Annual Debt Service. The term “Annual Debt Service” means the principal amount of any
Outstanding Bonds or Parity Bonds payable in a Bond Year either at maturity or pursuant to a Sinking
Fund Payment and any interest payable on any Outstanding Bonds or Parity Bonds in such Bond Year,
if the Bonds and any Parity Bonds are retired as scheduled.
Authorized Investments. The term “Authorized Investments” means any of the following
which at the time of investment are legal investments under the laws of the State for the moneys
proposed to be invested therein:
(1)For all purposes, including defeasance investments in refunding escrow accounts:
(a)cash; or
(b)obligations of, or obligations guaranteed as to principal and interest by, the U.S.
or any agency or instrumentality thereof, when such obligations are backed by the full faith and credit
of the U.S., including U.S. treasury obligations, all direct or fully guaranteed obligations, Farmers
Home Administration, General Services Administration, guaranteed Title XI financing, Government
National Mortgage Association (GNMA) and State and Local Government Series; or
(c)obligations of government-sponsored agencies that are not backed by the full
faith and credit of the U.S. Government: Federal Home Loan Mortgage Corporation (FHLMC) debt
obligations, Farm Credit System (formerly: Federal Land Banks, Federal Intermediate Credit Banks
and Banks for Cooperatives), Federal Home Loan Banks (FHL Banks), Federal National Mortgage
Association (FNMA) debt obligations, Financing Corp. (FICO) debt obligations, Resolution Funding
Corp. (REFCORP) debt obligations and U.S. Agency for International Development (U.S.A.I.D.)
guaranteed notes.
3
(2)For all purposes other than defeasance investments in refunding escrow accounts:
(a)obligations of any of the following federal agencies, which obligations
represent the full faith and credit of the United States of America: Export-Import Bank, Rural
Economic Community Development Administration, U.S. Maritime Administration, Small Business
Administration, U.S. Department of Housing & Urban Development (PHAs), Federal Housing
Administration and Federal Financing Bank;
(b)direct obligations of any of the following federal agencies, which obligations
are not fully guaranteed by the full faith and credit of the United States of America: senior debt
obligations issued by the Federal National Mortgage Association (FNMA) or Federal Home Loan
Mortgage Corporation (FHLMC), obligations of the Resolution Funding Corporation (REFCORP) and
senior debt obligations of the Federal Home Loan Bank System;
(c)U.S. dollar denominated deposit accounts, federal funds and bankers’
acceptances with domestic commercial banks (including those of the Trustee and its affiliates) which
have a rating on their short term certificates of deposit on the date of purchase of “A-1” or “A-1+” by
S&P and “P-1” by Moody’s and maturing no more than 360 days after the date of purchase (ratings on
holding companies are not considered as the rating of the bank);
(d)commercial paper which is rated at the time of purchase in the single highest
classification “A-1+” by S&P and “P-1” by Moody’s and which matures not more than 270 days after
the date of purchase;
(e)investments in a money market fund rated “AAm,” “AAm-G” or better by
S&P, including funds for which the Trustee or its affiliates provide investment advisory or other
management services;
(f)pre-refunded municipal obligations defined as follows: any bonds or other
obligations of any state of the United States of America, or any agency, instrumentality or local
governmental unit of any such state, which are not callable at the option of the obligor prior to maturity
or as to which irrevocable instructions have been given by the obligor to call on the date specified in
the notice, and
(i)which are rated, based on irrevocable escrow account or fund (the
“escrow”), in the highest rating category of S&P and Moody’s or any successors thereto; or
(ii)(1) which are fully secured as to principal and interest and redemption
premium, if any, by an escrow consisting only of cash or obligations described in paragraph (1)(b)
above, which escrow may be applied only to the payment of such principal of and interest and
redemption premium, if any, on such bonds or other obligations on the maturity date or dates thereof
or the specified redemption date or dates pursuant to such irrevocable instructions, as appropriate; and
(2) which escrow is sufficient, as verified by a nationally recognized independent certified public
accountant, to pay principal of and interest and redemption premium, if any, on the bonds or other
obligations described in this paragraph on the maturity date or dates specified in the irrevocable
instructions referred to above, as appropriate;
(g)municipal obligations rated “Aaa/AAA” or general obligations of states with a
rating of at least “Aa2/AA” or higher by both Moody’s and S&P;
4
(h)Investment Agreements (supported by appropriate opinions of counsel); and
(i)the Local Agency Investment Fund of the State, created pursuant to
Section 16429.1 of the California Government Code, to the extent the Trustee is authorized to register
such investment in its name.
The value of the above investments shall be determined as follows:
(a)for the purpose of determining the amount in any fund, all Authorized
Investments credited to such fund shall be valued at market value. The Trustee shall determine the
market value based on accepted industry standards, including the Trustee’s internal systems, and from
accepted industry providers. Accepted industry providers shall include, but are not limited to, pricing
services provided by Financial Times Interactive Data Corporation, Bank of America Merrill Lynch
or Salomon Smith Barney. Notwithstanding anything to the contrary herein, in making any valuation
of investments hereunder, the Trustee may utilize computerized securities pricing services that may be
available to it, including those available through its regular accounting system, and rely thereon;
(b)as to certificates of deposit and bankers acceptances: the face amount thereof,
plus accrued interest thereon; and
(c)as to any investment not specified above: the value thereof established by prior
agreement between the City and the Trustee.
Authorized Representative of the District. The term “Authorized Representative of the
District” means the Mayor, City Manager, Assistant City Manager, Finance Manager or City Clerk of
the City, or any other officer or employee authorized by the City Council of the City or by an
Authorized Representative of the District to undertake the action referenced in this Agreement as
required to be undertaken by an Authorized Representative of the District.
Bond Counsel. The term “Bond Counsel” means an attorney at law or a firm of attorneys
selected by the District of nationally recognized standing in matters pertaining to the tax-exempt nature
of interest on bonds issued by states and their political subdivisions duly admitted to the practice of
law before the highest court of any state of the United States of America or the District of Columbia.
Bond Register. The term “Bond Register” means the books which the Trustee shall keep or
cause to be kept on which the registration and transfer of the Bonds and any Parity Bonds shall be
recorded.
Bonds. The term “Bonds” means the District’s Special Tax Bonds, Series 2018 (Improvement
Area E) issued on May __, 2018 in the aggregate principal amount of $_______.
Bond Year. The term “Bond Year” means the twelve month period commencing on
September 2 of each year and ending on September 1 of the following year, except that the first Bond
Year for the Bonds or an issue of Parity Bonds shall begin on the Delivery Date and end on the first
September 1 which is not more than 12 months after the Delivery Date.
Business Day. The term “Business Day” means a day which is not a Saturday or Sunday or a
day of the year on which banks in New York, New York, Los Angeles, California, or the city where
the corporate trust office of the Trustee is located, are not required or authorized to remain closed.
5
Certificate of an Authorized Representative. The term “Certificate of an Authorized
Representative” means a written certificate or warrant request executed by an Authorized
Representative of the District.
City. The term “City” means the City of Lake Elsinore, County of Riverside, State of
California.
City Council. The term “City Council” means the City Council of the City.
City Facilities Account. The term “City Facilities Account” means the account by that name
created and established in the Acquisition and Construction Fund pursuant to Section 3.1 hereof.
Code. The term “Code” means the Internal Revenue Code of 1986, as amended, and any
Regulations, rulings, judicial decisions, and notices, announcements, and other releases of the United
States Treasury Department or Internal Revenue Service interpreting and construing it.
Continuing Disclosure Certificate. The term “Continuing Disclosure Certificate” means that
certain Continuing Disclosure Certificatedated the Delivery Date, as originally executedby the District
and as it may be from time to time amended or supplemented in accordance with its terms.
Costs of Issuance. The term “Costs of Issuance” means the costs and expenses incurred in
connection with the formation of the District and the issuance and sale of the Bonds or any Parity
Bonds, including the acceptance and initial annual fees and expenses of the Trustee and its counsel,
legal fees and expenses, costs of printing the Bonds and Parity Bonds and the preliminary and final
official statements for the Bonds and Parity Bonds, fees of financial consultants, costs of the appraisal
and all other related fees and expenses, including reimbursement to property owners within the District
for design, engineering and legal costs, as set forth in a Certificate of an Authorized Representative of
the District.
Costs of Issuance Account. The term “Costs of Issuance Account” means the account by that
name created and established in the Acquisition and Construction Fund pursuant to Section 3.1 hereof.
Delivery Date. The term “Delivery Date” means, with respect to the Bonds and each issue of
Parity Bonds, the date on which the bonds of such issue were issued and delivered to the initial
purchasers thereof.
Depository. The term “Depository” means The Depository Trust Company, New York, New
York, and its successors and assigns as securities depository for the Bonds, or any other securities
depository acting as Depository under Article II hereof.
District. The term “District” means City of Lake Elsinore Community Facilities District
No. 2003-2 (Canyon Hills) established pursuant to the Act and Resolution No. 2004-6, adopted by the
City Council of the City on January 13, 2004.
Event of Default. The term “Event of Default” meansan event described in Section 8.1 hereof.
Fiscal Year. The term “Fiscal Year” means the period beginning on July 1 of each year and
ending on the next following June 30.
6
Gross Taxes. The term “Gross Taxes” means the amount of all Special Taxes received by the
District for the Improvement Area, together with the proceeds collected from the sale of property
pursuant to foreclosure for the delinquency of such Special Taxes remaining after the payment of all
costs related to such foreclosure actions.
Improvement Area. The term “Improvement Area” means Improvement Area E of the District,
designated and annexed to the District pursuant to Resolution No. 2016-32, adopted by the City
Council on April 12, 2016.
Indenture. The term “Indenture” means this Bond Indenture, together with any Supplemental
Indenture approved pursuant to Article VI hereof.
Independent Financial Consultant. The term “Independent Financial Consultant” means a
financial consultant or firm of such consultants generally recognized to be well qualified in the
financial consulting field, appointed and paid by the District, who, or each of whom: (1) is in fact
independent and not under the domination of the District or the City; (2) does not have any substantial
interest, direct or indirect, in the District or the City; and (3) is not connected with the District or the
City as a member, officer or employee of the District or the City, but who may be regularly retained to
make annual or other reports to the District or the City.
Interest Account. The term “Interest Account” means the account by that name created and
established in the Special Tax Fund pursuant to Section 3.1 hereof.
Interest Payment Date. The term “Interest Payment Date” means September 1, 2018 and each
March 1 and September 1 thereafter; provided, however, that, if any such day is not a Business Day,
interest up to the Interest Payment Date will be paid on the Business Day next succeeding such date.
Investment Agreement. The term “Investment Agreement” means one or more agreements for
the investment of funds of the District complying with the criteria therefor as set forth in subsection
(2)(h) of the definition of Authorized Investments herein.
Maximum Annual Debt Service. The term “Maximum Annual Debt Service” means the
maximum sum obtained for any Bond Year prior to the final maturity of the Bonds and any Parity
Bonds by adding the following for each Bond Year: (1) the principal amount of all Outstanding Bonds
and Parity Bonds payable in such Bond Year either at maturity or pursuant to a Sinking Fund Payment;
and (2) the interest payable on the aggregate principal amount of all Bonds and Parity Bonds
Outstanding in such Bond Year if the Bonds and Parity Bonds are retired as scheduled.
Moody’s. The term “Moody’s” means Moody’s Investors Service, Inc., its successors and
assigns.
Net Taxes. The term “Net Taxes” means Gross Taxes minus amounts set aside to pay
Administrative Expenses.
Nominee. The term “Nominee” means the nominee of the Depository, which may be the
Depository, as determined from time to time pursuant to Section 2.16 hereof.
Ordinance. The term “Ordinance” means Ordinance No. 2016-1358 adopted by the City
Council on April 26, 2016, providing for the levying of the Special Tax.
7
Outstanding. The terms “Outstanding” or “Outstanding Bonds and Parity Bonds” means all
Bonds and Parity Bonds theretofore issued by the District, except: (i) Bonds and Parity Bonds
theretofore cancelled or surrendered for cancellation in accordance with Section 10.1 hereof;(ii)Bonds
and Parity Bonds for payment or redemption of which monies shall have been theretofore deposited in
trust (whether upon or prior to the maturity or the redemption date of such Bonds or Parity Bonds),
provided that, if such Bonds or Parity Bonds are to be redeemed prior to the maturity thereof, notice
of such redemption shall have been given as provided in this Indenture or any applicable Supplemental
Indenture for Parity Bonds; and (iii) Bonds and Parity Bonds which have been surrendered to the
Trustee for transfer or exchange pursuant to Section 2.9 hereof or for which a replacement has been
issued pursuant to Section 2.10 hereof.
Owner. The term “Owner” means the person or persons in whose name or names any Bond or
Parity Bond is registered.
Parity Bonds. The term “Parity Bonds” means all bonds, notes or other similar evidences of
indebtedness hereafter issued, payable out of the Net Taxes and which, as provided in this Indenture
or any Supplemental Indenture, rank on a parity with the Bonds.
Participants. The term “Participants” means those broker-dealers, banks and other financial
institutions from time to time for which the Depository holds Bonds or Parity Bonds as securities
depository.
Person. The term “Person” means natural persons, firms, corporations, partnerships,
associations, trusts, public bodies and other entities.
Prepayments. The term “Prepayments” means any amounts paid by the District to the Trustee
and designated by the District as a prepayment of Special Taxes for one or more parcels in the
Improvement Area made in accordance with the RMA.
Principal Account. The term “Principal Account” means the account by that name created and
established in the Special Tax Fund pursuant to Section 3.1 hereof.
Principal Office of the Trustee. The term “Principal Office of the Trustee” means the office of
the Trustee located in Costa Mesa, California, or such other office or offices as the Trustee may
designate from time to time, or the office of any successor Trustee where it principally conducts its
business of serving as trustee under indentures pursuant to which municipal or governmental
obligations are issued.
Project. The term “Project” means “those public facilities described in the Resolution of
Formation which are to be acquired or constructed within and outside of the District, including all
engineering, planning and design services and other incidental expenses related to such facilities and
other facilities, if any, authorized by the qualified electors within the District from time to time.
Project Costs. The term “Project Costs” means the amounts necessary to finance the Project,
to create and replenish any necessary reserve funds, to pay the initial and annual costs associated with
the Bonds or any Parity Bonds, including, but not limited to, remarketing, credit enhancement, Trustee
and other fees and expenses relating to the issuance of the Bonds or any Parity Bonds and the formation
of the District, and to pay any other “incidental expenses” of the District, as such term is defined in the
Act.
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Rating Agency. The term “Rating Agency” means Moody’s or S&P, or both, as the context
requires.
Rebate Account. The term “Rebate Account” means the account by that name created and
established in the Rebate Fund pursuant to Section 3.1 hereof.
Rebate Fund. The term “Rebate Fund” means the fund by that name established pursuant to
Section 3.1 hereof in which there are established the Accounts described in Section 3.1 hereof.
Rebate Regulations. The term “Rebate Regulations” means any final, temporary or proposed
Regulations promulgated under Section 148(f) of the Code.
Record Date. The term “Record Date” means the fifteenth day of the month preceding an
Interest Payment Date, regardless of whether such day is a Business Day.
Redemption Account. The term “Redemption Account” means the account by that name
created and established in the Special Tax Fund pursuant to Section 3.1 hereof.
Regulations. The term “Regulations” means the regulations adopted or proposed by the
Department of Treasury from time to time with respect to obligations issued pursuant to Section 103
of the Code.
Representation Letter. The term “Representation Letter” means the Blanket Letter of
Representations from the District to the Depository as described in Section 2.13 hereof.
Reserve Account. The term “Reserve Account” means the account by that name created and
established in the Special Tax Fund pursuant to Section 3.1 hereof.
Reserve Requirement. The term “Reserve Requirement” means that amount as of any date of
calculation equal to the lesser of: (i) 10% of the initial principal amount of the Bonds and Parity Bonds,
if any; (ii) Maximum Annual Debt Service on the then Outstanding Bonds and Parity Bonds, if any;
and (iii) 125% of average Annual Debt Service on the then Outstanding Bonds and Parity Bonds.
Resolution of Formation. The term “Resolution of Formation” means collectively Resolution
No. 2004-6 adopted by the City Council on January 13, 2004, pursuant to which the City Council
established the District, and Resolution No. 2016-32 adopted by the City Council on April 12, 2016,
pursuant to which the City Council designated and annexed the Improvement Area to the District.
RMA. The term “RMA” means the Rate and Method of Apportionment of Special Tax for the
Improvement Area approved by the qualified electors of the Improvement Area at the April 12, 2016
election.
Sinking Fund Payment. The term “Sinking Fund Payment” means the annual payment to be
deposited in the Redemption Account to redeem a portion of the Term Bonds in accordance with the
schedules set forth in Section 4.1(b) hereof and any annual sinking fund payment schedule to retire
any Parity Bonds which are designated as Term Bonds.
Six-Month Period. The term “Six-Month Period” means the period of time beginning on the
Delivery Date of each issue of Bonds or Parity Bonds, as applicable, and ending six consecutive months
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thereafter, and each six-month period thereafter until the latest maturity date of the Bonds and the
Parity Bonds (and any obligations that refund an issue of the Bonds or Parity Bonds).
Special Tax Administrator. The term “Special Tax Administrator” means the individual or
entity appointed by the City to administer the calculation and collection of the Special Taxes.
Special Tax Requirement. The term “Special Tax Requirement” means that amount required
in any Fiscal Year for the District to: (i) pay debt service on all Outstanding Bonds and Parity Bonds
due in the calendar year commencing in such Fiscal Year; (ii) pay periodic costs on the Bonds and
Parity Bonds, including but not limited to, credit enhancement and rebate payments on the Bonds and
Parity Bonds due in the calendar year commencing in such Fiscal Year; (iii) pay Administrative
Expenses; (iv) pay any amounts required to establish or replenish any reserve funds on all Outstanding
Bonds and Parity Bonds; (v) pay for reasonable anticipated Special Tax delinquencies; (vi) pay directly
for acquisition or construction of facilities authorized under the Act and the RMA to the extent that the
inclusion of such amount does not increase the Special Tax levy on Undeveloped Property (as defined
in the RMA); less (vii) a credit for funds available to reduce the annual Special Tax levy, as determined
by the District pursuant to this Indenture.
Special Tax Fund. The term “Special Tax Fund” means the fund by that name created and
established pursuant to Section 3.1 hereof.
Special Taxes. The term “Special Taxes” means the taxes authorized to be levied by the
District on property within the Improvement Area in accordance with the Ordinance, the Resolution of
Formation, the Act and the voter approval obtained at the April 12, 2016 election in the District,
including any scheduled payments and any Prepayments thereof, the net proceeds of the redemption
or sale of property sold as a result of foreclosure of the lien of the Special Taxes to the amount of said
lien and penalties and interest thereon; provided that any delinquent Special Tax sold to an independent
third-party or to the City for 100% of the delinquent amount shall no longer be pledged hereunder to
the payment of the Bonds or Parity Bonds.
S&P. The term “S&P” means S&P Global Ratings, a Standard & Poor’s Financial Services
LLC business, its successors and assigns.
Subaccount. The term “Subaccount” means any subaccount created pursuant to this Indenture.
Supplemental Indenture. The term “Supplemental Indenture” means any supplemental
indenture amending or supplementing this Indenture.
Surplus Fund. The term “Surplus Fund” means the fund by that name created and established
pursuant to Section 3.1 hereof.
Tax Certificate. The term “Tax Certificate” means the certificate by that name to be executed
by the District on a Delivery Date to establish certain facts and expectations and which contains certain
covenants relevant to compliance with the Code.
Tax-Exempt. The term “Tax-Exempt” means, with reference to an Authorized Investment, an
Authorized Investment the interest earnings on which are excludable from gross income for federal
income tax purposes pursuant to Section 103(a) of the Code, other than one described in
Section 57(a)(5)(C) of the Code.
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Term Bonds. The term “Term Bonds” means the Bonds maturing on September 1, 20__ and
September 1, 20__ and any term maturities of an issue of Parity Bonds as specified in a Supplemental
Indenture.
Trustee. The term “Trustee” means Wilmington Trust, National Association, a national
banking association duly organized and existing under the laws of the United States, at its principal
corporate trust office in Costa Mesa, California, and its successors or assigns, or any other bank or trust
company which may at any time be substituted in its place as provided in Sections 7.2 or 7.3, and any
successor thereto.
Underwriter. The term “Underwriter” means, with respect to the Bonds, Stifel, Nicolaus &
Company, Incorporated, and with respect to each issue of Parity Bonds, the institution or institutions,
if any, with whom the District enters into a purchase contract for the sale of such issue.
Water Facilities Account. The term “Water Facilities Account” means the account by that
name created and established in the Acquisition and Construction Fund pursuant to Section 3.1 hereof.
ARTICLE II
GENERAL AUTHORIZATION AND BOND TERMS
Section 2.1.Amount, Issuance, Purpose and Nature of Bonds and Parity Bonds. Under
and pursuant to the Act, the Bonds in the aggregate principal amount of $_______, together with any
Parity Bonds authorized by the City Council in accordance with Section 9.2 hereof, shall be issued for
the purposes of financing the Project, paying Costs of Issuance, funding the Reserve Account and
paying capitalized interest on the Bonds; provided that the aggregate principal amount of the Bonds
and any Parity Bonds shall not exceed the total indebtedness presently authorized or subsequently
authorized by the qualified electors within the Improvement Area for the District in accordance with
the Act. The Bonds and any Parity Bonds shall be and are limited obligations of the District and shall
be payable as to the principal thereof and interest thereon and any premiums upon the redemption
thereof solely from the Net Taxes and the other amounts in the Special Tax Fund (other than amounts
in the Administrative Expense Account of the Special Tax Fund).
Section 2.2.Type and Nature of Bonds and Parity Bonds. Neither the faith and credit
nor the taxing power of the City, the State of California, or any political subdivision thereof other than
the District is pledged to the payment of the Bonds or any Parity Bonds. Except for the Net Taxes, no
other taxes are pledged to the payment of the Bonds or any Parity Bonds. The Bonds and any Parity
Bonds are not general or special obligations of the City nor general obligations of the District, but are
limited obligations of the District payable solely from certain amounts deposited by the District in the
Special Tax Fund (exclusive of the Administrative Expense Account), as more fully described herein.
The District’s limited obligation to pay the principal of, premium, if any, and interest on the Bonds and
any Parity Bonds from amounts in the Special Tax Fund (exclusive of the Administrative Expense
Account) is absolute and unconditional, free of deductions and without any abatement, offset,
recoupment, diminution or set-off whatsoever. No Owner of the Bonds or any Parity Bonds may
compel the exercise of the taxing power by the District (except as pertains to the Special Taxes) or the
City or the forfeiture of any of their property. The principal of and interest on the Bonds and any Parity
Bonds and premiums upon the redemption thereof, if any, are not a debt of the City, the State of
California or any of its political subdivisions within the meaning of any constitutional or statutory
limitation or restriction. The Bonds and any Parity Bonds are not a legal or equitable pledge, charge,
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lien, or encumbrance upon any of the District’s property, or upon any of its income, receipts or
revenues, except the Net Taxes and other amounts in the Special Tax Fund (exclusive of the
Administrative Expense Account) which are, under the terms of this Indenture and the Act, set aside
for the payment of the Bonds, any Parity Bonds and interest thereon, and neither the members of the
legislative body of the District or the members of the City Council nor any persons executing the Bonds
or any Parity Bonds are liable personally on the Bonds or any Parity Bonds, by reason of their issuance.
Notwithstanding anything to the contrary contained in this Indenture, the District shall not be
required to advance any money derived from any source of income other than the Net Taxes for the
payment of the interest on or the principal of the Bonds or any Parity Bonds, or for the performance of
any covenants contained herein. The District may, however, advance funds for any such purpose,
provided that such funds are derived from a source legally available for such purpose.
Section 2.3.Equality of Bonds and Parity Bonds and Pledge of Net Taxes. Pursuant to
the Act and this Indenture, the Bonds and any Parity Bonds shall be equally payable from and secured
by a first pledge of and lien on the Net Taxes and other amounts in the Special Tax Fund (exclusive of
the Administrative Expense Account), without priority for number, date of the Bonds or Parity Bonds,
date of sale, date of execution, or date of delivery, and the payment of the interest on and principal of
the Bonds and any Parity Bonds and any premiums upon the redemption thereof, shall be exclusively
paid from the Net Taxes and other amounts in the Special Tax Fund (exclusive of the Administrative
Expense Account) which are hereby set aside for the payment of the Bonds and any Parity Bonds;
provided that any delinquent Special Tax sold to an independent third-party or to the City for 100% of
the delinquent amount shall no longer be pledged hereunder to the payment of the Bonds or Parity
Bonds. Amounts in the Special Tax Fund (other than the Administrative Expense Account therein)
shall constitute a trust fund held for the benefit of the Owners to be applied to the payment of the
interest on and principal of the Bonds and any Parity Bonds and, so long as any of the Bonds and any
Parity Bonds or interest thereon remain Outstanding, shall not be used for any other purpose, except
as permitted by this Indenture or any Supplemental Indenture. Notwithstanding any provision
contained in this Indenture to the contrary, Net Taxes deposited in the Rebate Fund and the Surplus
Fund shall no longer be considered to be pledged to the Bonds or any Parity Bonds, and none of the
Rebate Fund, the Surplus Fund, the Acquisition and Construction Fund or the Administrative Expense
Account of the Special Tax Fund shall be construed as a trust fund held for the benefit of the Owners.
Nothing in this Indenture or any Supplemental Indenture shall preclude: (i) subject to the
limitations contained hereunder, the redemption prior to maturity of any Bonds or Parity Bonds subject
to call and redemption and payment of said Bonds or Parity Bonds from proceeds of refunding bonds
issued under the Act as the same now exists or as hereafter amended, or under any other law of the
State of California; or (ii) the issuance, subject to the limitations contained herein, of Parity Bonds
which shall be payable from Net Taxes.
Section 2.4.Description of Bonds; Interest Rates. The Bonds and any Parity Bonds shall
be issued in fully registered form in denominations of $5,000 or any integral multiple thereof. The
Bonds and any Parity Bonds of each issue shall be numbered as desired by the Trustee.
The Bonds shall be designated “City of Lake Elsinore Community Facilities District No. 2003-
2 (Canyon Hills) Special Tax Bonds, Series 2018 (Improvement Area E).” The Bonds shall be dated
as of their Delivery Date and shall mature and be payable on September 1 in the years and in the
aggregate principal amounts and shall be subject to and shall bear interest at the rates set forth in the
table below payable on September 1, 2018 and each Interest Payment Date thereafter:
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Maturity Date
September 1
Principal
Amount
Interest
Rate
$%
Interest shall be payable on each Bond and Parity Bond from the date established in accordance
with Section 2.5 below on each Interest Payment Date thereafter until the principal sum of such Bond
or Parity Bond has been paid; provided, however, that if at the maturity date of any Bond or Parity
Bond (or if the same is redeemable and shall be duly called for redemption, then at the date fixed for
redemption) funds are available for the payment or redemption thereof in full, in accordance with the
terms of this Indenture, such Bonds and Parity Bonds shall then cease to bear interest. Interest due on
the Bonds and Parity Bonds shall be calculated on the basis of a 360-day year comprised of twelve
30-day months.
Section 2.5.Place and Form of Payment. The Bonds and Parity Bonds shall be payable
both as to principal and interest, and as to any premiums upon the redemption thereof, in lawful money
of the United States of America. The principal of the Bonds and Parity Bonds and any premiums due
upon the redemption thereof shall be payable upon presentation and surrender thereof at the Principal
Office of the Trustee, or at the designated office of any successor Trustee. If the Nominee of the Bonds
is registered to Cede & Co., payment of principal and any premiums shall be made without
presentment. Interest on any Bond or Parity Bond shall be payable from the Interest Payment Date
next preceding the date of authentication of such Bond or Parity Bond, unless: (i) such date of
authentication is an Interest Payment Date, in which event interest shall be payable from such date of
authentication; (ii) the date of authentication is after a Record Date but prior to the immediately
succeeding Interest Payment Date, in which event interest shall be payable from the Interest Payment
Date immediately succeeding the date of authentication; or (iii) the date of authentication is prior to
the close of business on the first Record Date occurring after the issuance of such Bond or Parity Bond,
in which event interest shall be payable from the dated date of such Bond or Parity Bond, as applicable;
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provided, however, that if at the time of authentication of such Bond or Parity Bond, interest is in
default, interest on such Bond or Parity Bond shall be payable from the last Interest Payment Date to
which the interest has been paid or made available for payment or, if no interest has been paid or made
available for payment on such Bond or Parity Bond, interest on such Bond or Parity Bond shall be
payable from its dated date. Interest on any Bond or Parity Bond shall be paid to the person whose
name shall appear in the Bond Register as the Owner of such Bond or Parity Bond as of the close of
business on the Record Date. Such interest shall be paid by check of the Trustee mailed by first class
mail, postage prepaid, to such Owner at his or her address as it appears on the Bond Register. In
addition, upon a request in writing received by the Trustee on or before the applicable Record Date
from an Owner of $1,000,000 or more in principal amount of the Bonds or of any issue of Parity Bonds,
payment shall be made on the Interest Payment Date by wire transfer in immediately available funds
to an account within the United States of America designated by such Owner.
Section 2.6.Form of Bonds and Parity Bonds. The definitive Bonds may be printed from
steel engraved or lithographic plates or may be typewritten. The Bonds and the certificate of
authentication shall be substantially in the form attached hereto as Exhibit A, which form is hereby
approved and adopted as the form of such Bonds and of the certificate of authentication. Each issue
of Parity Bonds and the certificate of authentication therefor shall be in the form provided in the
Supplemental Indenture for such issue of Parity Bonds.
Until definitive Bonds or Parity Bonds, as applicable, shall be prepared, the District may cause
to be executed and delivered in lieu of such definitive Bonds or Parity Bonds temporary bonds in typed,
printed, lithographed or engraved form and in fully registered form, subject to the same provisions,
limitations and conditions as are applicable in the case of definitive Bonds or Parity Bonds, except that
they may be in any denominations authorized by the District. Until exchanged for definitive Bonds or
Parity Bonds, as applicable, any temporary bond shall be entitled and subject to the same benefits and
provisions of this Indenture as definitive Bonds and Parity Bonds. If the District issues temporary
bonds or Parity Bonds, it shall execute and furnish definitive Bonds or Parity Bonds, as applicable,
without unnecessary delay and thereupon any temporary bond or Parity Bond may be surrendered to
the Trustee at its office, without expense to the Owner, in exchange for a definitive Bond or Parity
Bond of the same issue, maturity, interest rate and principal amount in any authorized denomination.
All temporary bonds or Parity Bonds so surrendered shall be cancelled by the Trustee and shall not be
reissued.
Section 2.7.Execution and Authentication. The Bonds and Parity Bonds shall be signed
on behalf of the District by the manual or facsimile signature of the Mayor of the City and
countersigned by the manual or facsimile signature of the Clerk of the City, or any duly appointed
Deputy Clerk, in their capacity as officers of the District, and the seal of the City or the District (or a
facsimile thereof) may be impressed, imprinted, engraved or otherwise reproduced thereon, and
attested by the signature of the Clerk of the City. In case any one or more of the officers who shall
have signed or sealed any of the Bonds or Parity Bonds shall cease to be such officer before the Bonds
or Parity Bonds so signed and sealed have been authenticated and delivered by the Trustee (including
new Bonds or Parity Bonds delivered pursuant to the provisions hereof with reference to the transfer
and exchange of Bonds or Parity Bonds or lost, stolen, destroyed or mutilated Bonds or Parity Bonds),
such Bonds and Parity Bonds shall nevertheless be valid and may be authenticated and delivered as
herein provided, and may be issued as if the person who signed or sealed such Bonds or Parity Bonds
had not ceased to hold such office.
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Only the Bonds as shall bear thereon such certificate of authentication in the form set forth in
Exhibit A attached hereto shall be entitled to any right or benefit under this Indenture, and no Bond
shall be valid or obligatory for any purpose until such certificate of authentication shall have been duly
executed by the Trustee.
Section 2.8.Bond Register. The Trustee will keep or cause to be kept, at its office,
sufficient books for the registration and transfer of the Bonds and any Parity Bonds which shall upon
reasonable prior notice be open to inspection by the District during all regular business hours, and,
subject to the limitations set forth in Section 2.9below, upon presentation for such purpose, the Trustee
shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be
transferred on said Bond Register, Bonds and any Parity Bonds as herein provided.
The District and the Trustee may treat the Owner of any Bond or Parity Bond whose name
appears on the Bond Register as the absolute Owner of that Bond or Parity Bond for any and all
purposes and the District and the Trustee shall not be affected by any notice to the contrary. The
District and the Trustee may rely on the address of the Owner as it appears in the Bond Register for
any and all purposes. It shall be the duty of the Owner to give written notice to the Trustee of any
change in the Owner’s address so that the Bond Register may be revised accordingly.
Section 2.9.Registration of Exchange or Transfer. Subject to the limitations set forth in
the following paragraph, the registration of any Bond or Parity Bond may, in accordance with its terms,
be transferred upon the Bond Register by the person in whose name it is registered, in person or by his
or her duly authorized attorney, upon surrender of such Bond or Parity Bond for cancellation at the
office of the Trustee, accompanied by delivery of written instrument of transfer in a form acceptable
to the Trustee and duly executed by the Owner or his or her duly authorized attorney.
Bonds or Parity Bonds may be exchanged at the office of the Trustee for a like aggregate
principal amount of Bonds or Parity Bonds for other authorized denominations of the same maturity
and issue. The Trustee shall not collect from the Owner any charge for any new Bond or Parity Bond
issued upon any exchange or transfer, but shall require the Owner requesting such exchange or transfer
to pay any tax or other governmental charge required to be paid with respect to such exchange or
transfer. Whenever any Bonds or Parity Bonds shall be surrendered for registration of transfer or
exchange, the District shall execute and the Trustee shall authenticate and deliver a new Bond or Bonds
or a new Parity Bond or Parity Bonds, as applicable, of the same issue and maturity, for a like aggregate
principal amount; provided that the Trustee shall not be required to register transfers or make
exchanges of: (i) Bonds or Parity Bonds for a period of 15 days next preceding any selection of the
Bonds or Parity Bonds to be redeemed; or (ii) any Bonds or Parity Bonds chosen for redemption.
Section 2.10. Mutilated, Lost, Destroyed or Stolen Bonds or Parity Bonds. If any Bond
or Parity Bond shall become mutilated, the District shall execute, and the Trustee shall authenticate
and deliver, a new Bond or Parity Bond of like tenor, date, issue and maturity in exchange and
substitution for the Bond or Parity Bond so mutilated, but only upon surrender to the Trustee of the
Bond or Parity Bond so mutilated. Every mutilated Bond or Parity Bond so surrendered to the Trustee
shall be cancelled by the Trustee pursuant to Section 10.1 hereof. If any Bond or Parity Bond shall be
lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee
and, if such evidence is satisfactory to the Trustee and, if any indemnity satisfactory to the Trustee
shall be given, the District shall execute and the Trustee shall authenticate and deliver a new Bond or
Parity Bond, as applicable, of like tenor, maturity and issue, numbered and dated as the Trustee shall
determine in lieu of and in substitution for the Bond or Parity Bond so lost, destroyed or stolen. Any
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Bond or Parity Bond issued in lieu of any Bond or Parity Bond alleged to be mutilated, lost, destroyed
or stolen shall be equally and proportionately entitled to the benefits hereof with all other Bonds and
Parity Bonds issued hereunder. The Trustee shall not treat both the original Bond or Parity Bond and
any replacement Bond or Parity Bond as being Outstanding for the purpose of determining the principal
amount of Bonds or Parity Bonds which may be executed, authenticated and delivered hereunder or
for the purpose of determining any percentage of Bonds or Parity Bonds Outstanding hereunder, but
both the original and replacement Bond or Parity Bond shall be treated as one and the same.
Notwithstanding any other provision of this Section, in lieu of delivering a new Bond or Parity Bond
which has been mutilated, lost, destroyed or stolen, and which has matured, the Trustee may make
payment with respect to such Bonds or Parity Bonds.
Section 2.11. Validity of Bonds and Parity Bonds. The validity of the authorization and
issuance of the Bonds and any Parity Bonds shall not be affected in any way by any defect in any
proceedings taken by the District for the financing of the Project, or by the invalidity, in whole or in
part, of any contracts made by the District in connection therewith, and shall not be dependent upon
the completion of the financing of the Project or upon the performance by any Person of his obligation
with respect to the Project, and the recital contained in the Bonds or any Parity Bonds that the same
are issued pursuant to the Act and other applicable laws of the State shall be conclusive evidence of
their validity and of the regularity of their issuance.
Section 2.12. Book-Entry System. The Bonds shall be initially delivered in the form of a
separate single fully registered Bond (which may be typewritten) for each maturity of the Bonds. Upon
initial delivery, the ownership of each such Bond shall be registered in the registration books kept by
the Trustee in the name of the Nominee as nominee of the Depository. Except as provided in
Section 2.14 hereof, all of the Outstanding Bonds shall be registered in the registration books kept by
the Trustee in the name of the Nominee. At the election of the District, any Parity Bonds may also be
issued as book-entry bonds registered in the name of the Nominee as provided herein, in which case
the references in Sections 2.12 through 2.15 to “Bonds” shall be applicable to such Parity Bonds.
With respect to Bonds registered in the registration books kept by the Trustee in the name of
the Nominee, the District and the Trustee shall have no responsibility or obligation to any such
Participant or to any Person on behalf of which such a Participant holds an interest in the Bonds.
Without limiting the immediately preceding sentence, the District and the Trustee shall have no
responsibility or obligation with respect to: (i) the accuracy of the records of the Depository, the
Nominee, or any Participant with respect to any ownership interest in the Bonds; (ii) the delivery to
any Participant or any other Person, other than an Owner as shown in the registration books kept by
the Trustee, of any notice with respect to the Bonds, including any notice of redemption; (iii) the
selection by the Depository and its Participants of the beneficial interests in the Bonds to be redeemed
in the event that the Bonds are redeemed in part; or (iv) the payment to any Participant or any other
Person, other than an Owner as shown in the registration books kept by the Trustee, of any amount
with respect to principal of, premium, if any, or interest due with respect to the Bonds. The District
and the Trustee may treat and consider the Person in whose name each Bond is registered in the
registration books kept by the Trustee as the holder and absolute owner of such Bond for the purpose
of payment of the principal of, premium, if any, and interest on such Bond, for the purpose of giving
notices of redemption and other matters with respect to such Bond, for the purpose of registering
transfers with respect to such Bond and for all other purposes whatsoever. The Trustee shall pay all
principal of, premium, if any, and interest due on the Bonds only to or upon the order of the respective
Owner, as shown in the registration books kept by the Trustee, or their respective attorneys duly
authorized in writing, and all such payments shall be valid and effective to satisfy and discharge fully
16
the District’s obligations with respect to payment of the principal, premium, if any, and interest due on
the Bonds to the extent of the sum or sums so paid. No Person other than an Owner, as shown in the
registration books kept by the Trustee, shall receive a Bond evidencing the obligation of the District to
make payments of principal, premium, if any, and interest pursuant to this Indenture. Upon delivery
by the Depository to the Trustee and the District of written notice to the effect that the Depository has
determined to substitute a new nominee in place of the Nominee, and subject to the provisions herein
with respect to Record Dates, the word Nominee in this Indenture shall refer to such new nominee of
the Depository.
Section 2.13. Representation Letter. In order to qualify the Bonds and any Parity Bonds
which the District elects to register in the name of the Nominee for the Depository’s book-entry system,
an Authorized Representative of the District is hereby authorized to execute from time to time and
deliver to such Depository the Representation Letter. The execution and delivery of the Representation
Letter shall not in any way limit the provisions of Section 2.12 or in any other way impose upon the
District or the Trustee any obligation whatsoever with respect to persons having interests in the Bonds
other than the Owners, as shown on the registration books kept by the Trustee. The District agrees to
take all action necessary to continuously comply with all representations made by it in the
Representation Letter. In addition to the execution and delivery of the Representation Letter, the
Authorized Representatives of the District are hereby authorized to take any other actions, not
inconsistent with this Indenture, to qualify the Bonds for the Depository’s book-entry program.
Section 2.14. Transfers Outside Book-Entry System. In the event that: (i) the Depository
determines not to continue to act as securities depository for the Bonds; or (ii) the District determines
that the Depository shall no longer so act, then the District will discontinue the book-entry system with
the Depository. If the District fails to identify another qualified securities depository to replace the
Depository then the Bonds so designated shall no longer be restricted to being registered in the
registration books kept by the Trustee in the name of the Nominee, but shall be registered in whatever
name or names Persons transferring or exchanging Bonds shall designate, in accordance with the
provisions of Section 2.9 hereof.
Section 2.15. Payments to the Nominee. Notwithstanding any other provisions of this
Indenture to the contrary, so long as any Bond is registered in the name of the Nominee, all payments
with respect to principal, premium, if any, and interest due with respect to such Bond and all notices
with respect to such Bond shall be made and given, respectively, as provided in the Representation
Letter or as otherwise instructed by the Depository.
Section 2.16. Initial Depository and Nominee. The initial Depository under this Indenture
shall be The Depository Trust Company, New York, New York. The initial Nominee shall be Cede &
Co., as Nominee of The Depository Trust Company, New York, New York.
ARTICLE III
CREATION OF FUNDS AND APPLICATION OF PROCEEDS
Section 3.1.Creation of Funds; Application of Proceeds.
(a)There are hereby created and established and shall be maintained by the Trustee the
following funds and accounts:
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(1)The City of Lake Elsinore Community Facilities District No. 2003-2 (Canyon
Hills) Improvement Area E Special Tax Fund (the “Special Tax Fund”) (in which there shall be
established and created an Interest Account, a Principal Account, a Redemption Account, a Reserve
Account, and an Administrative Expense Account).
(2)The City of Lake Elsinore Community Facilities District No. 2003-2 (Canyon
Hills) Improvement Area E Rebate Fund (the “Rebate Fund”) (in which there shall be established a
Rebate Account and an Alternate Penalty Account).
(3)The City of Lake Elsinore Community Facilities District No. 2003-2 (Canyon
Hills) Improvement Area E Acquisition and Construction Fund (the “Acquisition and Construction
Fund”) (in which there shall be established a City Facilities Account, a Water Facilities Account and
a Costs of Issuance Account).
(4)The City of Lake Elsinore Community Facilities District No. 2003-2 (Canyon
Hills) Surplus Fund (the “Surplus Fund”).
The amounts on deposit in the foregoing funds, accounts and subaccounts shall be held by the
Trustee. The Trustee shall invest and disburse the amounts in such funds, accounts and subaccounts
in accordance with the provisions of this Article III and shall disburse investment earnings thereon in
accordance with the provisions of Section 3.10 hereof.
In connection with the issuance of any Parity Bonds, which may be issued only for the purpose
of refunding the Bonds as described in Section 9.2, the Trustee, at the direction of an Authorized
Representative of the District, may create new funds, accounts or subaccounts, or may create additional
accounts and subaccounts within any of the foregoing funds and accounts for the purpose of separately
accounting for the proceeds of the Bonds and any Parity Bonds.
(b)The proceeds of the sale of the Bonds shall be received by the Trustee on behalf of the
District and deposited and transferred as follows:
(1)$_______ shall be transferred to the Costs of Issuance Account of the
Acquisition and Construction Fund to pay the Costs of Issuance of the Bonds;
(2)$_______ shall be transferred to the Reserve Account of the Special Tax Fund
to fund the Reserve Requirement; and
(3)$_______ shall be transferred to the Acquisition and Construction Fund of
which $_______ shall be deposited in the City Facilities Account and $_______ shall be deposited in
the Water Facilities Account.
The Trustee may, in its discretion, establish temporary funds or accounts in its books and
records to facilitate such transfers.
Section 3.2.Deposits to and Disbursements from Special Tax Fund.
(a)Except for Prepayments, which shall be deposited to the Redemption Account of the
Special Tax Fund, the Trustee shall, on each date on which the Special Taxes are received from the
District, deposit the Special Taxes in the Special Tax Fund to be held in trust for the Owners. The
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Trustee shall transfer the Special Taxes on deposit in the Special Tax Fund on the dates and in the
amounts set forth in the following Sections, in the following order of priority, to:
(1)the Administrative Expense Account of the Special Tax Fund up to the
Administrative Expenses Cap;
(2)the Interest Account of the Special Tax Fund;
(3)the Principal Account of the Special Tax Fund;
(4)the Redemption Account of the Special Tax Fund;
(5)the Reserve Account of the Special Tax Fund;
(6)the Administrative Expense Account of the Special Tax Fund to the extent that
Administrative Expenses exceed or are expected to exceed the Administrative Expense Cap;
(7)the Rebate Fund; and
(8)the Surplus Fund.
(b)At maturity of all of the Bonds and Parity Bonds and, after all principal and interest
then due on the Bonds and Parity Bonds then Outstanding have been paid or provided for and any
amounts owed to the Trustee have been paid in full, moneys in the Special Tax Fund and any accounts
therein may be used by the District for any lawful purpose.
Section 3.3.Administrative Expense Account of the Special Tax Fund. The Trustee
shall transfer from the Special Tax Fund and deposit in the Administrative Expense Account of the
Special Tax Fund from time to time amounts necessary to make timely payment of Administrative
Expenses as set forth in a Certificate of an Authorized Representative of the District; provided,
however, that, except as set forth in the following sentence, the total amount transferred with respect
to a Bond Year shall not exceed the Administrative Expenses Cap until such time as there has been
deposited to the Interest Account and the Principal Account an amount, together with any amounts
already on deposit therein, that is sufficient to pay the interest and principal on all Bonds and Parity
Bonds due in such Bond Year and to restore the Reserve Account to the Reserve Requirement.
Notwithstanding the foregoing, amounts in excess of the Administrative Expenses Cap may be
transferred to the Administrative Expense Account to the extent necessary to collect delinquent Special
Taxes. Moneys in the Administrative Expense Account of the Special Tax Fund may be invested in
any Authorized Investments as directed in writing by an Authorized Representative of the District and
shall be disbursed as directed in a Certificate of an Authorized Representative.
Section 3.4.Interest Account and Principal Account of the Special Tax Fund. The
principal of and interest due on the Bonds and any Parity Bonds until maturity, other than principal
due upon redemption, shall be paid by the Trustee from the Principal Account and the Interest Account
of the Special Tax Fund, respectively.
For the purpose of assuring that the payment of principal of and interest on the Bonds and any
Parity Bonds will be made when due, after making the transfer required by Section 3.3, at least one
Business Day prior to each March 1 and September 1, the Trustee shall make the following transfers
from the Special Tax Fund first to the Interest Account and then to the Principal Account; provided,
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however, that to the extent that deposits have been made in the Interest Account or the Principal
Account from the proceeds of the sale of an issue of the Bonds or any Parity Bonds, or otherwise, the
transfer from the Special Tax Fund need not be made; and provided, further, that, if amounts in the
Special Tax Fund (exclusive of the Reserve Account) are inadequate to make the foregoing transfers,
then any deficiency shall be made up by transfers from the Reserve Account:
(a)To the Interest Account, an amount such that the balance in the Interest Account one
Business Day prior to each Interest Payment Date shall be equal to the installment of interest due on
the Bonds and any Parity Bonds on said Interest Payment Date and any installment of interest due on
a previous Interest Payment Date which remains unpaid. Moneys in the Interest Account shall be used
for the payment of interest on the Bonds and any Parity Bonds as the same become due.
(b)To the Principal Account, an amount such that the balance in the Principal Account
one Business Day prior to September 1 of each year, commencing September 1, 2018, shall equal the
principal payment due on the Bonds and any Parity Bonds maturing on such September 1 and any
principal payment due on a previous September 1 which remains unpaid. Moneys in the Principal
Account shall be used for the payment of the principal of such Bonds and any Parity Bonds as the same
become due at maturity.
Section 3.5.Redemption Account of the Special Tax Fund.
(a)With respect to each September 1 on which a Sinking Fund Payment is due, after the
deposits have been made to the Administrative Expense Account, the Interest Account and the
Principal Account of the Special Tax Fund as required by Sections 3.3 and 3.4 hereof, the Trustee shall
next transfer into the Redemption Account of the Special Tax Fund from the Special Tax Fund the
amount needed to make the balance in the Redemption Account one Business Day prior to each
September 1 on which a Sinking Fund Payment is due equal to the Sinking Fund Payment due on any
Outstanding Bonds and Parity Bonds on such September 1; provided, however, that, if amounts in the
Special Tax Fund are inadequate to make the foregoing transfers, then any deficiency shall be made
up by an immediate transfer from the Reserve Account, if funded, pursuant to Section 3.6 below.
Moneys so deposited in the Redemption Account shall be used and applied by the Trustee to call and
redeem Term Bonds in accordance with the Sinking Fund Payment schedules set forth in Section 4.1(b)
hereof, and to redeem Parity Bonds in accordance with any Sinking Fund Payment schedule in the
Supplemental Indenture for such Parity Bonds.
(b)After making the deposits to the Administrative Expense Account, the Interest Account
and the Principal Account of the Special Tax Fund pursuant to Sections 3.3 and 3.4 above and to the
Redemption Account for Sinking Fund Payments then due pursuant to subparagraph (a) of this Section,
and in accordance with the District’s election to call Bonds for optional redemption as set forth in
Section 4.1(a) hereof, or to call Parity Bonds for optional redemption as set forth in any Supplemental
Indenture for Parity Bonds, the Trustee shall transfer from the Special Tax Fund and deposit in the
Redemption Account moneys available for the purpose and sufficient to pay the principal and the
premiums, if any, payable on the Bonds or Parity Bonds called for optional redemption; provided,
however, that amounts in the Special Tax Fund (other than the Administrative Expense Account
therein) may be applied to optionally redeem Bonds and Parity Bonds only if immediately following
such redemption the amount in the Reserve Account will equal the Reserve Requirement.
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(c)Prepayments deposited to the Redemption Account shall be applied on the redemption
date established pursuant to Section 4.1(c) hereof to the payment of the principal of, premium, if any,
and interest on the Bonds and Parity Bonds to be redeemed with such Prepayments.
(d)Moneys set aside in the Redemption Account shall be used solely for the purpose of
redeeming Bonds and Parity Bonds and shall be applied on or after the redemption date to the payment
of principal of and premium, if any, on the Bonds or Parity Bonds to be redeemed upon presentation
and surrender of such Bonds or Parity Bonds, and, in the case of an optional redemption or a special
mandatory redemption from Prepayments, to pay the interest thereon; provided, however, that in lieu
or partially in lieu of such call and redemption, moneys deposited in the Redemption Account may be
used to purchase Outstanding Bonds or Parity Bonds in the manner hereinafter provided. Purchases
of Outstanding Bonds or Parity Bonds may be made by the District at public or private sale as and
when and at such prices as the District may in its discretion determine but only at prices (including
brokerage or other expenses) not more than par plus accrued interest, plus, in the case of moneys set
aside for an optional redemption or a special mandatory redemption, the premium applicable at the
next following call date according to the premium schedule established pursuant to Section 4.1(a) or
4.1(c) hereof, as applicable, or in the case of Parity Bonds the premium established in any Supplemental
Indenture. Any accrued interest payable upon the purchase of Bonds or Parity Bonds may be paid
from the amount reserved in the Interest Account of the Special Tax Fund for the payment of interest
on the next following Interest Payment Date.
Section 3.6.Reserve Account of the Special Tax Fund. There shall be maintained in the
Reserve Account of the Special Tax Fund an amount equal to the Reserve Requirement. The amounts
in the Reserve Account shall be applied as follows:
(a)Moneys in the Reserve Account shall be used solely for the purpose of paying the
principal of, including Sinking Fund Payments, and interest on the Bonds and any Parity Bonds when
due in the event that the moneys in the Interest Account and the Principal Account of the Special Tax
Fund are insufficient therefor or moneys in the Redemption Account of the Special Tax Fund are
insufficient to make a Sinking Fund Payment when due and for the purpose of making any required
transfer to the Rebate Fund pursuant to Section 3.7 hereof upon written direction from the District. If
the amounts in the Interest Account, the Principal Account or the Redemption Account of the Special
Tax Fund are insufficient to pay the principal of, including Sinking Fund Payments, or interest on any
Parity Bonds when due, or amounts in the Special Tax Fund are insufficient to make transfers to the
Rebate Fund when required, the Trustee shall withdraw from the Reserve Account for deposit in the
Interest Account, the Principal Account or the Redemption Account of the Special Tax Fund or the
Rebate Fund, as applicable, moneys necessary for such purposes.
(b)Whenever moneys are withdrawn from the Reserve Account, after making the required
transfers referred to in Sections 3.3, 3.4 and 3.5 above, the Trustee shall transfer to the Reserve Account
from available moneys in the Special Tax Fund, or from any other legally available funds which the
District elects to apply to such purpose, the amount needed to restore the amount of such Reserve
Account to the Reserve Requirement. Moneys in the Special Tax Fund shall be deemed available for
transfer to the Reserve Account only if the Trustee determines that such amounts will not be needed to
make the deposits required to be made to the Administrative Expense Account, the Interest Account,
the Principal Account or the Redemption Account of the Special Tax Fund on or before the next
September 1. If amounts in the Special Tax Fund together with any other amounts transferred to
replenish the Reserve Account are inadequate to restore the Reserve Account to the Reserve
Requirement, then the District shall include the amount necessary to restore the Reserve Account to
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the Reserve Requirement in the next annual Special Tax levy to the extent of the maximum permitted
Special Tax rates.
(c)In connection with a redemption of Bonds pursuant to Section 4.1(a) or 4.1(c) or Parity
Bonds in accordance with any Supplemental Indenture, or a partial defeasance of Bonds or Parity
Bonds in accordance with Section 9.1 hereof, amounts in the Reserve Account may be applied to such
redemption or partial defeasance so long as the amount on deposit in the Reserve Account following
such redemption or partial defeasance equals the Reserve Requirement. The District shall set forth in
a Certificate of an Authorized Representative the amount in the Reserve Account to be transferred to
the Redemption Account on a redemption date or to be transferred pursuant to the Indenture to partially
defease Bonds, and the Trustee shall make such transfer on the applicable redemption or defeasance
date, subject to the limitation in the preceding sentence.
(d)To the extent that the Reserve Account is at the Reserve Requirement as of the first
day of the final Bond Year for the Bonds or an issue of Parity Bonds, amounts in the Reserve Account
may be applied to pay the principal of and interest due on the Bonds and Parity Bonds, as applicable,
in the final Bond Year for such issue. Moneys in the Reserve Account in excess of the Reserve
Requirement not transferred in accordance with the preceding provisions of this Section shall be
withdrawn from the Reserve Account on the Business Day before each March 1 and September 1 and
shall be transferred to the Acquisition and Construction Fund, as directed by an Authorized
Representative of the District, until all amounts have been disbursed from the Acquisition and
Construction Fund (or such fund is closed) and thereafter to the Interest Account of the Special Tax
Fund.
Section 3.7.Rebate Fund.
(a)The Trustee shall establish and maintain a fund separate from any other fund
established and maintained hereunder designated as the Rebate Fund and shall establish a separate
Rebate Account and Alternate Penalty Account therein. All money at any time deposited in the Rebate
Account or the Alternate Penalty Account of the Rebate Fund shall be held by the Trustee in trust, for
payment to the United States Treasury. A separate subaccount of the Rebate Account and the Alternate
Penalty Account shall be established for the Bonds and each issue of Parity Bonds the interest on which
is excluded from gross income for federal income tax purposes. All amounts on deposit in the Rebate
Fund with respect to the Bonds or an issue of Parity Bonds shall be governed by this Section 3.7 and
the Tax Certificate for such issue, unless the District obtains an opinion of Bond Counsel that the
exclusion from gross income for federal income tax purposes of interest payments on the Bonds and
Parity Bonds will not be adversely affected if such requirements are not satisfied.
(1)Rebate Account. The following requirements shall be satisfied with respect to
each subaccount of the Rebate Account:
(i)Annual Computation. Within 55 days of the end of each Bond Year,
the District shall calculate or cause to be calculated the amount of rebatable arbitrage for the Bonds
and each issue of Parity Bonds to which this Section 3.7 is applicable, in accordance with
Section 148(f)(2) of the Code and Section 1.148-3 of the Rebate Regulations (taking into account any
applicable exceptions with respect to the computation of the rebatable arbitrage described in the Tax
Certificate for each issue (e.g., the temporary investments exceptions of Section 148(f)(4)(B) and (C)
of the Code), and taking into account whether the election pursuant to Section 148(f)(4)(C)(vii) of the
Code (the “1½% Penalty”) has been made), for this purpose treating the last day of the applicable Bond
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Year as a computation date, within the meaning of Section 1.148-1(b) of the Rebate Regulations (the
“Rebatable Arbitrage”). The District shall obtain expert advice as to the amount of the Rebatable
Arbitrage to comply with this Section.
(ii)Annual Transfer. Within 55 days of the end of each Bond Year for
which Rebatable Arbitrage must be calculated as required by the Tax Certificate for each issue, upon
the written direction of an Authorized Representative of the District, an amount shall be deposited to
each subaccount of the Rebate Account by the Trustee from any funds so designated by the District if
and to the extent required, so that the balance in the Rebate Account shall equal the amount of
Rebatable Arbitrage so calculated by or on behalf of the District in accordance with clause (i) of this
subsection (a)(1) with respect to the Bonds and each issue of Parity Bonds to which this Section 3.7 is
applicable. In the event that immediately following any transfer required by the previous sentence, or
the date on which the District determines that no transfer is required for such Bond Year, the amount
then on deposit to the credit of the applicable subaccount of the Rebate Account exceeds the amount
required to be on deposit therein, upon written instructions from an Authorized Representative of the
District, the Trustee shall withdraw the excess from the appropriate subaccount of the Rebate Account
and then credit the excess to the Special Tax Fund.
(iii)Payment to the Treasury. The Trustee shall pay, as directed in writing
by an Authorized Representative of the District, to the United States Treasury, out of amounts in each
subaccount of the Rebate Account:
(X)not later than 60 days after the end of: (A) the fifth Bond Year
for the Bonds and each issue of Parity Bonds to which this Section 3.7 is applicable; and (B) each
applicable fifth Bond Year thereafter, an amount equal to at least 90% of the Rebatable Arbitrage
calculated as of the end of such Bond Year for the Bonds and each issue of Parity Bonds, as applicable;
and
(Y)not later than 60 days after the payment or redemption of all of
the Bonds or an issue of Parity Bonds, as applicable, an amount equal to 100% of the Rebatable
Arbitrage calculated as of the end of such applicable Bond Year, and any income attributable to the
Rebatable Arbitrage, computed in accordance with Section 148(f) of the Code.
In the event that, prior to the time of any payment required to be made from the Rebate
Account, the amount in the Rebate Account is not sufficient to make such payment when such payment
is due, the District shall calculate or cause to be calculated the amount of such deficiency and deposit
an amount received from any legally available source equal to such deficiency prior to the time such
payment is due. Each payment required to be made pursuant to this subsection (a)(1) shall be made to
the Internal Revenue Service Center, Ogden, Utah 84201 on or before the date on which such payment
is due, and shall be accompanied by Internal Revenue Service Form 8038-T, or shall be made in such
other manner as provided under the Code.
(2)Alternate Penalty Account.
(i)Six-Month Computation. If the 1½% Penalty has been elected for the
Bonds or an issue of Parity Bonds, within 85 days of each particular Six-Month Period, the District
shall determine or cause to be determined whether the 1½% Penalty is payable (and the amount of such
penalty) as of the close of the applicable Six-Month Period. The District shall obtain expert advice in
making such determinations.
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(ii)Six-Month Transfer. Within 85 days of the close of each Six-Month
Period, the Trustee, at the written direction of an Authorized Representative of the District, shall
deposit an amount in the appropriate subaccounts of the Alternate Penalty Account from any source of
funds held by the Trustee pursuant to this Indenture and designated by the District in such written
directions or provided to it by the District, if and to the extent required, so that the balance in each
subaccount of the Alternate Penalty Account equals the amount of 1½% Penalty due and payable to
the United States Treasury determined as provided in subsection (a)(2)(i) above. In the event that
immediately following any transfer provided for in the previous sentence, or the date on which the
District determines that no transfer is required for such Bond Year, the amount then on deposit in a
subaccount of the Alternate Penalty Account exceeds the amount required to be on deposit therein to
make the payments required by subsection (iii) below, the Trustee, at the written direction of an
Authorized Representative of the District, may withdraw the excess from the applicable subaccount of
the Alternate Penalty Account and credit the excess to the Special Tax Fund.
(iii)Payment to the Treasury. The Trustee shall pay, as directed in writing
by an Authorized Representative of the District, to the United States Treasury, out of amounts in a
subaccount of the Alternate Penalty Account, not later than 90 days after the close of each Six-Month
Period the 1½% Penalty, if applicable and payable, computed with respect to the Bonds and any issue
of Parity Bonds in accordance with Section 148(f)(4) of the Code. In the event that, prior to the time
of any payment required to be made from a subaccount of the Alternate Penalty Account, the amount
in such subaccount is not sufficient to make such payment when such payment is due, the District shall
calculate the amount of such deficiency and direct the Trustee, in writing, to deposit an amount equal
to such deficiency into such subaccount of the Alternate Penalty Account from any funds held by the
Trustee pursuant to this Indenture and designated by the District in such written directions prior to the
time such payment is due. Each payment required to be made pursuant to this subsection (a)(2) shall
be made to the Internal Revenue Service, Ogden, Utah 84201 on or before the date on which such
payment is due, and shall be accompanied by Internal Revenue Service Form 8038-T or shall be made
in such other manner as provided under the Code.
(b)Disposition of Unexpended Funds. Any funds remaining in the Accounts of the Rebate
Fund with respect to the Bonds or an issue of Parity Bonds after redemption and payment of such issue
and after making the payments described in subsections (a)(1)(iii) or (a)(2)(iii) (whichever is
applicable), may be withdrawn by the Trustee at the written direction of the District and utilized in any
manner by the District.
(c)Survival of Defeasance and Final Payment. Notwithstanding anything in this Section
or this Indenture to the contrary, the obligation to comply with the requirements of this Section shall
survive the defeasance and final payment of the Bonds and any Parity Bonds with respect to which an
Account has been created in the Rebate Fund.
(d)Amendment Without Consent of Owners. This Section 3.7 may be deleted or amended
in any manner without the consent of the Owners, provided that prior to such event there is delivered
to the District an opinion of Bond Counsel to the effect that such deletion or amendment will not
adversely affect the exclusion from gross income for federal income tax purposes of interest on the
Bonds and any issue of Parity Bonds issued on a tax-exempt basis.
(e)Trustee. The Trustee shall have no responsibility to monitor or calculate any amounts
payable to the U.S. Treasury pursuant to this Section and shall be deemed constructively to have
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complied with its obligations hereunder if it follows the written instructions of the District given
pursuant to this Section.
Section 3.8.Surplus Fund. After making the transfers required by Sections 3.3, 3.4, 3.5,
3.6 and 3.7 hereof, as soon as practicable after each September 1, the Trustee shall transfer all
remaining amounts in the Special Tax Fund to the Surplus Fund, unless on or prior to such date, it has
received a Certificate of an Authorized Representative directing that certain amounts be retained in the
Special Tax Fund because the District has included such amounts as being available in the Special Tax
Fund in calculating the amount of the levy of Special Taxes for such Fiscal Year pursuant to
Section 5.2(b) hereof. Moneys deposited in the Surplus Fund will be transferred by the Trustee at the
direction of an Authorized Representative of the District: (i) to the Interest Account, the Principal
Account or the Redemption Account of the Special Tax Fund to pay the principal of, including Sinking
Fund Payments, premium, if any, and interest on the Bonds and any Parity Bonds when due in the
event that moneys in the Special Tax Fund and the Reserve Account of the Special Tax Fund are
insufficient therefor; (ii) to the Reserve Account in order to replenish the Reserve Account to the
Reserve Requirement; (iii) to the Administrative Expense Account of the Special Tax Fund to pay
Administrative Expenses to the extent that the amounts on deposit in the Administrative Expense
Account of the Special Tax Fund are insufficient to pay Administrative Expenses; (iv) to the
Acquisition and Construction Fund to pay Project Costs; or (v) after all Project Costs have been paid,
to the District, for any other lawful purpose of the District.
The amounts in the Surplus Fund are not pledged to the repayment of the Bonds or the Parity
Bonds and may be used by the District for any lawful purpose. In the event that the District reasonably
expects to use any portion of the moneys in the Surplus Fund to pay debt service on any Outstanding
Bonds or Parity Bonds, the District shall notify the Trustee in a Certificate of an Authorized
Representative and the Trustee shall segregate such amount into a separate subaccount and the moneys
on deposit in such subaccount of the Surplus Fund shall be invested at the written direction of the
District in Authorized Investments the interest on which is excludable from gross income under
Section 103 of the Code (other than bonds the interest on which is a tax preference item for purposes
of computing the alternative minimum tax of individuals under the Code) or in Authorized Investments
at a yield not in excess of the yield on the issue of Bonds or Parity Bonds to which such amounts are
to be applied, unless, in the opinion of Bond Counsel, investment at a higher yield will not adversely
affect the exclusion from gross income for federal income tax purposes of interest on the Bonds or any
Parity Bonds which were issued on a tax-exempt basis for federal income tax purposes. Such amounts
shall be disbursed as directed by an Authorized Representative of the District.
Section 3.9.Acquisition and Construction Fund.
(a)The moneys in the Costs of Issuance Account shall be disbursed by the Trustee
pursuant to a Certificate of an Authorized Representative of the District, and any balance remaining
therein after 180 daysshall be transferred by the Trustee to the Administrative Expense Account of the
Special Tax Fund as directed in writing by an Authorized Representative of the District. Following
such transfer to the Administrative Expense Account, the Costs of Issuance Account shall be closed.
(b)The moneys in the Acquisition and Construction Fund and the Accounts therein shall
be applied exclusively to pay the Project Costs. Amounts for Project Costs shall be disbursed by the
Trustee from the Acquisition and Construction Fund or the Accounts therein, as specified in a Request
for Disbursement of Project Costs, substantially in the form of Exhibit B-1 attached hereto. A properly
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executed Request for Disbursement of Project Costs must be submitted in connection with each
requested disbursement and the Trustee may rely thereon without investigating the accuracy thereof.
(c)Upon receipt of a Certificate of an Authorized Representative of the District stating
that all or a specified portion of the amount remaining in the Acquisition and Construction Fund or the
Accounts therein is no longer needed to pay Project Costs, the Trustee shall: (i) transfer all or such
specified portion, as applicable, of the moneys remaining on deposit in the Acquisition and
Construction Fund or the Accounts therein to the Interest Account, the Principal Account or
Redemption Account of the Special Tax Fund, to the Costs of Issuance Account or to the Surplus Fund,
as directed in such certificate, provided that in connection with any direction to transfer amounts to the
Surplus Fund there shall have been delivered to the Trustee with such certificate an opinion of Bond
Counsel to the effect that such transfer to the Surplus Fund will not adversely affect the exclusion from
gross income for federal income tax purposes of interest on the Bonds or any Parity Bonds which were
issued on a tax-exempt basis for federal income tax purposes; and (ii) thereafter, close the Acquisition
and Construction Fund.
Section 3.10. Investments. Moneys held in any of the Funds, Accounts and Subaccounts
under this Indenture shall be invested at the written direction of the District upon at least two (2)
Business Days’ notice in accordance with the limitations set forth below only in Authorized
Investments which shall be deemed at all times to be a part of such Funds, Accounts and Subaccounts.
Any loss resulting from such Authorized Investments shall be credited or charged to the Fund, Account
or Subaccount from which such investment was made, and any investment earnings on a Fund, Account
or Subaccount shall be applied as follows: (i) investment earnings on all amounts deposited in the
Acquisition and Construction Fund (including the accounts therein), the Special Tax Fund, the Surplus
Fund and the Rebate Fund and each Account therein (other than the Reserve Account of the Special
Tax Fund) shall be deposited in those respective Funds, Accounts and Subaccounts; and (ii) investment
earnings on all amounts deposited in the Reserve Account shall be deposited therein to be applied as
set forth in Section 3.6. Moneys in the Funds, Accounts and Subaccounts held under this Indenture
may be invested by the Trustee as directed in writing by the District, from time to time, in Authorized
Investments subject to the following restrictions (provided that the Trustee is not required to verify
compliance with such restrictions and may rely on the District’s written instructions as evidence of
such compliance):
(a)Moneys in the Acquisition and Construction Fund shall be invested in Authorized
Investments which will by their terms mature, or in the case of an Investment Agreement are available
without penalty, asclose as practicable to the date the District estimates the moneys represented by the
particular investment will be needed for withdrawal from the Acquisition and Construction Fund.
Notwithstanding anything herein to the contrary, amounts in the Acquisition and Construction Fund
three years after the Delivery Date for the Bonds and the proceeds of each issue of Parity Bonds issued
on a tax-exempt basis which are remaining on deposit in the Acquisition and Construction Fund on the
date which is three years following the date of issuance of such issue of Parity Bonds shall be invested
by the District only in Authorized Investments the interest on which is excluded from gross income
under Section 103 of the Code (other than bonds the interest on which is a tax preference item for
purposes of computing the alternative minimum tax of individuals under the Code) or in Authorized
Investments at a yield not in excess of the yield on the issue of Bonds or Parity Bonds from which such
proceeds were derived, unless in the opinion of Bond Counsel such restriction is not necessary to
prevent interest on the Bonds or any Parity Bonds which were issued on a tax-exempt basis for federal
income tax purposes from being included in gross income for federal income tax purposes.
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(b)Moneys in the Interest Account, the Principal Account, and the Redemption Account
of the Special Tax Fund shall be invested only in Authorized Investments which will by their terms
mature, or in the case of an Investment Agreement are available for withdrawal without penalty, on
such dates so as to ensure the payment of principal of, premium, if any, and interest on the Bonds and
any Parity Bonds as the same become due.
(c)Moneys in the Reserve Account of the Special Tax Fund may be invested only in
Authorized Investments (other than the Authorized Investment described in clause (2)(i) of the
definition thereof) which, taken together, have a weighted average maturity not in excess of five years;
provided that such amounts may be invested in an Investment Agreement to the later of the final
maturity of the Bonds or any Parity Bonds so long as such amounts may be withdrawn at any time,
without penalty, for application in accordance with Section 3.6 hereof; and provided that no such
Authorized Investment of amounts in the Reserve Account allocable to the Bonds or an issue of Parity
Bonds shall mature later than the respective final maturity date of the Bonds or the issue of Parity
Bonds, as applicable.
(d)Moneys in the Rebate Fund shall be invested only in Authorized Investments of the
type described in clause (1) of the definition thereof which by their terms will mature, as nearly as
practicable, on the dates such amounts are needed to be paid to the United States Government pursuant
to Section 3.7 hereof or in Authorized Investments of the type described in clause (2)(e) of the
definition thereof.
(e)In the absence of written investment directions from the District, the Trustee shall
invest solely in Authorized Investments specified in clause (2)(e) of the definition thereof. If no such
written investment direction from the District is received, the funds shall be uninvested.
The Trustee shall sell, or present for redemption, any Authorized Investment whenever it may
be necessary to do so in order to provide moneys to meet any payment or transfer to such funds and
accounts or from such funds and accounts. Notwithstanding anything herein to the contrary, the
Trustee shall not be responsible for any loss from investments, sales or transfers undertaken in
accordance with the provisions of this Indenture. Any Authorized Investments that are registrable
securities shall be registered in the name of the Trustee.
The Trustee may act as principal or agent in the making or disposing of any investment and
shall be entitled to its customary fee for making such investment. The Trustee may sell at the best
market price obtainable, or present for redemption, any Authorized Investment so purchased whenever
it shall be necessary to provide moneys to meet any required payment, transfer, withdrawal or
disbursement from the fund or account to which such Authorized Investment is credited, and, subject
to the provisions of Section 7.4, the Trustee shall not be liable or responsible for any loss resulting
from such investment. For investment purposes, the Trustee may commingle the funds and accounts
established hereunder, but shall account for each separately. The Trustee is hereby authorized, in
making or disposing of any investment permitted by this Section, to deal with itself (in its individual
capacity) or which any one or more of its affiliates, whether it or such affiliate is acting as an agent of
the Trustee or for any third person or dealing as principal for its own account.
The District acknowledges that, to the extent that regulations of the Comptroller of the
Currency or other applicable regulatory entity grant the District the right to receive brokerage
confirmations of security transactions as they occur, the District specifically waives receipt of such
confirmations to the extent permitted by law. The Trustee will furnish the District periodic cash
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transaction statements which include detail for all investment transactions made by the Trustee
hereunder.
ARTICLE IV
REDEMPTION OF BONDS AND PARITY BONDS
Section 4.1.Redemption of Bonds.
(a)Optional Redemption. The Bonds may be redeemed at the option of the District from
any source of funds on any Interest Payment Date on or after ________, 201_, in whole or in part, from
such maturities as are selected by the District and by lot within a maturity, at the following redemption
prices, expressed as a percentage of the principal amount to be redeemed, together with accrued interest
to the date of redemption:
Redemption Date Redemption Price
103%
102
101
100
In the event that the District elects to redeem Bonds as provided above, the District shall give
written notice to the Trustee of its election to so redeem, the redemption date and the principal amount
of the Bonds of each maturity to be redeemed. The notice to the Trustee shall be given at least 30 but
no more than 60 days prior to the redemption date, or by such later date as is acceptable to the Trustee.
(b)Mandatory Sinking Fund Redemption. The Bonds maturing on September 1, 20__ (the
“20__ Term Bonds”) shall be called before maturity and redeemed, from the Sinking Fund Payments
that have been deposited into the Redemption Account established hereunder, on September 1, 20__,
and on each September 1 thereafter prior to maturity, in accordance with the schedule of Sinking Fund
Payments set forth below. The 20__ Term Bonds so called for redemption shall be selected by the
Trustee by lot and shall be redeemed at a redemption price for each redeemed 20__ Term Bond equal
to the principal amount thereof, plus accrued interest to the redemption date, without premium, as
follows:
Term Bonds Maturing September 1, 20__
Sinking Fund Redemption Date
(September 1)Sinking Fund Payments
$
*
_____________
* Maturity.
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The Bonds maturing on September 1, 20__ (the “20__ Term Bonds”) shall be called
before maturity and redeemed, from the Sinking Fund Payments that have been deposited into the
Redemption Account establishedhereunder, on September 1, 20__, and on each September 1 thereafter
prior to maturity, in accordance with the schedule of Sinking Fund Payments set forth below. The
20__Term Bonds so called for redemption shall be selected by the Trustee by lot and shall be redeemed
at a redemption price for each redeemed 20__ Term Bond equal to the principal amount thereof, plus
accrued interest to the redemption date, without premium, as follows:
Term Bonds Maturing September 1, 20__
Sinking Fund Redemption Date
(September 1)Sinking Fund Payments
$
*
_____________
* Maturity.
If the District purchases Term Bonds during the Fiscal Year immediately preceding one of the
sinking fund redemption dates specified above, the District shall notify the Trustee at least 45 days
prior to the redemption date as to the principal amount purchased, and the amount purchased shall be
credited at the time of purchase to the next Sinking Fund Payment for the Term Bond so purchased, to
the extent of the full principal amount of the purchase. All Bonds purchased pursuant to this subsection
shall be cancelled pursuant to Section 10.1 hereof.
In the event of a partial optional redemption or special mandatory redemption of the Term
Bonds, each of the remaining Sinking Fund Payments for such Term Bonds shall be reduced, as nearly
as practicable, on a pro rata basis.
(c)Special Mandatory Redemption. The Bonds are subject to special mandatory
redemption as a whole or in part on a pro rata basis among maturities and by lot within a maturity, on
any Interest Payment Date, and shall be redeemed by the Trustee, from Prepayments deposited to the
Redemption Account pursuant to Section 3.2, plus amounts transferred from the Reserve Account
pursuant to Section 3.6(c), at the following redemption prices, expressed as a percentage of the
principal amount to be redeemed, together with accrued interest to the redemption date:
Redemption Date Redemption Price
Any Interest Payment Date through March 1, 20__103%
September 1, 20__ and March 1, 20__102
September 1, 20__ and March 1, 20__101
September 1, 20__ and any Interest Payment Date thereafter 100
(d)The redemption provisions for Parity Bonds shall be set forth in a Supplemental
Indenture.
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Section 4.2.Selection of Bonds and Parity Bonds for Redemption. If less than all of the
Bonds or Parity Bonds Outstanding are to be redeemed, the portion of any Bond or Parity Bond of a
denomination of more than $5,000 to be redeemed shall be in the principal amount of $5,000 or an
integral multiple thereof. In selecting portions of such Bonds or Parity Bonds for redemption, the
Trustee shall treat such Bonds or Parity Bonds, as applicable, as representing that number of Bonds or
Parity Bonds of $5,000 denominations which is obtained by dividing the principal amount of such
Bonds or Parity Bonds to be redeemed in part by $5,000. The procedure for the selection of Parity
Bonds for redemption may be modified as set forth in the Supplemental Indenture for such Parity
Bonds. The Trustee shall promptly notify the District in writing of the Bonds or Parity Bonds, or
portions thereof, selected for redemption.
Section 4.3.Notice of Redemption. When Bonds or Parity Bonds are due for redemption
under Section 4.1 above or under another redemption provision set forth in a Supplemental Indenture
relating to any Parity Bonds, the Trustee shall give notice, in the name of the District, of the redemption
of such Bonds or Parity Bonds. Such notice of redemption shall: (i) specify the CUSIP numbers (if
any), the bond numbers and the maturity date or dates of the Bonds or Parity Bonds selected for
redemption, except that where all of the Bonds or all of an issue of Parity Bonds are subject to
redemption, or all of the Bonds or Parity Bonds of one maturity are to be redeemed, the bond numbers
of such issue need not be specified; (ii) state the date fixed for redemption and surrender of the Bonds
or Parity Bonds to be redeemed; (iii) state the redemption price; (iv) state the place or places where the
Bonds or Parity Bonds are to be redeemed; (v) in the case of Bonds or Parity Bonds to be redeemed
only in part, state the portion of such Bond or Parity Bond which is to be redeemed; (vi) state the date
of issue of the Bonds or Parity Bonds as originally issued; (vii) state the rate of interest borne by each
Bond or Parity Bond being redeemed; and (viii) state any other descriptive information needed to
identify accurately the Bonds or Parity Bonds being redeemed as shall be specified by the Trustee.
Such notice shall further state that on the date fixed for redemption, there shall become due and payable
on each Bond,Parity Bond or portion thereof called for redemption, the principal thereof, together with
any premium, and interest accrued to the redemption date, and that from and after such date, interest
thereon shall cease to accrue and be payable. At least 30 days but no more than 45 days prior to the
redemption date, the Trustee shall mail a copy of such notice of redemption, by first class mail, postage
prepaid, to the respective Owners thereof at their addresses appearing on the Bond Register, and to the
original purchaser of any Bonds or Parity Bonds; provided, however, so long as the Bonds and Parity
Bonds are registered in the name of the Nominee, such notice shall be given in such manner as complies
with the requirements of the Depository. The actual receipt by the Owner of any Bond or Parity Bond
of notice of such redemption shall not be a condition precedent to redemption, and neither the failure
to receive nor any defect in such notice shall affect the validity of the proceedings for the redemption
of such Bonds or Parity Bonds, or the cessation of interest on the redemption date. A certificate by the
Trustee that notice of such redemption has been given as herein provided shall be conclusive as against
all parties and the Owner shall not be entitled to show that he or she failed to receive notice of such
redemption.
In addition to the foregoing notice, further notice shall be given by the Trustee as set out below,
but no defect in said further notice nor any failure to give all or any portion of such further notice shall
in any manner defeat the effectiveness of a call for redemption if notice thereof is given as above
prescribed.
Each further notice of redemption shall be sent not later than the date that notice of redemption
is given to the Owners pursuant to the first paragraph of this Section by first class mail or facsimile to
the Depository and to any other registered securities depositories then in the business of holding
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substantial amounts of obligations of types comprising the Bonds and Parity Bonds as determined by
the Trustee and to one or more of the national information services that the Trustee determines are in
the business of disseminating notice of redemption of obligations such as the Bonds and Parity Bonds.
Upon the payment of the redemption price of any Bonds and Parity Bonds being redeemed,
each check or other transfer of funds issued for such purpose shall to the extent practicable bear the
CUSIP number identifying, by issue and maturity, the Bonds and Parity Bonds being redeemed with
the proceeds of such check or other transfer.
With respect to any notice of optional redemption of Bonds or Parity Bonds, such notice may
state that such redemption shall be conditional upon the receipt by the Trustee on or prior to the date
fixed for such redemption of moneys sufficient to pay the principal of, premium, if any, and interest
on such Bonds or Parity Bonds to be redeemed and that, if such moneys shall not have been so received,
said notice shall be of no force and effect and the Trustee shall not be required to redeem such Bonds
or Parity Bonds. In the event that such notice of redemption contains such a condition and such moneys
are not so received, the redemption shall not be made, and the Trustee shall within a reasonable time
thereafter give notice, in the manner in which the notice of redemption was given, that such moneys
were not so received.
Section 4.4.Partial Redemption of Bonds or Parity Bonds. Upon surrender of any Bond
or Parity Bond to be redeemed in part only, the District shall execute and the Trustee shall authenticate
and deliver to the Owner, at the expense of the District, a new Bond or Bonds or a new Parity Bond or
Parity Bonds of authorized denominations equal in aggregate principal amount to the unredeemed
portion of the Bonds surrendered, with the same interest rate and the same maturity or, in the case of
surrender of a Parity Bond, a new Parity Bond or Parity Bonds subject to the foregoing limitations.
Section 4.5.Effect of Notice and Availability of Redemption Money. Notice of
redemption having been duly given, as provided in Section 4.3 hereof, and the amount necessary for
the redemption having been made available for that purpose and being available therefor on the date
fixed for such redemption:
(a)the Bonds and Parity Bonds, or portions thereof, designated for redemption shall, on
the date fixed for redemption, become due and payable at the redemption price thereof as provided in
this Indenture or in any Supplemental Indenture with respect to any Parity Bonds, anything in this
Indenture or in the Bonds or the Parity Bonds to the contrary notwithstanding;
(b)upon presentation and surrender thereof at the office of the Trustee, the redemption
price of such Bonds and Parity Bonds shall be paid to the Owners thereof;
(c)as of the redemption date the Bonds or the Parity Bonds, or portions thereof so
designated for redemption shall be deemed to be no longer Outstanding and such Bonds or Parity
Bonds, or portions thereof, shall cease to bear further interest; and
(d)as of the date fixed for redemption no Owner of any of the Bonds, Parity Bonds or
portions thereof so designated for redemption shall be entitled to any of the benefits of this Indenture
or any Supplemental Indenture, or to any other rights, except with respect to payment of the redemption
price and interest accrued to the redemption date from the amounts so made available.
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ARTICLE V
COVENANTS AND WARRANTY
Section 5.1.Warranty. The District shall preserve and protect the security pledged
hereunder to the Bonds and any Parity Bonds against all claims and demands of all persons.
Section 5.2.Covenants. So long as any of the Bonds or Parity Bonds issued hereunder are
Outstanding and unpaid, the District makes the following covenants with the Owners under the
provisions of the Act and this Indenture (to be performed by the District or its proper officers, agents
or employees), which covenants are necessary and desirable to secure the Bonds and Parity Bonds and
tend to make them more marketable; provided, however, that said covenants do not require the District
to expend any funds or moneys other than the Special Taxes and other amounts deposited to the Special
Tax Fund:
(a)Punctual Payment; Against Encumbrances. The District covenants that it will receive
all Special Taxes in trust for the Owners and will deposit all Special Taxes with the Trustee
immediately upon their apportionment to the District, and the District shall have no beneficial right or
interest in the amounts so deposited except as provided by this Indenture; provided, however, that as
to Special Taxes apportioned prior to the Delivery Date of the Bonds, the District covenants to transfer
such amounts to the Trustee not later than [30] days following the Delivery Date. All such Special
Taxes shall be disbursed, allocated and applied solely to the uses and purposes set forth herein, and
shall be accounted for separately and apart from all other money, funds, accounts or other resources of
the District.
The District covenants that it will duly and punctually pay or cause to be paid the principal of
and interest on every Bond and Parity Bond issued hereunder, together with the premium, if any,
thereon on the date, at the place and in the manner set forth in the Bonds and the Parity Bonds and in
accordance with this Indenture to the extent that Net Taxes and other amounts pledged hereunder are
available therefor, and that the payments into the Funds and Accounts created hereunder will be made,
all in strict conformity with the terms of the Bonds, any Parity Bonds, and this Indenture, and that it
will faithfully observe and perform all of the conditions, covenants and requirements of this Indenture
and all Supplemental Indentures and of the Bonds and any Parity Bonds issued hereunder.
The District will not mortgage or otherwise encumber, pledge or place any charge upon any of
the Net Taxes except as provided in this Indenture, and will not issue any obligation or security having
a lien or charge upon the Net Taxes superior to or on a parity with the Bonds, other than Parity Bonds.
Nothing herein shall prevent the District from issuing or incurring indebtedness which is payable from
a pledge of Net Taxes which is subordinate in all respects to the pledge of Net Taxes to repay the Bonds
and the Parity Bonds, subject to compliance with the District’s bonded indebtedness limit.
(b)Levy of Special Tax. Beginning in Fiscal Year 2018and so long as any Bonds or Parity
Bonds issued under this Indenture are Outstanding, the District covenants to levy the Special Tax in
an amount sufficient, together with other amounts on deposit in the Special Tax Fund, to pay: (1) the
principal of and interest on the Bonds and any Parity Bonds when due; (2) the Administrative
Expenses; and (3) any amounts required to replenish the Reserve Account of the Special Tax Fund to
the Reserve Requirement. The District further covenants that it will take no actions that would
discontinue or cause the discontinuance of the Special Tax levy or the District’s authority to levy the
Special Tax for so long as the Bonds and any Parity Bonds are Outstanding.
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(c)Commence Foreclosure Proceedings. The District covenants for the benefit of the
Owners of the Bonds and any Parity Bonds that it will: (i) commence judicial foreclosure proceedings
against parcels with delinquent Special Taxes in excess of $5,000 by the October 1 following the close
of each Fiscal Year in which such Special Taxes were due; and (ii) commence judicial foreclosure
proceedings against all parcels with delinquent Special Taxes by the October 1 following the close of
each Fiscal Year in which it receives Special Taxes in an amount which is less than 95% of the total
Special Tax levied; and (iii) diligently pursue such foreclosure proceedings until the delinquent Special
Taxes are paid; provided that, notwithstanding the foregoing, the District may elect to defer foreclosure
proceedings on any parcel so long as the amount in the Reserve Account is at least equal to the Reserve
Requirement. The District may, but shall not be obligated to, advance funds from any source of legally
available funds in order to maintain the Reserve Account. The District may treat any delinquent
Special Tax sold to an independent third-party or to the City for at least 100% of the delinquent amount
as having been paid. Proceeds of any such sale up to 100% of the delinquent amount will be deposited
in the Special Tax Fund.
The District covenants that it will deposit the net proceeds of any foreclosure in the Special
Tax Fund and will apply such proceeds remaining after the payment of Administrative Expenses to
make current payments of principal and interest on the Bonds and any Parity Bonds, to bring the
amount on deposit in the Reserve Account up to the Reserve Requirement and to pay any delinquent
installments of principal or interest due on the Bonds and any Parity Bonds.
(d)Payment of Claims. The District will pay and discharge any and all lawful claims for
labor, materials or supplies which, if unpaid, might become a lien or charge upon the Net Taxes or
other funds in the Special Tax Fund (other than the AdministrativeExpense Account therein), or which
might impair the security of the Bonds or any Parity Bonds then Outstanding; provided, however, that
nothing herein contained shall require the District to make any such payments so long as the District
in good faith shall contest the validity of any such claims.
(e)Books and Accounts. The District will keep proper books of records and accounts,
separate from all other records and accounts of the District, in which complete and correct entries shall
be made of all transactions relating to the Project, the levy of the Special Tax and the deposits to the
Special Tax Fund. Such books of records and accounts shall at all times during business hours be
subject to the inspection of the Trustee or of the Owners or the Owners of any issue of Parity Bonds
then Outstanding or their representatives authorized in writing.
(f)Federal Tax Covenants. Notwithstanding any other provision of this Indenture, absent
an opinion of Bond Counsel that the exclusion from gross income of interest on the Bonds and any
Parity Bonds issued on a tax-exempt basis for federal income tax purposes will not be adversely
affected for federal income tax purposes, the District covenants to comply with all applicable
requirements of the Code necessary to preserve such exclusion from gross income and specifically
covenants, without limiting the generality of the foregoing, as follows:
(1)Private Activity. The District will take no action or refrain from taking any
action or make any use of the proceeds of the Bonds or any Parity Bonds or of any other monies or
property which would cause the Bonds or any Parity Bonds issued on a tax-exempt basis for federal
income tax purposes to be “private activity bonds” within the meaning of Section 141 of the Code.
(2)Arbitrage. The District will make no use of the proceeds of the Bonds or any
Parity Bonds or of any other amounts or property, regardless of the source, or take any action or refrain
33
from taking any action which will cause the Bonds or any Parity Bonds issued on a tax-exempt basis
for federal income tax purposes to be “arbitrage bonds” within the meaning of Section 148 of the Code.
(3)Federal Guaranty. The District will make no use of the proceeds of the Bonds
or any Parity Bonds or take or omit to take any action that would cause the Bonds or any Parity Bonds
issued on a tax-exempt basis for federal income tax purposes to be “federally guaranteed” within the
meaning of Section 149(b) of the Code.
(4)Information Reporting. The District will take or cause to be taken all necessary
action to comply with the informational reporting requirement of Section 149(e) of the Code.
(5)Hedge Bonds. The District will make no use of the proceeds of the Bonds or
any Parity Bonds or any other amounts or property, regardless of the source, or take any action or
refrain from taking any action that would cause the Bonds or any Parity Bonds issued on a tax-exempt
basis for federal income tax purposes to be considered “hedge bonds” within the meaning of
Section 149(g) of the Code unless the District takes all necessary action to assure compliance with the
requirements of Section 149(g) of the Code to maintain the exclusion from gross income for federal
income tax purposes of interest on the Bonds and any applicable Parity Bonds.
(6)Miscellaneous. The District will take no action or refrain from taking any
action inconsistent with its expectations stated in the Tax Certificate executed on the Delivery Date by
the District in connection with the Bonds and any issue of Parity Bonds and will comply with the
covenants and requirements stated therein and incorporated by reference herein.
(7)Other Tax-Exempt Issues. The District will not use proceeds of other
tax-exempt securities to redeem any Bonds or Parity Bonds without first obtaining the written opinion
of Bond Counsel that doing so will not impair the exclusion from gross income for federal income tax
purposes of interest on the Bonds and any Parity Bonds issued on a tax-exempt basis.
(8)Subsequent Opinions. If the District obtains a subsequent opinion of Bond
Counsel other than Stradling Yocca Carlson & Rauth, a Professional Corporation, where such opinion
is required in connection with a change or amendment to this Indenture or the procedures set forth in
the Tax Certificate, it will obtain an opinion substantially to the effect originally delivered by Stradling
Yocca Carlson & Rauth, a Professional Corporation, that interest on the Bonds is excluded from gross
income for federal income tax purposes.
(g)Reduction of Maximum Special Taxes. The District hereby finds and determines that,
historically, delinquencies in the payment of special taxes authorized pursuant to the Act in community
facilities districts in Southern California have from time to time been at levels requiring the levy of
special taxes at the maximum authorized rates in order to make timely payment of principal of and
interest on the outstanding indebtedness of such community facilities districts. For this reason, the
District hereby determines that a reduction in the maximum Special Tax rates authorized to be levied
on parcels in the Improvement Area below the levels provided in this Section 5.2(g) would interfere
with the timely retirement of the Bonds and Parity Bonds. The District determines it to be necessary
in order to preserve the security for the Bonds and Parity Bonds to covenant, and, to the maximum
extent that the law permits it to do so, the District hereby does covenant, that it shall not initiate
proceedings to reduce the maximum Special Tax rates for the Improvement Area, unless, in connection
therewith, the District receives a certificate from one or more Independent Financial Consultants
which, when taken together, certify that: (i) such changes do not reduce the maximum Special Taxes
34
that may be levied in each year on property within the Improvement Area to an amount which is less
than the Administrative Expense Cap plus 110% of the Annual Debt Service due in each corresponding
future Bond Year with respect to the Bonds and Parity Bonds Outstanding as of the date of such
proposed reduction; and (ii) the District is not delinquent in the payment of the principal of or interest
on the Bonds or any Parity Bonds.
(h)Covenants to Defend. The District covenants that, in the event that any initiative is
adopted by the qualified electors in the Improvement Area which purports to reduce the maximum
Special Tax below the levels specified in Section 5.2(g) above or to limit the power of the District to
levy the Special Taxes for the purposes set forth in Section 5.2(b) above, it will commence and pursue
legal action in order to preserve its ability to comply with such covenants.
(i)Limitation on Right to Tender Bonds. The District hereby covenants that it will not
adopt any policy pursuant to Section 53344.1 of the Act permitting the tender of Bonds or Parity Bonds
in full payment or partial payment of any Special Taxes unless the District shall have first received a
certificate from an Independent Financial Consultant that the acceptance of such a tender will not result
in the District having insufficient Net Taxes to pay the principal of and interest on the Bonds and Parity
Bonds when due.
(j)Continuing Disclosure. The District covenants to comply with the terms of the
Continuing Disclosure Certificate and with the terms of any agreement executed by the District with
respect to any Parity Bonds to assist the Underwriter in complying with Rule 15c2-12 adopted by the
Securities and Exchange Commission; provided, however, that a failure to comply shall not be
considered an event of default hereunder and the Owners shall be limited to enforcing the terms thereof
in accordance with the terms of the Continuing Disclosure Certificate.
(k)Further Assurances. The District shall make, execute and deliver any and all such
further agreements, instruments and assurances as may be reasonably necessary or proper to carry out
the intention or to facilitate the performance of this Indenture and for the better assuring and confirming
unto the Owners of the Bonds and any Parity Bonds of the rights and benefits provided in this
Indenture.
ARTICLE VI
AMENDMENTS TO INDENTURE
Section 6.1.Supplemental Indentures or Orders Not Requiring Owner Consent. The
District may from time to time, and at any time, without notice to or consent of any of the Owners,
adopt Supplemental Indentures for any of the following purposes:
(a)to cure any ambiguity, to correct or supplement any provisions herein which may be
inconsistent with any other provision herein, or to make any other provision with respect to matters or
questions arising under this Indenture or in any additional resolution or order, provided that such action
is not materially adverse to the interests of the Owners;
(b)to add to the covenants and agreements of and the limitations and the restrictions upon
the District contained in this Indenture other covenants, agreements, limitations and restrictions to be
observed by the District which are not contrary to or inconsistent with this Indenture as theretofore in
effect or which further secure Bond or Parity Bond payments;
35
(c)to provide for the issuance of any Parity Bonds, and to provide the terms and conditions
under which such Parity Bonds may be issued, subject to and in accordance with the provisions of this
Indenture;
(d)to modify, amend or supplement this Indenture in such manner as to permit the
qualification hereof under the Trust Indenture Act of 1939, as amended, or any similar federal statute
hereafter in effect, or to comply with the Code or regulations issued thereunder, and to add such other
terms, conditions and provisions as may be permitted by said act or similar federal statute, and which
shall not materially adversely affect the interests of the Owners of the Bonds or any Parity Bonds then
Outstanding;
(e)to modify, alter or amend the RMA in any manner, so long as the Trustee receives a
certificate of an Independent Financial Consultant stating that such changes do not reduce the
maximum Special Taxes that may be levied in each year on property within the Improvement Area to
an amount which is less than the Administrative Expense Cap plus 110% of the Annual Debt Service
due in each corresponding future Bond Year with respect to the Bonds and Parity Bonds Outstanding
as of the date of such amendment; or
(f)to modify, alter, amend or supplement this Indenture in any other respect which is not
materially adverse to the Owners.
Section 6.2.Supplemental Indentures or Orders Requiring Owner Consent. Exclusive
of the Supplemental Indentures described in Section 6.1, the Owners of not less than a majority in
aggregate principal amount of the Bonds and Parity Bonds Outstanding shall have the right to consent
to and approve the adoption by the District of such Supplemental Indentures as shall be deemed
necessary or desirable by the District for the purpose of waiving, modifying, altering, amending, adding
to or rescinding, in any particular, any of the terms or provisions contained in this Indenture; provided,
however, that nothing herein shall permit, or be construed as permitting: (a) an extension of the
maturity date of the principal, or the payment date of interest on, any Bond or Parity Bond; (b) a
reduction in the principal amount of, or redemption premium on, any Bond or Parity Bond or the rate
of interest thereon; (c) a preference or priority of any Bond or Parity Bond over any other Bond or
Parity Bond; or (d) a reduction in the aggregate principal amount of the Bonds and Parity Bonds the
Owners of which are required to consent to such Supplemental Indenture, without the consent of the
Owners of all Bonds and Parity Bonds then Outstanding.
If at any time the District shall desire to adopt a Supplemental Indenture, which pursuant to the
terms of this Section shall require the consent of the Owners, the District shall so notify the Trustee
and shall deliver to the Trustee a copy of the proposed Supplemental Indenture. The Trustee shall, at
the expense of the District, cause notice of the proposed Supplemental Indenture to be mailed, by first
class mail, postage prepaid, to all Owners at their addresses as they appear in the Bond Register. Such
notice shall briefly set forth the nature of the proposed Supplemental Indenture and shall state that a
copy thereof is on file at the office of the Trustee for inspection by all Owners. The failure of any
Owners to receive such notice shall not affect the validity of such Supplemental Indenture when
consented to and approved by the Owners of not less than a majority in aggregate principal amount of
the Bonds and Parity Bonds Outstanding as required by this Section. Whenever at any time within one
year after the date of the first mailing of such notice, the Trustee shall receive an instrument or
instruments purporting to be executed by the Owners of not less than a majority in aggregate principal
amount of the Bonds and Parity Bonds Outstanding, which instrument or instruments shall refer to the
proposed Supplemental Indenture described in such notice, and shall specifically consent to and
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approve the adoption thereof by the District substantially in the form of the copy referred to in such
notice as on file with the Trustee, such proposed Supplemental Indenture, when duly adopted by the
District, shall thereafter become a part of the proceedings for the issuance of the Bonds and any Parity
Bonds. In determining whether the Owners of a majority of the aggregate principal amount of the
Bonds and Parity Bonds have consented to the adoption of any Supplemental Indenture, Bonds or
Parity Bonds which are owned by the District or by any person directly or indirectly controlling or
controlled by or under the direct or indirect common control with the District, shall be disregarded and
shall be treated as though they were not Outstanding for the purpose of any such determination.
Upon the adoption of any Supplemental Indenture and the receipt of consent to any such
Supplemental Indenture from the Owners of not less than a majority in aggregate principal amount of
the Outstanding Bonds and Parity Bonds in instances where such consent is required pursuant to the
provisions of this Section, this Indenture shall be, and shall be deemed to be, modified and amended
in accordance therewith, and the respective rights, duties and obligations under this Indenture of the
District and all Owners of Outstanding Bonds and Parity Bonds shall thereafter be determined,
exercised and enforced hereunder, subject in all respects to such modifications and amendments.
Section 6.3.Notation of Bonds or Parity Bonds; Delivery of Amended Bonds or Parity
Bonds. After the effective date of any action taken as hereinabove provided, the District may
determine that the Bonds or any Parity Bonds may bear a notation, by endorsement in form approved
by the District, as to such action, and in that case upon demand of the Owner of any Outstanding Bond
or Parity Bond at such effective date and presentation of such Owner’s Bond or Parity Bond for the
purpose at the office of the Trustee or at such additional offices as the Trustee may select and designate
for that purpose, a suitable notation as to such action shall be made on such Bonds or Parity Bonds. If
the District shall so determine, new Bonds or Parity Bonds so modified as, in the opinion of the District,
shall be necessary to conform to such action shall be prepared and executed, and in that case upon
demand of the Owner of any Outstanding Bond or Parity Bond at such effective date such new Bonds
or Parity Bonds shall be exchanged at the office of the Trustee or at such additional offices as the
Trustee may select and designate for that purpose, without cost to each Owner of Outstanding Bonds
or Parity Bonds, upon surrender of such Outstanding Bonds or Parity Bonds.
The Trustee shall have the right to require such opinions of counsel as it deems necessary
concerning: (i) the lack of material adverse effect of the amendment on Owners; and (ii) the fact that
the amendment will not affect the tax status of interest with respect to the Bonds.
ARTICLE VII
TRUSTEE
Section 7.1.Trustee. Wilmington Trust, National Association shall be the Trustee for the
Bonds and any Parity Bonds unless and until another Trustee is appointed by the District hereunder.
The Trustee represents that it has (or is a member of a bank holding company system whose bank
holding company has) a combined capital (exclusive of borrowed capital) and surplus of at least
$100,000,000. The District may, at any time, appoint a successor Trustee satisfying the requirements
of Section 7.2 below for the purpose of receiving all money which the District is required to deposit
with the Trustee hereunder and to allocate, use and apply the same as provided in this Indenture.
The Trustee is hereby authorized to and shall mail by first class mail, postage prepaid, or wire
transfer in accordance with Section 2.5 above, interest payments to the Owners, to select Bonds and
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Parity Bonds for redemption, and to maintain the Bond Register. The Trustee is hereby authorized to
pay the principal of and premium, if any, on the Bonds and Parity Bonds when the same are duly
presented to it for payment at maturity or on call and redemption, to provide for the registration of
transfer and exchange of Bonds and Parity Bonds presented to it for such purposes, to provide for the
cancellation of Bonds and Parity Bonds all as provided in this Indenture, and to provide for the
authentication of Bonds and Parity Bonds, and shall perform all other duties assigned to or imposed
on it as provided in this Indenture. The Trustee shall keep accurate records of all funds administered
by it and all Bonds and Parity Bonds paid, discharged and cancelled by it.
The Trustee is hereby authorized to redeem the Bonds and Parity Bonds when duly presented
for payment at maturity, or on redemption prior to maturity. The Trustee shall cancel all Bonds and
Parity Bonds upon payment thereof in accordance with the provisions of Section 10.1 hereof.
The District shall from time to time, subject to any agreement between the District and the
Trustee then in force, timely pay to the Trustee following demand therefor compensation for its
services, reimburse the Trustee for all its advances and expenditures, including, but not limited to,
advances to and fees and expenses of independent accountants or counsel employed by it in the exercise
and performance of its powers and duties hereunder, and indemnify and save the Trustee, its officers,
directors, employees and agents, harmless against costs, claims, expenses and liabilities, including,
without limitation, fees and expenses of its attorneys (not arising from its own gross negligence or
willful misconduct) which it may incur in the exercise and performance of its powers and duties
hereunder. The foregoing obligation of the District to indemnify the Trustee shall survive the removal
or resignation of the Trustee or the discharge of the Bonds.
Section 7.2.Removal of Trustee. The District may at any time at its sole discretion, upon
30 days’ notice, remove the Trustee initially appointed, and any successor thereto, by delivering to the
Trustee a written notice of its decision to remove the Trustee and may appoint a successor or successors
thereto; provided that any such successor shall be a bank or trust company having (or whose parent
bank holding company has) a combined capital (exclusive of borrowed capital) and surplus of at least
$100,000,000, and subject to supervision or examination by federal or state authority. Any removal
shall become effective only upon acceptance of appointment by the successor Trustee. If any bank or
trust company appointed as a successor publishes a report of condition at least annually, pursuant to
law or to the requirements of any supervising or examining authority above referred to, then for the
purposes of this Section the combined capital and surplus of such bank or trust company shall be
deemed to be its combined capital and surplus as set forth in its most recent report of condition so
published. Any removal of the Trustee and appointment of a successor Trustee shall become effective
only upon acceptance of appointment by the successor Trustee and notice of the successor Trustee’s
identity and address being sent by the successor Trustee to the Owners.
Section 7.3.Resignation of Trustee. The Trustee may at any time resign by giving written
notice to the District. Upon receiving such notice of resignation, the District shall promptly appoint a
successor Trustee satisfying the criteria in Section 7.2 above by an instrument in writing. Any
resignation or removal of the Trustee and appointment of a successor Trustee shall become effective
only upon acceptance of appointment by the successor Trustee. If no successor Trustee shall have
been appointed by the District within thirty (30) days of giving such notice or removal or resignation,
then the Trustee, or any Owner may petition, at the expense of the District, a court of competent
jurisdiction for the appointment of a successor Trustee, and such court may thereupon, after such notice
(if any) as it may deem proper, appoint a successor Trustee under the Indenture.
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Section 7.4.Liability of Trustee. The recitals of fact and all promises, covenants and
agreements contained herein and in the Bonds and any Parity Bonds shall be taken as statements,
promises, covenants and agreements of the District, and the Trustee assumes no responsibility or
liability for the correctness of the same and makes no representations whatsoever as to the validity or
sufficiency of this Indenture, the Bonds or any Parity Bonds, and shall incur no responsibility or
liability in respect thereof, other than in connection with its express duties or obligations specifically
set forth herein, in the Bonds and any Parity Bonds, or in the certificate of authentication assigned to
or imposed upon the Trustee. The Trustee shall not have nor be under any responsibility or duty with
respect to the issuance of the Bonds or any Parity Bonds for value. The Trustee shall not be liable in
connection with the performance of its duties hereunder, except for its own gross negligence or willful
misconduct.
The Trustee shall be conclusively protected in acting upon any notice, resolution, request,
consent, order, certificate, report, Bond, Parity Bond or other paper or document signed or presented
by the proper party or parties as provided hereunder. The Trustee may consult with counsel, who may
be counsel to the District, with regard to legal questions, and the opinion of such counsel shall be full
and complete authorization and protection to the Trustee in respect of any action taken or suffered
hereunder in good faith.
The Trustee shall not be bound to recognize any person as the Owner of a Bond or Parity Bond
unless and until such Bond or Parity Bond is submitted for inspection, if required, and his title thereto
is satisfactorily established to the Trustee, if disputed.
Whenever in the administration of its express obligations under this Indenture the Trustee shall
deem it necessary or desirable that a matter be proved or established prior to taking or suffering any
action hereunder, such matter (unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and established by a written certificate of the
District, and such certificate shall be full warrant to the Trustee for any action taken or suffered under
the provisions of this Indenture upon the faith thereof, but in its discretion the Trustee may but shall
not be obligated to accept other evidence of such matter or may require such additional evidence as to
it may seem reasonable. It is understood and agreed that no such act shall broaden or imply the
Trustee’s acceptance of a broadening of the scope of the Trustee’s duties and obligations hereunder
unless the Trustee shall provide written acceptance thereof.
The Trustee shall have no duty or obligation whatsoever to enforce the collection of Special
Taxes or other funds to be deposited with it hereunder, or as to the correctness of any amounts received,
but its liability shall be limited to the proper accounting for such funds as it actually receives. No
provision in this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur
any financial liability in the performance of any of its duties hereunder, or in the exercise of its rights
or powers.
The Trustee shall not be deemed to have knowledge of any default or event of default until an
officer at the Trustee’s corporate trust office responsible for the administration of its duties hereunder
shall have actual knowledge thereof or the Trustee shall have received written notice thereof at its
corporate trust office.
The Trustee shall have no responsibility with respect to any information, statement, or recital
in any official statement,offering memorandum or any other disclosure material prepared or distributed
with respect to the Bonds.
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Before taking any action under Article VIII hereof the Trustee may require indemnity and
security satisfactory to the Trustee be furnished to it for and from any expenses and liabilities and to
protect it against any liability it may incur hereunder.
The immunities extended to the Trustee also extend to its directors, officers, employees and
agents (including its counsel).
The Trustee shall not be liable for any action taken or not taken by it in accordance with the
direction of the Owners of 25% (or other percentage provided for herein) in aggregate principal amount
of Bonds Outstanding relating to the exercise of any right, power or remedy available to the Trustee.
In the event of conflicting instructions hereunder, the Trustee shall have the right to decide the
appropriate course of action and will be protected in so doing.
The permissive right of the Trustee to do things enumerated in this Indenture shall not be
construed as a duty or in any way expand or impliedly expand the scope of the Trustee’s duties
hereunder.
The Trustee may execute any of the trusts or powers hereof and perform any of its duties
through attorneys, agents and receivers and shall not be answerable for the conduct of the same if
appointed by it with reasonable care.
The Trustee may become the Owner or pledgee of the Bonds with the same rights it would
have if it were not Trustee.
The Trustee shall perform such duties and only such duties as are specifically set forth in this
Indenture and no implied duties or obligations shall be read into this Indenture against the Trustee.
The District shall, to the extent permitted by law, indemnify and save the Trustee and its
officers, directors, agents, and employees harmless from and against (whether or not litigated) all
claims, losses, costs, expenses, liability and damages, including legal fees and expenses, arising out of:
(i) the use, maintenance, condition or management of, or from any work or thing done on, the Project;
(ii) any breach or default on the part of the District in the performance of any of its obligations under
this Indenture and any other agreement made and entered into for purposes of the Bonds; (iii) any act
of the City,the District or of any of its agents, contractors, servants, employees or licensees with respect
to the Project; (iv) any act of any assignee of, or purchaser from, the City, the District or of any of its
or their agents, contractors, servants, employees or licensees with respect to the Project; (v) the
construction or acquisition of the Project or the expenditure of Project Costs; (vi) the exercise and
performance by the Trustee of its powers and duties hereunder or any related document; (vii) the sale
of the Bonds and the carrying out of any of the transactions contemplated by the Bonds or this
Indenture; or (viii) any untrue statement or alleged untrue statement of any material fact or omission
or alleged omission to state a material fact necessary to make the statements made in light of the
circumstances in which they were made, not misleading in any official statement or other disclosure
document utilized in connection with the sale or marketing of the Bonds. The indemnification set forth
in this Section shall extend to the Trustee’s officers, agents, employees, successors and assigns. No
indemnification will be made under this Section or elsewhere in this Indenture or other agreements for
willful misconduct or negligence by the Trustee, its officers, agents, employees, successors or assigns.
The District’s obligations hereunder shall remain valid and binding notwithstanding maturity and
payment of the Bonds, or the resignation or removal of the Trustee.
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In accepting the trust hereby created, the Trustee acts solely as Trustee for the Owners and not
in its individual capacity, and all persons, including, without limitation, the Owners, the District and
the City, having any claim against the Trustee arising from this Indenture shall look only to the funds
and accounts held by the Trustee hereunder for payment, except as otherwise provided herein. Under
no circumstances shall the Trustee be liable in its individual capacity for the obligations evidenced by
the Bonds.
THE TRUSTEE MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESS
OR IMPLIED, AS TO THE VALUE, DESIGN, CONDITION, MERCHANTABILITY OR FITNESS
FOR ANY PARTICULAR PURPOSE OR FITNESS FOR THE USE CONTEMPLATED BY THE
DISTRICT OF THE PROJECT, OR ANY PORTION THEREOF. In no event shall the Trustee be
liable for incidental, indirect, special or consequential damages, in connection with or arising out of
the Project or this Indenture for the existence, furnishing, functioning or use and possession of the
Project.
The Trustee shall not be liable to the parties hereto or deemed in breach or default hereunder
if and to the extent its performance hereunder is prevented by reason of force majeure. The term “force
majeure” means an occurrence that is beyond the control of the Trustee and could not have been
avoided by exercising due care. Force majeure shall include, but not limited to, acts of God, terrorism,
war, riots, strikes, fire, floods, earthquakes, epidemics or other similar occurrences.
The Trustee shall have the right to accept and act upon directions given pursuant to this
Indenture and delivered using electronic notice; provided, however, that the District shall provide to
the Trustee an incumbency certificate listing each Authorized Representative of the District with the
authority to provide such directions and containing specimen signatures of such authorized officers,
which incumbency certificate shall be amended whenever a person is to be added or deleted from the
listing. If the District elects to give the Trustee directions using electronic notice and the Trustee in its
discretion elects to act upon such directions, the Trustee’s understanding of such directions shall be
deemed controlling. The District understand and agree that the Trustee cannot determine the identity
of the actual sender of such directions and that the Trustee shall conclusively presume that directions
that purport to have been sent by an authorized officer listed on the incumbency certificate provided to
the Trustee have been sent by such Authorized Representative of the District. The District shall be
responsible for ensuring that only an Authorized Representative of the District shall transmit such
directions to the Trustee and that each Authorized Representative of the District treat applicable user
and authorization codes, passwords and/or authentication keys with extreme care. The Trustee shall
not be liable for any losses, costs or expenses arising directly or indirectly from the Trustee’s reliance
upon and a compliance with such directions, notwithstanding such directions conflict or are
inconsistent with a subsequent written direction. The District agrees (i) to assume all risks arising out
of the use of electronic notice to submit directions to the Trustee, including, without limitation, the risk
of the Trustee acting on unauthorized directions, and the risk of interception and misuse by third
parties; (ii) that it is fully informed of the protections and risks associated with the various methods of
transmitting directions to the Trustee and that there may be more secure methods of transmitting
directions than the method(s) selected by the District; and (iii) that the security procedures (if any) to
be followed in connection with its transmission of directions provide to it a commercially reasonable
degree of protection in light of its particular needs and circumstances.
Section 7.5.Merger or Consolidation. Any company into which the Trustee may be
merged or converted or with which it may be consolidated or any company resulting from any merger,
conversion or consolidation to which it shall be a party or any company to which the Trustee may sell
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or transfer all or substantially all of its corporate trust business, shall be the successor to the Trustee
without the execution or filing of any paper or further act, anything herein to the contrary
notwithstanding.
ARTICLE VIII
EVENTS OF DEFAULT; REMEDIES
Section 8.1.Events of Default. Any one or more of the following events shall constitute
an “Event of Default”:
(a)default in the due and punctual payment of the principal of or redemption premium, if
any, on any Bond or Parity Bond when and as the same shall become due and payable, whether at
maturity as therein expressed, by declaration or otherwise;
(b)default in the due and punctual payment of the interest on any Bond or Parity Bond
when and as the same shall become due and payable; or
(c)except as described in subsections (a) or (b), default by the District in the observance
of any of the agreements, conditions or covenants on its part contained in this Indenture, the Bonds or
any Parity Bonds, which default continues for a period of 30 days after the District has been given
notice in writing of such default by the Trustee or the Owners of twenty-five percent (25%) in aggregate
principal amount of the Outstanding Bonds and Parity Bonds.
The Trustee agrees to give notice to the Owners as soon as practicable upon the occurrence of
an Event of Default under subsections (a) or (b) above and within 30 days of the Trustee’s actual
knowledge of an event of default under subsection (c) above.
Section 8.2.Remedies of Owners. Upon the occurrence of an Event of Default, any Owner
may pursue any available remedy at law or in equity to enforce the payment of the principal of,
premium, if any, and interest on the Outstanding Bonds and Parity Bonds, and to enforce any rights of
the Trustee under or with respect to this Indenture, including:
(a)by mandamus or other suit or proceeding at law or in equity to enforce his rights against
the District and any of the members, officers and employees of the District, and to compel the District
or any such members, officers or employees to perform and carry out their duties under the Act and
their agreements with the Owners as provided in this Indenture;
(b)by suit in equity to enjoin any actions or things which are unlawful or violate the rights
of the Owners; or
(c)by a suit in equity to require the District and its members, officers and employees to
account as the trustee of an express trust.
If an Event of Default shall have occurred and be continuing and if requested and directed so
to do by the Owners of at least twenty-five percent (25%) in aggregate principal amount of Outstanding
Bonds and Parity Bonds and if indemnified to its satisfaction, the Trustee shall be obligated to exercise
such one or more of the rights and powers conferred by this Article VIII, as the Trustee, being advised
by counsel, shall deem most expedient in the interests of the Owners of the Bonds and Parity Bonds.
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No remedy herein conferred upon or reserved to the Owners is intended to be exclusive of any
other remedy. Every such remedy shall be cumulative and shall be in addition to every other remedy
given hereunder or now or hereafter existing, at law or in equity or by statute or otherwise, and may
be exercised without exhausting and without regard to any other remedy conferred by the Act or any
other law.
Section 8.3.Application of Revenues and Other Funds After Default. All amounts
received by the Trustee pursuant to any right given or action taken by the Owners under the provisions
of this Indenture relating to the Bonds and Parity Bonds shall be applied by the Trustee in the following
order upon presentation of the several Bonds and Parity Bonds:
First, to the payment of the costs, fees and expenses of the Trustee in declaring such Event of
Default and in performing its duties and obligations hereunder, including reasonable compensation to
its agents, attorneys and counsel;
Second, to the payment of the fees, costs and expenses of the Owners in declaring such Event
of Default and in carrying out the provisions of this Article VIII, including reasonable compensation
to its agents, attorneys and counsel, and to the payment of all other outstanding fees and expenses of
the Trustee; and
Third, to the payment of the whole amount of interest on and principal of the Bonds and Parity
Bonds then due and unpaid, with interest on overdue installments of principal and interest to the extent
permitted by law at the net effective rate of interest then borne by the Outstanding Bonds and Parity
Bonds; provided, however, that in the event that such amounts shall be insufficient to pay the full
amount of such interest and principal, then such amounts shall be applied in the following order of
priority:
(a)first to the payment of all installments of interest on the Bonds and Parity Bonds then
due and unpaid on a pro rata basis based on the total amount then due and owing;
(b)second, to the payment of all installments of principal, including Sinking Fund
Payments, of the Bonds and Parity Bonds then due and unpaid on a pro rata basis based on the total
amount then due and owing; and
(c)third, to the payment of interest on overdue installments of principal and interest on the
Bonds and Parity Bonds on a pro rata basis based on the total amount then due and owing.
Section 8.4.Power of Trustee to Control Proceedings. In the event that the Trustee, upon
the happening of an Event of Default, shall have taken any action, by judicial proceedings or otherwise,
pursuant to its obligations hereunder, whether upon its own discretion or upon the request of the
Owners of twenty-five percent (25%) in aggregate principal amount of the Bonds and Parity Bonds
then Outstanding, it shall have full power, in the exercise of its discretion for the best interests of the
Owners of the Bonds and Parity Bonds, with respect to the continuance, discontinuance, withdrawal,
compromise, settlement or other disposal of such action; provided, however, that the Trustee shall not,
unless there no longer continues an Event of Default, discontinue, withdraw, compromise or settle, or
otherwise dispose of any litigation pending at law or in equity, if at the time there has been filed with
it a written request signed by the Owners of a majority in aggregate principal amount of the Outstanding
Bonds and Parity Bonds hereunder opposing such discontinuance, withdrawal, compromise, settlement
or other such litigation. Any suit, action or proceeding which any Owner of Bonds or Parity Bonds
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shall have the right to bring to enforce any right or remedy hereunder may be brought by the Trustee
for the equal benefit and protection of all Owners of Bonds and Parity Bonds similarly situated and the
Trustee is hereby appointed (and the successive respective Owners of the Bonds and Parity Bonds
issued hereunder, by taking and holding the same, shall be conclusively deemed so to have appointed
it) the true and lawful attorney in fact of the respective Owners of the Bonds and Parity Bonds for the
purposes of bringing any such suit, action or proceeding and to do and perform any and all acts and
things for and on behalf of the respective Owners of the Bonds and Parity Bonds as a class or classes,
as may be necessary or advisable in the opinion of the Trustee as such attorney-in-fact.
Section 8.5.Appointment of Receivers. Upon the occurrence of an Event of Default
hereunder, and upon the filing of a suit or other commencement of judicial proceedings to enforce the
rights and of the Owners of the Bonds and Parity Bonds under this Indenture, the Trustee shall be
entitled, as a matter of right to which the District expressly agrees, to the appointment of a receiver or
receivers of the Net Taxes and other amounts pledged hereunder, pending such proceedings, with such
powers as the court making such appointment shall confer.
Section 8.6.Non-Waiver. Nothing in this Article VIII or in any other provision of this
Indenture, or in the Bonds or the Parity Bonds, shall affect or impair the obligation of the District,
which is absolute and unconditional, to pay the interest on and principal of the Bonds and Parity Bonds
to the respective Owners of the Bonds and Parity Bonds at the respective dates of maturity, as herein
provided, or to pay the Trustee its fees and expenses as provided in Section 8.3 hereof, out of the Net
Taxes and other moneys herein pledged for such payment.
A waiver of any default or breach of duty or contract by the Trustee or any Owners shall not
affect any subsequent default or breach of duty or contract, or impair any rights or remedies on any
such subsequent default or breach. No delay or omission of the Trustee or any Owner of any of the
Bonds or Parity Bonds to exercise any right or power accruing upon any default shall impair any such
right or power or shall be construed to be a waiver of any such default or an acquiescence therein; and
every power and remedy conferred upon the Trustee or the Owners by the Act or by this Article VIII
may be enforced and exercised from time to time and as often as shall be deemed expedient by the
Trustee or the Owners, as the case may be.
Section 8.7.Limitations on Rights and Remedies of Owners. No Owner of any Bond or
Parity Bond issued hereunder shall have the right to institute any suit, action or proceeding at law or
in equity, for any remedy under or upon this Indenture, unless: (a) such Owner shall have previously
given to the Trustee written notice of the occurrence of an Event of Default; (b) the Owners of a
majority in aggregate principal amount of all the Bonds and Parity Bonds then Outstanding shall have
made written request upon the Trustee to exercise the powers hereinbefore granted or to institute such
action, suit or proceeding in its own name; (c) said Owners shall have tendered to the Trustee indemnity
and security reasonably acceptable to the Trustee against the costs, expenses and liabilities to be
incurred in compliance with such request; and (d) the Trustee shall have refused or omitted to comply
with such request for a period of sixty (60) days after such written request shall have been received by,
and said tender of indemnity and security shall have been made to, the Trustee.
Such notification, request, tender of indemnity and security and refusal or omission are hereby
declared, in every case, to be conditions precedent to the exercise by any Owner of Bonds and Parity
Bonds of any remedy hereunder; it being understood and intended that no one or more Owners of
Bonds and Parity Bonds shall have any right in any manner whatever by his or their action to enforce
any right under this Indenture, except in the manner herein provided, and that all proceedings at law or
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in equity to enforce any provision of this Indenture shall be instituted, had and maintained in the
manner herein provided and for the equal benefit of all Owners of the Outstanding Bonds and Parity
Bonds.
The right of any Owner of any Bond and Parity Bond to receive payment of the principal of
and interest and premium (if any) on such Bond and Parity Bond as herein provided or to institute suit
for the enforcement of any such payment, shall not be impaired or affected without the written consent
of such Owner, notwithstanding the foregoing provisions of this Section or any other provision of this
Indenture.
Section 8.8.Termination of Proceedings. In case any Owner shall have proceeded to
enforce any right under this Indenture by the appointment of a receiver or otherwise, and such
proceedings shall have been discontinued or abandoned for any reason, or shall have been determined
adversely, then and in every such case, the District, the Trustee and the Owners shall be restored to
their former positions and rights hereunder, respectively, with regard to the property subject to this
Indenture, and all rights, remedies and powers of the Owners shall continue as if no such proceedings
had been taken.
ARTICLE IX
DEFEASANCE AND PARITY BONDS
Section 9.1.Defeasance. If the District shall pay or cause to be paid, or there shall
otherwise be paid, to the Owner of an Outstanding Bond or Parity Bond the interest due thereon and
the principal thereof, at the times and in the manner stipulated in this Indenture or any Supplemental
Indenture, then the Owner of such Bond or Parity Bond shall cease to be entitled to the pledge of Net
Taxes, and, other than as set forth below, all covenants, agreements and other obligations of the District
to the Owner of such Bond or Parity Bond under this Indenture and any Supplemental Indenture
relating to such Parity Bond shall thereupon cease, terminate and become void and be discharged and
satisfied. In the event of a defeasance of all Outstanding Bonds and Parity Bonds pursuant to this
Section, the Trustee shall execute and deliver to the District all such instruments as may be desirable
to evidence such discharge and satisfaction, and the Trustee shall pay over or deliver to the District’s
general fund all money or securities held by it pursuant to this Indenture which are not required for the
payment of the principal of, premium, if any, and interest due on such Bonds and Parity Bonds.
Any Outstanding Bond or Parity Bond shall be deemed to have been paid within the meaning
expressed in the first paragraph of this Section if such Bond or Parity Bond is paid in any one or more
of the following ways:
(a)by paying or causing to be paid the principal of, premium, if any, and interest on such
Bond or Parity Bond, as and when the same become due and payable;
(b)by depositing with the Trustee, in trust, at or before maturity, money which, together
with the amounts then on deposit in the Special Tax Fund (exclusive of the Administrative Expense
Account) and available for such purpose, is fully sufficient to pay the principal of, premium, if any,
and interest on such Bond or Parity Bond, as and when the same shall become due and payable; or
(c)by depositing with the Trustee or another escrow bank appointed by the District, in
trust, federal securities described in subparagraph (1) of the definition of Authorized Investments, in
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which the District may lawfully invest its money, in such amount as will be sufficient, together with
the interest to accrue thereon and moneys then on deposit in the Special Tax Fund (exclusive of the
Administrative Expense Account) and available for such purpose, together with the interest to accrue
thereon, to pay and discharge the principal of, premium, if any, and interest on such Bond or Parity
Bond, as and when the same shall become due and payable.
If paid as provided above, then, at the election of the District, and notwithstanding that any
Outstanding Bonds and Parity Bonds shall not have been surrendered for payment, all obligations of
the District under this Indenture and any Supplemental Indenture with respect to such Bond or Parity
Bond shall cease and terminate, except for the obligation of the Trustee to pay or cause to be paid to
the Owners of any such Bond or Parity Bond not so surrendered and paid all sums due thereon, and
except for the covenants of the District contained in Section 5.2(f) or any covenants in a Supplemental
Indenture relating to compliance with the Code. Notice of such election shall be filed with the Trustee
not less than ten days prior to the proposed defeasance date, or such shorter period of time as may be
acceptable to the Trustee. In connection with a defeasance under (c) above, there shall be provided to
the District a verification report from an independent nationally recognized certified public accountant
stating its opinion as to the sufficiency of the moneys or securities deposited with the Trustee or the
escrow bank to pay and discharge the principal of, premium, if any, and interest on all Outstanding
Bonds and Parity Bonds to be defeased in accordance with this Section, as and when the same shall
become due and payable, and an opinion of Bond Counsel (which may rely upon the opinion of the
certified public accountant) to the effect that the Bonds or Parity Bonds being defeased have been
legally defeased in accordance with this Indenture and any applicable Supplemental Indenture.
Upon a defeasance, the Trustee, upon request of the District, shall release the rights of the
Owners of such Bonds and Parity Bonds which have been defeased under this Indenture and any
Supplemental Indenture and execute and deliver to the District all such instruments as may be desirable
to evidence such release, discharge and satisfaction. In the case of a defeasance hereunder of all
Outstanding Bonds and Parity Bonds, the Trustee shall pay over or deliver to the District any funds
held by the Trustee at the time of a defeasance, which are not required for the purpose of paying and
discharging the principal of or interest on the Bonds and Parity Bonds when due. The Trustee shall, at
the written direction of the District, mail, first class, postage prepaid, a notice to the Owners whose
Bonds or Parity Bonds have been defeased, in the form directed by the District, stating that the
defeasance has occurred.
Section 9.2.Conditions for the Issuance of Parity Bonds and Other Additional
Indebtedness. The District may at any time after the issuance and delivery of the Bonds hereunder
issue Parity Bonds payable from the Net Taxes and other amounts deposited in the Special Tax Fund
(other than in the Administrative Expense Account therein) and secured by a lien and charge upon such
amounts equal to the lien and charge securing the Outstanding Bonds and any other Parity Bonds
theretofore issued hereunder or under any Supplemental Indenture; provided, however, that Parity
Bonds may only be issued only for the purposes of refunding all or a portion of the Bonds or Parity
Bonds then Outstandingsubject to the following specific conditions, which are hereby made conditions
precedent to the issuance of any such Parity Bonds:
(a)The District shall be in compliance with all covenants set forth in this Indenture and
any Supplemental Indenture then in effect and a certificate of the District to that effect shall have been
filed with the Trustee; provided, however, that Parity Bonds may be issued notwithstanding that the
District is not in compliance with all such covenants so long as immediately following the issuance of
such Parity Bonds the District will be in compliance with all such covenants.
46
(b)The issuance of such Parity Bonds shall have been duly authorized pursuant to the Act
and all applicable laws, and the issuance of such Parity Bonds shall have been provided for by a
Supplemental Indenture duly adopted by the District which shall specify the following:
(1)the purpose for which such Parity Bonds are to be issued and the fund or funds
into which the proceeds thereof are to be deposited;
(2)the authorized principal amount of such Parity Bonds;
(3)the date and the maturity date or dates of such Parity Bonds; provided that:
(i) each maturity date shall fall on a September 1; (ii) all such Parity Bonds of like maturity shall be
identical in all respects, except as to number; (iii) fixed serial maturities or Sinking Fund Payments, or
any combination thereof, shall be established to provide for the retirement of all such Parity Bonds on
or before their respective maturity dates; and (iv) the maturity of such Parity Bonds shall not exceed
the maturity of the Bonds being refunded;
(4)the description of the Parity Bonds, the place of payment thereof and the
procedure for execution and authentication;
(5)the denominations and method of numbering of such Parity Bonds;
(6)the amount and due date of each mandatory Sinking Fund Payment, if any, for
such Parity Bonds;
(7)the amount, if any, to be deposited from the proceeds of such Parity Bonds in
the Reserve Account of the Special Tax Fund to increase the amount therein to the Reserve
Requirement;
(8)the form of such Parity Bonds; and
(9)such other provisions as are necessary or appropriate and not inconsistent with
this Indenture.
(c)The District shall have received the following documents or money or securities, all of
such documents dated or certified, as the case may be, as of the date of delivery of such Parity Bonds
by the Trustee (unless the Trustee shall be directed by the District to accept any of such documents
bearing a prior date):
(1)a certified copy of the Supplemental Indenture authorizing the issuance of such
Parity Bonds;
(2)a written request of the District as to the delivery of such Parity Bonds;
(3)an opinion of Bond Counsel and/or general counsel to the District to the effect
that: (i) the District has the right and power under the Act to adopt this Indenture and the Supplemental
Indentures relating to such Parity Bonds, and this Indenture and all such Supplemental Indentures have
been duly and lawfully adopted by the District, are in full force and effect and are valid and binding
upon the District and enforceable in accordance with their terms (except as enforcement may be limited
by bankruptcy, insolvency, reorganization and other similar laws relating to the enforcement of
creditors’ rights); (ii) this Indenture creates the valid pledge which it purports to create of the Net Taxes
47
and other amounts as provided in this Indenture, subject to the application thereof to the purposes and
on the conditions permitted by this Indenture; and (iii) such Parity Bonds are valid and binding limited
obligations of the District, enforceable in accordance with their terms (except as enforcement may be
limited by bankruptcy, insolvency, reorganization and other similar laws relating to the enforcement
of creditors’ rights) and the terms of this Indenture and all Supplemental Indentures thereto and entitled
to the benefits of this Indenture and all such Supplemental Indentures, and such Parity Bonds have
been duly and validly authorized and issued in accordance with the Act (or other applicable laws) and
this Indenture and all such Supplemental Indentures; and a further opinion of Bond Counsel to the
effect that, assuming compliance by the District with certain tax covenants, the issuance of the Parity
Bonds will not adversely affect the exclusion from gross income for federal income tax purposes of
interest on the Bonds and any Parity Bonds theretofore issued on a tax-exempt basis, or the exemption
from State of California personal income taxation of interest on any Outstanding Bonds and Parity
Bonds theretofore issued;
(4)a certificate of the District containing such statements as may be reasonably
necessary to show compliance with the requirements of this Indenture;
(5)a certificate of an Independent Financial Consultant certifying that in each
Bond Year the Annual Debt Service on the Bonds and Parity Bonds to remain Outstanding following
the issuance of the Parity Bonds proposed to be issued is less than the Annual Debt Service on the
Bonds and Parity Bonds Outstanding prior to the issuance of such Parity Bonds; and
(6)such further documents, money and securities as are required by the provisions
of this Indenture and the Supplemental Indenture providing for the issuance of such Parity Bonds.
ARTICLE X
MISCELLANEOUS
Section 10.1. Cancellation of Bonds and Parity Bonds. All Bonds and Parity Bonds
surrendered to the Trustee for payment upon maturity or for redemption shall be upon payment
therefor, and any Bond or Parity Bond purchased by the District as authorized herein and delivered to
the Trustee for such purpose shall be, cancelled forthwith and shall not be reissued. The Trustee shall
destroy such Bonds and Parity Bonds, as provided by law, and, upon request of the District, furnish to
the District a certificate of such destruction.
Section 10.2. Execution of Documents and Proof of Ownership. Any request, direction,
consent, revocation of consent, or other instrument in writing required or permitted by this Indenture
to be signed or executed by Owners may be in any number of concurrent instruments of similar tenor
and may be signed or executed by such Owners in person or by their attorneys appointed by an
instrument in writing for that purpose, or by the bank, trust company or other depository for such
Bonds. Proof of the execution of any such instrument, or of any instrument appointing any such
attorney, and of the ownership of Bonds or Parity Bonds shall be sufficient for the purposes of this
Indenture (except as otherwise herein provided), if made in the following manner:
(a)The fact and date of the execution by any Owner or his or her attorney of any such
instrument, and of any instrument appointing any such attorney, may be proved by a signature
guarantee of any bank or trust company located within the United States of America. Where any such
instrument is executed by an officer of a corporation or association or a member of a partnership on
48
behalf of such corporation, association or partnership, such signature guarantee shall also constitute
sufficient proof of his authority.
(b)As to any Bond or Parity Bond, the person in whose name the same shall be registered
in the Bond Register shall be deemed and regarded as the absolute owner thereof for all purposes, and
payment of or on account of the principal of any such Bond or Parity Bond, and the interest thereon,
shall be made only to or upon the order of the registered Owner thereof or his or her legal
representative. All such payments shall be valid and effectual to satisfy and discharge the liability
upon such Bond or Parity Bond and the interest thereon to the extent of the sum or sums to be paid.
Neither the District nor the Trustee shall be affected by any notice to the contrary.
Nothing contained in this Indenture shall be construed as limiting the Trustee or the District to
such proof, it being intended that the Trustee or the District may accept any other evidence of the
matters herein stated which the Trustee or the District may deem sufficient. Any request or consent of
the Owner of any Bond or Parity Bond shall bind every future Owner of the same Bond or Parity Bond
in respect of anything done or suffered to be done by the Trustee or the District in pursuance of such
request or consent.
Section 10.3. Unclaimed Moneys. Anything in this Indenture to the contrary
notwithstanding, any money held by the Trustee in trust for the payment and discharge of any of the
Outstanding Bonds and Parity Bonds which remain unclaimed for two years after the date when such
Outstanding Bonds or Parity Bonds have become due and payable, if such money was held by the
Trustee at such date, or for two years after the date of deposit of such money if deposited with the
Trustee after the date when such Outstanding Bonds or Parity Bonds become due and payable, shall
be repaid by the Trustee to the District, as its absolute property and free from trust, and the Trustee
shall thereupon be released and discharged with respect thereto and the Owners shall look only to the
District for the payment of such Outstanding Bonds or Parity Bonds; provided, however, that, before
being required to make any such payment to the District, the Trustee, at the expense of the District,
shall cause to be mailed by first-class mail, postage prepaid, to the registered Owners of such
Outstanding Bonds or Parity Bonds at their addresses as they appear on the registration books of the
Trustee a notice that said money remains unclaimed and that, after a date named in said notice, which
date shall not be less than 30 days after the date of the mailing of such notice, the balance of such
money then unclaimed will be returned to the District.
Section 10.4. Provisions Constitute Contract. The provisions of this Indenture shall
constitute a contract between the District and the Owners and the provisions hereof shall be construed
in accordance with the laws of the State of California.
In case any suit, action or proceeding to enforce any right or exercise any remedy shall be
brought or taken and, should said suit, action or proceeding be abandoned, or be determined adversely
to the Owners or the Trustee, then the District, the Trustee and the Owners shall be restored to their
former positions, rights and remedies as if such suit, action or proceeding had not been brought or
taken.
After the issuance and delivery of the Bonds, this Indenture shall be irrepealable, but shall be
subject to modifications to the extent and in the manner provided in this Indenture, but to no greater
extent and in no other manner.
49
Section 10.5. Future Contracts. Nothing herein contained shall be deemed to restrict or
prohibit the District from making contracts or creating bonded or other indebtedness payable from a
pledge of the Net Taxes which is subordinate to the pledge hereunder, or which is payable from the
general fund of the District or from taxes or any source other than the Net Taxes and other amounts
pledged hereunder.
Section 10.6. Further Assurances. The District will adopt, make, execute and deliver any
and all such further resolutions, instruments and assurances as may be reasonably necessary or proper
to carry out the intention or to facilitate the performance of this Indenture, and for the better assuring
and confirming unto the Owners of the Bonds or any Parity Bonds the rights and benefits provided in
this Indenture.
Section 10.7. Severability. If any covenant, agreement or provision, or any portion thereof,
contained in this Indenture, or the application thereof to any person or circumstance, is held to be
unconstitutional, invalid or unenforceable, the remainder of this Indenture and the application of any
such covenant, agreement or provision, or portion thereof, to other persons or circumstances, shall be
deemed severable and shall not be affected thereby, and this Indenture, the Bonds and any Parity Bonds
issued pursuant hereto shall remain valid and the Owners shall retain all valid rights and benefits
accorded to them under the laws of the State of California.
Section 10.8. Notices. Any notices required to be given to the District with respect to the
Bonds or this Indenture shall be mailed, first class, postage prepaid, or personally delivered to the
Assistant City Manager of the City of Lake Elsinore, 130 South Main Street, California 92530, all
notices to the Trustee in its capacity as Trustee shall be mailed, first class, postage prepaid, or
personally delivered to the Trustee, Wilmington Trust, National Association, 650 Town Center Drive,
Suite 600 Costa Mesa, California 92626.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
S-1
IN WITNESS WHEREOF, CITY OF LAKE ELSINORE COMMUNITY FACILITIES
DISTRICT NO. 2003-2 (CANYON HILLS) has caused this Indenture to be signed by an Authorized
Representative of the District and Wilmington Trust, National Association in token of its acceptance
of the trust created hereunder, has caused this Indenture to be signed in its corporate name by itsofficers
identified below, all as of the day and year first above written.
CITY OF LAKE ELSINORE COMMUNITY
FACILITIES DISTRICT NO. 2003-2 (CANYON
HILLS)
By:
Mayor of the City of Lake Elsinore, acting as the
legislative body of City of Lake Elsinore
Community Facilities District No. 2003-2
(Canyon Hills)
ATTEST:
City Clerk of the City of Lake Elsinore,
acting as the legislative body of City of
Lake Elsinore Community Facilities
District No. 2003-2 (Canyon Hills)
WILMINGTON TRUST, NATIONAL
ASSOCIATION, as Trustee
By:
Authorized Signatory
A-1
EXHIBIT A
FORM OF SPECIAL TAX BOND
UNLESS THIS BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), TO THE DISTRICT OR TRUSTEE FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY BOND ISSUED IS REGISTERED
IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
R-____$___________
UNITED STATES OF AMERICA
STATE OF CALIFORNIA
COUNTY OF RIVERSIDE
CITY OF LAKE ELSINORE
COMMUNITY FACILITIES DISTRICT NO. 2003-2 (CANYON HILLS)
SPECIAL TAX BOND, SERIES 2018
(IMPROVEMENT AREA E)
INTEREST RATE:MATURITY DATE:DATED DATE:CUSIP:
_____%September 1, 20_____________
REGISTERED OWNER: CEDE & CO.
PRINCIPAL AMOUNT: __________________ DOLLARS
CITY OF LAKE ELSINORE COMMUNITY FACILITIES DISTRICT NO. 2003-2
(CANYON HILLS) (the “District”) which was formed by the City of Lake Elsinore (the “City”) and
is situated in the County of Riverside, State of California, FOR VALUE RECEIVED, hereby promises
to pay, solely from certain amounts held under the Indenture (as hereinafter defined), to the Owner
named above, or registered assigns, on the Maturity Date set forth above, unless redeemed prior thereto
as hereinafter provided, the Principal Amount set forth above, and to pay interest on such Principal
Amount from the Interest Payment Date (as hereinafter defined) next preceding the date of
authentication hereof, unless: (i) the date of authentication is an Interest Payment Date, in which event
interest shall be payable from such date of authentication; (ii) the date of authentication is after a
Record Date (as hereinafter defined) but prior to the immediately succeeding Interest Payment Date,
in which event interest shall be payable from the Interest Payment Date immediately succeeding the
date of authentication; or (iii) the date of authentication is prior to the close of business on the first
Record Date, in which event interest shall be payable from the Dated Date set forth above.
A-2
Notwithstanding the foregoing, if at the timeof authentication of this Bond interest is in default, interest
on this Bond shall be payable from the last Interest Payment Date to which the interest has been paid
or made available for payment or, if no interest has been paid or made available for payment, interest
on this Bond shall be payable from the Dated Date set forth above. Interest will be paid semiannually
on September 1, 2018and each March 1 and September 1 thereafter (each an “Interest Payment Date”),
at the Interest Rate set forth above, until the Principal Amount hereof is paid or made available for
payment.
The principal of and premium, if any, on this Bond are payable to the Owner hereof in lawful
money of the United States of America upon presentation and surrender of this Bond at the Principal
Office of the Trustee (as such term is defined in the Indenture), initially Wilmington Trust, National
Association (the “Trustee”). Interest on this Bond shall be paid by check of the Trustee mailed, by
first class mail, postage prepaid, or in certain circumstances described in the Indenture by wire transfer
to an account within the United States of America, to the Owner hereof as of the close of business on
the fifteenth day of the month preceding the month in which the Interest Payment Date occurs (the
“Record Date”) at such Owner’s address as it appears on the registration books maintained by the
Trustee.
This Bond is one of a duly authorized issue of “City of Lake Elsinore Community Facilities
District No. 2003-2 (Canyon Hills) Special Tax Bonds, Series 2018 (Improvement Area E)” (the
“Bonds”) issued in the aggregate principal amount of $_______ pursuant to the Mello-Roos
Community Facilities Act of 1982, as amended, being Section 53311 et seq.of the California
Government Code (the “Act”) for the purpose of financing public improvements, funding a reserve
account and paying certain costs related to the issuance of the Bonds. The issuance of the Bonds and
the terms and conditions thereof are provided for by a resolution adopted by the City Council of the
City, acting in its capacity as the legislative body of the District (the “Legislative Body”), on April __,
2018, and a Bond Indenture executed in connection therewith dated as of May 1, 2018 (the
“Indenture”), by and between the District and the Trustee, and this reference incorporates the Indenture
herein, and by acceptance hereof the Owner of this Bond assents to said terms and conditions. The
Indenture is adopted under and this Bond is issued under, and both are to be construed in accordance
with, the laws of the State of California.
Pursuant to the Act and the Indenture, the principal of, premium, if any, and interest on this
Bond are payable solely from the portion of the annual special taxes authorized under the Act to be
levied and collected within the Improvement Area (the “Special Taxes”) and certain other amounts
pledged to the repayment of the Bonds as set forth in the Indenture. Any amounts for the payment
hereof shall be limited to the Net Taxes pledged and collected or foreclosure proceeds received
following a default in payment of the Special Taxes and other amounts deposited to the Special Tax
Fund (other than the Administrative Expense Account therein) established under the Indenture, except
to the extent that other provision for payment has been made by the Legislative Body, as may be
permitted by law. The District has covenanted for the benefit of the owners of the Bonds that under
certain circumstances described in the Indenture it will commence and diligently pursue to completion
appropriate foreclosure proceedings in the event of delinquencies of Special Tax installments levied
for payment of principal and interest on the Bonds.
The Bonds may be redeemed at the option of the District from any source of funds on any
Interest Payment Date on or after _________, 201_, in whole or in part, from such maturities as are
selected by the District and by lot within a maturity, at the following redemption prices, expressed as
A-3
a percentage of the principal amount to be redeemed, together with accrued interest to the date of
redemption:
Redemption Date Redemption Price
103%
102
101
100
The Bonds maturing on September 1, 20__ (the “20__ Term Bonds”) shall be called before
maturity and redeemed, from the Sinking Fund Payments that have been deposited into the Redemption
Account established by the Indenture, on September 1, 20__, and on each September 1 thereafter prior
to maturity, in accordance with the schedule of Sinking Fund Payments set forth below. The 20__
Term Bonds so called for redemption shall be selected by the Trustee by lot and shall be redeemed at
a redemption price for each redeemed 20__ Term Bond equal to the principal amount thereof, plus
accrued interest to the redemption date, without premium, as follows:
Term Bonds Maturing September 1, 20__
Sinking Fund Redemption Date
(September 1)Sinking Fund Payments
$
*
_____________
* Maturity.
The Bonds maturing on September 1, 20__ (the “20__ Term Bonds”) shall be called before
maturity and redeemed, from the Sinking Fund Payments that have been deposited into the Redemption
Account established by the Indenture, on September 1, 20__, and on each September 1 thereafter prior
to maturity, in accordance with the schedule of Sinking Fund Payments set forth below. The 20__
Term Bonds so called for redemption shall be selected by the Trustee by lot and shall be redeemed at
a redemption price for each redeemed 20__ Term Bond equal to the principal amount thereof, plus
accrued interest to the redemption date, without premium, as follows:
A-4
Term Bonds Maturing September 1, 20__
Sinking Fund Redemption Date
(September 1)Sinking Fund Payments
$
*
_____________
* Maturity.
The Bonds are subject to special mandatory redemption as a whole, or in part on a pro rata
basis among maturities and by lot within a maturity, on any Interest Payment Date, and shall be
redeemed by the Trustee, from Prepayments deposited to the Redemption Account plus amounts
transferred from the Reserve Account in connection with such transfers, at the following redemption
prices, expressed as a percentage of the principal amount to be redeemed, together with accrued interest
to the redemption date:
Redemption Date Redemption Price
Any Interest Payment Date through March 1, 20__103%
September 1, 20__ and March 1, 20__102
September 1, 20__ and March 1, 20__101
September 1, 20__ and any Interest Payment Date thereafter 100
Notice of redemption with respect to the Bonds to be redeemed shall be mailed to the registered
owners thereof not less than 30 nor more than 45 days prior to the redemption date by first class mail,
postage prepaid, to the addresses set forth in the registration books; provided, however, so long as the
Bonds are registered in the name of the Nominee, such notice shall be given in such manner as complies
with the requirements of the Depository. Neither a failure of the Owner hereof to receive such notice
nor any defect therein will affect the validity of the proceedings for redemption. All Bonds or portions
thereof so called for redemption will cease to accrue interest on the specified redemption date, provided
that funds for the redemption are on deposit with the Trustee on the redemption date. Thereafter, the
registered owners of such Bonds shall have no rights except to receive payment of the redemption price
upon the surrender of the Bonds.
This Bond shall be registered in the name of the Owner hereof, as to both principal and interest,
and the District and the Trustee may treat the Owner hereof as the absolute owner for all purposes and
shall not be affected by any notice to the contrary.
The Bonds are issuable only in fully registered form in the denomination of $5,000 or any
integral multiple thereof and may be exchanged for a like aggregate principal amount of Bonds of other
authorized denominations of the same issue and maturity, all as more fully set forth in the Indenture.
This Bond is transferable by the Owner hereof, in person or by his attorney duly authorized in writing,
at the Principal Office of the Trustee, but only in the manner, subject to the limitations and upon
payment of the charges provided in the Indenture, upon surrender and cancellation of this Bond. Upon
such transfer, a new registered Bond of authorized denomination or denominations for the same
A-5
aggregate principal amount of the same issue and maturity will be issued to the transferee in exchange
therefor.
The Trustee shall not be required to register transfers or make exchanges of: (i) any Bonds for
a period of 15 days next preceding any selection of the Bonds to be redeemed; or (ii) any Bonds chosen
for redemption.
The rights and obligations of the District and of the registered owners of the Bonds may be
amended at any time, and in certain cases without notice to or the consent of the registered owners, to
the extent and upon the terms provided in the Indenture.
THE BONDS DO NOT CONSTITUTE GENERAL OBLIGATIONS OF THE CITY OR OF
THE DISTRICT. NEITHER THE CITY NOR THE DISTRICT IS OBLIGATED TO LEVY OR
PLEDGE, OR HAS LEVIED OR PLEDGED, GENERAL OR SPECIAL TAXES, OTHER THAN
THE SPECIAL TAXES REFERENCED HEREIN. THE BONDS ARE LIMITED OBLIGATIONS
OF THE DISTRICT PAYABLE FROM THE PORTION OF THE SPECIAL TAXES AND OTHER
AMOUNTS PLEDGED UNDER THE INDENTURE BUT ARE NOT A DEBT OF THE CITY, THE
STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS WITHIN THE
MEANING OF ANY CONSTITUTIONAL OR STATUTORY LIMITATION OR RESTRICTION.
This Bond shall not become valid or obligatory for any purpose until the certificate of
authentication and registration hereon endorsed shall have been dated and signed by the Trustee.
IT IS HEREBY CERTIFIED, RECITED AND DECLARED that all acts, conditions and things
required by law to exist, happen and be performed precedent to and in the issuance of this Bond do
exist, have happened and have been performed in due time, form and manner as required by law, and
that the amount of this Bond, together with all other indebtedness of the District, does not exceed any
debt limit prescribed by the laws or Constitution of the State of California.
IN WITNESS WHEREOF, City of Lake Elsinore Community Facilities District No. 2003-2
(Canyon Hills) has caused this Bond to be dated the Dated Date, to be signed on behalf of the District
by the Mayor of the City by his facsimile signature and attested by the facsimile signature of the City
Clerk of the City.
Mayor of the City of Lake Elsinore, acting as the
legislative body of City of Lake Elsinore Community
Facilities District No. 2003-2 (Canyon Hills)
ATTEST:
City Clerk of the City of Lake Elsinore, acting
as the legislative body of City of Lake Elsinore
Community Facilities District No. 2003-2
(Canyon Hills)
A-6
[FORM OF TRUSTEE’S CERTIFICATE
OF AUTHENTICATION AND REGISTRATION]
This is one of the Bonds described in the within-defined Indenture.
Dated: _________WILMINGTON TRUST, NATIONAL
ASSOCIATION as Trustee
By:
Authorized Signatory
[FORM OF LEGAL OPINION]
The following is a true copy of the opinion rendered by Stradling Yocca Carlson & Rauth, a
Professional Corporation, in connection with the issuance of, and dated as of the date of the original
delivery of, the Bonds. A signed copy is on file in my office.
City Clerk of the City
[FORM OF ASSIGNMENT]
For value received the undersigned do(es) hereby sell, assign and transfer unto
whose tax identification number is ,
the within-mentioned registered Bond and hereby irrevocably constitute(s) and appoint(s)
attorney to transfer the same on the books of the Trustee with full power of substitution in the
premises.
Dated:
Signature guaranteed:
NOTE: Signature(s) must be guaranteed by an
eligible guarantor institution.
NOTE: The signatures(s) on this Assignment
must correspond with the name(s) as written on
the face of the within Bond in every particular
without alteration or enlargement or any change
whatsoever.
B-1
EXHIBIT B-1
FORM OF REQUISITION FOR DISBURSEMENT OF PROJECT COSTS
$_______
CITY OF LAKE ELSINORE
COMMUNITY FACILITIES DISTRICT NO. 2003-2 (CANYON HILLS)
SPECIAL TAX BONDS, SERIES 2018
(IMPROVEMENT AREA E)
Wilmington Trust, National Association (the “Trustee”), is hereby requested to pay from the
[City Facilities][Water Facilities] Account of the City of Lake Elsinore Community Facilities District
No. 2003-2 (Canyon Hills) Improvement Area E Acquisition and Construction Fund, established by
the Bond Indenture, dated as of May 1, 2018, by and between the Trustee and City of Lake Elsinore
Community Facilities District No. 2003-2 (Canyon Hills) (the “District”), the amount specified to the
payee named below for payment of the Project Costs set forth in Attachment No. 1 hereto.
Payee:
Address:
Purpose:
Amount:$
The amount is due and payable under purchase order, contract or other authorization and has
not formed the basis of any prior request for payment. The conditions for the release of this amount
from the [City Facilities][Water Facilities] Account, including those conditions in Section 3.9(b) of the
Indenture have been satisfied.
There has not been filed with nor served upon the District notice of any lien, right to lien or
attachment upon, or stop notice or claim affecting the right to receive payment of the amount specified
above which has not been released or will not be released simultaneously with the payment of such
amount, other than materialmen’s or mechanic’s liens accruing by mere operation of law.
Dated: CITY OF LAKE ELSINORE COMMUNITY
FACILITIES DISTRICT NO. 2003-2 (CANYON
HILLS)
By:
Name:
Title: _____________________________________
$________
CITY OF LAKE ELSINORE
COMMUNITY FACILITIES DISTRICT NO. 2003-2 (CANYON HILLS)
SPECIAL TAX BONDS, SERIES 2018
(IMPROVEMENT AREA E)
BOND PURCHASE AGREEMENT
_________, 2018
City of Lake Elsinore
Community Facilities District No. 2003-2
(Canyon Hills)
130 South Main Street
Lake Elsinore, California 92530
Ladies and Gentlemen:
Stifel, Nicolaus & Company, Incorporated, as underwriter (the “Underwriter”), acting not as a
fiduciary or agent for you, but on behalf of itself, offers to enter into this Bond Purchase Agreement
(this “Purchase Agreement”) with the City of Lake Elsinore Community Facilities District No. 2003-2
(Canyon Hills) (the “Community Facilities District”) on behalf of Improvement Area E (the
“Improvement Area”), which upon acceptance will be binding upon the Underwriter and the
Community Facilities District. The agreement of the Underwriter to purchase the Bonds (as hereinafter
defined) is contingent upon the Community Facilities District satisfying all of the obligations imposed
upon them under this Purchase Agreement. This offer is made subject to the Community Facilities
District’s acceptance by the execution of this Purchase Agreement and its delivery to the Underwriter
at or before 11:59 P.M., local time, on the date hereof, and, if not so accepted, will be subject to
withdrawal by the Underwriter upon notice delivered to the Community Facilities District at any time
prior to the acceptance hereof by the Community Facilities District. All capitalized terms used herein,
which are not otherwise defined, shall have the meaning provided for such terms in the Bond Indenture,
dated as of May 1, 2018 (the “Indenture”), by and between the Community Facilities District and
Wilmington Trust, National Association, as trustee (the “Trustee”).
1.Purchase, Sale and Delivery of the Bonds.
Subject to the terms and conditions and in reliance upon the representations, warranties and
agreements set forth herein: (i) the Underwriter hereby agrees to purchase from the Community
Facilities District and the Community Facilities District hereby agrees to sell to the Underwriter all
(but not less than all) of the $_______ aggregate principal amount of the City of Lake Elsinore
Community Facilities District No. 2003-2 (Canyon Hills) Special Tax Bonds, Series 2018
(Improvement Area E) (the “Bonds”), dated the Closing Date (as hereinafter defined), bearing interest
at the rates and maturing on the dates and in the principal amounts set forth in Exhibit A hereto. The
purchase price for the Bonds shall be $________ (being 100% of the aggregate principal amount
thereof, less net original issue discount of $_______ and less an Underwriter’s discount of $_______).
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The Underwriter agrees to make a bona fide public offering of all of the Bonds initially at the
public offering prices (or yields) set forth in Exhibit A attached hereto and incorporated herein by
reference. Subsequent to the initial public offering, the Underwriter reserves the right to change the
public offering prices (or yields) as it deems necessary in connection with the marketing of the Bonds,
provided that the Underwriter shall not change the interest rates set forth in Exhibit A. The Bonds will
be offered and sold to certain dealers at prices lower than such initial offering prices.
The Bonds shall be substantially in the form described in, shall be issued and secured under
the provisions of, and shall be payable from the Net Taxes as provided in the Indenture, the Preliminary
Official Statement (as hereinafter defined), and the Mello-Roos Community Facilities Act of 1982, as
amended (Section 53311 et seq. of the Government Code of the State of California) (the “Community
Facilities District Act”). The issuance of the Bonds has been duly authorized by the City Council of
the City of Lake Elsinore (the “City”), as the legislative body for the Community Facilities District
pursuant to a resolution (the “Community Facilities District Resolution of Issuance”) adopted on
_______, 2018. The proceeds of the Bonds will be used to: (i) finance certain public improvements
needed with respect to the development of property located within the Improvement Area, including
public improvements to be owned by the City and water and sewer facilities to be owned and operated
by the Elsinore Valley Municipal Water District; (ii) fund a reserve account for the Bonds; and (iii)
pay costs of issuance for the Bonds.
The Bonds shall be substantially in the form described in, shall be issued and secured under
the provisions of, and shall be payable from special taxes pledged thereto as provided in the Indenture.
A.The Community Facilities District hereby acknowledges that the Underwriter
is entering into this Purchase Agreement in reliance on the representations, warranties and agreements
made by the Community Facilities District herein, and the Community Facilities District shall take all
action necessary to enforce its rights hereunder for the benefit of the Underwriter and shall immediately
notify the Underwriter if it becomes aware that any representation, warranty or agreement made by the
Community Facilities District herein is incorrect in any material respect.
The Community Facilities District acknowledges and agrees that (i) the purchase and sale of
the Bonds pursuant to this Purchase Agreement is an arm’s-length commercial transaction between the
Community Facilities District and the Underwriter, (ii) in connection therewith and with the
discussions, undertakings and procedures leading up to the consummation of such transaction, the
Underwriter is and has been acting solely as principal and not as the agent or fiduciary of the
Community Facilities District, (iii) the Underwriter has not assumed an advisory or fiduciary
responsibility in favor of the Community Facilities District with respect to (a) the offering of the Bonds
or the process leading thereto (whether or not the Underwriter, or any affiliate of the Underwriter, has
advised or is currently advising the Community Facilities District on other matters) or (b) any other
obligations to the Community Facilities District with respect to the offering contemplated hereby,
except the obligations expressly set forth in this Purchase Agreement or otherwise imposed by law,
(iv) the Underwriter has financial interests that differ from those of the Community Facilities District
and (v) the Community Facilities District has consulted their own legal, financial and other advisors to
the extent they have deemed appropriate in connection with this transaction. The Community Facilities
District acknowledges that it has previously provided the Underwriter with an acknowledgement of
receipt of the required Underwriter disclosure under Rule G-17 of the Municipal Securities
Rulemaking Board (“MSRB”). The Community Facilities District acknowledges and represents that
it has engaged Urban Futures Incorporated (the “Municipal Advisor”) as its municipal advisor (as
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defined in Securities and Exchange Commission Rule 15Ba1) and will rely solely on the financial
advice of the Municipal Advisor with respect to the Bonds.
B.Pursuant to the authorization of the Community Facilities District, the
Underwriter has distributed copies of the Preliminary Official Statement dated _______, 2018, relating
to the Bonds, which, together with the cover page, inside cover page and appendices thereto is herein
called the “Preliminary Official Statement.” By its acceptance of this Purchase Agreement, the
Community Facilities District hereby ratifies the use by the Underwriter of the Preliminary Official
Statement, and the Community Facilities District agrees to execute a final official statement relating
to the Bonds (the “Official Statement”) which will consist of the Preliminary Official Statement with
such changes as may be made thereto, with the approval of Stradling Yocca Carlson & Rauth, a
Professional Corporation, Bond Counsel (“Bond Counsel”), Stradling Yocca Carlson & Rauth, a
Professional Corporation, Disclosure Counsel (“Disclosure Counsel”), and the Underwriter, and to
providecopies thereof to the Underwriter as set forth herein. The Community Facilities District hereby
authorizes and requires the Underwriter to use and promptly distribute, in connection with the offer
and sale of the Bonds, the Preliminary Official Statement, the Official Statement and any supplement
or amendment thereto. The Community Facilities District further authorizes the Underwriter to use
and distribute, in connection with the offer and sale of the Bonds, the Indenture, the Continuing
Disclosure Certificate executed by the Community Facilities District in connection with the Bonds (the
“Continuing Disclosure Certificate”), this Purchase Agreement and all information contained herein,
and all other documents, certificates and statements furnished by or on behalf of the Community
Facilities District to the Underwriter in connection with the transactions contemplated by this Purchase
Agreement.
C.To assist the Underwriter in complying with Securities and Exchange
Commission Rule 15c2-12(b)(5) (the “Rule”), the Community Facilities District will undertake
pursuant to the Continuing Disclosure Certificate, in the form attached to the Official Statement as an
appendix, to provide annual reports and notices of certain enumerated events. A description of this
undertaking is set forth in the Preliminary Official Statement and will also be set forth in the Official
Statement.
D.Except as the Underwriter and the Community Facilities District may
otherwise agree, the Community Facilities District will deliver to the Underwriter, at the offices of
Bond Counsel in Newport Beach, California, or at such other location as may be mutually agreed upon
by the Underwriter and the Community Facilities District, the documents hereinafter mentioned; and
the Community Facilities District will deliver to the Underwriter through the facilities of The
Depository Trust Company (“DTC”), the Bonds, in definitive form (all Bonds bearing CUSIP
numbers), duly executed by the Community Facilities District and authenticated by the Trustee in the
manner provided for in the Indenture and the Community Facilities District Act at 8:00 a.m. California
time, on ______, 2018 (the “Closing Date”), and the Underwriter will accept such delivery and pay the
purchase price of the Bonds as set forth in paragraph (A) of this Section by wire transfer, payable in
federal or other immediately available funds (such delivery and payment being herein referred to as
the “Closing”). The Bonds shall be in fully registered book-entry form (which may be typewritten)
and shall be registered in the name of Cede & Co., as nominee of DTC.
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2.Representations, Warranties and Covenants of the Community Facilities District. The
Community Facilities District represents, warrants and covenants to the Underwriter on behalf of itself
and the City that:
A.The City is duly organized and validly existing as a general law city under the
Constitution and laws of the State of California and has duly authorized the formation of the
Community Facilities District pursuant to resolutions duly adopted by the City Council (the
“Community Facilities District Formation Resolution” and, together with the Community Facilities
District Resolution of Issuance, the “Community Facilities District Resolutions”) and the Community
Facilities District Act. The City Council, as the legislative body of the City and the Community
Facilities District, has duly adopted the Community Facilities District Formation Resolution, and has
caused to be recorded in the real property records of the County of Riverside, notices of special tax
lien, and any required amendments thereof (collectively, the “Notice of Special Tax Lien”) (the
Community Facilities District Formation Resolution and Notice of Special Tax Lien being collectively
referred to herein as the “Formation Documents”), and has duly adopted a Community Facilities
District Resolution of Issuance. Each of its Formation Documents remains in full force and effect as
of the date hereof and has not been amended. The Community Facilities District is duly organized and
validly existing as a Community Facilities District under the laws of the State of California. The
Community Facilities District has, and at the Closing Date will have, as the case may be, full legal
right, power and authority: (i) to execute, deliver and perform its obligations under this Purchase
Agreement, the Continuing Disclosure Certificate and the Indenture, and to carry out all transactions
contemplated by each of such agreements; (ii) to issue, sell and deliver the Bonds as provided herein;
and (iii) to carry out, give effect to and consummate the transactions contemplated by the Formation
Documents, the Indenture, the Bonds, the Continuing Disclosure Certificate, this Purchase Agreement
and the Official Statement.
This Purchase Agreement, the Indenture, the Bonds and the Continuing Disclosure Certificate
are collectively referred to herein as the “Community Facilities District Documents.”
B.The Community Facilities District and the City, as applicable, have each
complied, and will at the Closing Date be in compliance in all material respects, with the Formation
Documents and the Community Facilities District Documents, and any immaterial noncompliance by
the Community Facilities District and the City, if any, will not impair the ability of the Community
Facilities District and the City, as applicable, to carry out, give effect to or consummate the transactions
contemplated by the foregoing. From and after the date of issuance of the Bonds, the Community
Facilities District will continue to comply with the covenants of the Community Facilities District
contained in the Community Facilities District Documents.
C.The information in the Preliminary Official Statement and in the Official
Statement relating to the Community Facilities District and the Bonds (other than statements pertaining
to the book entry system, as to which no view is expressed), is true and correct in all material respects
and does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances under which they were made, not
misleading; and, upon delivery and up to and including 25 days after the End of the Underwriting
Period (as defined in paragraph (D) below), the Official Statement will be amended and supplemented
so as to contain no misstatement of any material fact or omission of any statement necessary to make
the statements contained therein, in the light of the circumstances in which such statements were made,
not misleading.
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D.Up to and including 25 days after the End of the Underwriting Period (as
defined below), the Community Facilities District will advise the Underwriter promptly of any
proposal to amend or supplement the Official Statement and will not effect or consent to any such
amendment or supplement without the consent of the Underwriter, which consent will not be
unreasonably withheld. The Community Facilities District will advise the Underwriter promptly of
the institution of any proceedings known to it by any governmental agency prohibiting or otherwise
materially affecting the use of the Official Statement in connection with the offering, sale or
distribution of the Bonds. As used herein, the term “End of the Underwriting Period” means the later
of such time as: (i) the Bonds are delivered to the Underwriter; or (ii) the Underwriter does not retain,
directly or as a member of an underwriting syndicate, an unsold balance of the Bonds for sale to the
public. Unless the Underwriter gives notice to the contrary, the End of the Underwriting Period shall
be deemed to be the Closing Date. Any notice delivered pursuant to this provision shall be written
notice delivered to the Community Facilities District at or prior to the Closing Date, and shall specify
a date (other than the Closing Date) to be deemed the “End of the Underwriting Period.”
E.Except as described in the Preliminary Official Statement, the Community
Facilities District is not, in any respect material to the transactions referred to herein or contemplated
hereby, in breach of or in default under, any law or administrative rule or regulation of the State of
California, the United States of America, or of any department, division, agency or instrumentality of
either thereof, or under any applicable court or administrative decree or order, or under any loan
agreement, note, resolution, indenture, contract, agreement or other instrument to which the
Community Facilities District is a party or is otherwise subject or bound, and the performance of its
obligations under the Community Facilities District Documents and compliance with the provisions of
each thereof, or the performance of the conditions precedent to be performed by the Community
Facilities District pursuant to this Purchase Agreement, will not conflict with or constitute a breach of
or default under any applicable law or administrative rule or regulation of the State, the United States
of America, or of any department, division, agency or instrumentality of either thereof, or under any
applicable court or administrative decree or order, or under any loan agreement, note, resolution,
indenture, contract, agreement or other instrument to which the Community Facilities District is a party
or is otherwise subject or bound, in any manner which would materially and adversely affect the
performance by the Community Facilities District of its obligations under the Community Facilities
District Documents or the performance of the conditions precedent to be performed by the Community
Facilities District pursuant to this Purchase Agreement.
F.Except as may be required under the “blue sky” or other securities laws of any
jurisdiction, all approvals, consents, authorizations, elections and orders of, or filings or registrations
with, any governmental authority, board, agency or commission having jurisdiction which would
constitute a condition precedent to, or the absence of which would materially adversely affect, the
performance by the Community Facilities District of its obligations under the Community Facilities
District Documents, and the performance of the conditions precedent to be performed by the
Community Facilities District pursuant to this Purchase Agreement, have been or will be obtained at
the Closing Date and are or will be in full force and effect at the Closing Date.
G.The Community Facilities District Documents conform as to form and tenor to
the descriptions thereof contained in the Official Statement.
H.The Bonds are payable from the Special Tax of the Community Facilities
District, as set forth in the Indenture, the levy of which has been duly and validly authorized pursuant
to the Community Facilities District Act and the Special Taxes within the Improvement Area will be
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fixed and levied in an amount which, together with other available funds, is required for the payment
of the principal of, and interest on, the Bonds when due and payable, all as provided in the Indenture.
The Community Facilities District has covenanted to cause the Special Taxes to be levied and collected
at the same time and in the same manner as ordinary ad valorem property taxes.
I.The Indenture creates a valid pledge of, first lien upon and security interest in,
the Special Tax revenues of the Improvement Area, and in the moneys in the Special Tax Fund
established pursuant to the Indenture, on the terms and conditions set forth in the Indenture.
J.Except as disclosed in the Preliminary Official Statement, there are, to the best
of the Community Facilities District’s knowledge, no entities with outstanding assessment liens against
any of the properties within the Improvement Area or which are senior to or on a parity with the Special
Taxes of the Improvement Area referred to in paragraph (G) hereof.
K.The information contained in the Preliminary Official Statement and in the
Official Statement (other than statements therein pertaining to the DTC and its book-entry system, as
to which no view is expressed) is true and correct in all material respects and such information does
not and shall not contain any untrue or misleading statement of a material fact or omit to state any
material fact necessary to make the statements therein, in light of the circumstances under which they
were made, not misleading.
L.The Preliminary Official Statement was deemed final by a duly authorized
officer of the Community Facilities District prior to its delivery to the Underwriter, except for the
omission of such information as is permitted to be omitted in accordance with paragraph (b)(1) of the
Rule. The Community Facilities District hereby covenants and agrees that, within seven (7) business
days from the date hereof, or upon reasonable written notice from the Underwriter within sufficient
time to accompany any confirmation requesting payment from any customers of the Underwriter, the
Community Facilities District shall cause a final printed form of the Official Statement to be delivered
to the Underwriter in sufficient quantity to comply with paragraph (b)(4) of the Rule and Rules G-12,
G-15, G-32 and G-36 of the Municipal Securities Rulemaking Board.
M.At the time of acceptance hereof there is and as of the Closing there will be no
action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, government
agency, public board or body (collectively and individually, an “Action”) pending (notice of which has
been served on the Community Facilities District) or to the best knowledge of the Community Facilities
District or the City threatened, in which any such Action: (i) in any way questions the existence of the
Community Facilities District or the titles of the officers of the Community Facilities District to their
respective offices; (ii) affects, contests or seeks to prohibit, restrain or enjoin the issuance or delivery
of the Bonds or the payment or collection of Special Taxes or any amounts pledged or to be pledged
to pay the principal of and interest on the Bonds, or in any way contests or affects the validity of the
Community Facilities District Documents or the consummation of the transactions on the part of the
Community Facilities District contemplated thereby; (iii) contests the exemption of interest on the
Bonds from federal or State income taxation or contests the powers of the Community Facilities
District which may result in any material adverse change relating to the financial condition of the
Community Facilities District; or (iv) contests the completeness or accuracy of the Preliminary Official
Statement or the Official Statement or any supplement or amendment thereto or asserts that the
Preliminary Official Statement or the Official Statement contained any untrue statement of a material
fact or omitted to state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were made, not misleading; and
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as of the time of acceptance hereof there is and, as of the Closing Date, there will be no basis for any
action, suit, proceeding, inquiry or investigation of the nature described in clauses (i) through (iv) of
this sentence.
N.Any certificate signed on behalf of the Community Facilities District by any
officer or employee of the Community Facilities District authorized to do so shall be deemed a
representation and warranty by the Community Facilities District to the Underwriter on behalf of itself
and the Community Facilities District as to the statements made therein.
O.At or prior to the Closing the Community Facilities District, will have duly
authorized, executed and delivered the Continuing Disclosure Certificate in substantially the form
attached as an appendix to the Official Statement. Based upon a review of its previous undertakings,
and except as disclosed in the Preliminary Official Statement, the Community Facilities District has
not failed to comply in all respects with any previous undertakings with regard to the Rule to provide
annual reports or notices of enumerated events in the last five years.
P.The Community Facilities District will apply the proceeds of the Bonds in
accordance with the Indenture and as described in the Preliminary Official Statement and Official
Statement.
Q.Until such time as moneys have been set aside in an amount sufficient to pay
all then outstanding Bonds at maturity or to the date of redemption if redeemed prior to maturity, plus
unpaid interest thereon and premium, if any, to maturity or to the date of redemption if redeemed prior
to maturity, the Community Facilities District will faithfully perform and abide by all of the covenants,
undertakings and provisions contained in the Indenture.
R.Between the date of this Purchase Agreement and the date of Closing, the
Community Facilities District will not offer or issue any bonds, notes or other obligations for borrowed
money not previously disclosed to the Underwriter.
The Community Facilities District hereby approves the preparation and distribution of the
Official Statement, consisting of the Preliminary Official Statement with such changes as are noted
thereon and as may be made thereto, with the approval of Bond Counsel, Disclosure Counsel and the
Underwriter, from time to time prior to the Closing Date.
The Community Facilities District hereby ratifies any prior use of and authorizes the future use
by the Underwriter, in connection with the offering and sale of the Bonds, of the Preliminary Official
Statement, the Official Statement, this Purchase Agreement and all information contained herein, and
all other documents, certificates and written statements furnished by the Community Facilities District
to the Underwriter in connection with the transactions contemplated by this Purchase Agreement.
The execution and delivery of this Purchase Agreement by the Community Facilities District
shall constitute a representation by the Community Facilities District to the Underwriter that the
representations and warranties contained in this Section 2 with respect to the Community Facilities
District are true as of the date hereof.
3.Conditions to the Obligations of the Underwriter. The obligation of the Underwriter
to accept delivery of and pay for the Bonds on the Closing Date shall be subject, at the option of the
Underwriter, to the accuracy in all material respects of the representations and warranties on the part
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of the Community Facilities District contained herein, to the accuracy in all material respects of the
statements of the officers and other officials of the Community Facilities District made in any
certificates or other documents furnished pursuant to the provisions hereof, to the performance by the
Community Facilities District of their obligations to be performed hereunder at or prior to the Closing
Date and to the following additional conditions:
A.At the Closing Date, the Community Facilities District Resolutions, the
Community Facilities District Documents shall be in full force and effect, and shall not have been
amended, modified or supplemented, except as may have been agreed to in writing by the Underwriter,
and there shall have been taken in connection therewith, with the issuance of the Bonds and with the
Bonds, and with the transactions contemplated thereby, and by this Purchase Agreement, all such
actions as, in the opinion of Bond Counsel, shall be necessary and appropriate.
B.At the Closing Date, except as described in the Preliminary Official Statement,
the City shall not be, in any respect material to the transactions referred to herein or contemplated
hereby, in breach of or in default under, any law or administrative rule or regulation of the State of
California, the United States of America, or of any department, division, agency or instrumentality of
either thereof, or under any applicable court or administrative decree or order, or under any loan
agreement, note, resolution, indenture, contract, agreement or other instrument to which the City is a
party or is otherwise subject or bound, and the performance of the conditions precedent to be performed
hereunder will not conflict with or constitute a breach of or default under any applicable law or
administrative rule or regulation of the State of California, the United States of America, or of any
department, division, agency or instrumentality of either thereof, or under any applicable court or
administrative decree or order, or under any loan agreement, note, resolution, indenture, contract,
agreement or other instrument to which the City is a party or is otherwise subject or bound, in any
manner which would materially and adversely affect the performance of the conditions precedent to
be performed by the City hereunder.
C.At the Closing Date, except as described in the Preliminary Official Statement,
the Community Facilities District shall not be, in any respect material to the transactions referred to
herein or contemplated hereby, in breach of or in default under, any law or administrative rule or
regulation of the State of California, the United States of America, or of any department, division,
agency or instrumentality of either thereof, or under any applicable court or administrative decree or
order, or under any loan agreement, note, resolution, indenture, contract, agreement or other instrument
to which the Community Facilities District is a party or is otherwise subject or bound, and the
performance by the Community Facilities District of its obligations under the Bonds, the Community
Facilities District Resolutions, the Indenture, and any other instruments contemplated by any of such
documents, and compliance with the provisions of each thereof, or the performance of the conditions
precedent to be performed hereunder, will not conflict with or constitute a breach of or default under
any applicable law or administrative rule or regulation of the State of California, the United States of
America, or of any department, division, agency or instrumentality of either thereof, or under any
applicable court or administrative decree or order, or under any loan agreement, note, resolution,
indenture, contract, agreement or other instrument to which the Community Facilities District is a party
or is otherwise subject or bound, in any manner which would materially and adversely affect the
performance by the Community Facilities District of its obligations under the Indenture, the Bonds or
the performance of the conditions precedent to be performed by the Community Facilities District
hereunder.
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D.The information contained in the Official Statement is, as of the Closing Date
and as of the date of any supplement or amendment thereto pursuant hereto, true and correct in all
material respects and does not, as of the Closing Date or as of the date of any supplement or amendment
thereto, contain any untrue statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of the circumstances under which
they were made, not misleading.
E.Between the date hereof and the Closing Date, the market price or
marketability, at the initial offering prices set forth on the cover page of the Official Statement, of the
Bonds or the ability of the Underwriter to enforce contracts for the sale of the Bonds, shall not have
been materially adversely affected, in the judgment of the Underwriter (evidenced by a written notice
to the Community Facilities District terminating the obligation of the Underwriter to accept delivery
of and pay for the Bonds), by reason of any of the following:
1.Legislation introduced in or enacted (or resolution passed) by the
Congress of the United States of America or recommended to the Congress by the President of the
United States, the Department of the Treasury, the Internal Revenue Service, or any member of
Congress, or favorably reported for passage to either House of Congress by any committee of such
House to which such legislation had been referred for consideration, or a decision rendered by a court
established under Article III of the Constitution of the United States of America or by the Tax Court
of the United States of America, or an order, ruling, regulation (final, temporary or proposed), press
release or other form of notice issued or made by or on behalf of the Treasury Department of the United
States of America or the Internal Revenue Service, with the purpose or effect, directly or indirectly, of
imposing federal income taxation upon such interest as would be received by any owners of the Bonds
beyond the extent to which such interest is subject to taxation as of the date hereof;
2.Legislation introduced in or enacted (or resolution passed) by the
Congress or an order, decree or injunction issued by any court of competent jurisdiction, or an order,
ruling, regulation (final, temporary or proposed), press release or other form of notice issued or made
by or on behalf of the Securities and Exchange Commission, or any other governmental agency having
jurisdiction of the subject matter, to the effect that obligations of the general character of the Bonds,
including any or all underlying arrangements, are not exempt from registration under or other
requirements of the Securities Act of 1933, as amended, or that the Indenture or the Indenture are not
exempt from qualification under or other requirements of the Trust Indenture Act of 1939, as amended,
or that the issuance, offering or sale of obligations of the general character of the Bonds, including any
or all underlying arrangements, as contemplated hereby or by the Official Statement or otherwise is or
would be in violation of the federal securities laws as amended and then in effect;
3.A general suspension of trading on the New York Stock Exchange or
other major exchange shall be in force, or minimum or maximum prices for trading shall have been
fixed and be in force, or maximum ranges for prices for securities shall have been required and be in
force on any such exchange, whether by virtue of determination by that exchange or by order of the
SEC or any other governmental authority having jurisdiction;
4.The introduction, proposal or enactment of any amendment to the
Federal or California Constitution or any action by any Federal or California court, legislative body,
regulatory body or other authority materially adversely affecting the tax status of the Community
Facilities District, its property, income, securities (or interest thereon), the validity or enforceability of
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Special Taxes, or the ability of the Community Facilities District to issue the Bonds as contemplated
by the Indenture and the Official Statement;
5.Any event occurring, or information becoming known which, in the
judgment of the Underwriter, makes untrue in any material respect any statement or information
contained in the Preliminary Official Statement or in the Official Statement, or has the effect that the
Preliminary Official Statement or the Official Statement contains any untrue statement of a material
fact or omits to state a material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not misleading;
6.Any national securities exchange, the Comptroller of the Currency, or
any other governmental authority, shall impose as to the Bonds, or obligations of the general character
of the Bonds, any material restrictions not now in force, or increase materially those now in force, with
respect to the extension of credit by, or the charge to the net capital requirements of, the Underwriter;
7.There shall have occurred (1) an outbreak or escalation of hostilities or
the declaration by the United States of a national emergency or war, (2) any other calamity or crisis in
the financial markets of the United States or elsewhere, (3) the sovereign debt rating of the United
States is downgraded by any major credit rating agency or a payment default occurs on United States
Treasury obligations, or (4) a default with respect to the debt obligations of, or the institution of
proceedings under any federal bankruptcy laws by or against, any state of the United States or any city,
county or other political subdivision located in the United States having a population of over 500,000;
or
8.Except as disclosed in or contemplated by the Official Statement, any
material adverse change in the affairs of the City or Community Facilities District shall have occurred;
or
9.Any event or circumstance shall exist that either makes untrue or
incorrect in any material respect any statement or information in the Official Statement (other than any
statement provided by the Underwriter) or is not reflected in the Official Statement but should be
reflected therein in order to make the statements therein, in the light of the circumstances under which
they were made, not misleading and, in either such event, the Community Facilities District refuses to
permit the Official Statement to be supplemented to supply such statement or information, or the effect
of the Official Statement as so supplemented is to materially adversely affect the market price or
marketability of the Bonds or the ability of the Underwriters to enforce contracts for the sale of the Bonds;
or
10.A general banking moratorium shall have been declared by federal or
State authorities having jurisdiction and be in force; or
11.A material disruption in securities settlement, payment or clearance
services affecting the Bonds shall have occurred; or
12.Any new restriction on transactions in securities materially affecting
the market for securities (including the imposition of any limitation on interest rates) or the extension
of credit by, or a charge to the net capital requirements of, underwriters shall have been established by
the New York Stock Exchange, the SEC, any other federal or State agency or the Congress of the
United States, or by Executive Order; or
11
13.A decision by a court of the United States shall be rendered, or a stop
order, release, regulation or no-action letter by or on behalf of the SEC or any other governmental
agency having jurisdiction of the subject matter shall have been issued or made, to the effect that the
issuance, offering or sale of the Securities, including the underlying obligations as contemplated by
this Agreement or by the Official Statement, or any document relating to the issuance, offering or sale
of the Securities, is or would be in violation of any provision of the federal securities laws at the Closing
Date, including the Securities Act, the Exchange Act and the Trust Indenture Act; or
14.Any proceeding shall have been commenced or be threatened in writing
by the Securities and Exchange Commission against the City or the Community Facilities District; or
15.The commencement of any Action as described in items (i) through (iv)
of Section 2(M) hereof.
F.At or prior to the Closing Date, the Underwriter shall have received a
counterpart original or certified copy of the following documents, in each case satisfactory in form and
substance to the Underwriter:
1.The Official Statement, executed on behalf of the Community Facilities
District by an authorized officer;
2.The Indenture, duly executed and delivered by the Community
Facilities District and the Trustee;
3.The Community Facilities District Resolution, the Community
Facilities District Documents and the Formation Documents, together with a certificate dated as of the
Closing Date of the City Clerk to the effect that the Community Facilities District Resolutions are true,
correct and complete copies of the ones duly adopted by the City Council;
4.The Continuing Disclosure Certificate executed and delivered by the
Community Facilities District;
5.An unqualified approving opinion for the Bonds, dated the Closing
Date and addressed to the Community Facilities District, of Bond Counsel, to the effect that the Bonds
are the valid, legal and binding obligations of the Community Facilities District and that the interest
thereon is excluded from gross income for federal income tax purposes and exempt from personal
income taxes of the State of California, in substantially the form included as an appendix to the Official
Statement, together with a letter of Bond Counsel, dated the Closing Date and addressed to the
Underwriter, to the effect that such opinion addressed to the Community Facilities District may be
relied upon by the Underwriter to the same extent as if such opinion was addressed to it;
6.A supplemental opinion or opinions of Bond Counsel, dated the
Closing Date and addressed to the Underwriter, to the effect that:
(i)this Purchase Agreement and the Continuing Disclosure
Certificate has been duly authorized, executed and delivered by the Community Facilities District and,
assuming due authorization, execution and delivery by the other parties thereto, constitutes the legal,
valid and binding agreement of the Community Facilities District and is enforceable in accordance
with its terms, except to the extent that enforceability may be limited by moratorium, bankruptcy,
12
reorganization, insolvency or other similar laws affecting creditors’ rights generally or by the exercise
of judicial discretion in accordance with general principles of equity or otherwise in appropriate cases
and by limitations on legal remedies against public agencies in the State;
(ii)the Bonds are not subject to the registration requirements of the
Securities Act of 1933, as amended, and the Indenture is exempt from qualification under the Trust
Indenture Act of 1939, as amended;
(iii)the information contained in the Official Statement on the
cover and under the captions “THE BONDS” (other than the caption “Debt Service Schedule”),
“SOURCES OF PAYMENT FOR THE BONDS,” “TAX EXEMPTION” AND “LEGAL OPINION”
and in Appendices C and E to the Official Statement, are accurate insofar as such statements purport
to summarize certain provisions of the Bonds, the Indenture, Bond Counsel’s final approving opinion,
and the Community Facilities District Act.
7.The letter of Disclosure Counsel, dated the Closing Date and addressed
to the Community Facilities District and to the Underwriter, to the effect that, without having
undertaken to determine independently the accuracy or completeness of the statements contained in
the Official Statement, but on the basis of their participation in conferences with representatives of the
Community Facilities District, the Special Tax Consultant and others, and their examination of certain
documents, nothing has come to their attention which has led them to believe that the Official
Statement as of its date and as of the Closing Date contained or contains any untrue statement of a
material fact or omits to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made, not misleading (except
that no opinion or belief need be expressed as to any financial statements or other financial, statistical
or engineering data or forecasts, numbers, charts, estimates, projections, assumptions, or expressions
of opinion, any information about valuation, appraisals, absorption, archeological or environmental
matters, or any information with respect to the City, or about The Depository Trust Company or the
book-entry-only system);
8.A certificate dated the Closing Date and signed by an authorized
representative of the Community Facilities District or an authorized designee, on behalf of the
Community Facilities District to the effect that: (i) the representations and warranties made by the
Community Facilities District contained herein are true and correct in all material respects on and as
of the Closing Date with the same effect as if made on the Closing Date; (ii) to the best knowledge of
such officer, no event has occurred since the date of the Official Statement which should be disclosed
in the Official Statement for the purpose for which it is to be used or which it is necessary to disclose
therein in order to make the statements and information therein not misleading in any material respect;
(iii) the Community Facilities District has complied with all the agreements and satisfied all the
conditions on its part to be satisfied under this Purchase Agreement, the Community Facilities District
Resolutions, the Community Facilities District Documents and the Official Statement at or prior to the
Closing Date; and (iv) all information in the Official Statement relating to the Community Facilities
District (other than information therein provided by the Special Tax Consultant) is true and correct in
all material respects as of the date of the Official Statement and as of the Closing Date;
13
9.An opinion of the City Attorney of the City, dated the date of Closing
and addressed to the Underwriter and the City, to the effect that:
(i)The City is a municipal corporation and general law city, duly
organized and existing under the Constitution and laws of the State of California;
(ii)The Community Facilities District Resolutions have been duly
adopted at meetings of the City Council, which were called and held pursuant to law and with all public
notice required by law and at which a quorum was present and acting throughout, and the Community
Facilities District Resolutions are in full force and effect and have not been modified, amended,
rescinded or repealed since the respective dates of their adoption;
(iii)The Community Facilities District Documents and the Official
Statement have been duly authorized, executed and delivered by the City and constitute the legal, valid
and binding obligations of the Community Facilities District enforceable against the Community
Facilities District in accordance with their terms, subject to bankruptcy, insolvency, reorganization,
moratorium and other similar laws affecting creditors’ rights, to the application of equitable principles
where equitable remedies are sought and to the exercise of judicial discretion in appropriate cases;
(iv)Except as may be stated in the Official Statement, there is no
action, suit, proceeding or investigation before or by any court, public board or body pending (notice
of which has been served on the City or the Community Facilities District) or, to such counsel’s
knowledge, threatened wherein an unfavorable decision, ruling or finding would: (a) affect the
creation, organization, existence or powers of the City, or the titles of its members and officers to their
respective offices; or (b) affect the validity of the Community Facilities District Documents or restrain
or enjoin the repayment of the Bonds or in any way contest or affect the validity of the Community
Facilities District Documents or contest the authority of the City to enter into or perform its obligations
under any of the Community Facilities District Documents or under which a determination adverse to
the City would have a material adverse effect upon the financial condition or the revenues of the City,
questions the right of the Community Facilities District to use Special Taxes levied within the
Improvement Area for the repayment of the Bonds or affects in any manner the right or ability of the
Community Facilities District to collect or pledge the Special Taxes levied within the Improvement
Area for the repayment of the Bonds;
10.A certificate dated the Closing Date from Kitty Siino & Associates,
Inc., addressed to the Community Facilities District and the Underwriter to the effect that the
statements in the Official Statement provided by Kitty Siino & Associates, Inc. concerning Special
Taxes in the Improvement Area and all information supplied by it for use in the Official Statement
were as of the date of the Official Statement and are as of the Closing Date true and correct, and do not
contain any untrue statement of a material fact or omit to state a material fact necessary in order to
make the statements therein, in light of the circumstances under which they were made, not misleading
11.A certificate dated the Closing Date from Spicer Consulting Group,
LLC addressed to the Community Facilities District and the Underwriter to the effect that: (i) the
Special Tax if collected in the maximum amounts permitted pursuant to the Rate and Method of
Apportionment of Special Taxes of the Improvement Area as of the Closing Date would generate at
least 110% of the annual debt service payable with respect to the related issue of Bonds plus budgeted
administrative expenses in each year, based on such assumptions and qualifications as shall be
acceptable to the Underwriter; and (ii) the statements in the Official Statement provided by Spicer
14
Consulting Group, LLC concerning Special Taxes in the Improvement Area and all information
supplied by it for use in the Official Statement were as of the date of the Official Statement and are as
of the Closing Date true and correct, and do not contain any untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading;
12.Certified copies of the general resolution of the Trustee authorizing the
execution and delivery of certain documents by certain officers of the Trustee, which resolution
authorizes the execution of the Indenture and the authentication of the Bonds;
13.A certificate of the Trustee, addressed to the Underwriter, and the
Community Facilities District dated the Closing Date, to the effect that: (i) the Trustee is authorized to
carry out corporate trust powers, and have full power and authority to perform its duties under the
Indenture; (ii) the Trustee is duly authorized to execute and deliver the Indenture, to accept the
obligations created by the Indenture and to authenticate the Bonds pursuant to the terms of the
Indenture; (iii) no consent, approval, authorization or other action by any governmental or regulatory
authority having jurisdiction over the Trustee that has not been obtained is or will be required for the
authentication of the Bonds or the consummation by the Trustee of the other transactions contemplated
to be performed by the Trustee in connection with the authentication of the Bonds and the acceptance
and performance of the obligations created by the Indenture; and (iv) to the best of its knowledge,
compliance with the terms of the Indenture will not conflict with, or result in a violation or breach of,
or constitute a default under, any loan agreement, indenture, bond, note, resolution or any other
agreement or instrument to which the Trustee is a party or by which it is bound, or any law or any rule,
regulation, order or decree of any court or governmental agency or body having jurisdiction over the
Trustee or any of its activities or properties;
14.An opinion of counsel to the Trustee dated the Closing Date, addressed
to the Underwriter, and the Community Facilities District to the effect that the Trustee is a national
banking association duly organized and validly existing under the laws of the United States having full
power and being qualified to enter into, accept and agree to the provisions of the Indenture, and that
such documents has been duly authorized, executed and delivered by the Trustee, and, assuming due
execution and delivery by the other parties thereto, constitutes the legal, valid and binding obligation
of the Trustee, enforceable in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and other laws affecting the enforcement of creditors’ rights in general and
except as such enforceability may be limited by the application of equitable principles if equitable
remedies are sought;
15.A certificate of the Community Facilities District dated the Closing
Date, in a form acceptable to Bond Counsel and the Underwriter, that the Bonds are not arbitrage bonds
within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended;
16.A certificate, dated the Closing Date, signed by an authorized officer
of Pardee Homes, in form and substance acceptable to Bond Counsel and the Underwriter;
17.An opinion of Nossaman LLP, counsel to the Underwriter
(“Underwriter’s Counsel”), dated the date of Closing and addressed to the Underwriter in form and
substance acceptable to the Underwriter; and
15
18.Such additional legal opinions, certificates, instruments and other
documents as the Underwriter may reasonably request to evidence the truth and accuracy, as of the
date hereof and as of the Closing Date, of the material representations and warranties of the Community
Facilities District contained herein, and of the statements and information contained in the Official
Statement and the due performance or satisfaction by the Community Facilities District at or prior to
the Closing of all agreements then to be performed and all conditions then to be satisfied by the
Community Facilities District in connection with the transactions contemplated hereby and by the
Indenture and the Official Statement.
If the Community Facilities District shall be unable to satisfy the conditions to the obligations
of the Underwriter to purchase, accept delivery of and pay for the Bonds contained in this Purchase
Agreement, or if the obligations of the Underwriter to purchase, accept delivery of and pay for the
Bonds shall be terminated for any reason permitted by this Purchase Agreement, this Purchase
Agreement shall terminate and neither the Community Facilities District nor the Underwriter shall be
under any further obligation hereunder, except that the respective obligations of the Underwriter and
the Community Facilities District set forth in Section 5 hereof shall continue in full force and effect.
4.Establishment of Issue Price.
A.The Underwriter agrees to assist the Community Facilities District in
establishing the issue price of the Bonds and shall execute and deliver to the Community Facilities
District at Closing an “issue price” or similar certificate, together with the supporting pricing wires or
equivalent communications, substantially in the form attached hereto as Exhibit B, with such
modifications as may be appropriate or necessary, in the reasonable judgment of the Underwriter, the
Community Facilities District, and Bond Counsel, to accurately reflect, as applicable, the sales price
or prices or the initial offering price or prices to the public of the Bonds. All actions to be taken by the
Community Facilities District under this section to establish the issue price of the Bonds may be taken
on behalf of the Community Facilities District by the Community Facilities District’s Municipal
Advisor identified herein and any notice or report to be provided to the Community Facilities District
may be provided to the Community Facilities District’s Municipal Advisor.
B.Except as otherwise set forth in Exhibit A attached hereto, the Community
Facilities District will treat the first price at which 10% of each maturity of the Bonds (the “10% test”),
identified under the column “10% Test Used” in Exhibit A, is sold to the public as the issue price of
that maturity (if different interest rates apply within a maturity, each separate CUSIP number within
that maturity will be subject to the 10% test). At or promptly after the execution of this Purchase
Agreement, the Underwriter shall report to the Community Facilities District the price or prices at
which it has sold to the public each maturity of Bonds. If at that time the 10% test has not been satisfied
as to any maturity of the Bonds, the Underwriter agrees to promptly report to the Community Facilities
District the prices at which it sells the unsold Bonds of that maturity to the public. That reporting
obligation shall continue, whether or not the Closing Date has occurred, until the 10% test has been
satisfied as to the Bonds of that maturity or until all Bonds of that maturity have been sold to the public.
C.The Underwriter confirms that it has offered the Bonds to the public on or
before the date of this Purchase Agreement at the offering price or prices (the “initial offering price”),
or at the corresponding yield or yields, set forth in Exhibit A attached hereto, except as otherwise set
forth therein. Exhibit A also sets forth, identified under the column “Hold the Offering Price Rule
Used,” as of the date of this Purchase Agreement, the maturities, if any, of the Bonds for which the
10% test has not been satisfied and for which the Community Facilities District and the Underwriter
16
agree that the restrictions set forth in the next sentence shall apply, which will allow the Community
Facilities District to treat the initial offering price to the public of each such maturity as of the sale date
as the issue price of that maturity (the “hold-the-offering-price rule”). So long as the hold-the-offering-
price rule remains applicable to any maturity of the Bonds, the Underwriter will neither offer nor sell
unsold Bonds of that maturity to any person at a price that is higher than the initial offering price to
the public during the period starting on the sale date and ending on the earlier of the following:
(1)the close of the fifth (5th) business day after the sale date; or
(2)the date on which the Underwriter has sold at least 10% of that maturity of the
Bonds to the public at a price that is no higher than the initial offering price to
the public.
The Underwriter shall promptly advise the Community Facilities District when it has sold 10%
of that maturity of the Bonds to the public at a price that is no higher than the initial offering price to
the public, if that occurs prior to the close of the fifth (5th) business day after the sale date.
D.The Underwriter confirms that any selling group agreement and any retail
distribution agreement relating to the initial sale of the Bonds to the public, together with the related
pricing wires, contains or will contain language obligating each dealer who is a member of the selling
group and each broker-dealer that is a party to such retail distribution agreement, as applicable, to (A)
report the prices at which it sells to the public the unsold Bonds of each maturity allotted to it until it
is notified by the Underwriter that either the 10% test has been satisfied as to the Bonds of that maturity
or all Bonds of that maturity have been sold to the public and (B) comply with the hold-the-offering-
price rule, if applicable, in each case if and for so long as directed by the Underwriter. The Community
Facilities District acknowledges that, in making the representation set forth in this subsection, the
Underwriter will rely on (i) in the event a selling group has been created in connection with the initial
sale of the Bonds to the public, the agreement of each dealer who is a member of the selling group to
comply with the hold-the-offering-price rule, if applicable, as set forth in a selling group agreement
and the related pricing wires, and (ii) in the event that a retail distribution agreement was employed in
connection with the initial sale of the Bonds to the public, the agreement of each broker-dealer that is
a party to such agreement to comply with the hold-the-offering-price rule, if applicable, as set forth in
the retail distribution agreement and the related pricing wires. The Community Facilities District
further acknowledges that the Underwriter shall not be liable for the failure of any dealer who is a
member of a selling group, or of any broker-dealer that is a party to a retail distribution agreement, to
comply with its corresponding agreement regarding the hold-the-offering-price rule as applicable to
the Bonds.
E.The Underwriter acknowledges that sales of any Bonds to any person that is a
related party to the Underwriter shall not constitute sales to the public for purposes of this section.
Further, for purposes of this section:
(i)“public” means any person other than an underwriter or a related party,
(ii)“underwriter” means (A) any person that agrees pursuant to a written contract
with the Community Facilities District (or with the lead underwriter to form an underwriting
syndicate) to participate in the initial sale of the Bonds to the public and (B) any person that
agrees pursuant to a written contract directly or indirectly with a person described in clause (A)
to participate in the initial sale of the Bonds to the public (including a member of a selling
17
group or a party to a retail distribution agreement participating in the initial sale of the Bonds
to the public),
(iii)a purchaser of any of the Bonds is a “related party” to an underwriter if the
underwriter and the purchaser are subject, directly or indirectly, to (i) at least 50% common
ownership of the voting power or the total value of their stock, if both entities are corporations
(including direct ownership by one corporation of another), (ii) more than 50% common
ownership of their capital interests or profits interests, if both entities are partnerships
(including direct ownership by one partnership of another), or (iii) more than 50% common
ownership of the value of the outstanding stock of the corporation or the capital interests or
profit interests of the partnership, as applicable, if one entity is a corporation and the other
entity is a partnership (including direct ownership of the applicable stock or interests by one
entity of the other), and
(iv)“sale date” means the date of execution of this Purchase Agreement by all
parties.
5.Expenses. Whether or not the transactions contemplated by this Purchase Agreement
are consummated, the Underwriter shall be under no obligation to pay, and the Community Facilities
District shall pay only from the proceeds of the Bonds, or any other legally available funds of the City,
or the Community Facilities District, but only as the Community Facilities District and such other party
providing such services may agree, all expenses and costs of the Community Facilities District incident
to the performance of its obligations in connection with the authorization, execution, sale and delivery
of the Bonds to the Underwriter, including, without limitation, printing costs, rating agency fees and
charges, initial fees of the Trustee, including fees and disbursements of their counsel, if any, fees and
disbursements of Bond Counsel, Disclosure Counsel and other professional advisors employed by the
City, costs of preparation, printing, signing, transportation, delivery and safekeeping of the Bonds and
for expenses (included in the expense component of the spread) incurred by the Underwriter on behalf
of the City’s employees which are incidental to implementing this Purchase Agreement, including, but
not limited to, meals, transportation, lodging, and entertainment of those employees. The Underwriter
shall pay all out-of-pocket expenses of the Underwriter, including, without limitation, advertising
expenses, the California Debt and Investment Advisory Commission fee, CUSIP Services Bureau
charges, regulatory fees imposed on new securities issuers and any and all other expenses incurred by
the Underwriter in connection with the public offering and distribution of the Bonds, including fees
and disbursements of Underwriter’s Counsel. Any meals in connection with or adjacent to meetings,
rating agency presentations, pricing activities or other transaction-related activities shall be considered
an expense of the transaction and included in the expense component of the Underwriter’s discount.
6.Notices. Any notice of other communication to be given to the Community Facilities
District or the Community Facilities District under this Purchase Agreement may be given by
delivering the same in writing to the City of Lake Elsinore, 130 South Main Street, Lake Elsinore,
California 92530, Attention: Director of Administrative Services; any notice or other communication
to be given to the Underwriter under this Purchase Agreement may be given by delivering the same in
writing to Stifel, Nicolaus & Company, Incorporated, 515 South Figueroa Street, Suite 1800, Los
Angeles, California 90071, Attention: John Kim, Managing Director.
7.Parties In Interest. This Purchase Agreement is made solely for the benefit of the
Community Facilities District and Underwriter (including any successors or assignees of the
Underwriter) and no other person shall acquire or have any right hereunder or by virtue hereof.
18
8.Survival of Representations and Warranties. The representations and warranties of the
Community Facilities District under this Purchase Agreement shall remain operative and in full force
and effect, regardless of any investigations made by or on behalf of the Underwriter and shall survive
the Closing and the termination of this Purchase Agreement.
9.Execution in Counterparts. This Purchase Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered shall be an original, but
all such counterparts shall together constitute but one and the same instrument.
10.Effective. This Purchase Agreement shall become effective and binding upon the
respective parties hereto upon the execution of the acceptance hereof by the Community Facilities
District and shall be valid and enforceable as of the time of such acceptance.
11.No Prior Agreements. This Purchase Agreement supersedes and replaces all prior
negotiations, agreements and understanding among the parties hereto in relation to the sale of the
Bonds by the Community Facilities District.
12.Governing Law. This Purchase Agreement shall be governed by the laws of the State
of California.
S-1
13.Effective Date. This Purchase Agreement shall become effective and binding upon the
respective parties hereto upon the execution of the acceptance hereof by the Community Facilities
District and shall be valid and enforceable as of the time of such acceptance.
Very truly yours,
STIFEL, NICOLAUS & COMPANY,
INCORPORATED
By:
Its:Authorized Officer
The foregoing is hereby agreed to and
accepted as of the date first above written:
CITY OF LAKE ELSINORE COMMUNITY
FACILITIES DISTRICT NO. 2003-2
(CANYON HILLS)
By:
Authorized Officer
Time of Execution: _____________ p.m. California time
[EXECUTION PAGE OF BOND PURCHASE AGREEMENT]
A-1
EXHIBIT A
$_________
CITY OF LAKE ELSINORE
COMMUNITY FACILITIES DISTRICT NO. 2003-2 (CANYON HILLS)
SPECIAL TAX BONDS, SERIES 2018
(IMPROVEMENT AREA E)
Maturity
(September 1)
Principal
Amount
Interest
Rate Yield Price
10% Test
Satisfied*
10% Test
Not
Satisfied
Subject to
Hold-The-
Offering-
Price Rule
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
20__(T)
20__(T)
_________________
(T) Term Bond.
(C) Priced to optional call at [par] on September 1, 20__.
* At the time of execution of this Purchase Agreement and assuming orders are confirmed by the close
of the business day immediately following the date of this Purchase Agreement.
B-1
EXHIBIT B
FORM OF ISSUE PRICE CERTIFICATE
$_________
CITY OF LAKE ELSINORE
COMMUNITY FACILITIES DISTRICT NO. 2003-2 (CANYON HILLS)
SPECIAL TAX BONDS, SERIES 2018
(IMPROVEMENT AREA E)
The undersigned, on behalf of Stifel, Nicolaus & Company, Incorporated (“Stifel”) hereby
certifies as set forth below with respect to the sale and issuance of the above-captioned bonds (the
“Bonds”).
1.Sale of the General Rule Maturities. As of the date of this certificate, for each
Maturity of the General Rule Maturities, the first price at which at least 10% of such Maturity was sold
to the Public is the respective price listed in Schedule A.
2.Initial Offering Price of the Hold-the-Offering-Price Maturities.
(a)Stifel offered the Hold-the-Offering-Price Maturities to the Public for purchase at the
respective initial offering prices listed in Schedule A (the “Initial Offering Prices”) on or before the
Sale Date. A copy of the pricing wire or equivalent communication for the Bonds is attached to this
certificate as Schedule B.
(b)As set forth in the Bond Purchase Agreement, dated ______, 2018, by and between
Stifel and City of Lake Elsinore Community Facilities District No. 2003-2 (Canyon Hills) (the
“Community Facilities District”), Stifel has agreed in writing that, (i) for each Maturity of the Hold-
the-Offering-Price Maturities, it would neither offer nor sell any of the Bonds of such Maturity to any
person at a price that is higher than the Initial Offering Price for such Maturity during the Holding
Period for such Maturity (the “hold-the-offering-price rule”), and (ii) any selling group agreement shall
contain the agreement of each dealer who is a member of the selling group, and any retail distribution
agreement shall contain the agreement of each broker-dealer who is a party to the retail distribution
agreement, to comply with the hold-the-offering-price rule. Pursuant to such agreement, no
Underwriter (as defined below) has offered or sold any Maturity of the Hold-the-Offering-Price
Maturities at a price that is higher than the respective Initial Offering Price for that Maturity of the
Bonds during the Holding Period.
3.Defined Terms.
(a)General Rule Maturities means those Maturities of the Bonds listed in Schedule A
hereto as the “General Rule Maturities.”
(b)Hold-the-Offering-Price Maturities means those Maturities of the Bonds listed in
Schedule A hereto as the “Hold-the-Offering-Price Maturities.”
(c)Holding Period means, with respect to a Hold-the-Offering-Price Maturity, the period
starting on the Sale Date and ending on the earlier of (i) the close of the fifth business day after the
B-2
Sale Date, or (ii) the date on which Stifel has sold at least 10% of such Hold-the-Offering-Price
Maturity to the Public at prices that are no higher than the Initial Offering Price for such Hold-the-
Offering-Price Maturity.
(d)Issuer means the City of Lake Elsinore Community Facilities District No. 2003-2
(Canyon Hills) (the “Community Facilities District”).
(e)Maturity means Bonds with the same credit and payment terms. Bonds with different
maturity dates, or Bonds with the same maturity date but different stated interest rates, are treated as
separate maturities.
(f)Public means any person (including an individual, trust, estate, partnership,
association, company, or corporation) other than an Underwriter or a related party to an Underwriter.
The term “related party” for purposes of this certificate generally means any two or more persons who
have greater than 50 percent common ownership, directly or indirectly.
(g)Sale Date means the first day on which there is a binding contract in writing for the
sale of a Maturity of the Bonds. The Sale Date of the Bonds is _______, 2018.
(h)Underwriter means (i) any person that agrees pursuant to a written contract with the
Issuer (or with the lead underwriter to form an underwriting syndicate) to participate in the initial sale
of the Bonds to the Public, and (ii) any person that agrees pursuant to a written contract directly or
indirectly with a person described in clause (i) of this paragraph to participate in the initial sale of the
Bonds to the Public (including a member of a selling group or a party to a retail distribution agreement
participating in the initial sale of the Bonds to the Public).
The representations set forth in this certificate are limited to factual matters only. Nothing in
this certificate represents Stifel’s interpretation of any laws, including specifically Sections 103 and
148 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations thereunder. The
undersigned understands that the foregoing information will be relied upon by the Issuer with respect
to certain of the representations set forth in the Tax Certificate and with respect to compliance with the
federal income tax rules affecting the Bonds, and by Stradling Yocca Carlson & Rauth, a Professional
Corporation in connection with rendering its opinion that the interest on the Bonds is excluded from
gross income for federal income tax purposes, the preparation of the Internal Revenue Service Form
8038-G, and other federal income tax advice that it may give to the Issuer from time to time relating
to the Bonds.
STIFEL, NICOLAUS & COMPANY,
INCORPORATED
By:
Name:
By:
Name:
Dated: ________, 2018
B-3
SCHEDULE A
SALE PRICES OF THE GENERAL RULE MATURITIES AND INITIAL OFFERING
PRICES OF THE HOLD-THE-OFFERING-PRICE MATURITIES
(To be attached)
B-4
SCHEDULE B
PRICING WIRE OR EQUIVALENT COMMUNICATION
Stradling Yocca Carlson & Rauth
Draft of 4/2/18
1
DISTRICT CONTINUING DISCLOSURE CERTIFICATE
This Continuing Disclosure Certificate dated as of May 1, 2018 (the “Disclosure Certificate”)
is executed and delivered by City of Lake Elsinore Community Facilities District No. 2003-2 (Canyon
Hills) (the “District”) in connection with the issuance and delivery by the District of its $_______
Special Tax Bonds, Series 2018 (Improvement Area E) (the “Bonds”). The Bonds are being issued
pursuant to Resolution No. 2018-___ adopted on April 10, 2018, by the City Council of the City of
Lake Elsinore, acting as the legislative body of the District, and the Bond Indenture, dated as of May
1, 2018, by and between the District and Wilmington Trust, National Association, as trustee. The
District covenants as follows:
Section 1.Purpose of the Disclosure Certificate. This Disclosure Certificate is being
executed and delivered by the District for the benefit of the Owners and Beneficial Owners of the
Bonds and in order to assist the Underwriter in complying with Rule 15c2-12(b)(5) of the Securities
and Exchange Commission.
Section 2.Definitions. In addition to the definitions set forth in the Indenture, which
apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this
Section, the following capitalized terms shall have the following meanings:
“Annual Report” shall mean any Annual Report provided by the District pursuant to, and as
described in, Section 3 and 4 of this Disclosure Certificate.
“Beneficial Owner” shall mean any person which (a) has the power, directly or indirectly, to
vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding
Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any
Bonds for federal income purposes.
“City” means the City of Lake Elsinore, County of Riverside, California.
“Disclosure Representative” shall mean the Assistant City Manager of the City, or his or her
designee, or such other officer or employee as the District shall designate in writing to the
Dissemination Agent from time to time.
“Dissemination Agent” shall mean, initially, Spicer Consulting Group, LLC, or any successor
Dissemination Agent designated in writing by the District and which has filed with the then current
Dissemination Agent a written acceptance of such designation.
“District” shall mean City of Lake Elsinore Community Facilities District No. 2003-2 (Canyon
Hills).
“EMMA” shall mean the Electronic Municipal Market Access system of the MSRB.
“Improvement Area E” shall mean Improvement Area E of the District.
“Listed Events” shall mean any of the events listed in Section 5(a) of this Disclosure
Certificate.
2
“MSRB” shall mean the Municipal Securities Rulemaking Board and any successor entity
designated under the Rule as the repository for filings made pursuant to the Rule.
“Official Statement” shall mean that certain Official Statement for the Bonds dated April __,
2018.
“Owners” shall mean the registered owners of the Bonds as set forth in the registration books
maintained by the Trustee.
“Repository” shall mean the MSRB or any other entity designated or authorized by the
Securities and Exchange Commission to receive reports pursuant to the Rule. Unless otherwise
designated by the MSRB or the Securities and Exchange Commission, filings with the MSRB are to
be made through the EMMA website of the MSRB, currently located at http://emma.msrb.org.
“Rule” shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as the same may be amended from time to time.
“State” shall mean the State of California.
“Trustee” means Wilmington Trust, National Association or such other entity appointed by the
District pursuant to the Indenture to act as the trustee under the Indenture.
“Underwriter” shall mean any underwriter of the Bonds required to comply with the Rule in
connection with offering of the Bonds.
Section 3.Provision of Annual Reports.
(a)The District shall, or, if the Dissemination Agent is other than the District, upon written
direction shall cause the Dissemination Agent to, not later than December 31 after the end of the
District’s Fiscal Year (June 30) commencing with the report due by December 31, 2018, provide to
the Repository an Annual Report which is consistent with the requirements of Section 4 of this
Disclosure Certificate. The Annual Report may be submitted as a single document or as separate
documents comprising a package, and may include by reference other information as provided in
Section 4 of this Disclosure Certificate; provided that the audited financial statements of the District,
if any exist, may be submitted separately from the balance of the Annual Report and later than the date
required above for the filing of the Annual Report if they are not available by that date. If the District’s
fiscal year changes, the District shall give notice of such change in the same manner as for a Listed
Event under Section 5(d).
(b)In the event that the Dissemination Agent is an entity other than the District, then the
provisions of this Section 3(b) shall apply. Not later than fifteen (15) Business Days prior to the date
specified in subsection (a) for providing the Annual Report, the District shall provide the Annual
Report to the Dissemination Agent. If by fifteen (15) Business Days prior to the due date for an Annual
Report the Dissemination Agent has not received a copy of the Annual Report, the Dissemination
Agent shall contact the District to determine if the District will be filing the Annual Report in
compliance with subsection (a). The District shall provide a written certification with each Annual
Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the
Annual Report required to be furnished by it hereunder. The Dissemination Agent may conclusively
3
rely upon such certification of the District and shall have no duty or obligation to review such Annual
Report.
(c)If the Dissemination Agent is unable to verify that an Annual Report has been provided
to EMMA by the date required in subsection (a), the Dissemination Agent shall send, in a timely
manner, a notice to EMMA, in the form required by EMMA.
(d)If the Dissemination Agent is other than the District, the Dissemination Agent shall:
(i)determine each year prior to the date for providing the Annual Report the name
and address of the repository if other than the MSRB through EMMA; and
(ii)promptly after receipt of the Annual Report, file a report with the District
certifying that the Annual Report has been provided to EMMA and the date it was provided.
(e)Notwithstanding any other provision of this Disclosure Certificate, all filings shall be
made in accordance with the MSRB’s EMMA system or in another manner approved under the Rule.
Section 4.Content of Annual Reports. The District’s Annual Report shall contain or
include by reference the following:
(a)Financial Statements. The audited financial statements of the District for the prior
fiscal year, if any have been prepared and which, if prepared, shall be prepared in accordance with
generally accepted accounting principles as promulgated to apply to governmental entities from time
to time by the Governmental Accounting Standards Board; provided, however, that the District may,
from time to time, if required by federal or state legal requirements, modify the basis upon which its
financial statements are prepared. In the event that the District shall modify the basis upon which its
financial statements are prepared, the District shall provide the information referenced in Section 8
below regarding such modification. If the District is preparing audited financial statements and such
audited financial statements are not available by the time the Annual Report is required to be filed
pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements, and the
audited financial statements shall be filed in the same manner as the Annual Report when they become
available.
(b)Financial and Operating Data. The Annual Report shall contain or incorporate by
reference the following:
(i)the principal amount of the Bonds outstanding as of the September 2 preceding
the filing of the Annual Report;
(ii)the balance in each fund under the Indenture as of the September 2 preceding
the filing of the Annual Report;
(iii)the aggregate assessed valuation of the Taxable Property within Improvement
Area E;
(iv)any changes to the Rate and Method of Apportionment of Special Tax for
Improvement Area E approved or submitted to the qualified electors for approval prior to the
filing of the Annual Report;
4
(v)a table setting forth the annual Special Tax delinquency rate within
Improvement Area E at June 30 of each fiscal year for which a delinquency exists, listing for
each fiscal year, the total Special Tax levy, the delinquent amount and the percent delinquent;
and
(vi)the status of any foreclosure actions being pursued by the District with respect
to delinquent Special Taxes within Improvement Area E.
Any or all of the items listed above may be included by specific reference to other documents,
including official statements of debt issues of the District or related public entities, which have been
submitted to EMMA or the Securities and Exchange Commission. If the document included by
reference is a final official statement, it must be available from the MSRB through EMMA. The
District shall clearly identify each such other document so included by reference.
Section 5.Reporting of Significant Events.
(a)Pursuant to the provisions of this Section 5, the District shall give, or cause the
Dissemination Agent to give, notice filed with the Repository of the occurrence of any of the following
events with respect to the Bonds in a timely manner not more than ten (10) business days after the
event:
1.principal and interest payment delinquencies;
2.unscheduled draws on debt service reserves reflecting financial difficulties;
3.unscheduled draws on credit enhancements reflecting financial difficulties;
4.substitution of credit or liquidity providers, or their failure to perform;
5.adverse tax opinions or the issuance by the Internal Revenue Service of
proposed or final determinations of taxability or of a Notice of Proposed Issue
(IRS Form 5701-TEB);
6.tender offers;
7.defeasances;
8.ratings changes; and
9.bankruptcy, insolvency, receivership or similar proceedings.
Note: for the purposes of the event identified in subparagraph (9), the event is
considered to occur when any of the following occur: the appointment of a receiver,
fiscal agent or similar officer for an obligated person in a proceeding under the U.S.
Bankruptcy Code or in any other proceeding under state or federal law in which a court
or governmental authority has assumed jurisdiction over substantially all of the assets
or business of the obligated person, or if such jurisdiction has been assumed by leaving
the existing governmental body and officials or officers in possession but subject to the
supervision and orders of a court or governmental authority, or the entry of an order
confirming a plan of reorganization, arrangement or liquidation by a court or
5
governmental authority having supervision or jurisdiction over substantially all of the
assets or business of the obligated person.
(b)Pursuant to the provisions of this Section 5, the District shall give, or cause to be given,
notice of the occurrence of any of the following events with respect to the Bonds, if material:
1.unless described in paragraph 5(a)(5) above, notices or determinations by the
Internal Revenue Service with respect to the tax status of the Bonds or other
material events affecting the tax status of the Bonds;
2.the consummation of a merger, consolidation or acquisition involving an
obligated person or the sale of all or substantially all of the assets of the
obligated person, other than in the ordinary course of business, the entry into a
definitive agreement to undertake such an action or the termination of a
definitive agreement relating to any such actions, other than pursuant to its
terms;
3.appointment of a successor or additional paying agent or the change of the
name of a paying agent;
4.nonpayment related defaults;
5.modifications to the rights of Owners of the Bonds;
6.notices of redemption; and
7.release, substitution or sale of property securing repayment of the Bonds.
(c)Upon the occurrence of a Listed Event under Section 5(b) above, the District shall as
soon as possible determine if such event would be material under applicable federal securities laws.
(d)If the District determines that knowledge of the occurrence of a Listed Event under
Section 5(b) would be material under applicable federal securities laws, the District shall file a notice
of such occurrence with the Repository in a timely manner not more than 10 business days after the
event.
(e)The District hereby agrees that the undertaking set forth in this Disclosure Certificate
is the responsibility of the District and that the Dissemination Agent, if other than the District, shall
not be responsible for determining whether the District’s instructions to the Dissemination Agent under
this Section 5 comply with the requirements of the Rule.
Section 6.Termination of Reporting Obligation. The District’s obligations under this
Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full
of all of the Bonds.
Section 7.Dissemination Agent. The District may, from time to time, appoint or engage
a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and
may discharge any such Dissemination Agent, with or without appointing a successor Dissemination
Agent. The Dissemination Agent, if other than the District, shall not be responsible in any manner for
the content of any notice or report prepared by the District pursuant to this Disclosure Certificate. If
6
at any time there is not any other designated Dissemination Agent, the Trustee shall be the
Dissemination Agent. The initial Dissemination Agent shall be Spicer Consulting Group, LLC. The
Dissemination Agent may resign by providing thirty (30) days written notice to the District and the
Trustee.
Section 8.Amendment; Waiver. Notwithstanding any other provision of this Disclosure
Certificate, the District may amend this Disclosure Certificate, and any provision of this Disclosure
Certificate may be waived, provided that the following conditions are satisfied:
(a)If the amendment or waiver is related to the provisions of Sections 3(a), 4, or 5, it may
only be made in connection with a change in circumstances that arises from a change in legal
requirements, change in law, or change in the identity, nature or status of an obligated person with
respect to the Bonds, or the type of business conducted;
(b)The undertaking hereunder, as amended or taking into account such waiver, would, in
the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule
at the time of the original issuance of the Bonds, after taking into account any amendments or
interpretations of the Rule, as well as any change in circumstances; and
(c)The amendment or waiver either (i) is approved by the Owners of the Bonds in the
same manner as provided in the Indenture for amendments to the Indenture with the consent of Owners,
or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of
the Owners or Beneficial Owners of the Bonds.
In the event of any amendment or waiver of a provision of this Disclosure Certificate, the
District shall describe such amendment in the next Annual Report, and shall include, as applicable, a
narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in the
case of a change of accounting principles, on the presentation) of financial information or operating
data being presented by the District. In addition, if the amendment related to the accounting principles
to be followed in preparing financial statements, (i) notice of such change shall be given in the same
manner as for a Listed Event under Section 5(a), and (ii) the Annual Report for the year in which the
change is made should present a comparison (in narrative form and also, if feasible, in quantitative
form) between the financial statements as prepared on the basis of the new accounting principles and
those prepared on the basis of the formed accounting principles.
Section 9.Additional Information. Nothing in this Disclosure Certificate shall be deemed
to prevent the District from disseminating any other information, using the means of dissemination set
forth in this Disclosure Certificate or any other means of communication, or including any other
information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which
is required by this Disclosure Certificate. If the District chooses to include any information in any
Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically
required by this Disclosure Certificate, the District shall have no obligation under this Certificate to
update such information or include it in any future Annual Report or notice of occurrence of a Listed
Event.
Section 10.Default. In the event of a failure of the District to comply with any provision
of this Disclosure Certificate, the Trustee at the written direction of any Underwriter or the Owners of
at least 25% aggregate principal amount of Outstanding Bonds, shall, or any Owner or Beneficial
Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking
7
mandate or specific performance by court order, to cause the District to comply with its obligations
under this Disclosure Certificate, but only to the extent funds have been provided to it or it has been
otherwise indemnified to its satisfaction from any cost, liability, expense or additional charges of the
Trustee whatsoever, including, without limitation, fees and expenses of its attorney. A default under
this Disclosure Certificate shall not be deemed an Event of Default under the Indenture, and the sole
remedy under this Disclosure Certificate shall be an action to compel performance.
Section 11.Duties, Immunities and Liabilities of Dissemination Agent. Where an entity
other than the District is acting as the Dissemination Agent, the Dissemination Agent shall have only
such duties as are specifically set forth in this Disclosure Certificate, and the District agrees to
indemnify and save the Dissemination Agent and its officers, directors, employees and agents,
harmless against any loss, expense and liabilities which they may incur arising out of or in the exercise
or performance of their powers and duties hereunder, including the costs and expenses (including
attorneys’ fees) of defending against any claim of liability, but excluding liabilities due to the
Dissemination Agent’s negligence or willful misconduct. Any Dissemination Agent shall be paid (i)
compensation by the District for its services provided hereunder in accordance with a schedule of fees
to be mutually agreed to; and (ii) all expenses, legal fees and advances made or incurred by the
Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent shall have
no duty or obligation to review any information provided to it by the District pursuant to this Disclosure
Certificate. The obligations of the District under this Section shall survive resignation or removal of
the Dissemination Agent and payment of the Bonds. No person shall have any right to commence any
action against the Dissemination Agent seeking any remedy other than to compel specific performance
of this Disclosure Certificate. The Dissemination Agent shall not be liable under any circumstances
for monetary damages to any person for any breach under this Disclosure Certificate.
Section 12.Notices. Any notices or communications to or among any of the parties to this
Disclosure Certificate may be given as follows:
District:City of Lake Elsinore Community Facilities District No.
2003-2 (Canyon Hills)
City of Lake Elsinore
130 South Main Street
Lake Elsinore, CA 92530
Attn: Assistant City Manager
Underwriter:Stifel, Nicolaus & Company, Incorporated
One Montgomery Street, 35th Floor
San Francisco, CA 94104
Attn: Public Finance Department
Any person may, by written notice to the other persons listed above, designate a different
address or telephone number(s) to which subsequent notice or communications should be sent.
Section 13.Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of
the District, the Trustee, the Dissemination Agent, the Underwriter and Owners and Beneficial Owners
from time to time of the Bonds, and shall create no rights in any other person or entity.
This Disclosure Certificate is executed as of the date and year first set forth above.
8
CITY OF LAKE ELSINORE COMMUNITY
FACILITIES DISTRICT NO. 2003-2 (CANYON
HILLS)
By:
Disclosure Representative
Stradling Yocca Carlson & Rauth
Draft of 4/2/18
PRELIMINARY OFFICIAL STATEMENT DATED APRIL __, 2018
NEW ISSUE—BOOK-ENTRY ONLY NO RATING
In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Bond Counsel, under existing statutes, regulations, rulings and judicial
decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest (and original
issue discount) on the Bonds described herein is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of
calculating the federal alternative minimum tax imposed on individuals. In the further opinion of Bond Counsel, interest (and original issue discount) on the Bonds
is exempt from State of California personal income tax. See the caption “TAX EXEMPTION”with respect to tax consequences relating to the Bonds.
$2,320,000*
CITY OF LAKE ELSINORE
COMMUNITY FACILITIES DISTRICT NO. 2003-2 (CANYON HILLS)
SPECIAL TAX BONDS, SERIES 2018
(IMPROVEMENT AREA E)
Dated: Delivery Date Due: September 1, as shown on inside cover page
The City of Lake Elsinore Community Facilities District No. 2003-2 (Canyon Hills) Special Tax Bonds, Series 2018 (Improvement Area E) (the
“Bonds”) are being issued by City of Lake Elsinore Community Facilities District No. 2003-2 (Canyon Hills) (the “District”) for Improvement Area E therein
(“Improvement Area E”) to: (i) finance certain public improvements needed with respect to the development of property located within Improvement Area E,
including public improvements to be owned by the City and water and sewer facilities to be owned and operated by the Elsinore Valley Municipal Water District;
(ii) fund a reserve account for the Bonds; and (iii) pay costs of issuance for the Bonds. The Bonds are authorized to be issued pursuant to the Mello-Roos
Community Facilities Act of 1982, as amended (Section 53311 et seq. of the Government Code of the State of California) (the “Act”), and pursuant to that certain
Bond Indenture, dated as of May 1, 2018 (the “Indenture”), by and between the District and Wilmington Trust, National Association, as trustee (the “Trustee”).
The Bonds are payable from Net Taxes (as defined herein) derived from a certain annual Special Tax (as defined herein) to be levied on taxable parcels
within Improvement Area E and from certain other funds pledged under the Indenture, all as further described herein. The Special Tax is to be levied according to
the rate and method of apportionment approved by the City Council of the City and the qualified electors within Improvement Area E of the District. See the
caption “SOURCES OF PAYMENT FOR THE BONDS—Special Taxes”and Appendix A—”RATE AND METHOD OF APPORTIONMENT OF SPECIAL
TAX.”
The Bonds will be issued in fully registered form and when issued will be registered in the name of Cede & Co., as nominee of The Depository Trust
Company, New York, New York (“DTC”). Individual purchases of the Bonds may be made in principal amounts of $5,000 and integral multiples thereof and will
be in book-entry form only. Purchasers of Bonds will not receive certificates representing their beneficial ownership of the Bonds but will receive credit balances
on the books of their respective nominees. The Bonds will not be transferable or exchangeable except for transfer to another nominee of DTC or as otherwise
described herein. Interest on the Bonds will be payable on September 1, 2018 and each March 1 and September 1 thereafter. Principal of and interest on the Bonds
will be paid by the Trustee to DTC for subsequent disbursement to DTC Participants, who will remit such payments to the Beneficial Owners of the Bonds.
NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE CITY, THE COUNTY OF RIVERSIDE, THE STATE OF
CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE BONDS. EXCEPT FOR THE NET TAXES,
NO OTHER REVENUES OR TAXES ARE PLEDGED TO THE PAYMENT OF THE BONDS. THE BONDS ARE NOT GENERAL OR SPECIAL
OBLIGATIONS OF THE CITY OR GENERAL OBLIGATIONS OF THE DISTRICT BUT ARE LIMITED OBLIGATIONS OF THE DISTRICT PAYABLE
SOLELY FROM NET TAXES AND OTHER AMOUNTS HELD UNDER THE INDENTURE AS MORE FULLY DESCRIBED HEREIN.
The Bonds are subject to optional redemption, special mandatory redemption and mandatory sinking fund redemption prior to maturity as set forth
herein. See the caption “THE BONDS—Redemption.”
Investment in the Bonds involves risks that are not appropriate for certain investors. Certain events could affect the ability of the District to
pay the principal of and interest on the Bonds when due. See the caption “SPECIAL RISK FACTORS”for a discussion of certain risk factors that should
be considered, in addition to the other matters set forth herein, in evaluating the investment quality of the Bonds.
THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR GENERAL REFERENCE ONLY. IT IS NOT INTENDED TO BE A
SUMMARY OF THE SECURITY OR TERMS OF THIS ISSUE. INVESTORS ARE ADVISED TO READ THE ENTIRE OFFICIAL STATEMENT TO
OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF AN INFORMED INVESTMENT DECISION.
MATURITY SCHEDULE
(See Inside Cover Page)
The Bonds are offered when, as and if issued and accepted by the Underwriter, subject to approval as to their legality by Stradling Yocca Carlson &
Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel, and subject to certain other conditions. Certain legal matters will be passed on
for the City and the District by Leibold McClendon, & Mann, Irvine, California, City Attorney, and by Stradling Yocca Carlson & Rauth, a Professional
Corporation, Disclosure Counsel, for the Underwriter by Nossaman LLP, Irvine, California, and for the Trustee by its counsel. It is anticipated that the Bonds in
book-entry form will be available for delivery on or about May __, 2018.
Dated: April __, 2018
*Preliminary, subject to change.This Preliminary Official Statement and the information contained herein are subject to completion or amendment. These securities may not be sold, nor may offers to buy them be accepted, prior tothe time the Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statementconstitute an offer to sell or the solicitation of an offer to buy, nor shall therebe any sale of, these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful.
$2,320,000*
CITY OF LAKE ELSINORE
COMMUNITY FACILITIES DISTRICT NO. 2003-2 (CANYON HILLS)
SPECIAL TAX BONDS, SERIES 2018
(IMPROVEMENT AREA E)
MATURITY SCHEDULE
BASE CUSIP®†*50963N
$______ Serial Bonds
Maturity Date
(September 1)
Principal
Amount Interest Rate Yield Price CUSIP No.
†
$_________ Term Bonds
$________ _______% Term Bonds due September 1, 20__ Yield: ____% Price: ______ CUSIP No.
†___
$________ _______% Term Bonds due September 1, 20__ Yield: ____% Price: ______ CUSIP No.
†___
*Preliminary, subject to change.
*†CUSIP® is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services, managed
by S&P Global Market Intelligence on behalf of The American Bankers Association. This information is not intended to create a database and does
not serve in any way as a substitute for the CUSIP Services Bureau. CUSIP numbers have been assigned by an independent company not affiliated
with the City, the District or the Underwriter and are included solely for the convenience of the registered owners of the applicable Bonds. None
of the City, the District or the Underwriter is responsible for the selection or uses of these CUSIP numbers, and no representation is made as to
their correctness on the applicable Bonds or as included herein. The CUSIP number for a specific maturity is subject to being changed after the
issuance of the Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part or as a result of the
procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of certain
maturities of the Bonds.
CITY OF LAKE ELSINORE
COUNTY OF RIVERSIDE, CALIFORNIA
CITY COUNCIL
Natasha Johnson, Mayor
Steve Manos, Mayor Pro Tem
Daryl Hickman, Councilmember
Robert E. Magee, Councilmember
Brian Tisdale, Councilmember
CITY ADMINISTRATORS
Grant Yates, City Manager
Jason Simpson, Assistant City Manager
CITY ATTORNEY
Leibold McClendon, & Mann
Irvine, California
BOND AND DISCLOSURE COUNSEL
Stradling Yocca Carlson & Rauth, a Professional Corporation
Newport Beach, California
MUNICIPAL ADVISOR
Urban Futures Incorporated
Orange, California
SPECIAL TAX CONSULTANT
Spicer Consulting Group, LLC
Temecula, California
APPRAISER
Kitty Siino & Associates, Inc.
Tustin, California
TRUSTEE
Wilmington Trust, National Association
Costa Mesa, California
Except where otherwise indicated, all information contained in this Official Statement has been provided by the
City and the District. No dealer, broker, salesperson or other person has been authorized by the City, the District, the Trustee
or the Underwriter to give any information or to make any representations in connection with the offer or sale of the Bonds
other than those contained herein and, if given or made, such other information or representations must not be relied upon
as having been authorized by the City, the District, the Trustee or the Underwriter. This Official Statement does not
constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Bonds by a person in any
jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale.
This Official Statement is not to be construed as a contract with the purchasers or Owners of the Bonds. Statements
contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so
described herein, are intended solely as such and are not to be construed as representations of fact.
The Underwriter has provided the following sentence for inclusion in this Official Statement:
The Underwriter has reviewed the information in this Official Statement in accordance
with, and as a part of, its responsibilities to investors under the federal securities laws
as applied to the facts and circumstances of this transaction, but the Underwriter does
not guarantee the accuracy or completeness of such information.
The information and expressions of opinion herein are subject to change without notice and neither the delivery of
this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the City, the District or any other parties described herein since the date hereof. All
summaries of the Indenture or other documents are made subject to the provisions of such documents respectively and do
not purport to be complete statements of any or all of such provisions. Reference is hereby made to such documents on file
with the City for further information in connection therewith.
IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITER MAY
OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF
SUCH BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT. THE BONDS HAVE NOT
BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE.
Certain statements included or incorporated by reference in this Official Statement constitute “forward-looking
statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the
United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933,
as amended. Such statements are generally identifiable by the terminology used such as a “plan,” “expect,” “estimate,”
“project,” “budget,” or similar words. Such forward-looking statements include, but are not limited to certain statements
contained in the information under the caption “IMPROVEMENT AREA E OF THE DISTRICT.”
THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH
FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND
OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS
DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR
ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE
DISTRICT DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THE FORWARD-LOOKING
STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT. IN EVALUATING SUCH STATEMENTS,
POTENTIAL INVESTORS SHOULD SPECIFICALLY CONSIDER THE VARIOUS FACTORS WHICH COULD
CAUSE ACTUAL EVENTS OR RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH
FORWARD-LOOKING STATEMENTS.
The City maintains a website. However, the information presented on such website is not part of this Official
Statement and should not be relied upon in making an investment decision with respect to the Bonds.
i
TABLE OF CONTENTS
Page
INTRODUCTION................................................................................................................................................1
The District and Improvement Area E..............................................................................................................1
Sources of Payment for the Bonds....................................................................................................................2
Appraisal Report...............................................................................................................................................3
Description of the Bonds..................................................................................................................................3
Tax Exemption..................................................................................................................................................4
Professionals Involved in the Offering.............................................................................................................4
Continuing Disclosure......................................................................................................................................4
Parity Bonds for Refunding Purposes Only......................................................................................................5
Bond Owners’ Risks.........................................................................................................................................5
Other Information.............................................................................................................................................5
ESTIMATED SOURCES AND USES OF FUNDS............................................................................................5
THE BONDS........................................................................................................................................................6
General Provisions............................................................................................................................................6
Debt Service Schedule......................................................................................................................................7
Redemption.......................................................................................................................................................7
Registration, Transfer and Exchange..............................................................................................................11
SOURCES OF PAYMENT FOR THE BONDS................................................................................................11
Limited Obligations........................................................................................................................................11
Special Taxes..................................................................................................................................................12
Reserve Account of the Special Tax Fund......................................................................................................17
No Teeter Plan................................................................................................................................................18
Parity Bonds for Refunding Purposes Only....................................................................................................18
IMPROVEMENT AREA E OF THE DISTRICT..............................................................................................18
General Information........................................................................................................................................18
The Project......................................................................................................................................................19
Appraisal Report.............................................................................................................................................19
Estimated Appraised Value-to-Lien Ratio......................................................................................................19
Direct and Overlapping Debt..........................................................................................................................22
Delinquency History.......................................................................................................................................25
PROPERTY OWNERSHIP AND THE DEVELOPMENT...............................................................................26
SPECIAL RISK FACTORS...............................................................................................................................27
Risks of Real Estate Secured Investments Generally.....................................................................................27
Tax Cuts and Jobs Act....................................................................................................................................27
Insufficiency of Special Tax Revenues...........................................................................................................28
Land Values....................................................................................................................................................29
Natural Disasters.............................................................................................................................................30
Hazardous Substances.....................................................................................................................................30
Enforcement Delays – Bankruptcy.................................................................................................................31
FDIC/Federal Government Interests in Parcels..............................................................................................31
Direct and Overlapping Indebtedness.............................................................................................................32
Payment of Special Taxes is not a Personal Obligation of the Property Owners ...........................................32
No Acceleration Provision..............................................................................................................................33
Limited Obligations........................................................................................................................................33
Ballot Initiatives..............................................................................................................................................33
Proposition 218...............................................................................................................................................33
Shapiro Case...................................................................................................................................................34
ii
Loss of Tax Exemption...................................................................................................................................35
No Ratings – Limited Secondary Market .......................................................................................................35
Limitations on Remedies................................................................................................................................35
Potential Early Redemption of Bonds from Prepayments or Assessment Bond Proceeds.............................35
CONTINUING DISCLOSURE..........................................................................................................................36
TAX EXEMPTION............................................................................................................................................36
LEGAL OPINION..............................................................................................................................................38
ABSENCE OF LITIGATION............................................................................................................................38
NO RATING ......................................................................................................................................................38
UNDERWRITING .............................................................................................................................................38
FINANCIAL INTERESTS.................................................................................................................................39
MUNICIPAL ADVISOR ...................................................................................................................................39
MISCELLANEOUS...........................................................................................................................................39
APPENDIX A RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX................................A-1
APPENDIX B CERTAIN ECONOMIC AND DEMOGRAPHIC INFORMATION...................................B-1
APPENDIX C FORM OF OPINION OF BOND COUNSEL.......................................................................C-1
APPENDIX D APPRAISAL REPORT.........................................................................................................D-1
APPENDIX E SUMMARY OF THE INDENTURE.................................................................................... E-1
APPENDIX F FORM OF CONTINUING DISCLOSURE CERTIFICATE.................................................F-1
APPENDIX G BOOK-ENTRY ONLY SYSTEM........................................................................................G-1
[INSERT MAP]
[INSERT AERIAL PHOTOGRAPH]
1
$2,320,000*
CITY OF LAKE ELSINORE
COMMUNITY FACILITIES DISTRICT NO. 2003-2 (CANYON HILLS)
SPECIAL TAX BONDS, SERIES 2018
(IMPROVEMENT AREA E)
INTRODUCTION
The purpose of this Official Statement, which includes the cover page, the table of contents and the
attached appendices (collectively, the “Official Statement”), is to provide certain information concerning the
issuance by City of Lake Elsinore Community Facilities District No. 2003-2 (Canyon Hills) (the “District”) of
its Special Tax Bonds, Series 2018 (Improvement Area E) in the aggregate principal amount of $2,320,000
*(the
“Bonds”). The proceeds of the Bonds will be used to: (i) finance certain public improvements needed with
respect to the development of property located within Improvement Area E, including public improvements to
be owned by the City and water and sewer facilities to be owned and operated by the Elsinore Valley Municipal
Water District; (ii) fund a reserve account for the Bonds; and (iii) pay costs of issuance for the Bonds.
The Bonds are authorized to be issued pursuant to the Mello-Roos Community Facilities Act of 1982,
as amended (Section 53311 et seq. of the Government Code of the State of California) (the “Act”), and a Bond
Indenture, dated as of May 1, 2018 (the “Indenture”), by and between the District and Wilmington Trust,
National Association, as trustee (the “Trustee”). The Bonds are secured under the Indenture by a pledge of and
lien upon Net Taxes (as such term is defined herein) and all moneys in the Special Tax Fund (other than the
Administrative Expense Account therein) as described in the Indenture.
This Introduction is not a summary of this Official Statement. It is only a brief description of and guide
to, and is qualified by, more complete and detailed information contained in the entire Official Statement and
the documents summarized or described herein. A full review should be made of the entire Official Statement.
The sale and delivery of Bonds to potential investors is made only by means of the entire Official Statement.
All capitalized terms used in this Official Statement and not defined have the meanings set forth in Appendix E.
The District and Improvement Area E
The District. The City of Lake Elsinore (the “City”) is located in the western portion of Riverside
County (the “County”), California (the “State”). The District comprises a portion of Canyon Hills, a planned
residential community located in the southeast portion of the City, to the east of Lake Elsinore. Within the
Canyon Hills development, approximately 2,529 residential units have been completed and closed to individual
homeowners. Through an amendment to the Canyon Hills specific plan in 2009, the property within
Improvement Area E is now included in the Canyon Hills master planned community and was annexed into the
Canyon Hills homeowner’s association. As further describe below, in 2016, the property within Improvement
Area E was annexed to the District. To date, Pardee Homes (as defined below) and its homebuilding affiliates
have completed various amenities, including recreational facilities, parks and hiking trails that serve the Canyon
Hills community.
Improvement Area E. Improvement Area E consists of 21.6 gross acres and 14.5 net acres located in
the eastern portion of the City, east of Hermosa Drive, west of Anna Lane and southeast of Railroad Canyon
Road. The property within Improvement Area E has been developed by Pardee Homes, a California Corporation
(“Pardee Homes”) into a residential development of 74 single family detached homes that was marketed as
“Senterra.” All 74 homes had been completed and conveyed to individual homeowners, with the final home
closing in December 2017.
*Preliminary, subject to change.
2
See the caption “IMPROVEMENT AREA E OF THE DISTRICT—General Information” for further
information with respect to the District and Improvement Area E.
Formation Proceedings. The District was formed on January 13, 2004 pursuant to the Act. The Act
was enacted to provide an alternative method of financing certain public capital facilities and services, especially
in developing areas of the State. Any local agency (as defined in the Act) may establish a community facilities
district to provide for and finance the cost of eligible public facilities and services. Generally, the legislative
body of the local agency which forms a community facilities district acts on behalf of such district as its
legislative body. Subject to approval by two-thirds of the votes cast at an election and compliance with the other
provisions of the Act, a legislative body of a local agency may issue bonds for a community facilities district
and may levy and collect a special tax within such district to repay such indebtedness.
Pursuant to the Act, on October 14, 2003, the City Council adopted Resolution No. 2003-50, stating its
intention to form the District, designate Improvement Areas A through D therein, and to authorize the levy of a
special tax on the taxable property within Improvement Areas A through D. Subsequent to a noticed public
hearing, the City Council adopted Resolution No. 2004-6 on January 13, 2004 which established the District,
designated Improvement Areas A through D therein, authorized the levy of a special tax within each of
Improvement Areas A through D, and called an election within each of Improvement Areas A through D on the
propositions of levying a special tax and setting an appropriations limit within the District.
Pursuant to the Act, on March 8, 2016, the City Council, acting as the legislative body of the District,
adopted Resolution No. 2016-021 (the “Resolution of Intention”), stating its intention to annex certain property
to the District and designate such property as Improvement Area E of the District and to incur bonded
indebtedness in an aggregate principal amount not to exceed $3,000,000 for the purpose of financing the
acquisition, construction, expansion, improvement, or rehabilitation of certain public facilities to serve the area
within the District.
Subsequent to a noticed public hearing on April 12, 2016, the City Council adopted Resolution 2016-
032 and 2016-033 (collectively with Resolution No. 2004-6, the “Resolution of Formation”). Pursuant to
Resolution No. 2016-032: (i) Improvement Area E was annexed to the District; (ii) a special tax was authorized
to be levied within Improvement Area E; (iii) the City Council, acting as a legislative body of the District,
determined that it was necessary to incur bonded indebtedness for Improvement Area E in an amount not to
exceed $3,000,000; and (iv) an election was called within Improvement Area E on the proposition of incurring
bonded indebtedness and levying the Special Tax.
On April 12, 2016, an election was held in which the property owner within Improvement Area E
approved the proposition authorizing the issuance of bonds in an amount not to exceed $3,000,000 to finance
the Facilities. A Notice of Special Tax Lien for Improvement Area E was recorded in the office of the County
Recorder on April 22, 2016 as Document No. 2016-0160274. On April 26, 2016, the City Council, acting as the
legislative body of the District, adopted Ordinance No. 2016-1358 (the “Ordinance”) which authorizes the levy
within Improvement Area E of a special tax pursuant to the Rate and Method of Apportionment of Special Tax
for Improvement Area E approved at the April 12, 2016, election (the “Rate and Method”), a copy of which is
attached hereto as Appendix A.
Sources of Payment for the Bonds
Special Taxes. As used in this Official Statement, the term “Special Tax” means the annual Special
Tax which has been authorized pursuant to the Act and the Rate and Method to be levied upon taxable property
within Improvement Area E. See the caption “SOURCES OF PAYMENT FOR THE BONDS—Special Taxes”
and Appendix A—“RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX.” See the caption
“IMPROVEMENT AREA E OF THE DISTRICT.”
3
Under the Indenture, the District has pledged to repay the Bonds and any Parity Bonds (as defined
herein) from the Special Tax revenues remaining after the payment of certain annual Administrative Expenses
of the District (the “Net Taxes”) and from other amounts in the Special Tax Fund (other than the Administrative
Expense Account therein) established under the Indenture. The Special Taxes are the primary source of security
for the repayment of the Bonds and any Parity Bonds. In the event that the Special Taxes are not paid when due,
the only sources of funds available to pay the debt service on the Bonds and any Parity Bonds are amounts held
by the Trustee in the Special Tax Fund, including amounts held in the Reserve Account therein, to the limited
extent described in the Indenture. See the caption “SOURCES OF PAYMENT FOR THE BONDS—Reserve
Account of the Special Tax Fund.”
Foreclosure Proceeds. The District will covenant in the Indenture for the benefit of the owners of the
Bonds and Parity Bonds that it will: (i) commence judicial foreclosure proceedings against parcels with
delinquent Special Taxes in excess of $5,000 by the October 1 following the close of each Fiscal Year in which
such Special Taxes were due; and (ii) commence judicial foreclosure proceedings against all parcels with
delinquent Special Taxes by the October 1 following the close of each Fiscal Year in which it receives Special
Taxes in an amount which is less than 95% of the total Special Tax levied; and (iii) diligently pursue such
foreclosure proceedings until the delinquent Special Taxes are paid; provided that, notwithstanding the
foregoing, the District may elect to defer foreclosure proceedings on any parcel so long as the amount in the
Reserve Account is at least equal to the Reserve Requirement. See the caption “SOURCES OF PAYMENT
FOR THE BONDS—Special Taxes—Proceeds of Foreclosure Sales.” There is no assurance that the property
within Improvement Area E can be sold for the assessed values described herein, or for a price sufficient to pay
the principal of and interest on the Bonds in the event of a default in payment of Special Taxes by the current or
future landowners within Improvement Area E. See the caption “SPECIAL RISK FACTORS—Assessed
Value.”
EXCEPT FOR THE NET TAXES, NO OTHER TAXES ARE PLEDGED TO THE PAYMENT
OF THE BONDS. THE BONDS ARE NOT GENERAL OR SPECIAL OBLIGATIONS OF THE CITY
OR GENERAL OBLIGATIONS OF THE DISTRICT, BUT ARE LIMITED OBLIGATIONS OF THE
DISTRICT PAYABLE SOLELY FROM NET TAXES AND AMOUNTS HELD UNDER THE
INDENTURE, AS MORE FULLY DESCRIBED HEREIN.
Appraisal Report
Kitty Siino & Associates, Inc. (the “Appraiser”) has conducted an Appraisal dated March 22, 2018 of
the land within Improvement Area E subject to the Special Tax (the “Appraisal Report”). The Appraisal Report
sets forth an estimate of the market value of the fee simple interest of the taxable land and improvements within
Improvement Area E. The Appraiser is of the opinion that, based upon the assumptions and conditions contained
in the Appraisal Report, the market value of the taxable land and improvements in existence within Improvement
Area E, as of March 1, 2018 (the “Date of Value”), was $33,748,930. This estimate of value results in an overall
appraised value-to-lien ratio of the property within Improvement Area E of approximately 12.20-to-1*based on
the estimated amount of land secured debt allocated to parcels within Improvement Area E (includingthe Bonds).
See “THE DISTRICT — Appraisal Report,” Appendix D — “APPRAISAL REPORT” and “SPECIAL RISK
FACTORS — Parity Taxes and Special Assessments.”
Description of the Bonds
The Bonds will be issued and delivered as fully registered Bonds, registered in the name of Cede & Co.,
as nominee of The Depository Trust Company, New York, New York (“DTC”), and will be available to actual
purchasers of the Bonds (the “Beneficial Owners”) in the denominations of $5,000 or any integral multiple
thereof, under the book-entry system maintained by DTC, only through brokers and dealers who are or act
through DTC Participants as described herein. Beneficial Owners will not beentitled to receive physical delivery
*Preliminary, subject to change.
4
of the Bonds. In the event that the book-entryonly system described herein is no longer used with respect to the
Bonds, the Bonds will be registered and transferred in accordance with the Indenture. See Appendix G—
”BOOK-ENTRY ONLY SYSTEM.”
Principal of, premium, if any, and interest on the Bonds is payable by the Trustee to DTC. Disbursement
of such payments to DTC Participants is the responsibility of DTC and disbursement of such payments to the
Beneficial Owners is the responsibility of DTC Participants. See Appendix G—”BOOK-ENTRY ONLY
SYSTEM.”
The Bonds are subject to optional redemption, special mandatory redemption and mandatory sinking
fund redemption prior to maturity as described herein. See the caption “THE BONDS—Redemption.” For a
more complete description of the Bonds and the basic documentation pursuant to which they are being sold and
delivered, see the caption “THE BONDS” and Appendix E—“SUMMARY OF THE INDENTURE.”
Tax Exemption
In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach,
California (“Bond Counsel”), under existing statutes, regulations, rulings and judicial decisions, and assuming
certain representations and compliance with certain covenants and requirements described herein, interest (and
original issue discount) on the Bonds is excluded from gross income for federal income tax purposes and is not
an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals.
In the further opinion of Bond Counsel, interest (and original issue discount) on the Bonds is exempt from State
of California personal income tax. See the caption “TAX EXEMPTION.”
Set forth in Appendix C is the form of opinion of Bond Counsel expected to be delivered in connection
with the issuance of the Bonds. For a more complete discussion of such opinion and certain tax consequences
incident to the ownership of the Bonds, see the caption “TAX EXEMPTION.”
Professionals Involved in the Offering
Wilmington Trust, National Association, Costa Mesa, California, will act as Trustee under the
Indenture. Stifel, Nicolaus & Company, Incorporated (the “Underwriter”) is the Underwriter of the Bonds.
Certain proceedings in connection with the issuance and delivery of the Bonds are subject to the approval of
Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel and
Disclosure Counsel to the District in connection with the issuance of the Bonds. Certain legal matters will be
passed on for the City and the District by Leibold McClendon, & Mann, Irvine, California, City Attorney, for
the Underwriter by Nossaman LLP, Irvine, California, and for the Trustee by its counsel. Other professional
services have been performed by Spicer Consulting Group, LLC, Temecula, California, as Special Tax
Consultant (the “Special Tax Consultant”) and by Kitty Siino & Associates, Tustin, California, as Appraiser.
For information concerning circumstances in which certain of the above-mentioned professionals,
advisors, counsel and consultants may have a financial or other interest in the offering of the Bonds, see the
caption “FINANCIAL INTERESTS.”
Continuing Disclosure
The District has agreed to provide, or cause to be provided, to the Municipal Securities Rulemaking
Board’s Electronic Municipal Market Access system (“EMMA”), maintained on the Internet at
http://emma.msrb.org, certain annual financial information and operating data and notices of certain enumerated
events. These covenants have been made in order to assist the Underwriter in complying with subsection (b)(5)
of Rule 15c2-12 adopted by the Securities and Exchange Commission (“Rule 15c2-12”). See “CONTINUING
DISCLOSURE” and Appendix F—”FORM OF CONTINUING DISCLOSURE CERTIFICATE.”
5
Parity Bonds for Refunding Purposes Only
The District will covenant in the Indenture not to issue additional indebtedness secured by the Net Taxes
on a parity with the Bonds (“Parity Bonds”) other than for refunding all or a portion of the Bonds or Parity
Bonds. See the caption “SOURCES OF PAYMENT FOR THE BONDS—Parity Bonds for Refunding Purposes
Only.” Other taxes and/or special assessments with liens equal in priority to the continuing lien of the Special
Taxes may also be levied in the future on the property within Improvement Area E, which could adversely affect
the willingness of the landowners to pay the Special Taxes when due. See the captions “IMPROVEMENT
AREA E OF THE DISTRICT—Direct and Overlapping Debt” and “SPECIAL RISK FACTORS—Direct and
Overlapping Indebtedness.”
Bond Owners’ Risks
Certain events could affect the ability of the District to pay the principal of and interest on the Bonds
when due. See the caption “SPECIAL RISK FACTORS” for a discussion of certain factors which should be
considered, in addition to other matters set forth herein, in evaluating an investment in the Bonds. The purchase
of the Bonds involves risks, and the Bonds may not be appropriate investments for some types of investors.
Other Information
This Official Statement speaks only as of its date, and the information contained herein is subject to
change.
Brief descriptions of the Bonds and the Indenture are included in this Official Statement. Such
descriptions and information do not purport to be comprehensive or definitive. All references herein to the
Indenture, the Bonds and the Constitution and laws of the State, as well as the proceedings of the City Council,
acting as the legislative body of the District, are qualified in their entirety by references to such documents, laws
and proceedings, and with respect to the Bonds, by reference to the Indenture. Capitalized terms not otherwise
defined in this Official Statement have the meanings set forth in Appendix E.
Copies of the Indenture and other documents and information are available for inspection and copies
may be obtained from the City, 130 S. Main Street, Lake Elsinore, California, 92530, Attention: City Clerk.
ESTIMATED SOURCES AND USES OF FUNDS
The following table sets forth the expected sources and uses of Bond proceeds and Special Taxes
collected by the District in Fiscal Year 2017-18.
Sources of Funds
Principal Amount of Bonds $
Plus/Less Net Original Issue Premium/Discount
Total Sources $
Uses of Funds:
Acquisition and Construction Fund $
Costs of Issuance Account(1)
Reserve Account of the Special Tax Fund
Underwriter’s Discount
Total Uses $
(1)To pay costs of issuance of the Bonds, including legal fees, printing costs, Appraiser, Special Tax Consultant and Trustee fees.
6
THE BONDS
General Provisions
The Bonds will be dated their date of delivery and will bear interest at the rates per annum set forth on
the inside cover page hereof, payable semiannually on September 1, 2018 and each March 1 and September 1
thereafter (each, an “Interest Payment Date”), and will mature in the amounts and on the dates set forth on the
inside cover page of this Official Statement. The Bonds will be issued in fully registered form in denominations
of $5,000 or any integral multiple thereof.
Interest will be calculated on the basis of a 360-day year comprised of twelve 30-day months. Interest
on any Bond will be payable from the Interest Payment Date next preceding the date of authentication of that
Bond, unless: (i) such date of authentication is an Interest Payment Date, in which event interest will be payable
from such date of authentication; (ii) the date of authentication is after the fifteenth day of the month preceding
an Interest Payment Date, regardless of whether such day is a Business Day (each, a “Record Date”) but prior to
the immediately succeeding Interest Payment Date, in which event interest will be payable from the Interest
Payment Date immediately succeeding the date of authentication; or (iii) the date of authentication is prior to the
close of business on the first Record Date, in which event interest will be payable from the dated date of the
Bonds; provided, however, that if at the time of authentication of a Bond, interest is in default, interest on such
Bond will be payable from the last Interest Payment Date to which the interest has been paid or made available
for payment, or, if no interest has been paid or made available for payment on such Bond, interest on such Bond
will be payable from its dated date.
Interest on any Bond will be paid to the person whose name appears as its owner in the registration
books held by the Trustee on the close of business on the Record Date. Principal of, premium, if any, due upon
redemption is payable upon presentation and surrender of the Bonds at the principal corporate trust office of the
Trustee in Costa Mesa, California.
The Bonds will be issued as fully registered bonds and will be registered in the name of Cede & Co., as
nominee of DTC. DTC will act as securities depository of the Bonds. Ownership interests in the Bonds may
be purchased in book-entry form only in denominations of $5,000 and any integral multiple thereof. So long as
DTC is the securities depository all payments of principal and interest on the Bonds will be made to DTC and
will be paid to the Beneficial Owners in accordance with DTC’s procedures and the procedures of DTC’s
Participants. See APPENDIX G — “BOOK-ENTRY-ONLY SYSTEM.”
In the event the Bonds are not held in book-entry form, interest will be paid by check of the Trustee
mailed by first class mail, postage prepaid, to the Bondowner at its address on the registration books kept by the
Trustee. Pursuant to a written request prior to the Record Date of a Bondowner of at least $1,000,000 in aggregate
principal amount of Bonds, payment will be made by wire transfer in immediately available funds to a designated
account in the United States.
7
Debt Service Schedule
The following table presents the annual debt service on the Bonds (including sinking fund redemptions),
assuming that there are no optional or special mandatory redemptions. See the caption “—Redemption” below.
Year Ending
September 1 Principal Interest Total Debt Service
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
Total
Redemption*
Optional Redemption. The Bonds may be redeemed at the option of the District from any source of
funds on any Interest Payment Date on or after __________, 201_, in whole or in part, from such maturities as
are selected by the District and by lot within a maturity, at the following redemption prices, expressed as a
percentage of the principal amount to be redeemed, together with accrued interest to the date of redemption:
*Preliminary, subject to change.
8
Redemption Date Redemption Price
103%
102
101
100
In the event that the District elects to redeem Bonds as provided above, the District will give written
notice to the Trustee of its election to so redeem, the redemption date and the principal amount of the Bonds of
each maturity to be redeemed. The notice to the Trustee will be given at least 30 but no more than 60 days prior
to the redemption date, or by such later date as is acceptable to the Trustee.
Mandatory Sinking Fund Redemption. The Bonds maturing on September 1, 20__ (the “20__ Term
Bonds”) will be called before maturity and redeemed, from the Sinking Fund Payments that have been deposited
into the Redemption Account established by the Indenture, on September 1, 20__, and on each September 1
thereafter prior to maturity, in accordance with the schedule of Sinking Fund Payments set forth below. The
20__ Term Bonds so called for redemption will be selected by the Trustee by lot and will be redeemed at a
redemption price for each redeemed 20__ Term Bond equal to the principal amount thereof, plus accrued interest
to the redemption date, without premium, as follows:
Term Bonds Maturing September 1, 20__
Sinking Fund Redemption Date
(September 1)Sinking Payments
$
†
†Maturity.
The Bonds maturing on September 1, 20__ (the “20__ Term Bonds” and together with the 20__ Term
Bonds, the “Term Bonds”) will be called before maturity and redeemed, from the Sinking Fund Payments that
have been deposited into the Redemption Account established by the Indenture, on September 1, 20__, and on
each September 1 thereafter prior to maturity, in accordance with the schedule of Sinking Fund Payments set
forth below. The 20__ Term Bonds so called for redemption will be selected by the Trustee by lot and will be
redeemed at a redemption price for each redeemed 20__ Term Bond equal to the principal amount thereof, plus
accrued interest to the redemption date, without premium, as follows:
Term Bonds Maturing September 1, 20__
Sinking Fund Redemption Date
(September 1)Sinking Payments
$
†
†Maturity.
If the District purchases Term Bonds during the Fiscal Year immediately preceding one of the sinking
fund redemption dates specified above, the District will notify the Trustee at least 45 days prior to the redemption
date as to the principal amount purchased, and the amount purchased will be credited at the time of purchase to
9
the next Sinking Fund Payment for the Term Bond so purchased, to the extent of the full principal amount of the
purchase. All Term Bonds purchased will be cancelled pursuant to the Indenture.
In the event of a partial optional redemption or special mandatory redemption of the Term Bonds, each
of the remaining Sinking Fund Payments for such Term Bonds will be reduced, as nearly as practicable, on a
pro rata basis.
Special Mandatory Redemption from Special Tax Prepayments. The Bonds are subject to special
mandatory redemption as a whole or in part on a pro rata basis among maturities and by lot within a maturity,
on any Interest Payment Date, and will be redeemed by the Trustee, from any amounts paid by the District to
the Trustee and designated by the District as a prepayment of Special Taxes for one or more parcels in
Improvement Area E made in accordance with the Rate and Method (the “Prepayments”) deposited to the
Redemption Account pursuant to the Indenture, plus amounts transferred from the Reserve Account pursuant to
the Indenture, at the following redemption prices, expressed as a percentage of the principal amount to be
redeemed, together with accrued interest to the redemption date:
Redemption Date Redemption Price
Any Interest Payment Date through March 1, 20__103%
September 1, 20__ and March 1, 20__102
September 1, 20__ and March 1, 20__101
September 1, 20__ and any Interest Payment Date thereafter 100
Notice of Redemption. So long as the Bonds are held in book-entry form, notice of redemption will be
sent by the Trustee to DTC and not to the Beneficial Owners of the Bonds under the DTC book-entry only
system. Neither the District nor the Trustee is responsible for notifying the Beneficial Owners, who are to be
notified in accordance with the procedures in effect for the DTC book-entry system. See Appendix G—“BOOK-
ENTRY ONLY SYSTEM.”
The Trustee will give notice, in the name of the District, of the redemption of Bonds. Such notice of
redemption will: (i) specify the CUSIP numbers (if any), the bond numbers and the maturity date or dates of the
Bonds selected for redemption, except that where all of the Bonds are subject to redemption, or all of the Bonds
of one maturity are to be redeemed, the bond numbers of such issue need not be specified; (ii) state the date fixed
for redemption and surrender of the Bonds to be redeemed; (iii) state the redemption price; (iv) state the place
or places where the Bonds are to be redeemed; (v) in the case of Bonds to be redeemed only in part, state the
portion of such Bond which is to be redeemed; (vi) state the date of issue of the Bonds as originally issued;
(vii) state the rate of interest borne by each Bond being redeemed; and (viii) state any other descriptive
information needed to identify accurately the Bonds being redeemed as specified by the Trustee. Such notice
will further state that on the date fixed for redemption, there will become due and payable on each Bond, or
portion thereof called for redemption, the principal thereof, together with any premium, and interest accrued to
the redemption date, and that from and after such date, interest thereon will cease to accrue and be payable. At
least 30 days but no more than 45 days prior to the redemption date, the Trustee will mail a copy of such notice
of redemption, by first class mail, postage prepaid, to the respective Owners thereof at their addresses appearing
on the Bond Register, and to the original purchaser of any Bonds; provided, however, so long as the Bonds are
registered in the name of the Nominee, such notice shall be given in such manner as complies with the
requirements of the Depository. The actual receipt by the Owner of any Bond of notice of such redemption is
not a condition precedent to redemption, and neither the failure to receive nor any defect in such notice will
affect the validity of the proceedings for the redemption of such Bonds, or the cessation of interest on the
redemption date. A certificate by the Trustee that notice of such redemption has been given as provided in the
Indenture will be conclusive as against all parties and the Owner is not entitled to show that he or she failed to
receive notice of such redemption.
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In addition to the foregoing notice, further notice will be given by the Trustee as set out below, but no
defect in said further notice nor any failure to give all or any portion of such further notice will in any manner
defeat the effectiveness of a call for redemption if notice thereof is given as above prescribed.
Each further notice of redemption will be sent not later than the date that notice of redemption is given
to the Owners pursuant to the Indenture by first class mail or facsimile to the Depository and to any other
registered securities depositories then in the business of holding substantial amounts of obligations of types
comprising the Bonds as determined by the Trustee and to one or more of the national information services that
the Trustee determines are in the business of disseminating notice of redemption of obligations such as the
Bonds.
Upon the payment of the redemption price of any Bonds being redeemed, each check or other transfer
of funds issued for such purpose will to the extent practicable bear the CUSIP number identifying, by issue and
maturity, the Bonds being redeemed with the proceeds of such check or other transfer.
With respect to any notice of optional redemption of Bonds, such notice maystate that such redemption
is conditional upon the receipt by the Trustee on or prior to the date fixed for such redemption of moneys
sufficient to pay the principal of, premium, if any, and interest on such Bonds to be redeemed and that, if such
moneys have not been so received, said notice will be of no force and effect and the Trustee will not be required
to redeem such Bonds. In the event that such notice of redemption contains such a condition and such moneys
are not so received, the redemption will not be made, and the Trustee will within a reasonable time thereafter
give notice, in the manner in which the notice of redemption was given, that such moneys were not so received.
Selection of Bonds for Redemption. If less than all of the Bonds Outstanding are to be redeemed, the
portion of any Bond of a denomination of more than $5,000 to be redeemed will be in the principal amount of
$5,000 or an integral multiple thereof. In selecting portions of such Bonds for redemption, the Trustee will treat
such Bonds, as applicable, as representing that number of Bonds of $5,000 denominations which is obtained by
dividing the principal amount of such Bonds to be redeemed in part by $5,000. The procedure for the selection
of Parity Bonds for redemption may be modified as set forth in the Supplemental Indenture for such Parity
Bonds. The Trustee will promptly notify the District in writing of the Bonds, or portions thereof, selected for
redemption.
Partial Redemption of Bonds. Upon surrender of any Bond to be redeemed in part only, the District
will execute and the Trustee will authenticate and deliver to the Owner, at the expense of the District, a new
Bond or Bonds of authorized denominations equal in aggregate principal amount to the unredeemed portion of
the Bonds surrendered, with the same interest rate and the same maturity.
Effect of Notice and Availability of Redemption Money. Notice of redemption having been duly given,
as provided in the Indenture, and the amount necessary for the redemption having been made available for that
purpose and being available therefor on the date fixed for such redemption: (i) the Bonds, or portions thereof,
designated for redemption will, on the date fixed for redemption, become due and payable at the redemption
price thereof as provided in the Indenture, anything in the Indenture or in the Bonds to the contrary
notwithstanding; (ii) upon presentation and surrender thereof at the office of the Trustee, the redemption price
of such Bonds will be paid to the Owners thereof; (iii) as of the redemption date the Bonds, or portions thereof
so designated for redemption will be deemed to be no longer Outstanding and such Bonds, or portions thereof,
will cease to bear further interest; and (iv) as of the date fixed for redemption no Owner of any of the Bonds, or
portions thereof so designated for redemption will be entitled to any of the benefits of the Indenture, or to any
other rights, except with respect to payment of the redemption price and interest accrued to the redemption date
from the amounts so made available.
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Registration, Transfer and Exchange
Registration. The Trustee will keep sufficient books for the registration and transfer of the Bonds. The
ownership of the Bonds will be established by the Bond registration books held by the Trustee.
Transfer or Exchange. Subject to the limitations set forth in the following paragraph, the registration
of any Bond may, in accordance with its terms, be transferred upon the Bond Register by the person in whose
name it is registered, in person or by his or her duly authorized attorney, upon surrender of such Bond for
cancellation at the office of the Trustee, accompanied by delivery of written instrument of transfer in a form
acceptable to the Trustee and duly executed by the Owner or his or her duly authorized attorney.
Bonds may be exchanged at the office of the Trustee for a like aggregate principal amount of Bonds for
other authorized denominations of the same maturity and issue. The Trustee may not collect from the Owner
any charge for any new Bond issued upon any exchange or transfer, but will require the Owner requesting such
exchange or transfer to pay any tax or other governmental charge required to be paid with respect to such
exchange or transfer. Whenever any Bonds are surrendered for registration of transfer or exchange, the District
will execute and the Trustee will authenticate and deliver a new Bond or Bonds, as applicable, of the same issue
and maturity, for a like aggregate principal amount; provided that the Trustee is not required to register transfers
or make exchanges of: (i) Bonds for a period of 15 days next preceding any selection of the Bonds to be
redeemed; or (ii) any Bonds chosen for redemption.
SOURCES OF PAYMENT FOR THE BONDS
Limited Obligations
The Bonds are special, limited obligations of the District payable only from amounts pledged under the
Indenture and from no other sources.
The Special Taxes are the primary source of security for the repayment of the Bonds. Under the
Indenture, the District has pledged to repay the Bonds from the Net Taxes (which are Special Tax revenues
remaining after the payment of the annual Administrative Expenses in an amount not to exceed the
Administrative Expenses Cap (as defined in the Indenture)) and from amounts held in the Special Tax Fund
(other than amounts held in the Administrative Expense Account therein). Special Tax revenues include the
proceeds of the annual Special Tax levy received by the District, including any scheduled payments and
Prepayments thereof, and the net proceeds of the redemption of delinquent Special Taxes or sale of property sold
as a result of foreclosure of the lien of delinquent Special Taxes to the amount of said lien, and penalties and
interest thereon; provided that any delinquent Special Tax sold to an independent third-party or to the City for
100% of the delinquent amount shall no longer be pledged under the Indenture to the payment of the Bonds or
Parity Bonds.
In the event that the Special Tax revenues are not received when due, the only sources of funds available
to pay the debt service on the Bonds are amounts held by the Trustee in the Special Tax Fund (other than the
Administrative Expense Account therein), including amounts held in the Reserve Account therein, for the
exclusive benefit of the Owners of the Bonds.
NEITHER THE FAITH ANDCREDIT NOR THE TAXING POWER OF THE CITY, THE COUNTY,
THE STATE OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE
BONDS. EXCEPT FOR THE NET TAXES, NO OTHER TAXES ARE PLEDGED TO THE PAYMENT OF
THE BONDS. THE BONDS ARE NOT GENERAL OR SPECIAL OBLIGATIONS OF THE CITY BUT ARE
LIMITED OBLIGATIONS OF THE DISTRICT PAYABLE SOLELY FROM THE NET TAXES AND
OTHER AMOUNTS PLEDGED UNDER THE INDENTURE AS MORE FULLY DESCRIBED HEREIN.
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Special Taxes
Authorization and Pledge. In accordance with the provisions of the Act, the City established the
District on January 13, 2004 and annexed Improvement Area E to the District on April 12, 2016 for the purpose
of financing of various public improvements required in connection with the proposed development within the
District. At a special election held on April 12, 2016, the qualified electorwithin Improvement Area Eauthorized
the District to incur indebtedness in an amount not to exceed $3,000,000 for Improvement Area E and the levy
of the Special Taxes on property within Improvement Area E to repay such bonds and to finance the Facilities
(as defined below). The qualified electorwithin Improvement Area E also voted to approve the Rate and Method
which authorized the Special Tax to be levied to repay indebtedness of the District with respect to Improvement
Area E, including the Bonds
The Bonds will be repaid only from annual Net Taxes derived from the levy and collection of Special
Taxes pursuant to the Rate and Method. The Rate and Method permits the prepayment of Special Taxes for an
Assessor’s Parcel, and any such Prepayments will be applied to redeem Bonds and Parity Bonds, if any. The
Net Taxes collected from the annual Special Tax levy and the proceeds of any Prepayment have been pledged
under the Indenture to the repayment of the Bonds and Parity Bonds.
The Special Taxes levied in any Fiscal Year may not exceed the maximum rates authorized pursuant to
the Rate and Method. See “—Rate and Method of Apportionment of Special Tax” and Appendix A—“RATE
AND METHOD OF APPORTIONMENT OF SPECIAL TAX.” There is no assurance that the Net Taxes will,
in all circumstances, be adequate to pay the principal of and interest on the Bonds when due. See the caption
“SPECIAL RISK FACTORS—Insufficiency of Special Tax Revenues.”
Rate and Method of Apportionment of Special Tax. The Rate and Method applicable to Improvement
Area E is contained in Appendix A — “RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX.”
The meaning of the defined terms used in this section are as set forth in Appendix A.
In general, the Rate and Method imposes a different Maximum Special Tax on Taxable Property within
Improvement Area E depending upon whether such Taxable Property is classified as: (i) ”Developed Property”
(in general, Taxable Property included in a Final Map recorded prior to the January 1 preceding the Fiscal Year
in which the Special Tax is being levied and a building permit for new construction was issued before March 1
preceding such Fiscal Year), (ii) “Approved Property” (in general, parcels of Taxable Property included in a
Final Map recorded prior to the January 1 preceding the Fiscal Year in which the Special Tax is being levied but
for which no building permit was issued before March 1 preceding such Fiscal Year), or (iii) “Undeveloped
Property” (in general, Taxable Property that is not “Developed Property” or “Approved Property”). Different
Maximum Special Taxes are also applicable to Developed Property depending upon: (a) its status as either
“Residential Property” or “Non-Residential Property,” (b) in the case of Residential Property, its status as
“Single Family Residential Property” or “Multifamily Residential Property” or (c) in the case of Single Family
Property, the Building Square Footage of the structure.
Pursuant to the Rate and Method the District is required to determine the “Special Tax Requirement”
for Improvement Area E for each Fiscal Year. The Special Tax Requirement for Improvement Area E is the
amount required in any Fiscal Year to pay: (i) the debt service or the periodic costs on all outstanding Bonds
due in the Calendar Year that commences in such Fiscal Year, (ii) Administrative Expenses, (iii) the costs
associated with the release of funds from an escrow account, (iv) any amount equal to establish or replenish any
reserve funds established in association with the Bonds, (v) an amount equal to any anticipated shortfall due to
Special Tax delinquencies, and (vi) the collection or accumulation of funds for the acquisition or construction
of facilities authorized by the District, provided that the inclusion of such amount does not cause an increase in
the levy of Special Tax on Undeveloped Property as set forth in the Rate and Method, less (vii) any amounts
available to pay debt service or other periodic costs on the Bonds pursuant to the Indenture.
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The Special Tax Requirement for Improvement Area E is to be satisfied first by levying the Special Tax
Proportionately on each Assessor’s Parcel of Developed Property at up to 100% of the Assigned Special Tax. If
additional moneys are needed to satisfy the Special Tax Requirement, the Special Tax shall be levied
Proportionately on each Assessor’s Parcel of Approved Property at up to 100% of the Maximum Special Tax
applicable to each such Assessor’s Parcel. If additional moneys are still needed to satisfy the Special Tax
Requirement, the Special Tax shall be levied Proportionately on each Assessor’s Parcel of Undeveloped Property
up to 100% of the Maximum Special Tax applicable to each such Assessor’s Parcel. Finally, if additional
moneys are still needed to satisfy the Special Tax Requirement, the Special Tax on each Assessor’s Parcel of
Developed Property whose Maximum Special Tax is the Backup Special Tax shall be increased Proportionately
from the Assigned Special Tax up to 100% of the Backup Special Tax. Notwithstanding the above, under no
circumstances will the Special Tax levied against any Assessor’s Parcel of Residential Property be increased as
a consequence of delinquency or default by the owner or owners of any other parcel or parcels within
Improvement Area E by more than 10% per Fiscal Year above the amount that would have been levied in that
Fiscal Year had there never been any such delinquencies or defaults.
Within Improvement Area E, all 74 parcels will be classified as Developed Property for the Fiscal Year
2018-19 Special Tax levy.
For Fiscal Year 2018-19, the Assigned Special Tax for Developed Property within Improvement Area
E that is classified as Single Family Property will range from $1,790.28 per taxable unit with a Residential Floor
Area of 2,200 square feet or less to $2,812.40 per taxable unit with a Residential Floor Area of 3,801 square feet
or greater. For Fiscal Year 2018-19, the Maximum Special Tax for Non Residential Property will be $12,879
per acre and the Maximum Special Tax for each Parcel of Public Property and/or Owner’s Association Property
that is not Exempt Property is $12,879 per acre. On each July 1, commencing July 1, 2018, the Maximum
Special Tax rate for Approved Property will increase by 1% of the amount in effect in the prior Fiscal Year.
Annual Debt Service for the Bonds has been structured so that Developed Property levied at the
Assigned Special Tax rate based on the development status within Improvement Area E as of March 1, 2018
(which consisted of all 74 parcels of Developed Property for the Fiscal Year 2018-19 Special Tax levy),
assuming no delinquencies, will generate in each Fiscal Year not less thanthe Administrative Expenses Cap plus
110% of debt service payable with respect to the Bonds in the calendar year that begins in that Fiscal Year,
assuming that Special Taxes are levied and collected on such Developed Property pursuant to the Rate and
Method and that the Administrative Expense Cap increases at the rate of one percent per year.
Table 1 below sets forth the Assigned Special Tax per unit or acre of Developed Property, the projected
Fiscal Year 2018-19 Special Tax levy and the percent of such levy based on land use class.
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TABLE 1
CITY OF LAKE ELSINORE
COMMUNITY FACILITIES DISTRICT NO. 2003-2 (CANYON HILLS)
IMPROVEMENT AREA E
ASSIGNED SPECIAL TAXES*
Land Use Type Residential Floor Area
Assigned Fiscal
Year 2018-19
Special Tax
Rates Per Unit
(1)
No. of
Units
Aggregate
Estimated
Fiscal Year
2018-19
Special Taxes
Percent of
Total
Residential Property 2,200 sq. ft. or less $ 1,790.28 0 $ 0.00 0.0%
Residential Property 2,201 sq. ft. to 2,600 sq. ft.1,867.80 19 35,488.20 20.4
Residential Property 2,601 sq. ft. to 3,000 sq. ft.2,009.60 0 0.00 0.0
Residential Property 3,001 sq. ft. to 3,400 sq. ft.2,183.00 17 37,111.00 21.3
Residential Property 3,401 sq. ft. to 3,800 sq. ft.2,504.34 18 45,078.12 25.9
Residential Property 3,801 sq. ft. or greater 2,812.40 20 56,248.00 32.3
Multi-Family Property N/A 12,878.76 0.00 0.0
Approved Property N/A 12,878.76 0.00 0.0
Total 74 $173,925.32 100.0%
*Preliminary, subject to change.
(1)Includes the Fiscal Year 2018-19 Administrative Expenses Cap of $35,000.
Source: Spicer Consulting Group, LLC.
In Fiscal Year 2018-19, the Backup Special Tax for an Assessor’s Parcel within a Final Map classified
or to be classified as Single Family Property will be $2,495 per unit. This Backup Special Tax has been
established based on the land use configurations shown on the Final Map. In the event any portion of the Final
Map is changed or modified, the Backup Special Tax for all Assessor’s Parcels within such changed or modified
area shall be $12,879 per Acre. The Backup Special Tax does not apply to Multifamily Residential Property,
Non-Residential Property, Public Property, or Property Owners’ Association Property. On each July 1,
commencing July 1, 2018, the Backup Special Tax rate shall be increased by one percent (1.00%) of the amount
in effect in the prior Fiscal Year
The Annual Special Tax obligation for an Assessor’s Parcel may be prepaid in full, or in part, provided
that the terms set forth under the Rate and Method are satisfied. The Prepayment Amount is calculated based
on the sum of the Bond Redemption Amount, the Redemption Premium, the Future Facilities Amount, the
Defeasance Amount, Administrative Fees and Expenses and less a credit for the resulting reduction in the
Reserve Requirement for the Bonds (if any) and less capitalized interest (if any), all as specified in Section G of
the Rate and Method attached as Appendix A. Prepayments of Special Taxes will be applied to effect an
extraordinary redemption of Bonds and Parity Bonds. See “THE BONDS — Redemption —Special Mandatory
Redemption from Special Tax Prepayments.”
Estimated Debt Service Coverage. In connection with the issuance of the Bonds, the Special Tax
Consultant will certify that the Maximum Special Tax that may be levied in each Fiscal Year on Assessor’s
Parcels within Improvement Area E classified as Taxable Property as of March 1, 2018 will be at least equal to
the sum of: (i) 110% of Maximum Annual Debt Service on the Bonds; plus (ii) the Administrative Expenses
Cap. Actual collections of the Special Tax will depend on the amount of Special Tax delinquencies.
Limitation on Special Tax Levy and Potential Impact on Coverage. Pursuant to Section 53321(d) of
the Government Code, the special tax levied against any Assessor’s parcel for which an occupancy permit for
private residential use has been issued shall not be increased as a consequence of delinquency or default by the
owner of any other Assessor’s parcel within Improvement Area E by more than 10% above the amount that
15
would have been levied in that fiscal year had there never been any such delinquencies or defaults. As a result,
it is possible that the District may not be able to increase the tax levy to the Assigned Special Tax in all years.
Levy, Collection and Application of Special Taxes. The Special Taxes are levied and collected by the
Treasurer-Tax Collector of the County in the same manner and at the same time as ad valorem property taxes,
although it is possible that the District could elect to provide handbills to property owners within Improvement
Area E.
The District will covenant in the Indenture that each year it will levy Special Taxes up to the maximum
rates permitted under the Rate and Method in an amount sufficient, together with other amounts on deposit in
the Special Tax Fund, to pay the principal of and interest on any Outstanding Bonds and Parity Bonds, to
replenish the Reserve Account to the Reserve Requirement and to pay Administrative Expenses.
The District will make certain covenants in the Indenture which are intended to ensure that the current
maximum Special Tax rates and method of collection of the Special Taxes are not altered in a manner that would
impair the District’s ability to collect sufficient Special Taxes to pay debt service on the Bonds and
Administrative Expenses when due.
First, the District will covenant in the Indenture that it will take no actions that would discontinue or
cause the discontinuance of the Special Tax levy or the District’s authority to levy the Special Tax for so long
as the Bonds and any Parity Bonds are Outstanding.
Second, the District will covenant in the Indenture, to the maximum extent that the law permits it to do
so, not to initiate proceedings to reduce the maximum Special Tax rates for Improvement Area E, unless, in
connection therewith, the District receives a certificate from one or more Independent Financial Consultants
which, when taken together, certify that: (i) such changes do not reduce the maximum Special Taxes that may
be levied in each year on property within Improvement Area Eto an amount which is less than the Administrative
Expense Cap plus 110% of the Annual Debt Service due in each corresponding future Bond Year with respect
to the Bonds and Parity Bonds Outstanding as of the date of such proposed reduction; and (ii) the District is not
delinquent in the payment of the principal of or interest on the Bonds or any Parity Bonds.
Third, the District will covenant in the Indenture that, in the event that any initiative is adopted by the
qualified electors within Improvement Area E which purports to reduce the maximum Special Tax below the
levels specified in the preceding paragraph or to limit the power of the District to levy the Special Taxes for the
purposes set forth in the Indenture, it will commence and pursue legal action in order to preserve its ability to
comply with such covenants. The District can provide no assurance that any such legal action will be successful.
See the caption “SPECIAL RISK FACTORS—Proposition 218.”
Fourth, the District will covenant in the Indenture that it will not adopt any policy pursuant to the Act
permitting the tender of Bonds or Parity Bonds in full payment or partial payment of any Special Taxes unless
the District has first received a certificate from an Independent Financial Consultant that the acceptance of such
a tender will not result in the District having insufficient Net Taxes to pay the principal of and interest on the
Bonds and Parity Bonds when due.
See Appendix E under the caption “COVENANTS AND WARRANTY.”
Although the Special Taxes constitute liens on taxed parcels within Improvement Area E, they do not
constitute a personal indebtedness of the owners of property within Improvement Area E. Moreover, other liens
for taxes and assessments already exist on the property located within Improvement Area E and others could
come into existence in the future in certain situations without the consent or knowledge of the City or the
landowners in Improvement Area E. See the captions “IMPROVEMENT AREA E OF THE DISTRICT—
Direct and Overlapping Debt”and “SPECIAL RISK FACTORS—Direct and Overlapping Indebtedness.” There
is no assurance that property owners will be financially able to pay the annual Special Taxes or that they will
16
pay such taxes even if financially able to do so, all as more fully described under the caption “SPECIAL RISK
FACTORS.”
Proceeds of Foreclosure Sales. The net proceeds received following a judicial foreclosure sale of
property within Improvement Area E resulting from a property owner’s failure to pay the Special Taxes when
due are included within the Net Taxes pledged to the payment of principal of and interest on the Bonds under
the Indenture.
Pursuant to Section 53356.1 of the Act, in the event of any delinquency in the payment of any Special
Tax or receipt by the District of Special Taxes in an amount which is less than the Special Taxes levied, the City
Council, as the legislative body of the District, may order that Special Taxes be collected by a Superior Court
action to foreclose the lien within specified time limits. In such an action, the real property subject to the unpaid
amount may be sold at a judicial foreclosure sale. Under the Act, the commencement of judicial foreclosure
following the nonpayment of a Special Tax is not mandatory. However, the District will covenant in the
Indenture for the benefit of the owners of the Bonds and any Parity Bonds that it will: (i) commence judicial
foreclosure proceedings against parcels with delinquent Special Taxes in excess of $5,000 by the October 1
following the close of each Fiscal Year in which such Special Taxes were due; and (ii) commence judicial
foreclosure proceedings against all parcels with delinquent Special Taxes by the October 1 following the close
of each Fiscal Year in which it receives Special Taxes in an amount which is less than 95% of the total Special
Tax levied; and (iii) diligently pursue such foreclosure proceedings until the delinquent Special Taxes are paid;
provided that, notwithstanding the foregoing, the District may elect to defer foreclosure proceedings on any
parcel so long as the amount in the Reserve Account is at least equal to the Reserve Requirement.
The District will covenant in the Indenture that it will deposit the net proceeds of any foreclosure in the
Special Tax Fund and will apply such proceeds remaining after the payment of Administrative Expenses to make
current payments of principal and interest on the Bonds and any Parity Bonds, to bring the amount on deposit in
the Reserve Account up to the Reserve Requirement and to pay any delinquent installments of principal or
interest due on the Bonds and any Parity Bonds.
If foreclosure is necessary and other funds (including amounts in the Reserve Account) have been
exhausted, debt service payments on the Bonds could be delayed unless the foreclosure proceedings produce
sufficient net foreclosure sale proceeds. Judicial foreclosure actions are subject to the normal delays associated
with court cases and may be further slowed by bankruptcy actions, involvement by agencies of the federal
government and other factors beyond the control of the City and the District. See the caption “SPECIAL RISK
FACTORS—Enforcement Delays – Bankruptcy.” Moreover, no assurances can be given that the real property
subject to foreclosure and sale at a judicial foreclosure sale will be sold or, if sold, that the net proceeds of such
sale will be sufficient to pay any delinquent Special Tax installment. See the caption “SPECIAL RISK
FACTORS—Reductions in Property Values.” Although the Act authorizes the District to cause such an action
to be commenced and diligently pursued to completion, the Act does not impose on the District or the City any
obligation to purchase or acquire any lot or parcel of property sold at a foreclosure sale if there is no other
purchaser at such sale. The Act provides that, in the case of a delinquency, the Special Tax will have the same
lien priority as is provided for ad valorem taxes.
Collection of Special Taxes and Flow of Funds. The Special Taxes will be levied and collected by the
Treasurer-Tax Collector of the County in the same manner and at the same time as ad valorem property taxes,
although it is possible that the District could elect to provide handbills to property owners within Improvement
Area E. When the County apportions Special Taxes to the District, the District will transmit the Special Taxes
to the Trustee for deposit in the Special Tax Fund established by the Indenture.
Except for Prepayments, which shall be deposited to the Redemption Account of the Special Tax Fund,
the Trustee shall, on each date on which the Special Taxes are received from the District, deposit the Special
Taxes in the Special Tax Fund to be held in trust for the Owners. The Trustee shall transfer the Special Taxes
17
on deposit in the Special Tax Fund on the dates and in the amounts set forth in the following Sections, in the
following order of priority, to:
First:To the Administrative Expense Account in an amount up to the Administrative Expenses
Cap.
Second:To the Interest Account, an amount such that the balance in the Interest Account one
Business Day prior to each Interest Payment Date is equal to the installment of interest
due on the Bonds and any Parity Bonds on said Interest Payment Date. Moneys in the
Interest Account will be used for the payment of interest on the Bonds and any Parity
Bonds as the same become due.
Third:To the Principal Account, an amount such that the balance in the Principal Account one
Business Day prior to September 1 of each year, commencing September 1, 2018, isequal
the principal payment due on the Bonds and any Parity Bonds maturing on such
September 1 and any principal payment due on a previous September 1 which remains
unpaid. Moneys in the Principal Account shall be used for the payment of the principal
of such Bonds and any Parity Bonds as the same become due at maturity.
Fourth:To the Redemption Account, the amount needed to make the balance in the Redemption
Account one Business Day prior to each September 1 on which a Sinking Fund Payment
is due equal to the Sinking Fund Payment due on any Outstanding Bonds and Parity Bonds
on such September 1 and thereafter, to pay the principal and premium, if any, due in
connection with an optional redemption of Bonds or Parity Bonds.
Fifth:To the Reserve Account of the Special Tax Fund to the extent necessary to replenish the
Reserve Account to the Reserve Requirement.
Sixth:To the Administrative Expense Account of the Special Tax Fund the amount of any
Administrative Expenses for the current Bond Year in excess of the Administrative
Expenses Cap as directed by the City.
Seventh:To the Rebate Fund established by the Indenture to the extent directed by the City pursuant
to the Indenture.
Seventh:To the Surplus Fund established by the Indenture such remaining amounts in the Special
Tax Fund after making the foregoing transfers on September 1.
Reserve Account of the Special Tax Fund
In order to secure further the payment of principal of and interest on the Bonds, the District is required,
upon delivery of the Bonds, to deposit in the Reserve Account and thereafter to maintain in the Reserve Account
an amount equal to the Reserve Requirement. “Reserve Requirement” is defined in the Indenture to mean, as of
any date of calculation, the lesser of: (i) 10% of the initial principal amount of the Bonds and any Parity Bonds;
(ii) the Maximum Annual Debt Service on the then Outstanding Bonds and Parity Bonds; or (iii) 125% of
average Annual Debt Service on the then Outstanding Bonds and Parity Bonds.
Subject to the limits on the maximum annual Special Tax levy set forth in the Rate and Method and in
the Indenture, the District will covenant in the Indenture to levy Special Taxes in an amount sufficient, in light
of the other intended uses of the Special Tax proceeds, to maintain the balance in the Reserve Account at the
Reserve Requirement. Amounts in the Reserve Account are to be applied: (i) to pay debt service on the Bonds,
or any Parity Bonds, including Sinking Fund Payments, to the extent that other monies are not available therefor;
(ii) to redeem Bonds or Parity Bonds in the event of prepayment of Special Taxes or to optionally redeem Bonds
18
or Parity Bonds in accordance with the Indenture; and (iii) to pay any rebate requirements. See Appendix E
under the caption “CREATION OF FUNDS AND APPLICATION OF PROCEEDS—Reserve Account of the
Special Tax Fund.”
No Teeter Plan
Although the Riverside County Board of Supervisors has adopted the Alternative Method of
Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the “Teeter Plan”) which allows each
entity levying secured property taxes in the County to draw on the amount of property taxes levied rather than
the amount actually collected, as provided for in Section 4701 et seq. of the California Revenue and Taxation
Code, the District is not included in the County Teeter Plan. Consequently, the District may not draw on the
County Tax Loss Reserve Fund in the event of delinquencies in Special Tax payments within Improvement Area
E.
Parity Bonds for Refunding Purposes Only
The District will covenant in the Indenture not to issue Parity Bonds except as provided in the Indenture
and only for the purposes of refunding all or a portion of the Bonds and any Parity Bonds. See Appendix E
under the caption “DEFEASANCE AND PARITY BONDS.”
IMPROVEMENT AREA E OF THE DISTRICT
General Information
The City Council formed the District and annexed Improvement Area E to the District under the Act to
provide for the financing of public improvements to meet the needs of new development. In connection with
the annexation of Improvement Area E, the then qualified electors within the boundaries of Improvement Area
E, authorized the District to incur bonded indebtedness to finance certain public facilities to meet the needs of
new development within the District and authorized the levy of the Special Tax in accordance with the Rate and
Method to repay such bonded indebtedness.
Improvement Area E consists of 21.6 gross acres and 14.5 net acres located in the eastern portion of the
City, east of Hermosa Drive, west of Anna Lane and southeast of Railroad Canyon Road. The property within
Improvement Area E has been developed by Pardee Homes into a residential neighborhood of 74 single family
detached homes that was marketed as “Senterra.” All 74 homes havebeen completed and conveyed to individual
homeowners, with the final home closing in December 2017.
All backbone and intract infrastructure relating to the development within Improvement Area E is
completeand all fees relating to such development have been paid. See “PROPERTY OWNERSHIP AND THE
DEVELOPMENT.”
Water and sewer service to the property within Improvement Area E is currently supplied by the Water
District. Electricity is currently supplied by Southern California Edison and gas by Southern California Gas
Company.
Although, like all of Southern California, the land within Improvement Area E is subject to seismic
activity, it is not located within an Alquist-Priolo Earthquake Fault Zone.
A map showing the location of Improvement Area E and an aerial photograph thereof appear following
the Table of Contents, and information about the ownership and development of such property is set forth under
the caption “PROPERTY OWNERSHIP AND THE DEVELOPMENT.”
19
The Project
The Project includes the financing of the costs of construction of certain storm drain and street
improvements to be owned by the City and the costs of certain water and sewer system improvements to be
owned and operated by the Elsinore Valley Municipal Water District.
Appraisal Report
The estimated assessed value of the property within the District, as shown on the County’s assessment
roll for Fiscal Year 2017-18, is approximately $16,023,709. However, as a result of the requirements of Article
XIIIA of the California Constitution, a property’s assessed value is not necessarily indicative of its market value.
In order to provide information with respect to the value of the property within the District, the County engaged
the Appraiser to prepare the Appraisal Report. The Appraiser has an “MAI” designation from the Appraisal
Institute and has prepared numerous appraisals for the sale of land-secured municipal bonds. The Appraiser was
selected by the City and has no material relationships with the City or the owners of the land within the District
other than the relationship represented by the engagement to prepare the Appraisal Report. The City instructed
the Appraiser to prepare its analysis and report in conformity with City-approved guidelines and the Appraisal
Standards for Land Secured Financings published in 1994 and revised in 2004 by the California Debt and
Investment Advisory Commission. A copy of the Appraisal Report is included as Appendix D—“APPRAISAL
REPORT” to this Official Statement.
The purpose of the Appraisal Report was to estimate the market value of the fee simple interest of the
property within Improvement Area E subject to the Special Tax levy. The estimate of market value takes into
consideration and assumes the improvements to be funded with the proceeds of the Bonds have been completed.
Subject to the assumptions and limiting conditions set forth in the Appraisal Report, the Appraiser concluded
that, as of the Date of Value, the market value of the property within the District subject to the Special Tax lien
was $33,748,930. The Appraisal Report is based upon a variety of assumptions and limiting conditions that are
described in Appendix D. The City makes no representation as to the accuracy of the Appraisal Report. See
Appendix D — “APPRAISAL REPORT.” There is no assurance that the property within Improvement Area E
can be sold for the prices set forth in the Appraisal Report or that any parcel can be sold for a price sufficient to
pay the Special Tax for that parcel in the event of a default in payment of Special Taxes by the landowner. See
“RISK FACTORS — Land Values” and Appendix D — “APPRAISAL REPORT.”
Estimated Appraised Value-to-Lien Ratio
The appraised value of the property within Improvement Area E as of the Date of Value is $33,748,930.
Dividing the appraised value by the principal amount of the Bonds results in value to lien ratio of 14.54-to-1*
for Improvement Area E. Dividing the appraised value by the principal amount of the Bonds plus all overlapping
land secured and general obligation debt results in an estimated assessed value-to-lien ratio of 11.52-to-1
*for
Improvement Area E. See “SPECIAL RISK FACTORS — Parity Taxes and Special Assessments.”
The assessed value of the land within the District is $16,023,709 for Fiscal Year 2017-18. Dividing the
assessed value by the principal amount of the Bonds plus all overlapping land secured and general obligation
debt results in an estimated assessed value-to-lien ratio of 5.46-to-1*for the District.
*Preliminary, subject to change.
20
TABLE 2
CITY OF LAKE ELSINORE
COMMUNITY FACILITIES DISTRICT NO. 2003-2 (CANYON HILLS)
IMPROVEMENT AREA E
ESTIMATED VALUE-TO-LIEN RATIOS
(AS OF MARCH 1, 2018)
Property Owner(1)
No. of
Parcels
Appraised
Property
Value(2)
Percentage of
Appraised
Value
Assigned
Special Tax
Percentage
of Assigned
Special Tax
Estimated Fiscal
Year 2018-19
Special Tax
Levy(3)*
Percentage of
Estimated
Fiscal Year
2018-19 Levy*
CFD 2003-2
Improvement
Area E Bonds
*
All Other
Overlapping
Debt*
Appraised
Value-to-
Lien
Ratio*
Developed - Individually Owned 74 $ 33,748,930 100.00%$ 186,454 100.00%$173,925 100.00%$ 2,320,000 $ 446,994 12.20:1
Total 74 $ 33,748,930 100.00%$ 186,454 100.00%$173,925 100.00%$ 2,320,000 $ 446,994 12.20:1
*Preliminary, subject to change.
(1)As of March 1, 2018, permits had been issued for all 74 lots within Improvement Area E and therefore, all 74 lots within Improvement Area E will be classified as Developed
Property for the Fiscal Year 2019 Special Tax levy.
(2)Reflects the appraised value as of the Date of Value as set forth in the Appraisal.
(3)Estimated Fiscal Year 2018-19 Special Tax Levy based upon development status as of March 1, 2018 and includes Administrative Expenses of $35,000.
Source: County of Riverside Assessor’s Office; Spicer Consulting Group, LLC.
21
TABLE 3
CITY OF LAKE ELSINORE
COMMUNITY FACILITIES DISTRICT NO. 2003-2 (CANYON HILLS)
IMPROVEMENT AREA E
VALUE-TO-LIEN STRATIFICATION*
Value-to Lien
No. of
Parcels
Percentage of
Total Parcels Appraised Value(1)
Percentage of
Appraised
Value
CFD 2003-2
Improvement Area
E Estimated Fiscal
Year 2018-19
Special Tax Levy
Percent Share of
Estimated Fiscal
Year Special Tax
2018-19 Levy
CFD 2003-2
Improvement
Area E
Proposed
Bonds*
All Other
Overlapping
Debt
Aggregate
Direct
Debt
Value-to
Lien
Less than 10.00:1 0 0.00%$0 0.00%$0 0.00%$0 $0 N/A
Between 11.00:1 to 12.00:1(2)38 51.35 18,582,380 55.06 101,326 58.26 1,351,595 260,412 11.53:1
Between 12.01:1 to 13.00:1 17 22.97 7,440,390 22.05 37,111 21.34 495,026 95,377 12.60:1
Greater than 13.01:1(2)19 25.68 7,726,160 22.89 35,488 20.40 473,379 91,206 13.68:1
Total 74 100.00%$ 33,748,930 100.00%$ 173,925 100.00%$ 2,320,000 $446,994 12.20:1
*Preliminary, subject to change.
(1)Reflects the appraised value as of the Date of Value as set forth in the Appraisal.
(2)The lowest value to lien in the between 11.00:1 to 12.00:1 category is 11.20:1
*. The highest value to lien in the greater than 13.01:1 category is 13.68:1
*.
Source: County of Riverside Assessor’s Office; Spicer Consulting Group, LLC.
22
Direct and Overlapping Debt
Improvement Area E is included within the boundaries of overlapping local agencies providing
governmental services. Some of these local agencies have outstanding bonds, and/or the authority to issue bonds,
payable from taxes or assessments. The existing and authorized indebtedness payable from taxes and
assessments that may be levied upon the property within Improvement Area E is shown in Table 4 below. In
addition to current debt, new community facilities districts and/or special assessment districts could be formed
in the future encompassing all or a portion of the property within Improvement Area E; and such districts or the
agencies that formed them could issue more bonds and levy additional special taxes or assessments.
23
TABLE 4
CITY OF LAKE ELSINORE
COMMUNITY FACILITIES DISTRICT NO. 2003-2 (CANYON HILLS)
IMPROVEMENT AREA E
DIRECT AND OVERLAPPING DEBT
AS OF MARCH 1, 2018
I. Appraised Value(1)$33,748,930
II. Land Secured Bond Indebtedness
Outstanding Direct and Overlapping Bonded Debt Type Issued Outstanding
%
Applicable No. of Parcels(3)
Amount
Applicable
CITY OF LAKE ELSINORE CFD NO. 2003-2 IA E CFD $ 2,320,000*$ 2,320,000*100.000%74 $2,320,000*
PERRIS UNION HIGH SCHOOL CFD 92-1 CFD 36,315,000 34,620,000 1.291 74 446,994
$2,766,994*
TOTAL LAND SECURED BONDED DEBT (2)
Authorized but Unissued Direct and Overlapping Indebtedness Type Authorized Unissued
%
Applicable No. of Parcels(3)
Amount
Applicable
CITY OF LAKE ELSINORE CFD NO. 2003-2 IA E CFD $ 3,000,000 $ 0 100.000%74 $ 0
PERRIS UNION HIGH SCHOOL CFD 92-1 CFD 40,000,000 3,685,000 1.291 74 47,579
TOTAL UNISSUED LAND SECURED INDEBTEDNESS(2)$ 47,579
TOTAL OUTSTANDING AND UNISSUED LAND SECURED INDEBTEDNESS $2,814,572*
III. General Obligation Bond Indebtedness
Outstanding Direct and Overlapping Bonded Debt Type Issued Outstanding
%
Applicable No. of Parcels(3)
Amount
Applicable
METROPOLITAN WATER DEBT SERVICE GO $850,000,000 $110,420,000 0.016%74 $ 18,020
PERRIS UNION HIGH SCHOOL DEBT SERVICE GO 61,997,260 51,087,260 0.106 74 53,911
MT. SAN JACINTO JR COLLEGE GO 70,000,000 70,000,000 0.019 74 13,302
MENIFEE UNION SCHOOL DISTRICT DEBT SERVICE GO 45,958,923 44,683,923 0.173 74 77,162
TOTAL OUTSTANDING GENERAL OBLIGATION BONDED DEBT (2)$ 162,395
Authorized but Unissued Direct and Overlapping Indebtedness Type Authorized Unissued
%
Applicable No. of Parcels
(3)
Amount
Applicable
METROPOLITAN WATER DEBT SERVICE GO $850,000,000 $ 0 0.016%74 $0
PERRIS UNION HIGH SCHOOL DEBT SERVICE GO 215,420,000 153,422,740 0.106 74 $161,902
MT. SAN JACINTO JR COLLEGE GO 295,000,000 225,000,000 0.019 75 42,757
MENIFEE UNION SCHOOL DISTRICT DEBT SERVICE GO 45,960,000 0 0.173 74 0
TOTAL UNISSUED GENERAL OBLIGATION INDEBTEDNESS (2)$204,658
TOTAL OUTSTANDING AND UNISSUED GENERAL OBLIGATION INDEBTEDNESS $367,053
TOTAL OF ALL OUTSTANDING DIRECT AND OVERLAPPING BONDED DEBT $2,929,388*
TOTAL OF ALL OUTSTANDING DIRECT AND UNISSUED DIRECT OVERLAPPING INDEBTEDNESS $3,181,625*
IV. Ratios to Appraisal Value
Outstanding Land Secured Bonded Debt 12.20:1*
Total Outstanding Bonded Debt 11.52:1*
*Preliminary, subject to change.
(1)Reflects the appraised value as of the Date of Value as set forth in the Appraisal.
(2)The Special Tax Consultant is not aware of any additional bonded debt for parcels in Improvement Area E for Fiscal Year 2018-19.
(3)As of March 1, 2018, permits had been issued for all 74 lots within Improvement Area E and therefore, all 74 lots within Improvement Area E will be
classified as Developed Property for the Fiscal Year 2019 Special Tax levy.
Source: County of Riverside Assessor’s Office; Spicer Consulting Group, LLC.
24
Annual Debt Service for the Bonds has been structured so that Assigned Special Taxes levied on
Developed Property, assuming no delinquencies, based on the development status within Improvement Area E
as of March 1, 2018 (which includes all 74 parcels for purposes of the projected Fiscal Year 2018-19 Special
Tax levy), will generate in each Fiscal Year not less than the Administrative Expenses Cap plus 110% of debt
service payable with respect to the Bonds in the calendar year that begins in that Fiscal Year, assuming that
Special Taxes are levied and collected on such Developed Property in Improvement Area E pursuant to the Rate
and Method and that the Administrative Expenses Cap increases at the rate of one percent per year.
Based on the appraised values within Improvement Area E set forth in the Appraisal Report, the
projected debt service on the Bonds, and Administrative Expenses Cap of $35,000 for Fiscal Year 2018-19, the
City expects that, in Fiscal Year 2018-19, the projected effective tax rates levied on taxable property in
Improvement Area E, will range from approximately 1.94% to 1.98% of average appraised value of homes
within each Land Use Category (as defined in the Rate and Method).
25
Table 5 below describes the estimated Fiscal Year 2018-19 effective tax burden for sample units of
Developed Property within Improvement Area E based on the estimated Special Taxes levy and Fiscal Year
2017-18 actual levies for all other overlapping taxing jurisdictions.
TABLE 5
CITY OF LAKE ELSINORE
COMMUNITY FACILITIES DISTRICT NO. 2003-2 (CANYON HILLS)
IMPROVEMENT AREA E
ESTIMATED FISCAL YEAR 2018-19 TAX OBLIGATION
Individually
Owned(1)Tract 36682 (Senterra)(2)
Plan Type 2 4 5 6 Average
Parcel(3)
CFD Tax Category (Square Feet)
2,201 to
2,600
3,001 to
3,400
3,401 to
3,800 >3,801
Home Size 3,350 2,392 3,242 3,657 4,010
Appraised Value(1)$456,067 $406,640 $437,670 $475,410 $501,250 $455,407
Ad Valorem Property Taxes:
General Purpose $4,561 $4,066 $4,377 $4,754 $5,013 $4,554
Metro Water East (0.00350%)16 14 15 17 18 16
Menifee School District (0.06080%)277 247 266 289 305 277
Perris Union High School District (0.05675%)259 231 248 270 284 258
Mt. San Jacinto Jr College (0.01320%)60 54 58 63 66 60
Total General Property Taxes $5,173 $4,612 $4,964 $5,392 $5,685 $5,165
Assessment, Special Taxes & Parcel Charges:
Flood Control Stormwater / Cleanwater / Santa Ana $4 $4 4 $4 $4 $4
MWD Standby Charge East 7 7 7 7 7 7
MWD Standby Charge West 9 9 9 9 9 9
CSA #152 City of Lake Elsinore Stormwater 14 14 14 14 14 14
City of Lake Elsinore Citywide LLMD 25 25 25 25 25 25
City of Lake Elsinore CFD 2015-1 Public Safety 712 712 712 712 712 712
City of Lake Elsinore CFD 2015-2 Maintenance Tax Zone 2 363 363 363 363 363 363
City of Lake Elsinore CFD 2003-2 Improvement Area E (4)2,350 1,868 2,183 2,504 2,812 2,344
Perris Union High School District CFD No. 92-1 293 293 293 293 293 293
Total Assessments & Taxes $3,778 $3,295 $3,610 $3,932 $4,240 $3,771
Projected Total Property Tax $8,951 $7,907 $8,575 $9,324 $9,925 $8,936
Projected Effective Tax Rate 1.96%1.94%1.96%1.96%1.98%1.96%
(1)“Individually Owned” column reflects the average home size and average appraised value of the 74 individually owned units within
Improvement Area E as of the Date of Value.
(2)Reflects the average home size and appraised value, as of the Date of Value of each plan type within Improvement Area E.
(3)“Average Parcel” column reflects the average home size and appraised value, as of the Date of Value, of all planned homes within
Improvement Area E.
(4)Reflects the estimated Fiscal Year 2018-19 Special Tax levy.
Source: County of Riverside Assessor’s Office; Spicer Consulting Group, LLC.
Delinquency History
Fiscal Year 2017-18 was the first fiscal year in which Special Taxes were levied within Improvement
Area E. Unpaid amounts of the first installment of the Fiscal Year 2017-18 Special Taxes became delinquent
after December 12, 2017. Table 6 below sets forth the Special Tax levy, collections and delinquency rates in
Improvement Area E for the first installment of Fiscal Year 2017-18, as of April 1, 2018.
26
TABLE 6
CITY OF LAKE ELSINORE
COMMUNITY FACILITIES DISTRICT NO. 2003-2 (CANYON HILLS)
IMPROVEMENT AREA E
SPECIAL TAXES LEVIES, DELINQUENCIES AND DELINQUENCY RATES
Delinquencies as of June 30 of Fiscal Year Delinquencies as of April 1, 2018
Fiscal
Year
Amount of
Special Taxes
Levied
Parcels
Levied
Parcels
Delinquent
Amount
Delinquent
Percent
Delinquent
Parcels
Delinquent
Amount
Delinquent
Percent
Delinquent
2017-18 $127,367.94 55 N/A N/A N/A 2 $2,164.32 1.70%
Source: County of Riverside Assessor’s Office; Spicer Consulting Group, LLC.
Based on ownership status as of March 1, 2018, Special Taxes for Fiscal Year 2018-19 will be levied
on all 74 parcels classified as Developed Property owned by individual owners. Individual homeowners will be
responsible for 100% of the projected Fiscal Year 2018-19 Special Tax levy, based on ownership status as of
March 1, 2018. The District is not aware of any individual who owns more than one parcel within Improvement
Area E.
PROPERTY OWNERSHIP AND THE DEVELOPMENT
The Development. The District comprises a portion of Canyon Hills, a planned residential community
located in the southeast portion of the City, to the east of Lake Elsinore. Within the Canyon Hills development,
approximately 2,529 residential units have been completed and closed to individual homeowners. Through an
amendment to the Canyon Hills specific plan in 2009, the property within Improvement Area E is now included
in the Canyon Hills master planned community and was annexed into the Canyon Hills homeowner’s association.
In 2016, the property within Improvement Area E was annexed to the District. To date, Pardee Homes (as
defined below) and its homebuilding affiliates have completed various amenities, including recreational
facilities, parks and hiking trails that serve the Canyon Hills community, including the property within
Improvement Area E.
Improvement Area E consists of 21.6 gross acres and 14.5 net acres located in the eastern portion of the
City, east of Hermosa Drive, west of Anna Lane and southeast of Railroad Canyon Road. All of the property
within Improvement Area E is located within Tract Map No. 36682.
The property within Improvement Area E has been developed by Pardee Homes into a residential
development of 74 single family detached homes that was marketed as “Senterra.” Pardee Homes is an indirect,
wholly-owned subsidiary of TRI Pointe Group, Inc., a Delaware corporation, which is an entity engaged
primarily in the construction and development of residential communities.
All 74 homes have been completed and conveyed to individual homeowners. Home sales and closings
within Improvement Area E occurred between December 2016 and December 2017. A summary of the product
mix for the Senterra project within Improvement Area E, including square footage and average actualsales prices
for each floor plan is set forth below:
27
Plan
Number of
Homes
Square
Footage(1)
Number of
Bedrooms/
Bathrooms
Actual Sales
Price(2)
1 19 2,392 4/3 $394,000
2 17 3,242 6/4 437,000
3 18 3,657 4/5 475,000
4 20 4,010 7/4.5 599,638
TOTAL:74
(1)Actual square footage may vary based on options selected.
(2)Actual sales prices for individual homes varied based on premiums, upgrades, options and incentives.
Source: Pardee Homes.
All backbone and intract infrastructure relating to the development within Improvement Area E is
complete.
SPECIAL RISK FACTORS
The Bonds have not been rated by any rating agency, and the purchase of the Bonds involves significant
risks that are not appropriate for certain investors. The following is a discussion of certain risk factors which
should be considered, in addition to other matters set forth herein, in evaluating the investment quality of the
Bonds. This discussion does not purport to be comprehensive or definitive and does not purport to be a complete
statement of all factors which may be considered as risks in evaluating the credit quality of the Bonds. The
occurrence of one or more of the events discussed herein could adversely affect the ability or willingness of
property owners in Improvement Area E to pay their Special Taxes when due. Such failures to pay Special
Taxes could result in the inability of the District to make full and punctual payments of debt service on the
Bonds. In addition, the occurrence of one or more of the events discussed herein could adversely affect the value
of the property in Improvement Area E. See “— Reductions in Property Values” below.
Risks of Real Estate Secured Investments Generally
The Bond Owners will be subject to the risks generally incident to an investment secured by real estate,
including, without limitation: (i) adverse changes in local market conditions, such as changes in the market value
of real property in the vicinity of the District, the supply of or demand for competitive properties in such area,
and the market value of residential property or buildings and/or sites in the event of sale or foreclosure; (ii)
changes in real estate tax rates and other operating expenses, governmental rules (including, without limitation,
zoning laws and laws relating to endangered species and hazardous materials) and fiscal policies; (iii) natural
disasters (including, without limitation, earthquakes, wildfires and floods), which may result in uninsured losses;
(iv) adverse changes in local market conditions; and (v) increased delinquencies due to rising mortgage costs
and other factors.
No assurance can be given that the individual property owners will pay Special Taxes in the future or
that they will be able to pay such Special Taxes on a timely basis. See the caption “—Enforcement Delays—
Bankruptcy” for a discussion of certain limitations on the District’s ability to pursue judicial proceedings with
respect to delinquent parcels.
Tax Cuts and Jobs Act
H.R. 1 of the 115th U.S. Congress, known as the “Tax Cuts and Jobs Act,” was enacted into law on
December 22, 2017 (the “Tax Act”). The Tax Act makes significant changes to many aspects of the Internal
Revenue Code of 1986, as amended (the “Code”). For example, the Tax Act reduces the amount of mortgage
interest expense and state and local income tax and property tax expense that individuals may deduct from their
gross income for federal income tax purposes, which could increase the cost of home ownership within
Improvement Area E. However, neither the City nor the District can predict the effect that the Tax Act may have
28
on the cost of home ownership or the ability or willingness of homeowners to pay Special Taxes or property
taxes.
Insufficiency of Special Tax Revenues
As discussed below, the Special Taxes may not produce revenues sufficient to pay the debt service on
the Bonds either due to nonpayment of the amounts levied or because acreage within Improvement Area E
becomes exempt from taxation due to the transfer of title to a public agency.
In order to pay debt service on the Bonds, it is generally necessary that the Special Taxes be paid in a
timely manner. Should the Special Taxes not be paid on time, the District has established a Reserve Account in
an amount equal to the Reserve Requirement to pay debt service on the Bonds to the extent other funds are not
available. See “SECURITY FOR THE BONDS — Reserve Account.” The District will covenant in the
Indenture to maintain in the Reserve Account an amount equal to the Reserve Requirement, subject, however,
to the availability of Net Taxes in amounts sufficient to do so and to the limitation that the District may not levy
the Special Tax in any Fiscal Year at a rate in excess of the maximum amounts permitted under the Rate and
Method. See Appendix E hereto. As a result, if a significant number of Special Tax delinquencies occurs within
Improvement Area E, the District could be unable to replenish the Reserve Account to the Reserve Requirement
due to the limitations on the amount of the Special Tax that may be levied. If such defaults were to continue in
successive years, the Reserve Account could be depleted and a default on the Bonds could occur.
The Act provides that, if any property within Improvement Area E not otherwise exempt from the
Special Tax is acquired by a public entity through a negotiated transaction, or by gift or devise, the Special Tax
will continue to be levied on and enforceable against the public entity that acquired the property. In addition,
the Act provides that, if property subject to the Special Tax is acquired by a public entity through eminent domain
proceedings, the obligation to pay the Special Tax with respect to that property is to be treated as if it were a
special assessment and be paid from the eminent domain award. The constitutionality and operation of these
provisions of the Act have not been tested in the courts, but it is doubtful that they would be upheld as to, for
example, property owned by the federal government. If for any reason property within Improvement Area E
becomes exempt from taxation by reason of ownership by a non-taxable entity such as the federal government
or another public agency, subject to the limitation of the Maximum Special Tax, the Special Tax will be
reallocated to the remaining taxable parcels within Improvement Area E. This would result in the owners of
such property paying a greater amount of the Special Tax and could have an adverse impact upon their
willingness and/or ability to pay the Special Tax. Moreover, if a substantial portion of additional land within
Improvement Area E became exempt from the Special Tax because of public ownership, or otherwise, the
Maximum Special Tax which could be levied upon the remaining acreage might not be sufficient to pay principal
of and interest on the Bonds when due and a default will occur with respect to the payment of such principal and
interest.
The District will covenant in the Indenture that, under certain circumstances, it will institute foreclosure
proceedings to sell any property with delinquent Special Taxes in order to obtain funds to pay debt service on
the Bonds. If foreclosure proceedings were ever instituted, any mortgage or deed of trust holder could, but would
not be required to, advance the amount of the delinquent Special Tax to protect its security interest. See
“SECURITY FOR THE BONDS — Covenant for Superior Court Foreclosure” for provisions which apply in
the event of such foreclosure and which the District is required to follow in the event of delinquencies in the
payment of the Special Tax.
In the event that sales or foreclosures of property are necessary, there could be a delay in payments to
Owners of the Bonds (if the Reserve Account has been depleted) pending such sales or the prosecution of such
foreclosure proceedings and receipt by the City on behalf of the District of the proceeds of sale. The District
may adjust the future Special Tax levied on taxable parcels in Improvement Area E, subject to limitations
described above under the caption “IMPROVEMENT AREA E OF THE DISTRICT—Rate and Method of
Apportionment,” to provide an amount required to pay interest on and principal of the Bonds, and the amount,
29
if any, necessary to replenish the Reserve Account to an amount equal to the Reserve Requirement, and to pay
all current expenses. There is, however, no assurance that the total amount of the Special Tax that could be
levied and collected against taxable parcels in Improvement Area E will be at all times sufficient to pay the
amounts required to be paid by the applicable Indenture, even if the Special Tax is levied at the Maximum
Special Tax rates. See “— Enforcement Delays – Bankruptcy.”
No assurance can be given that the real property subject to sale or foreclosure will be sold, or if sold,
that the proceeds of sale will be sufficient to pay any delinquent installments of the Special Tax. The Act does
not require the City to purchase or otherwise acquire any lot or parcel of property to be sold at foreclosure if
there is no other purchaser at such sale. The Act and the Indenture do specify that the Special Tax will have the
same lien priority as for ad valorem property taxes in the case of delinquency. Section 53356.6 of the Act
requires that property sold pursuant to foreclosure under the Act be sold for not less than the amount of judgment
in the foreclosure action, plus post judgment interest and authorized costs, unless the consent of the owners of
75% of the Outstanding Bonds is obtained.
Prior to July 1, 1983, the right of redemption from foreclosure sales was limited to a period of one year
from the date of sale. Under legislation effective July 1, 1983, the statutory right of redemption from such
foreclosure sales has been repealed. However, a period of 20 days must elapse after the date on which the notice
of levy of the interest in real property was served on the judgment debtor before the sale of such lot or parcel
can be made. Furthermore, if the purchaser at the sale is the judgment creditor (e.g., the District), an action may
be commenced by the delinquent property owner within 90 days after the date of sale to set aside such sale. The
constitutionality of the aforementioned legislation, which repeals the one year redemption period, has not been
tested and there can be no assurance that, if tested, such legislation will be upheld. (Section 701.680 of the Code
of Civil Procedure of the State.)
Land Values
The value of the property within Improvement Area E is a critical factor in determining the investment
quality of the Bonds. If a property owner is delinquent in the payment of Special Taxes, the District’s only
remedy is to commence foreclosure proceedings against the delinquent parcel in an attempt to obtain funds to
pay the Special Taxes. Reductions in property values due to a downturn in the economy, physical events such
as earthquakes, firesor floods, stricter land use regulations, delays in development or other events will adversely
impact the security underlying the Special Taxes. See “IMPROVEMENT AREA E OF THE DISTRICT —
Appraisal Report” and Appendix D — “APPRAISAL REPORT.”
The Appraiser has estimated, on the basis of certain assumptions and limiting conditions contained in
the Appraisal Report, that as of the Date of Value, the market value of the property within the District was
$33,748,930. See “IMPROVEMENT AREA E OF THE DISTRICT — Appraisal Report.” The Appraisal
Report indicates the Appraiser’s opinion as to the market value of the properties referred to therein as of the date
and under the conditions specified therein. The Appraiser’s opinion reflects conditions prevailing in the
applicable market as of the Date of Value. The Appraiser’s opinion does not predict the future value of the
subject property, and there can be no assurance that market conditions will not change adversely in the future.
Prospective purchasers of the Bonds should not assume that the taxable land within Improvement Area
E could be sold for the appraised amount at a foreclosure sale for delinquent Special Taxes. In arriving at the
estimate of market value, the Appraiser assumes that any sale will be unaffected by undue stimulus and will
occur following a reasonable marketing period, which is not always present in a foreclosure sale. See
Appendix B for a description of other assumptions made by the Appraiser and for the definitions and limiting
conditions used by the Appraiser. Any event which causes one of the Appraiser’s assumptions to be untrue
could result in a reduction of the value of the taxable land and improvements within Improvement Area E from
the market value estimated by the Appraiser.
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No assurance can be given that any bid will be received for a parcel with delinquent Special Taxes
offered for sale at foreclosure or, if a bid is received, that such bid will be sufficient to pay all delinquent Special
Taxes. See “SOURCES OF PAYMENT FOR THE BONDS — Special Taxes —Proceeds of Foreclosure
Sales.”
Natural Disasters
The District, like all California communities, may be subject to unpredictable seismic activity, fires,
flood, or other natural disasters. Southern California is a seismically active area. Seismic activity represents a
potential risk for damage to buildings, roads, bridges and property within Improvement Area E. In addition,
land susceptible to seismic activity may be subject to liquefaction during the occurrence of such event. The
property within Improvement Area E is not located in an Alquist Priolo Earthquake Study Zone and is not located
within one-half mile of an active earthquake fault. Additionally, Improvement Area E is not located in a flood
plain area.
In recent years, wildfires have caused extensive damage throughout the State, including within the
County. Certain of these fires have burned thousands of acres and destroyed hundreds and in some cases
thousands of homes. In some instances entire neighborhoods have been destroyed. Several fires which occurred
in 2017 damaged or destroyed property in areas that were not previously considered to be at risk from such
events. Improvement Area E is not located in an area which the Department of Forestry and Fire Protection of
the State of California has designated as a very high fire hazard severity zone. However, there is a risk of
residential property within the District being destroyed by wildfires and no assurance can be given as to the
severity or frequency of wildfires within the vicinity of Improvement Area E.
In the event of a severe earthquake, fire, flood or other natural disaster, there may be significant damage
to both property and infrastructure in Improvement Area E. As a result, a substantial portion of the property
owners may be unable or unwilling to pay the Special Taxes when due. In addition, the value of land in
Improvement Area E could be diminished in the aftermath of such a natural disaster, reducing the resulting
proceeds of foreclosure sales in the event of delinquencies in the payment of the Special Taxes.
Hazardous Substances
While government taxes, assessments and charges are a common claim against the value of a parcel,
other less common claims may also be relevant. One of the most serious in terms of the potential reduction in
the value of a parcel is a claim with regard to a hazardous substance. In general, the owners and operators of a
parcel may be required by law to remedy conditions relating to releases or threatened releases of hazardous
substances. The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980,
sometimes referred to as “CERCLA” or the “Super Fund Act,” is the most well-known and widely applicable of
these laws, but California laws with regard to hazardous substances are also stringent and similar in effect. Under
many of these laws, the owner (or operator) is obligated to remedy a hazardous substance condition of a parcel
whether or not the owner (or operator) had anything to do with creating or handling the hazardous substance.
The effect, therefore, should any of the parcels within Improvement Area Ebe affected by a hazardous substance,
is to reduce the marketability and value by the costs of remedying the condition.
A Phase I Environmental Site Assessment Report for the property within Improvement Area E and a
Limited Phase II Environmental Site Assessment Report were prepared by Converse Consultants, Redlands,
California in August 2013 and September 2013 respectively. Both reports found no evidence of recognized
environmental conditions (except for the observation of the property being historically used for livestock
grazing) and no further environmental remediation was recommended.
The District is not aware of the presence of any federally or state classified hazardous substances in
violation of any environmental laws, located on the property within Improvement Area E. However, it is possible
that such materials do currently exist and that the District is not aware of them.
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It is possible that property in Improvement Area E may be liable for hazardous substances in the future
as a result of the existence, currently, of a substance presently classified as hazardous but which has not been
released or the release of which is not presently threatened, or the existence, currently, on the property of a
substance not presently classified as hazardous but which may in the future be so classified. Additionally, such
liabilities may arise not simply from the existence of a hazardous substance but from the method of handling
such substance. All of these possibilities could have the effect of reducing the value of the applicable property.
Enforcement Delays – Bankruptcy
In the event of a delinquency in the payment of the Special Taxes, the District is required to commence
enforcement proceedings under the circumstances described under the heading “SECURITY FOR THE BONDS
— Covenant for Superior Court Foreclosure.” However, prosecution of such proceedings could be delayed due
to crowded local court calendars or by bankruptcy, insolvency and other laws generally affecting creditors’rights
(such as the Soldiers’ and Sailors’ Relief Act of 1940) and by the laws of the State relating to judicial and non-
judicial foreclosure. Although bankruptcy proceedings would not cause the liens of the Special Taxes to become
extinguished, bankruptcy of a person or entity with an interest in the applicable property could result in a delay
in the enforcement proceedings because federal bankruptcy laws provide for an automatic stay of foreclosure
and tax sale proceedings. Any such delay could increase the likelihood of delay or default in payment of the
principal of and interest on the applicable Bonds. The various legal opinions to be delivered in connection with
the issuance of the Bonds, including Bond Counsel’s approving legal opinion, are qualified as to the
enforceability of the Bonds and the Indenture by reference to bankruptcy, reorganization, moratorium,
insolvency and other laws affecting the rights of creditors generally or against public corporations such as the
District.
FDIC/Federal Government Interests in Parcels
The ability of the District to collect interest and penalties specified by the Act and to foreclose the lien
of delinquent Special Taxes may be limited in certain respects with regard to parcels in which the Federal Deposit
Insurance Corporation (the “FDIC”), or other federal government entities such as Fannie Mae or Freddie Mac,
has or obtains an interest.
In the case of FDIC, in the event that any financial institution making a loan which is secured by parcels
is taken over by the FDIC and the applicable Special Tax is not paid, the remedies available to the District may
be constrained. The FDIC’s policy statement regarding the payment of state and local real property taxes (the
“Policy Statement”) provides that taxes other than ad valorem taxes which are secured by a valid lien in effect
before the FDIC acquired an interest in a property will be paid unless the FDIC determines that abandonment of
its interests is appropriate. The Policy Statement provides that the FDIC generally will not pay installments of
non-ad valorem taxes which are levied after the time the FDIC acquires its fee interest, nor will the FDIC
recognize the validity of any lien to secure payment except in certain cases where the Resolution Trust
Corporation had an interest in property on or prior to December 31, 1995. Moreover, the Policy Statement
provides that, with respect to parcels on which the FDIC holds a mortgage lien, the FDIC will not permit its lien
to be foreclosed out by a taxing authority without its specific consent, nor will the FDIC pay or recognize liens
for any penalties, fines or similar claims imposed for the non payment of taxes.
The FDIC has taken a position similar to that expressed in the Policy Statement in legal proceedings
brought against Orange County in United States Bankruptcy Court and in Federal District Court. The
Bankruptcy Court issued a ruling in favor of the FDIC on certain of such claims. Orange County appealed that
ruling, and the FDIC cross-appealed. On August 28, 2001, the Ninth Circuit Court of Appeals issued a ruling
favorable to the FDIC except with respect to the payment of pre-receivership liens based upon delinquent
property tax.
The District is unable to predict what effect the application of the Policy Statement would have in the
event of a delinquency with respect to parcels in which the FDIC has or obtains an interest, although prohibiting
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the lien of the FDIC to be foreclosed out at a judicial foreclosure sale would prevent or delay the foreclosure
sale.
In the case of Fannie Mae and Freddie Mac, in the event a parcel of taxable property is owned by a
federal government entity or federal government sponsored entity, such as Fannie Mae or Freddie Mac, or a
private deed of trust secured by a parcel of taxable property is owned by a federal government entity or federal
government sponsored entity, such as Fannie Mae or Freddie Mac, the ability to foreclose on the parcel or to
collect delinquent Special Taxes may be limited. Federal courts have held that, based on the supremacy clause
of the United States Constitution “this Constitution, and the Laws of the United States which shall be made in
Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall
be the supreme Law of the Land; and the Judges in every State shall be bound thereby, anything in the
Constitution or Laws of any State to the contrary notwithstanding.” In the absence of Congressional intent to
the contrary, a state or local agency cannot foreclose to collect delinquent taxes or assessments if foreclosure
would impair the federal government interest. This means that, unless Congress has otherwise provided, if a
federal government entity owns a parcel of taxable property but does not pay taxes and assessments levied on
the parcel (including Special Taxes), the applicable state and local governments cannot foreclose on the parcel
to collect the delinquent taxes and assessments.
Moreover, unless Congress has otherwise provided, if the federal government has a mortgage interest
in the parcel and the Districtwishes to foreclose on the parcel as a result of delinquent Special Taxes,the property
cannot be sold at a foreclosure sale unless it can be sold for an amount sufficient to pay delinquent taxes and
assessments on a parity with the Special Taxes and preserve the federal government’s mortgage interest. For a
discussion of risks associated with taxable parcels within Improvement Area E becoming owned by
the federal government, federal government entities or federal government sponsored entities, see “—
Insufficiency of Special Tax Revenues.”
The District’s remedies may also be limited in the case of delinquent Special Taxes with respect to
parcels in which other federal agencies (such as the Internal Revenue Service and the Drug Enforcement
Administration) have or obtain an interest.
Direct and Overlapping Indebtedness
The ability of an owner of property within Improvement Area E to pay the applicable Special Taxes
could be affected by the existence of other taxes and assessments imposed upon taxable parcels. See
“IMPROVEMENT AREA E OF THE DISTRICT — Direct and Overlapping Debt” herein. The City and other
public agencies whose boundaries overlap those of Improvement Area E could impose additional taxes or
assessment liens on the property within Improvement Area E in order to finance public improvements or services
to be located or provided inside of or outside of such area. The lien created on the property within Improvement
Area E through the levy of such additional taxes may be on a parity with the lien of the Special Taxes applicable
to the property within Improvement Area E.
The imposition of additional liens on a parity with the Special Taxes may reduce the ability or
willingness of property owners to pay the Special Taxes and increase the possibility that foreclosure proceeds
will not be adequate to pay delinquent Special Taxes.
Payment of Special Taxes is not a Personal Obligation of the Property Owners
An owner of a taxable parcel is not personally obligated to pay Special Taxes. Rather, Special Taxes
are an obligation which is secured only by a lien against the taxable parcel. If the value of a taxable parcel is not
sufficient, taking into account other liens imposed by public agencies, to secure fully Special Taxes, the District
has no recourse against the property owner.
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No Acceleration Provision
The Bonds do not contain a provision allowing for the acceleration of the Bonds in the event of a
payment default or other default under the terms of the Bonds or the Indenture.
Limited Obligations
The Bonds and interest thereon are not payable from the general funds of the City. Except with respect
to the Net Taxes, neither the credit nor the taxing power of the District or the City is pledged for the payment of
the Bonds or the interest thereon, and, except as provided in the Indenture, no Owner of the Bonds may compel
the exercise of any taxing power by the District or the City or force the forfeiture of any City or District property.
The principal of, premium, if any, and interest on the Bonds are not a debt of the City or a legal or equitable
pledge, charge, lien or encumbrance upon any of the City’s or the District’s property or upon any of the City’s
or the District’s income, receipts or revenues, except the Net Taxes and other amounts pledged under the
Indenture.
The District’s legal obligations with respect to any delinquent Special Taxes are limited to: (i) payments
from the Reserve Account to the extent of funds on deposit therein; and (ii) the institution of judicial foreclosure
proceedings under certain circumstances with respect to any parcels for which Special Taxes are delinquent. See
the caption “SOURCES OF PAYMENT FOR THE BONDS—Special Taxes—Proceeds of Foreclosure Sales.”
The Bonds cannot be accelerated in the event of any default.
The obligation to pay Special Taxes does not constitute a personal obligation of the current or
subsequent owners of the respective parcels which are subject to such liens. See the caption “—Payment of the
Special Tax is Not a Personal Obligation of the Landowners.” Enforcement of Special Tax payment obligations
by the District is limited to judicial foreclosure in the Superior Court of California, County of Riverside. There
is no assurance that any current or subsequent owner of a parcel subject to a Special Tax lien will be able to pay
the amounts due or that such owner will choose to pay such amounts even though financially able to do so.
Failure by owners of the parcels to pay Special Tax installments when due, delay in foreclosure
proceedings, or the inability of the District to sell parcels that have been subject to foreclosure proceedings for
amounts sufficient to cover the delinquent installments of Special Taxes levied against such parcels may result
in the inability of the District to make full or timely payments of debt service on the Bonds, which may in turn
result in the depletion of the Reserve Account. See the caption “—Enforcement Delays – Bankruptcy.”
Ballot Initiatives
Articles XIII A, XIII B, XIII C, and XIII D of the California Constitution were adopted pursuant to
measures qualified for the ballot pursuant to the State’s constitutional initiative process. From time to time,
other initiative measures could be adopted by California voters. The adoption of any such initiative might place
limitations on the ability of the State, the City, or other local agencies to increase revenues or to increase
appropriations.
Proposition 218
An initiative measure entitled “The Right to Vote on Taxes Act” (“Proposition 218”) was approved by
the voters at the November 5, 1996 statewide general election. Among other things, Proposition 218 added a
new Article XIII C to the California Constitution which states that “. . . the initiative power shall not be prohibited
or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge.” The Act
provides for a procedure which includes notice, hearing, protest and voting requirements to alter the rate and
method of apportionment of an existing special tax. However, the Act prohibits a legislative body from adopting
any resolution to reduce the rate of any special tax or terminate the levy of any special tax pledged to repay any
debt incurred pursuant to the Act unless such legislative body determines that the reduction or termination of the
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special tax would not interfere with the timely retirement of that debt. While the application of Proposition 218
in this context has not yet been interpreted by the courts and the matter is not completely free from doubt, it is
not likely that Proposition 218 has conferred on the voters the power to effect a repeal or reduction of the Special
Tax if the result thereof would be to impair the security of the Bonds.
It may be possible, however, for voters or the City Council, acting as the legislative body of the District,
to reduce the Special Taxes in a manner which does not interfere with the timely repayment of the Bonds, but
which does reduce the maximum amount of Special Taxes that may be levied in any year below the existing
levels. Therefore, no assurance can be given with respect to the future levy of Special Taxes in amounts greater
than the amount necessary for the timely retirement of the Bonds. Nevertheless, to the maximum extent that the
law permits it to do so, the District will covenant that it will not initiate proceedings under the Act to reduce the
maximum Special Tax rates for Improvement Area E, unless, in connection therewith, (i) such changes do not
reduce the maximum Special Taxes that may be levied in each year on property within Improvement Area E to
an amount which is less than the Administrative Expense Cap plus 110% of the Annual Debt Service due in each
corresponding future Bond Year with respect to the Bonds and Parity Bonds Outstanding as of the date of such
proposed reduction; and (ii) the District is not delinquent in the payment of the principal of or interest on the
Bonds or any Parity Bonds. The District also will covenant that, in the event an initiative is adopted which
purports to reduce or otherwise alter the Rate and Method, it will commence and pursue legal action in order to
preserve its ability to comply with the foregoing covenant. However, no assurance can be given as to the
enforceability of the foregoing covenants.
Shapiro Case
With respect to the approval of the Special Taxes, on August 1, 2014, the California Court of Appeal,
Fourth Appellate District, Division One, issued its opinion in City of San Diego v. Melvin Shapiro, et al.
(D063997) (the “San Diego Decision”). The case involved a Convention Center Facilities District (the “CCFD”)
established by the City of San Diego (the “City of San Diego”). The CCFD is a financing district much like a
community facilities district established under the provisions of the Act. The CCFD is comprised of all of the
real property in the entire City of San Diego. However, the special tax to be levied within the CCFD was to be
levied only on hotel properties located within the CCFD.
The election authorizing the special tax was limited to owners of hotel properties and lessees of real
property owned by a governmental entity on which a hotel is located. Thus, the election was not a registered
voter election. Such approach to determining who would constitute the qualified electors of the CCFD was
modeled after Section 53326(c) of the Act, which generally provides that, if a special tax will not be apportioned
in any tax year on residential property, the legislative body may provide that the vote shall be by the landowners
of the proposed district whose property would be subject to the special tax. The Court held that the CCFD special
tax election was invalid under the California Constitution because Article XIIIA, Section 4 thereof and Article
XIIIC, Section 2 thereof require that the electors in such an election be the registered voters within the district.
The facts of the San Diego Decision show that there were hundreds of thousands of registered voters
within the CCFD (viz., all of the registered voters in the City of San Diego). The elections held in the District
at the time of formation and held in Improvement Area E at the time of annexation to the District had no
registered voters at the time of each election. In the San Diego Decision, the Court expressly stated that it was
not addressing the validity of landowner voting to impose special taxes pursuant to the Act in situations where
there are fewer than 12 registered voters. Thus, by its terms, the Court’s holding does not apply to the elections
in connection with the formation of the District, the annexation of Improvement Area E thereto or the
authorization of the Special Tax levy. Moreover, Section 53341 of the Act provides that any “action or
proceeding to attack, review, set aside, void or annul the levy of a special tax…shall be commenced within 30
days after the special tax is approved by the voters.” Similarly, Section 53359 of the Act provides that any action
to determine the validity of bonds issued pursuant to the Act be brought within 30 days of the voters approving
the issuance of such bonds. Voters in Improvement Area E approved Special Tax on April 12, 2016. Based on
Sections 53341 and 53359 of the Act and analysis of existing laws, regulations, rulings and court decisions,
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Bond Counsel is of the opinion that no successful challenge to the Special Tax being levied in accordance with
the Rate and Method may now be brought.
The interpretation and application of Proposition 218 will ultimately be determined by the courts with
respect to a number of the matters discussed above, and it is not possible at this time to predict with certainty the
outcome of such determination or the timeliness of any remedy afforded by the courts.
Loss of Tax Exemption
As discussed under the heading “TAX MATTERS,” interest on the Bonds could cease to be excluded
from gross income for purposes of federal income taxation, retroactive to the date the Bonds were issued, as a
result of future acts or omissions of the District. In addition, it is possible that future changes in applicable
federal tax laws could cause interest on the Bonds to be included in gross income for federal income taxation or
could otherwise reduce the equivalent taxable yield of such interest and thereby reduce the value of the Bonds.
No Ratings – Limited Secondary Market
The Districthas not applied to have the Bonds rated by any nationally recognized bond rating company,
and it does not expect to do so in the future.
There can be no guarantee that there will be a secondary market for the Bonds or, if a secondary market
exists, that such Bonds can be sold for any particular price. Although the District has committed to provide
certain financial and operating information, there can be no assurance that such information will be available to
Bond owners on a timely basis. The failure to provide the required annual financial information does not give
rise to monetary damages but merely an action for specific performance. Occasionally, because of general
market conditions, lack of current information, the absence of a credit rating for the Bonds or because of adverse
history or economic prospects connected with a particular issue, secondary marketing practices in connection
with a particular issue are suspended or terminated. Additionally, prices of issues for which a market is being
made will depend upon then prevailing circumstances. Such prices could be substantially different from the
original purchase price.
Limitations on Remedies
Remedies available to the Owners of the Bonds may be limited by a variety of factors and may be
inadequate to assure the timely payment of principal of and interest on the Bonds or to preserve the tax-exempt
status of interest on the Bonds.
Bond Counsel has limited its opinion as to the enforceability of the Bonds and of the Indenture to the
extent that enforceability may be limited by bankruptcy, insolvency reorganization, fraudulent conveyance or
transfer, moratorium or other similar laws affecting generally the enforcement of creditor’s rights, by equitable
principles and by the exercise of judicial discretion and by limitations on remedies against public agencies in the
State of California. The lack of availability of certain remedies or the limitation of remedies may entail risks of
delay, limitation or modification of the rights of the Owners.
Potential Early Redemption of Bonds from Prepayments or Assessment Bond Proceeds
Property owners within Improvement Area E are permitted to prepay their Special Taxes at any time.
Such prepayments will result in a redemption of the Bonds on the Interest Payment Date following the receipt
of the prepayment.
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CONTINUING DISCLOSURE
Pursuant to a Continuing Disclosure Certificate, dated as of May 1, 2018 (the “Disclosure Agreement”),
to be executed and delivered by the District at the time of issuance of the Bonds, the District will covenant for
the benefit of the holders and Beneficial Owners of the Bonds to provide certain financial information and
operating data relating to the District by December 31 following the end of the District’s Fiscal Year (currently
its Fiscal Year ends on June 30) (the “Annual Report”), commencing with the report for the Fiscal Year ended
June 30, 2018, and to provide notices of the occurrence of certain enumerated events. The Annual Report and
the notices of enumerated events will be filed by the City with EMMA. The specific nature of the information
to be contained in the Annual Report and the notice of material events is set forth in Appendix F—”FORM OF
CONTINUING DISCLOSURE CERTIFICATE.” These covenants have been made in order to assist the
Underwriter in complying with subsection (b)(5) of Rule 15c2-12.
[The District has had obligations pursuant to existing continuing disclosure undertakings during the
previous five-year period. In the previous five years, the District has failed to file its audited financial statements
on a timely basis for fiscal year 2011-12 (506 days late), fiscal year 2012-13 (182 days late) and fiscal year 2014-
15 (33 days late). The District has also failed to file annual reports on a timely basis for fiscal year 2011-12,
fiscal year 2012-13, and fiscal year 2013-14, and one of the late annual reports also included incomplete
information, specifically, tax prepayment information and improvement fund balances were missing. All of the
above instances of non-disclosure have been remedied to the extent possible.
In addition, although the City and its affiliated entities other than the District (such as the Lake Elsinore
Public Financing Authority, the City’s former redevelopment agency and its successor agency, and other
community facilities districts formed by the City) are not obligated persons pursuant to Rule 15c2-12 with
respect to the Bonds, during the last five years the City and such affiliated entities failed to comply in certain
respects with continuing disclosure obligations related to outstanding bonded indebtedness. The failures to
comply include late filings with respect to several annual reports, and failure to provide notice of late annual
financial information, more specifically:
(1) Comprehensive audited financial statements, including the audited financial statements for
fiscal years 2011-12 and 2012-13, were not linked on EMMA to all required CUSIPs until July 1, 2014, and for
fiscal year 2015; and
(2) Material event notices of changes in bond ratings were not filed in a timely fashion. The City
and its affiliated entities have made additional filings to provide certain of the previously omitted information
(including the existing ratings of the outstanding bonds).]
The City has retained Spicer Consulting Group, LLC to serve as Dissemination Agent for the continuing
disclosure undertaking related to the Bonds, and has adopted policies and procedures with respect to its
continuing disclosure practices. In addition, the City has reported the failures in compliance under its previous
continuing disclosure undertakings pursuant to the Municipalities Continuing Disclosure Cooperation Initiative
of the U.S. Securities Exchange Commission.
TAX EXEMPTION
In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach,
California (“Bond Counsel”), under existing statutes, regulations, rulings and judicial decisions, and assuming
the accuracy of certain representations and compliance with certain covenants and requirements described
herein, interest on the Bonds is excluded from gross income for federal income tax purposes and is not an item
of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals. In the
further opinion of Bond Counsel, interest on the Bonds is exempt from State of California personal income tax.
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The difference between the issue price of a Bond (the first price at which a substantial amount of the
Bonds of the same maturity is to be sold to the public) and the stated redemption price at maturity with respect
to such Bond constitutes original issue discount. Original issue discount accrues under a constant yield method,
and original issue discount will accrue to a Beneficial Owner before receipt of cash attributable to such
excludable income. The amount of original issue discount deemed received by the Beneficial Owner will
increase the Beneficial Owner’s basis in the Bond. In the opinion of Bond Counsel, the amount of original issue
discount that accrues to the Beneficial Owner of a Bond is excluded from the gross income of such Beneficial
Owner for federal income tax purposes, is not an item of tax preference for purposes of the federal alternative
minimum tax imposed on individuals, and is exempt from State of California personal income tax.
Bond Counsel’s opinion as to the exclusion from gross income of interest (and original issue discount)
on the Bonds is based upon certain representations of fact and certifications made by the District, the City and
others and is subject to the condition that the District, the City and others making such representations comply
with all requirements of the Code that must be satisfied subsequent to the issuance of the Bonds to assure that
interest (and original issue discount) on the Bonds will not become includable in gross income for federal income
tax purposes. Failure to comply with such requirements of the Code might cause the interest (and original issue
discount) on the Bonds to be included in gross income for federal income tax purposes retroactive to the date of
issuance of the Bonds. The District and the City will covenant to comply with all such requirements.
The amount by which a Beneficial Owner’s original basis for determining loss on sale or exchange in
the applicable Bond (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call
date) constitutes amortizable Bond premium, which must be amortized under Section 171 of the Code; such
amortizable Bond premium reduces the Beneficial Owner’s basis in the applicable Bond (and the amount of
tax-exempt interest received), and is not deductible for federal income tax purposes. The basis reduction as a
result of the amortization of Bond premium may result in a Beneficial Owner realizing a taxable gain when a
Bond is sold by the Beneficial Owner for an amount equal to or less (under certain circumstances) than the
original cost of the Bond to theBeneficial Owner. Purchasers of the Bonds should consult their own tax advisors
as to the treatment, computation and collateral consequences of amortizable Bond premium.
The Internal Revenue Service (the “IRS”) has initiated an expanded program for the auditing of tax-
exempt bond issues, including both random and targeted audits. It is possible that the Bonds will be selected for
audit by the IRS. It is also possible that the market value of the Bonds might be affected as a result of such an
audit of the Bonds (or by an audit of other similar bonds). No assurance can be given that in the course of an
audit, as a result of an audit, or otherwise, Congress or the IRS might not change the Code (or interpretation
thereof) subsequent to the issuance of the Bonds to the extent that it adversely affects the exclusion from gross
income of interest (and original issue discount) on the Bonds or their market value.
SUBSEQUENT TO THE ISSUANCE OF THE BONDSTHERE MIGHT BE FEDERAL, STATE, OR
LOCAL STATUTORY CHANGES (OR JUDICIAL OR REGULATORY CHANGES TO OR
INTERPRETATIONS OF FEDERAL, STATE, OR LOCAL LAW) THAT AFFECT THE FEDERAL, STATE,
OR LOCAL TAX TREATMENT OF THE BONDS INCLUDING THE IMPOSITION OF ADDITIONAL
FEDERAL INCOME OR STATE TAXES BEING IMPOSED ON OWNERS OF TAX-EXEMPT STATE OR
LOCAL OBLIGATIONS, SUCH AS THE BONDS. THESE CHANGES COULD ADVERSELY AFFECT
THE MARKET VALUE OR LIQUIDITY OF THE BONDS. NO ASSURANCE CAN BE GIVEN THAT
SUBSEQUENT TO THE ISSUANCE OF THE BONDS STATUTORY CHANGES WILL NOT BE
INTRODUCED OR ENACTED OR JUDICIAL OR REGULATORY INTERPRETATIONS WILL NOT
OCCURHAVING THE EFFECTS DESCRIBED ABOVE. BEFORE PURCHASING ANY OF THE BONDS,
ALL POTENTIAL PURCHASERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING
POSSIBLE STATUTORY CHANGES OR JUDICIAL OR REGULATORY CHANGES OR
INTERPRETATIONS, AND THEIR COLLATERAL TAX CONSEQUENCES RELATING TO THE BONDS.
Bond Counsel’s opinions may be affected by actions taken (or not taken) or events occurring (or not
occurring) after the date of issuance of the Bonds. Bond Counsel has not undertaken to determine, or to inform
38
any person, whether any such actions or events are taken or do occur. The Indenture and the Tax Certificate
relating to the Bonds permit certain actions to be taken or to be omitted if a favorable opinion of Bond Counsel
is provided with respect thereto. Bond Counsel expresses no opinion as to the effect on the exclusion from gross
income of interest (and original issue discount) on the Bonds for federal income tax purposes with respect to any
Bond if any such action is taken or omitted based upon the advice of counsel other than Stradling Yocca Carlson
& Rauth, a Professional Corporation.
Although Bond Counsel will render an opinion that interest (and original issue discount) on the Bonds
is excluded from gross income for federal income tax purposes provided that the District and the City continue
to comply with certain requirements of the Code, the ownership of the Bonds and the accrual or receipt of interest
(and original issue discount) with respect to the Bonds may otherwise affect the tax liability of certain persons.
Bond Counsel expresses no opinion regarding any such tax consequences. Accordingly, before purchasing any
of the Bonds, all potential purchasers should consult their tax advisors with respect to collateral tax consequences
relating to the Bonds.
Should interest on the Bonds (including any original issue discount) become includable in gross income
for federal income tax purposes, the Bonds are not subject to early redemption and will remain outstanding until
maturity or until redeemed in accordance with the Indenture.
A copy of the proposed form of opinion of Bond Counsel is attached hereto as Appendix C.
LEGAL OPINION
The legal opinion of Bond Counsel approving the validity of the Bonds, in substantially the form set
forth as Appendix C hereto, will be made available to purchasers of the Bonds at the time of original delivery of
the Bonds. Certain legal matters will be passed upon for the City and the District by Leibold McClendon, &
Mann, Irvine, California, City Attorney, and by Stradling Yocca Carlson & Rauth, a Professional Corporation,
Disclosure Counsel, for theUnderwriter by Nossaman LLP, Irvine, California, and for the Trustee by its counsel.
Bond Counsel undertakes no responsibility to the purchasers of the Bonds for the accuracy, completeness or
fairness of this Official Statement.
ABSENCE OF LITIGATION
In connection with the issuance of the Bonds, the City Attorney will deliver an opinion to the effect that,
to their actual knowledge, after due inquiry and investigation, there is no action, suit, proceeding or investigation
at law or in equity before or by any court, public board or body, pending or threatened, or any unfavorable
decision, ruling or finding, against or affecting the District, which would adversely impact the District’s ability
to complete the transactions described in, or contemplated by, the Indenture or this Official Statement, restrain
or enjoin the collection of the Special Taxes, or in any way contest or affect the validity of the Bonds, the
Indenture, the Special Taxes, or the transactions described herein.
NO RATING
The District has not made, and does not contemplate making, an application to any rating organization
for the assignment of a rating on the Bonds.
UNDERWRITING
The Bonds are being purchased by Stifel, Nicolaus & Company, Incorporated (the “Underwriter”). The
Underwriter has agreed to purchase the Bonds at a price of $__________ (being the $__________ aggregate
principal amount of the Bonds, less an Underwriter’s discount of $__________ and plus/less] [net] original issue
premium/discount of $__________). The Bond Purchase Agreement relating to the Bonds provides that the
Underwriter will purchase all of the Bonds if any are purchased, the obligation to make such purchase being
39
subject to certain terms and conditions set forth in the Bond Purchase Agreement, the approval of certain legal
matters by counsel and certain other conditions. The Underwriter’s compensation is contingent upon the
successful issuance of the Bonds.
Under certain circumstances, the Underwriter may offer and sell the Bonds to certain dealers and others
at prices lower than the offering price stated on the cover page hereof. The offering prices may be changed from
time to time by the Underwriter.
FINANCIAL INTERESTS
The fees being paid to the Underwriter and its counsel, Bond Counsel, Disclosure Counsel and the
Trustee are contingent upon the issuance and delivery of the Bonds. From time to time, Stradling Yocca Carlson
& Rauth, a Professional Corporation, represents the Underwriter on matters unrelated to the Bonds.
MUNICIPAL ADVISOR
The District has retained Urban Futures Incorporated, Orange, California, as Municipal Advisor for the
sale of the Bonds. The Municipal Advisor is not obligated to undertake, and has not undertaken to make, an
independent verification or to assume any responsibility for the accuracy, completeness or fairness of the
information contained in this Official Statement.
Urban Futures Incorporated, is an independent advisory firm and is not engaged in the business of
underwriting, trading or distributing municipal or other public securities.
MISCELLANEOUS
So far as any statements made in this Official Statement involve matters of opinion, assumptions,
projections, anticipated events or estimates, whether or not expressly stated, they are set forth as such and not as
presentations of fact, and actual results may differ substantially from those set forth therein. Neither this Official
Statement nor any statement that may have been made verbally or in writing is to be construed as a contract with
the Owners of the Bonds.
The summaries of certain provisions of the Bonds, statutes and other documents or agreements referred
to in this Official Statement do not purport to be complete, and reference is made to each of them for a complete
statement of their provisions. Copies are available for review by making requests to the City.
The execution and delivery of this Official Statement by the City Manager of the City has been duly
authorized by the City Council of the City acting in its capacity as the legislative body of the District.
CITY OF LAKE ELSINORE COMMUNITY FACILITIES
DISTRICT NO. 2003-2 (CANYON HILLS)
By:
City Manager of the City of Lake Elsinore
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APPENDIX A
RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX
CITY OF LAKE ELSINORE COMMUNITY FACILITIES DISTRICT NO. 2003-2 (CANYON HILLS)
(IMPROVEMENT AREA E)
A Special Tax (all capitalized terms are defined in Section A, “Definitions”, below) shall be applicable
to each Assessor’s Parcel of Taxable Property located within the boundaries of the City of Lake Elsinore
Community Facilities District No. 2003-2 Improvement Area E (Canyon Hills) (“CFD No. 2003-2 IA E”). The
amount of Special Tax to be levied in each Fiscal Year, on an Assessor’s Parcel, shall be determined by the City
Council of the City of Lake Elsinore, acting in its capacity as the legislative body of Improvement Area E of
CFD No. 2003-2 by applying the appropriate Special Tax for Developed Property, Approved Property,
Undeveloped Property, Public Property and/or Property Owner’s Association Property that is not Exempt
Property as set forth below. All of the real property, unless exempted by law or by the provisions hereof in
Section F, shall be taxed for the purposes, to the extent and in the manner herein provided.
A.DEFINITIONS
The terms hereinafter set forth have the following meanings:
“Acre or Acreage” means the land area of an Assessor’s Parcel as shown on an Assessor’s Parcel Map,
or if the land area is not shown on an Assessor’s Parcel Map, the land area shown on the applicable final map,
parcel map, condominium plan, or other recorded County parcel map or instrument. The square footage of an
Assessor’s Parcel is equal to the Acreage multiplied by 43,560.
“Act” means the Mello-Roos Communities Facilities Act of 1982, as amended, being Chapter 2.5
(commencing with Section 53311) of Part 1 of Division 2 of Title 5 of the Government Code of the State of
California.
“Administrative Expenses” means the following actual or reasonably estimated costs directly related
to the administration of Improvement Area E: the costs of computing the Special Taxes and preparing the Special
Tax collection schedules (whether by the City or designee thereof or both); the costs of collecting the Special
Taxes (whether by the City or otherwise); the costs of remitting Special Taxes to the Trustee; the costs of the
Trustee (including legal counsel) in the discharge of the duties required of it under the Indenture; the costs to the
City, Improvement Area E or any designee thereof of complying with arbitrage rebate requirements; the costs to
the City, Improvement Area E or any designee thereof of complying with disclosure requirements of the City,
Improvement Area E or obligated persons associated with applicable federal and state securities laws and the
Act; the costs associated with preparing Special Tax disclosure statements and responding to public inquiries
regarding the Special Taxes; the costs of the City, Improvement Area E or any designee thereof related to an
appeal of the Special Tax; the costs associated with the release of funds from an escrow account; and the City’s
annual administration fees and third party expenses. Administration Expenses shall also include amounts
estimated by the CFD Administrator or advanced by the City or Improvement Area E for any other administrative
purposes of CFD No. 2003-2 for Improvement Area E, including attorney’s fees and other costs related to
commencing and pursuing to completion any foreclosure of delinquent Special Taxes.
“Approved Property” means all Assessor’s Parcels of Taxable Property: (i) that are included in a Final
Map that was recorded prior to the January 1st preceding the Fiscal Year in which the Special Tax is being
levied, and (ii) that have not been issued a building permit on or before March 1st preceding the Fiscal Year in
which the Special Tax is being levied.
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“Assessor’s Parcel” means a lot or parcel of land designated on an Assessor’s Parcel Map with an
assigned Assessor’s Parcel Number.
“Assessor’s Parcel Map” means an official map of the Assessor of the County designating parcels by
Assessor’s Parcel Number.
“Assessor’s Parcel Number” means that number assigned to an Assessor’s Parcel by the County for
purposes of identification.
“Assigned Special Tax” means the Special Tax of that name described in Section D below.
“Backup Special Tax”means the Special Tax of that name described in Section D below.
“Boundary Map” means a recorded map of Improvement Area E of CFD No. 2003-2 which indicates
the boundaries of Improvement Area E.
“Bonds” means any obligation to repay a sum of money, including obligations in the form of bonds,
notes, certificates of participation, long-term leases, loans from government agencies, or loans from banks, other
financial institutions, private businesses, or individuals, or long-term contracts, or any refunding thereof, to
which Special Tax within Improvement Area E of CFD No. 2003-2 have been pledged.
“Building Permit” means the first legal document issued by a local agency giving official permission
for new construction. For purposes of this definition, “Building Permit” may include any subsequent building
document(s) authorizing new construction on an Assessor’s Parcel that are issued or changed by the City after
the original issuance, as determined by the CFD Administrator as necessary to fairly allocate the Special Tax to
the Assessor’s Parcel, provided that following such determination the Maximum Special Tax that may be levied
on all Assessor’s Parcels of Taxable Property will be at least 1.1 times maximum annual debt service on all
outstanding Bonds plus the estimated annual Administrative Expenses.
“Building Square Footage” or “BSF” means the square footage of assessable internal living space,
exclusive of garages or other structures not used as living space, as determined by reference to the Building
Permit for such Assessor’s Parcel.
“Calendar Year” means the period commencing January 1 of any year and ending the following
December 31.
“CFD Administrator” means an official of the City, or designee thereof, responsible for determining
the Special Tax Requirement and providing for the levy and collection of the Special Taxes.
“CFD” or “CFD No. 2003-2” means Community Facilities District No. 2003-2 (Canyon Hills)
established by the City under the Act.
“City” means the City of Lake Elsinore.
“City Council” means the City Council of the City of Lake Elsinore, acting as the Legislative Body of
CFD No. 2003-2 IA E, or its designee.
“Condominium Plan” means a condominium plan as set forth in the California Civil Code, Section
1352.
“County” means the County of Riverside.
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“Developed Property”means all Assessor’s Parcels of Taxable Property that: (i) are included in a Final
Map that was recorded prior to the January 1st preceding the Fiscal Year in which the Special Tax is being
levied, and (ii) a Building Permit for new construction was issued on or before March 1st preceding the Fiscal
Year in which the Special Tax is being levied.
“Exempt Property” means all Assessor’s Parcels designated as being exempt from Special Taxes as
provided for in Section F.
“Final Map” means a subdivision of property by recordation of a final map, parcel map, or lot line
adjustment, pursuant to the Subdivision Map Act (California Government Code Section 66410 et seq.) or
recordation of a Condominium Plan pursuant to California Civil Code Section 1352 that creates individual lots
for which Building Permits may be issued without further subdivision.
“Fiscal Year” means the period commencing on July 1st of any year and ending the following June
30th.
“Improvement Area E” means Improvement Area E of CFD No. 2003-2, as identified on the boundary
map for CFD No. 2003-2 on file with the County of Riverside Recorder’s Office.
“Indenture” means the indenture, fiscal agent agreement, resolution or other instrument pursuant to
which Bonds are issued, as modified, amended and/or supplemented from time to time, and any instrument
replacing or supplementing the same.
“Land Use Category” means any of the categories listed in Table 1 of Section D.
“Maximum Special Tax” means the maximum Special Tax, determined in accordance with Section D
below, that can be levied by CFD No. 2003-2 within Improvement Area E in any Fiscal Year on any Assessor’s
Parcel.
“Multifamily Property” means all Assessor’s Parcels of Developed Property for which a Building
Permit has been issued for the purpose of constructing a building or buildings comprised of attached Residential
Units available for rental by the general public, not for sale to an end user, and under common management, as
determined by the Administrator.
“Non-Residential Property” or “NR” means all Assessor’s Parcels of Taxable Property for which a
building permit(s) was issued for a non-residential use. The Administrator shall make the determination if an
Assessor’s Parcel is Non-Residential Property.
“Partial Prepayment Amount” means the amount required to prepay a portion of the Special Tax
obligation for an Assessor’s Parcel, as described in Section H.
“Prepayment Amount” means the amount required to prepay the Special Tax obligation in full for an
Assessor’s Parcel, as described in Section G.
“Proportionately” means for Taxable Property for Special Tax that is (i) Developed Property, that the
ratio of the actual Special Tax levy to the Assigned Special Tax is the same for all Assessor’s Parcels of
Developed Property, (ii) Approved Property, that the ratio of the actual Special Tax levy to the Maximum Special
Tax is the same for all Assessor’s Parcels of Approved Property, and (iii) Undeveloped Property that the ratio
of the actual Special Tax levy per Acre to the Maximum Special Tax per Acre is the same for all Assessor’s
Parcels of Undeveloped Property.
“Residential Property” means all Assessor’s Parcels of Developed Property for which a building
permit has been issued for purposes of constructing one or more Residential Units.
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“Residential Unit” or “RU” means a residential unit that is used or intended to be used as a domicile
by one or more persons, as determined by the Administrator.
“Single Family Residential Property” means all Assessor’s Parcels of Residential Property other than
Multifamily Property on an Assessor’s Parcel.
“Special Tax(es)” means any of the special taxes authorized to be levied within Improvement Area E
of CFD No. 2003-2 pursuant to the Act.
“Special Tax” means any of the special taxes authorized to be levied within Improvement Area E of
CFD No. 2003-2 pursuant to the Act to fund the Special Tax Requirement.
“Special Tax Requirement” means the amount required in any Fiscal Year to pay: (i) the debt service
or the periodic costs on all outstanding Bonds due in the Calendar Year that commences in such Fiscal Year,
(ii) Administrative Expenses, (iii) the costs associated with the release of funds from an escrow account, (iv) any
amount required to establish or replenish any reserve funds established in association with the Bonds, (v) an
amount equal to any anticipated shortfall due to Special Tax delinquencies, and (vi) the collection or
accumulation of funds for the acquisition or construction of facilities authorized by CFD No. 2003-2 provided
that the inclusion of such amount does not cause an increase in the levy of Special Tax on Undeveloped Property
as set forth in Step Three of Section E., less (vii) any amounts available to pay debt service or other periodic
costs on the Bonds pursuant to the Indenture.
“Taxable Property” means all Assessor’s Parcels within Improvement Area E of CFD No. 2003-2,
which are not Exempt Property.
“Taxable Unit” means either a Residential Unit or an Acre.
“Tract(s)” means an area of land within a subdivision identified by a particular tract number on a Final
Map approved for the subdivision.
“Trustee” means the trustee, fiscal agent, or paying agent under the Indenture.
“Undeveloped Property” means all Assessor’s Parcels of Taxable Property which are not Developed
Property, Approved Property.
B.SPECIAL TAX
Commencing Fiscal Year 2016-2017 and for each subsequent Fiscal Year, the City Council shall levy
the Special Tax on all Taxable Property, up to the applicable Maximum Special Tax to fund the Special Tax
Requirement.
C.ASSIGNMENT TO LAND USE CATEGORY FOR SPECIAL TAX
Each Fiscal Year, beginning with Fiscal Year 2016-2017, each Assessor’s Parcel within Improvement
Area E of CFD No. 2003-2 shall be classified as Taxable Property or Exempt Property. In addition, each
Assessor’s Parcel of Taxable Property shall be further classified as Developed Property, Approved Property, or
Undeveloped Property.
Assessor’s Parcel of Developed Property shall further be classified as Residential Property or Non-
Residential Property. Each Assessor’s Parcel of Residential Property shall further be classified as a Single
Family Residential Property or Multifamily Property. Each Assessor’s Parcel of Single Family Residential
Property shall be further categorized into Land Use Categories based on its Building Square Footage and
assigned to its appropriate Assigned Special Tax rate.
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D.MAXIMUM SPECIAL TAX
1.Developed Property
The Maximum Special Tax for each Assessor’s Parcel of Single Family Residential Property in any
Fiscal Year shall be the greater of (i) the Assigned Special Tax or (ii) the Backup Special Tax.
The Maximum Special Tax for each Assessor’s Parcel of Non-Residential Property or Multifamily
Residential Property shall be the applicable Assigned Special Tax described in Table 1 of Section D.
a.Assigned Special Tax
Each Fiscal Year, each Assessor’s Parcel of Single Family Residential Property, Multifamily Property,
or Non-Residential Property shall be subject to an Assigned Special Tax. The Assigned Special Tax applicable
to an Assessor’s Parcel of Developed Property for Fiscal Year 2016-2017 shall be determined pursuant to Table 1
below.
TABLE 1
ASSIGNED SPECIAL TAX FOR DEVELOPED PROPERTY
Land Use Category Taxable Unit Building Square Footage
Assigned
Special Tax
Per Taxable
Unit
1. Single Family Residential Property RU Less than 2,200 sq. ft $1,755
2 Single Family Residential Property RU 2,201 sq. ft to 2,600 sq. ft $1,831
3 Single Family Residential Property RU 2,601 sq. ft to 3,000 sq. ft $1,970
4 Single Family Residential Property RU 3,001 sq. ft to 3,400 sq. ft $2,140
5 Single Family Residential Property RU 3,401 sq. ft to 3,800 sq. ft $2,455
6 Single Family Residential Property RU Greater than 3,801 $2,757
7 Multifamily Property Acres N/A $12,625
8 Non-Residential Property Acres N/A $12,625
On each July 1, commencing July 1, 2017, the Assigned Special Tax rate for Developed Property shall
be increased by one percent (1.00%) of the amount in effect in the prior Fiscal Year.
b.Multiple Land Use Categories
In some instances an Assessor’s Parcel of Developed Property may contain more than one Land Use
Type. The Maximum Special Tax levied on an Assessor’s Parcel shall be the sum of the Maximum Special Tax
for all Land Use Categories located on the Assessor’s Parcel. The CFD Administrator’s allocation to each type
of property shall be final.
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c.Backup Special Tax
The Backup Special Tax for an Assessor’s Parcel within a Final Map classified or to be classified as
Single Family Property shall be $2,470 per unit. This Backup Special Tax has been established based on the
land use configurations shown on the Final Map. In the event any portion of the Final Map is changed or
modified, the Backup Special Tax for all Assessor’s Parcels within such changed or modified area shall be
$12,625 per Acre.
In the event any superseding Final Map is recorded as a Final Map within the Boundaries of the
Improvement Area E of CFD No. 2003-2, the Backup Special Tax for all Assessor’s Parcels within such Final
Map shall be $12,625 per Acre.
The Backup Special Tax shall not apply to Multifamily Residential Property, Non-Residential Property,
Public Property, or Property Owners’ Association Property.
On each July 1, commencing July 1, 2017, the Backup Special Tax rate shall be increased by one percent
(1.00%) of the amount in effect in the prior Fiscal Year.
2.Approved Property
The Maximum Special Tax for each Assessor’s Parcel of Approved Property expected to be classified
as Single Family Property shall be the Backup Special Tax computed pursuant to Section D.1.c above.
The Maximum Special Tax for each Assessor’s Parcel of Approved Property expected to be classified
as Multifamily Residential Property or Non-Residential Property shall be $12,625 per Acre.
On each July 1, commencing July 1, 2017, the Maximum Special Tax rate for Approved Property shall
be increased by one percent (1.00%) of the amount in effect in the prior Fiscal Year.
3.Undeveloped Property, Public Property, and Property Owner’s Association Property
that is not Exempt Property pursuant to the provisions of Section F
The Maximum Special Tax for each Assessor’s Parcel of Undeveloped Property, shall be equal to the
product of $12,625 multiplied by the Acreage of such Assessor’s Parcel.
On each July 1, commencing July 1, 2017, the Maximum Special Tax rate for Undeveloped, shall be
increased by one percent (1.00%) of the amount in effect in the prior Fiscal Year.
E.METHOD OF APPORTIONMENT OF THE SPECIAL TAX
Commencing Fiscal Year 2016-2017 and for each subsequent Fiscal Year, the City Council shall levy
Special Taxes on all Taxable Property in accordance with the following steps:
Step One:The Special Tax shall be levied Proportionately on each Assessor’s Parcel of Developed
Property at up to 100% of the applicable Assigned Special Tax rates in Table 1 to satisfy the
Special Tax Requirement.
Step Two:If additional moneys are needed to satisfy the Special Tax Requirement after the first step has
been completed, the Special Tax shall be levied Proportionately on each Assessor’s Parcel of
Approved Property at up to 100% of the Maximum Special Tax applicable to each such
Assessor’s Parcel as needed to satisfy the Special Tax Requirement.
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Step Three:If additional moneys are needed to satisfy the Special Tax Requirement after the first two steps
have been completed, the Annual Special Tax shall be levied Proportionately on each
Assessor’s Parcel of Undeveloped Property up to 100% of the Maximum Special Tax
applicable to each such Assessor’s Parcel as needed to satisfy the Special Tax Requirement.
Step Four:If additional moneys are needed to satisfy the Special Tax Requirement after the first three
steps have been completed, then the Special Tax on each Assessor’s Parcel of Developed
Property whose Maximum Special Tax is the Backup Special Tax shall be increased
Proportionately from the Assigned Special Tax up to 100% of the Backup Special Tax as
needed to satisfy the Special Tax Requirement.
Notwithstanding the above, under no circumstances will the Special Taxes levied in any Fiscal Year
against any Assessor’s Parcel of Residential Property as a result of a delinquency in the payment of the Special
Tax applicable to any other Assessor’s Parcel be increased by more than ten percent (10%) above the amount
that would have been levied in that Fiscal Year had there never been any such delinquency or default.
F.EXEMPTIONS
The City shall classify as Exempt Property, in order of priority, (i) Assessor’s Parcels which are owned
by, irrevocably offered for dedication, encumbered by or restricted in use by the State of California, Federal or
other local governments, including school districts, (ii) Assessor’s Parcels which are used as places of worship
and are exempt from ad valorem property taxes because they are owned by a religious organization,
(iii) Assessor’s Parcels which are owned by, irrevocably offered for dedication, encumbered by or restricted in
use by a homeowners’ association, (iv) Assessor’s Parcels with public or utility easements making impractical
their utilization for other than the purposes set forth in the easement, (v) Assessor’s Parcels which are privately
owned and are encumbered by or restricted solely for public uses, or (vi) Assessor’s Parcels restricted to other
types of public uses determined by the City Council, provided that no such classification would reduce the sum
of all Taxable Property to less than 13.03 Acres.
Notwithstanding the above, the City Council shall not classify an Assessor’s Parcel as Exempt Property
if such classification would reduce the sum of all Taxable Property to less than 13.03 Acres. Assessor’s Parcels
which cannot be classified as Exempt Property because such classification would reduce the Acreage of all
Taxable Property to less than 13.03 Acres will be classified as Undeveloped Property, and will be subject to
Special Tax pursuant to Step Three in Section E.
G.PREPAYMENT OF SPECIAL TAX
The following additional definitions apply to this Section G:
“CFD Public Facilities” means $2,835,000 expressed in 2016 dollars, which shall increase by the
Construction Inflation Index on July 1, 2017, and on each July 1 thereafter, or such lower amount (i) determined
by the City Council as sufficient to provide the public facilities under the authorized bonding program for
Improvement Area E, or (ii) determined by the City Council concurrently with a covenant that it will not issue
any more Bonds to be supported by Special Tax levied under this Rate and Method of Apportionment.
“Construction Fund” means an account specifically identified in the Indenture or functionally
equivalent to hold funds, which are currently available for expenditure to acquire or construct public facilities
eligible under Improvement Area E.
“Construction Inflation Index” means the annual percentage change in the Engineering News-Record
Building Cost Index for the city of Los Angeles, measured as of the Calendar Year which ends in the previous
Fiscal Year. In the event this index ceases to be published, the Construction Inflation Index shall be another
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index as determined by the City that is reasonably comparable to the Engineering News-Record Building Cost
Index for the city of Los Angeles.
“Future Facilities Costs” means the CFD Public Facilities minus public facility costs available to be
funded through existing construction or escrow accounts or funded by the Outstanding Bonds, and minus public
facility costs funded by interest earnings on the Construction Fund actually earned prior to the date of
prepayment.
“Outstanding Bonds” means all previously issued Bonds issued and secured by the levy of Special Tax
which will remain outstanding after the first interest and/or principal payment date following the current Fiscal
Year, excluding Bonds to be redeemed at a later date with the proceeds of prior prepayments of Special Tax.
1.Prepayment in Full
The Maximum Special Tax obligation may be prepaid and permanently satisfied for (i) Assessor’s
Parcels of Developed Property, (ii) Assessor’s Parcels of Approved Propertyor Undeveloped Property for which
a Building Permit has been issued, and (iii) Approved or Undeveloped Property for which a Building Permit has
not been issued. The Maximum Special Tax obligation applicable to an Assessor’s Parcel may be fully prepaid
and the obligation to pay the Special Tax for such Assessor’s Parcel permanently satisfied as described herein;
provided that a prepayment may be made only if there are no delinquent Special Taxes with respect to such
Assessor’s Parcel at the time of prepayment. An owner of an Assessor’s Parcel intending to prepay the
Maximum Special Tax obligation for such Assessor’s Parcel shall provide the CFD Administrator with written
notice of intent to prepay, and within 5 business days of receipt of such notice, the CFD Administrator shall
notify such owner of the amount of the non-refundable deposit determined to cover the cost to be incurred by
Improvement Area E in calculating the Prepayment Amount (as defined below) for the Assessor’s Parcel.
Within 15 days of receipt of such non-refundable deposit, the CFD Administrator shall notify such owner of the
Prepayment Amount for the Assessor’s Parcel. Prepayment must be made not less than 60 days prior to the
redemption date for any Bonds to be redeemed with the proceeds of such prepaid Special Taxes.
The Prepayment Amount (defined below) shall be calculated as follows (capitalized terms are defined
below):
Bond Redemption Amount
plus Redemption Premium
plus Future Facilities Amount
plus Defeasance Amount
plus Administrative Fees and Expenses
less Reserve Fund Credit
Equals:Prepayment Amount
The Prepayment Amount shall be determined as of the proposed prepayment date as follows:
1.Confirm that no Special Tax delinquencies apply to such Assessor’s Parcel.
2.For an Assessor’s Parcel of Developed Property, compute the Maximum Special Tax for the
Assessor’s Parcel. For an Assessor’s Parcel of Approved Property or Undeveloped Property for which a
Building Permit has been issued, compute the Maximum Special Tax for the Assessor’s Parcel as though it was
already designated as Developed Property, based upon the Building Permit which has been issued for the
Assessor’s Parcel. For an Assessor’s Parcel of Approved Property or Undeveloped Property for which a
Building Permit has not been issued, compute the Maximum Special Tax for the Assessor’s Parcel.
3.Divide the Maximum Special Tax derived pursuant to paragraph 2 by the total amount of
Special Taxes that could be levied at the Maximum Special Tax at build out of all Assessor’s Parcels of Taxable
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Property based on the applicable Maximum Special Tax for Assessor’s Parcels of Developed Property not
including any Assessor’s Parcels for which the Special Tax obligation has been previously prepaid.
4.Multiply the quotient derived pursuant to paragraph 3 by the principal amount of the
Outstanding Bonds to determine the amount of Outstanding Bonds to be redeemed with the Prepayment Amount
(the “Bond Redemption Amount”).
5.Multiply the Bond Redemption Amount by the applicable redemption premium, if any, on the
Outstanding Bonds to be redeemed (the “Redemption Premium”).
6.Determine the Future Facilities Costs.
7.Multiply the quotient derived pursuant to paragraph 3 by the amount determined pursuant to
paragraph 6 to determine the amount of Future Facilities Costs for the Assessor’s Parcel (the “Future Facilities
Amount”).
8.Determine the amount needed to pay interest on the Bond Redemption Amount from the first
bond interest and/or principal payment date following the current Fiscal Year until the earliest redemption date
for the Outstanding Bonds on which Bonds can be redeemed from Special Tax prepayments.
9.Determine the Special Taxes levied on the Assessor’s Parcel in the current Fiscal Year which
have not yet been paid.
10.Determine the amount the CFD Administrator reasonably expects to derive from the investment
of the Bond Redemption Amount and the Redemption Premium from the date of prepayment until the
redemption date for the Outstanding Bonds to be redeemed with the Prepayment Amount.
11.Add the amounts derived pursuant to paragraphs 8 and 9 and subtract the amount derived
pursuant to paragraph 10 (the “Defeasance Amount”).
12.Verify the administrative fees and expenses of the Improvement Area E, including the cost of
computation of the Prepayment Amount, the cost to invest the Prepayment Amount, the cost of redeeming the
Outstanding Bonds, and the cost of recording notices to evidence the prepayment of the Maximum Special Tax
obligation for the Assessor’s Parcel and the redemption of Outstanding Bonds (the “Administrative Fees and
Expenses”).
13.The reserve fund credit (the “Reserve Fund Credit”) shall equal the lesser of: (a) the expected
reduction in the reserve requirement (as defined in the Indenture), if any, associated with the redemption of
Outstanding Bonds as a result of the prepayment, or (b) the amount derived by subtracting the new reserve
requirement (as defined in the Indenture) in effect after the redemption of Outstanding Bonds as a result of the
prepayment from the balance in the reserve fund on the prepayment date, but in no event shall such amount be
less than zero.
14.The Prepayment Amount is equal to the sum of the Bond Redemption Amount, the Redemption
Premium, the Future Facilities Amount, the Defeasance Amount and the Administrative Fees and Expenses, less
the Reserve Fund Credit.
15.From the Prepayment Amount, the Bond Redemption Amount, the Redemption Premium, and
Defeasance Amount shall be deposited into the appropriate fund as established under the Indenture and be used
to redeem Outstanding Bonds or make debt service payments. The Future Facilities Amount shall be deposited
into the Construction Fund. The Administrative Fees and Expenses shall be retained by Improvement Area E.
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The Prepayment Amount may be sufficient to redeem other than a $5,000 increment of Bonds. In such
event, the increment above $5,000 or an integral multiple thereof will be retained in the appropriate fund
established under the Indenture to be used with the next redemption from other Special Tax prepayments of
Outstanding Bonds or to make debt service payments.
As a result of the payment of the current Fiscal Year’s Special Tax levy as determined pursuant to
paragraph 9 above, the CFD Administrator shall remove the current Fiscal Year’s Special Tax levy for the
Assessor’s Parcel from the County tax roll. With respect to any Assessor’s Parcel for which the Maximum
Special Tax obligation is prepaid, the City Council shall cause a suitable notice to be recorded in compliance
with the Act, to indicate the prepayment of Maximum Special Tax obligation and the release of the Special Tax
lien for the Assessor’s Parcel, and the obligation to pay the Special Tax for such Assessor’s Parcel shall cease.
Notwithstanding the foregoing, no Special Tax prepayment shall be allowed unless the amount of
Maximum Special Tax that may be levied on all Assessor’s Parcels of Taxable Property after the proposed
prepayment will be at least 1.1 times maximum annual debt service on the Bonds that will remain outstanding
after the prepayment plus the estimated annual Administrative Expenses.
Tenders of Bonds in prepayment of the Maximum Special Tax obligation may be accepted upon the
terms and conditions established by the City Council pursuant to the Act. However, the use of Bond tenders
shall only be allowed on a case-by-case basis as specifically approved by the City Council.
2.Prepayment in Part
The Maximum Special Tax obligation for an Assessor’s Parcel of Developed Property, Approved
Propertyor Undeveloped Property may be partially prepaid. For purposes of determining the partial prepayment
amount, the provisions of Section G.1 shall be modified as provided by the following formula:
PP = ((PE –A) x F) +A
These terms have the following meaning:
PP = Partial Prepayment
PE = the Prepayment Amount calculated according to Section G.1
F = the percent by which the owner of the Assessor’s Parcel(s) is partially prepaying the
Maximum Special Tax obligation
A = the Administrative Fees and Expenses determined pursuant to Section G.1
The owner of an Assessor’s Parcel who desires to partially prepay the Maximum Special Tax obligation
for the Assessor’s Parcel shall notify the CFD Administrator of (i) such owner’s intent to partially prepay the
Maximum Special Tax obligation, (ii) the percentage of the Maximum Special Tax obligation such owner wishes
to prepay, and (iii) the company or agency that will be acting as the escrow agent, if any. Within 5 days of
receipt of such notice, the CFD Administrator shall notify such property owner of the amount of the non-
refundable deposit determined to cover the cost to be incurred by the Improvement Area E in calculating the
amount of a partial prepayment. Within 15 business days of receipt of such non-refundable deposit, the CFD
Administrator shall notify such owner of the amount of the Partial Prepayment for the Assessor’s Parcel. A
Partial Prepayment must be made not less than 60 days prior to the redemption date for the Outstanding Bonds
to be redeemed with the proceeds of the Partial Prepayment.
With respect to any Assessor’s Parcel for which the Maximum Special Tax obligation is partially
prepaid, the CFD Administrator shall (i) distribute the Partial Prepayment as provided in Paragraph 15 of
Section G.1, and (ii) indicate in the records of the Improvement Area E that there has been a Partial Prepayment
for the Assessor’s Parcel and that a portion of the Special Tax obligation equal to the remaining percentage (1.00
- F) of Special Tax obligation will continue on the Assessor’s Parcel pursuant to Section E.
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I.TERMINATION OF SPECIAL TAX
For each Fiscal Year that any Bonds are outstanding the Special Tax shall be levied on all Assessor’s
Parcels subject to the Special Tax. The Special Tax shall cease not later than the 2057-58 Fiscal Year, however,
the Special Tax will cease to be levied in an earlier Fiscal Year if the CFD Administrator has determined (i) that
all required interest and principal payments on the Improvement Area E Bonds have been paid; (ii) all authorized
facilities of Improvement Area E have been acquired and all reimbursements to the developer have been paid,
(iii) no delinquent Special Tax remain uncollected and (iv) all other obligations of Improvement Area E have
been satisfied.
J.MANNER OF COLLECTION
The Special Tax shall be collected in the same manner and at the same time as ordinary ad valorem
property taxes, provided, however, that Improvement Area E may collect Special Tax at a different time or in a
different manner if necessary to meet its financial obligations, and may covenant to foreclose and may actually
foreclose on delinquent Assessor’s Parcels as permitted by the Act.
K.APPEALS OF SPECIAL TAXES
Any taxpayer may file a written appeal of the Special Taxes on his/her Assessor’s Parcel(s) with the
CFD Administrator, provided that the appellant is current in his/her payments of Special Taxes. During
pendency of an appeal, all Special Taxes previously levied must be paid on or before the payment date
established when the levy was made. The appeal must specify the reasons why the appellant claims the Special
Tax is in error. The CFD Administrator shall review the appeal, meet with the appellant if the CFD Administrator
deems necessary, and advise the appellant of its determination. If the CFD Administrator agrees with the
appellant, the CFD Administrator shall grant a credit to eliminate or reduce future Special Taxes on the
appellant’s Assessor’s Parcel(s). No refunds of previously paid Special Taxes shall be made.
The CFD Administrator shall interpret this Rate and Method of Apportionment and make
determinations relative to the annual levy and administration of the Special Taxes and any taxpayer who appeals,
as herein specified.
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APPENDIX B
CERTAIN ECONOMIC AND DEMOGRAPHIC INFORMATION REGARDING
The following information relating to the City of Lake Elsinore (the “City”) and the County of Riverside,
California (the “County”), California (the “State”) is supplied solely for purposes of information. Neither the
City nor the County is obligated in any manner to pay principal of or interest on the Bonds or to cure any
delinquency or default on the Bonds. The Bonds are payable solely from the sources described in the Official
Statement.
General
The City was founded in 1883 and incorporated as a general law city effective April 23, 1888 in San
Diego County. In 1893, the Elsinore Valley, previously located in San Diego County, became part of the new
County of Riverside. The City encompasses approximately 43 square miles, with over 10 miles of lakeshore,
and is located at the southwestern end of the County, 73 miles southeast of downtown Los Angeles and 74 miles
north of downtown San Diego.
Population
The following table offers population figures for the City, the County and the State for 2013 through
2017.
Area 2013 2014 2015 2016 2017
City of Lake Elsinore 55,943 57,282 59,049 60,876 62,092
County of Riverside 2,266,290 2,291,699 2,318,762 2,348,213 2,384,783
State of California 38,238,492 38,572,211 38,915,880 39,189,035 39,523,613
Source: California State Department of Finance, Demographic Research Unit. 2010 Census Benchmark.
Building Activity
The following tables provide summaries of the building permit valuations and the number of new
dwelling units authorized in the City and County from 2012 through 2016.
BUILDING PERMIT VALUATIONS
City of Lake Elsinore
2012-2016
2012 2013 2014 2015 2016
Valuation ($000):
Residential $71,920 $113,861 $80,159 $75,979 $121,211
Non-residential 6,154 4,262 5,300 5,879 18,587
Total*$78,074 $118,123 $85,459 $81,858 $139,798
Residential Units:
Single family 401 685 429 372 457
Multiple family 0 0 0 0 0
Total 401 685 429 372 457
* Totals may not add to sums because of rounding.
Source: Construction Industry Research Board.
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BUILDING PERMIT VALUATIONS
County of Riverside
2012-2016
2012 2013 2014 2015 2016
Valuation ($000):
Residential $1,079,405 $1,375,593 $1,621,751 $1,536,742 $1,759,535
Non-residential 657,595 873,977 814,990 911,465 1,346,019
Total*$1,737,000 $2,249,570 $2,436,741 $2,448,207 $3,105,554
Residential Units:
Single family 3,720 4,716 5,007 5,007 5,662
Multiple family 909 1,427 1,931 1,189 1,039
Total 4,629 6,143 6,938 6,196 6,701
* Totals may not add to sums because of rounding.
Source: Construction Industry Research Board.
Employment
The following tables show the largest employers located in the City and County as June 30, 2017.
LARGEST EMPLOYERS
City of Lake Elsinore
2017
Rank Name of Business Employees Type of Business
1.Lake Elsinore Unified School District 2,644 School District
2.M & M Framing 500 Construction
3.Stater Bros 319 Supermarkets
4.Lake Elsinore Hotel & Casino 275 Casino & Resort
5.Costco 259 Retail Stores
6.Walmart 234 Retail Stores
7.Riverside County – Dept. of Social Services 173 Government
8.Elsinore Valley Municipal Water District 154 Water District
9.Home Depot 150 Building Supplies
10.Target 150 Retail Stores
Source: City of Lake Elsinore Comprehensive Annual Financial Report for the year ending June 30, 2017.
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LARGEST EMPLOYERS
County of Riverside
2017
Rank Name of Business Employees Type of Business
1.County of Riverside 22,538 County Government
2.University of California-Riverside 8,686 University
3.March Air Reserve Base 8,500 Military Reserve Base
4.Amazon 7,500 Distribution Center
5.Kaiser Permanente Riverside Medical Center 5,739 Medical Center
6.Corona-Norco Unified School District 5,399 School District
7.Riverside Unified School District 4,236 School District
8.Pechanga Resort and Casino 4,000 Casino & Resort
9.Riverside University Health Systems-Medical
Center
3,876 Medical Center
10.Eisenhower Medical Center 3,665 Medical Center
Source: County of Riverside Comprehensive Annual Financial Report for the year ending June 30, 2017.
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Employment and Industry
Employment data by industry is not separately reported on an annual basis for the City but is compiled
for the Riverside-San Bernardino-Ontario Metropolitan Statistical Area (the “MSA”), which includes all of
Riverside and San Bernardino Counties. In addition to varied manufacturing employment, the MSA has large
and growing commercial and service sector employment, as reflected in the table below.
The following table represents the Annual Average Labor Force and Industry Employment for the
County for the period from 2013 through 2017.
RIVERSIDE-SAN BERNARDINO-ONTARIO MSA
INDUSTRY EMPLOYMENT & LABOR FORCE - BY ANNUAL AVERAGE
2013 2014 2015 2016 2017
Civilian Labor Force 1,893,000 1,920,100 1,956,600 1,984,900 2,023,200
Civilian Employment 1,706,900 1,764,600 1,828,400 1,866,600 1,920,400
Civilian Unemployment 186,100 155,600 128,200 118,300 102,800
Civilian Unemployment Rate 9.8%8.1%6.6%6.0%5.1%
Total Farm 14,500 14,400 14,800 14,600 14,400
Total Nonfarm 1,233,300 1,289,300 1,353,100 1,401,900 1,451,600
Total Private 1,008,100 1,060,500 1,119,800 1,159,600 1,201,600
Goods Producing 158,600 170,200 183,000 191,500 196,600
Mining and Logging 1,200 1,300 1,300 900 900
Construction 70,000 77,600 85,700 92,000 97,000
Manufacturing 87,300 91,300 96,100 98,600 98,700
Service Providing 1,074,700 1,119,100 1,170,100 1,210,500 1,255,000
Trade, Transportation and Utilities 299,700 314,900 333,200 348,100 366,000
Wholesale Trade 56,400 58,900 61,600 62,800 63,700
Retail Trade 164,800 169,400 174,300 178,000 182,100
Transportation, Warehousing and Utilities 78,400 86,600 97,400 107,300 120,200
Information 11,500 11,300 11,400 11,500 11,300
Financial Activities 41,800 42,900 43,900 44,600 44,500
Professional and Business Services 131,900 138,700 147,400 145,000 147,200
Educational and Health Services 187,600 194,800 205,100 214,300 224,800
Leisure and Hospitality 135,900 144,800 151,700 160,200 165,700
Other Services 41,100 43,000 44,000 44,600 45,600
Government 225,200 228,800 233,300 242,300 250,000
Total, All Industries 1,247,800 1,303,700 1,367,900 1,416,600 1,466,000
Note:Does not include proprietors, self-employed, unpaid volunteers or family workers, domestic workers in households and persons involved
in labor-management trade disputes. Employment reported by place of work. Items may not add to total due to independent rounding.
The “Total, All Industries” data is not directly comparable to the employment data found in this Appendix B.
Source:State of California, Employment Development Department, March 2017 Benchmark.
B-5
The following table summarizes the labor force, employment and unemployment figures for the period
from 2013 through 2017 for the City, the County, the State and the nation as a whole.
CITY OF LAKE ELSINORE,
COUNTY OF RIVERSIDE,
STATE OF CALIFORNIA AND UNITED STATES
Average Annual Civilian Labor Force, Employment and Unemployment
Year and Area Labor Force Employment(2)Unemployment(3)
Unemployment
Rate (%)
2013
City of Lake Elsinore 26,500 23,700 2,800 10.5%
County of Riverside 996,300 897,800 98,600 9.9
State of California 18,624,300 16,958,700 1,665,600 8.9
United States 155,389,000 143,929,000 11,460,000 7.4
2014
City of Lake Elsinore 26,900 24,500 2,300 8.7%
County of Riverside 1,013,000 930,000 83,000 8.2
State of California 18,755,000 17,348,600 1,406,400 7.5
United States 155,922,000 146,305,000 9,617,000 6.2
2015
City of Lake Elsinore 27,500 25,500 2,000 7.1%
County of Riverside 1,035,500 966,400 69,100 6.7
State of California 18,893,200 17,723,300 1,169,900 6.2
United States 157,130,000 148,834,000 8,296,000 5.3
2016
City of Lake Elsinore 27,900 26,100 1,800 6.5%
County of Riverside 1,051,800 988,000 63,800 6.1
State of California 19,102,700 18,065,000 1,037,700 5.4
United States 159,187,000 151,436,000 7,751,000 4.9
2017
City of Lake Elsinore 27,200 25,500 1,600 6.0%
County of Riverside 1,072,500 1,016,200 56,300 5.2
State of California 19,312,000 18,393,100 918,900 4.8
United States 160,320,000 153,337,000 6,982,000 4.4
Note: Data is not seasonally adjusted.
(1)Annual averages, unless otherwise specified.
(2)Includes persons involved in labor-management trade disputes.
(3)The unemployment rate is computed from unrounded data; therefore, it may differ from rates computed from rounded figures
in this table.
Source: U.S. Department of Labor – Bureau of Labor Statistics, California Employment Development Department. 2017
Benchmark.
Personal Income
Personal Income is the income that is received by all persons from all sources. It is calculated as the
sum of wage and salary disbursements, supplements to wages and salaries, proprietors’ income with inventory
valuation and capital consumption adjustments, rental income of persons with capital consumption adjustment,
personal dividend income, personal interest income, and personal current transfer receipts, less contributions for
government social insurance.
B-6
The personal income of an area is the income that is received by, or on behalf of, all the individuals who
live in the area; therefore, the estimates of personal income are presented by the place of residence of the income
recipients.
Total personal income in Riverside County increased by 52% between 2005 and 2016. The following
tables summarize personal income for Riverside County for 2005 through 2016.
PERSONAL INCOME
Riverside County
2005-2016
(Dollars in Thousands)
Year Riverside County
Annual
Percent Change
2005 $57,669,741 9.2%
2006 63,538,333 10.2
2007 66,347,611 4.4
2008 67,367,683 1.5
2009 65,359,484 (3.0)
2010 66,904,690 2.4
2011 71,213,948 6.4
2012 73,158,724 2.7
2013 75,223,346 2.8
2014 79,066,137 5.1
2015 84,429,454 6.8
2016 87,827,068 4.0
Source: U.S. Department of Commerce, Bureau of Economic Analysis.
The following table summarizes per capita personal income for Riverside County, California and the
United States for 2005-2016. This measure of income is calculated as the personal income of the residents of
the area divided by the resident population of the area.
PER CAPITA PERSONAL INCOME
Riverside County, State of California and the United States
2005-2016
Year Riverside County California United States
2005 $29,853 $39,521 $35,904
2006 31,574 42,334 38,144
2007 31,972 43,692 39,821
2008 31,932 44,162 41,082
2009 30,446 42,224 39,376
2010 30,380 43,317 40,277
2011 31,847 45,849 42,461
2012 32,301 48,369 44,282
2013 32,828 48,570 44,493
2014 34,044 51,344 46,494
2015 35,883 54,718 48,451
2016 36,782 56,374 49,246
Source: U.S. Department of Commerce, Bureau of Economic Analysis.
B-7
Taxable Sales
The table below presents taxable sales for the years 2010 through 2016(1) for the City.
TAXABLE SALES
City of Lake Elsinore
2010-2016(1)
(Dollars in Thousands)
Year Permits Taxable Transactions
2010 1,197 $599,836
2011 1,248 634,553
2012 1,274 665,409
2013 1,716 688,483
2014 1,176 728,088
2015(1)1,420 765,715
2016 1,510 766,594
(1)Beginning in 2015, the outlet counts in these reports show the number of outlets that were active during the reporting period.
Retailers that operate part-time are now tabulated with store retailers. Industry-level data for 2015 are not comparable to that
of prior years.
Source: “Taxable Sales in California (Sales & Use Tax)” - California State Board of Equalization.
The table below presents taxable sales for the years 2010 through 2016(1) for the County.
TAXABLE SALES
County of Riverside
2010-2016(1)
(Dollars in Thousands)
Year Permits Taxable Transactions
2010 45,688 $23,152,780
2011 46,886 25,641,497
2012 46,316 28,096,009
2013 46,805 30,065,467
2014 48,453 32,035,687
2015(1)56,846 32,910,909
2016 57,742 34,231,144
(1)Beginning in 2015, the outlet counts in these reports show the number of outlets that were active during the reporting period.
Retailers that operate part-time are now tabulated with store retailers. Industry-level data for 2015 are not comparable to that
of prior years.
Source: “Taxable Sales in California (Sales & Use Tax)” - California State Board of Equalization.
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APPENDIX C
FORM OF OPINION OF BOND COUNSEL
Upon issuance of the Bonds, Stradling Yocca Carlson & Rauth, a Professional Corporation, Bond
Counsel, proposes to render its final approving opinion in substantially the following form:
[Closing Date]
City Council
City of Lake Elsinore
130 South Main Street
Lake Elsinore, California 92530
Re:$__________ City of Lake Elsinore Community Facilities District No. 2003-2 (Canyon Hills)
Special Tax Bonds, Series 2018 (Improvement Area E)
Dear Honorable Members of the City Council:
We have examined the Constitution and the laws of the State of California, a certified record of the
proceedings of the City of Lake Elsinore (the “City”) taken in connection with the formation of the City of City
of Lake Elsinore Community Facilities District No. 2003-2 (Canyon Hills) (the “District”), the designation of
Improvement Area E thereinand the authorization and issuance of the District’s Special Tax Bonds, Series 2018
(Improvement Area E) in the aggregate principal amount of $__________ (the “Bonds”) and such other
information and documents as we consider necessary to render this opinion. In rendering this opinion, we have
relied upon certain representations of fact and certifications made by the District, the City, the initial purchasers
of the Bonds and others. We have not undertaken to verify through independent investigation the accuracy of
the representations and certifications relied upon by us.
The Bonds have been issued pursuant to the Mello-Roos Community Facilities Act of 1982, as amended
(comprising Chapter 2.5 of Part 1 of Division 2 of Title 5 of the Government Code of the State of California), a
resolution adopted by the City Council of the City, acting in its capacity as the legislative body of the District
(the “City Council”) on April 10, 2018 (the “Resolution”), and a Bond Indenture (the “Indenture”) dated as of
May 1, 2018, by and between the District and Wilmington Trust, National Association, as trustee (the “Trustee”).
All capitalized terms not defined herein shall have the meaning set forth in the Indenture.
Based upon our examination of the foregoing, and in reliance thereon and on all matters of fact as we
deem relevant under the circumstances, and upon consideration of applicable laws, we are of the opinion that:
(1)The Bonds have been duly and validly authorized by the District and are legal, valid and binding
limited obligations of the District, enforceable in accordance with their terms and the terms of the Indenture.
The Bonds are limited obligations of the District but are not a debt of the City, the State of California or any
other political subdivision thereof within the meaning of any constitutional or statutory limitation, and, except
for the Net Taxes, neither the faith and credit nor the taxing power of the City, the State of California, or any of
its political subdivisions is pledged for the payment thereof.
(2)The Indenture has been duly executed and delivered by the District. The Indenture creates a
valid pledge of, and the Bonds are secured by, the Net Taxes and the amounts on deposit in certain funds and
accounts established under the Indenture, as and to the extent provided in the Indenture. The Indenture is
enforceable in accordance with its terms; provided, however, we express no opinion as to the enforceability of
the covenant of the District contained in the Indenture to levy Special Taxes for the payment of Administrative
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Expenses or as to indemnification, penalty, contribution, choice of law, choice of forum or waiver provisions
contained therein.
(3)Under existing statutes, regulations, rulings and judicial decisions, interest (and original issue
discount) on the Bonds is excluded from gross income for federal income tax purposes and is not an item of tax
preference for purposes of calculating the federal alternative minimum tax imposed on individuals.
(4)Interest on the Bonds is exempt from State of California personal income tax.
(5)The difference between the issue price of a Bond (the first price at which a substantial amount
of the Bonds of a maturity are to be sold to the public) and the stated redemption price at maturity with respect
to such Bond constitutes original issue discount. Original issue discount accrues under a constant yield method,
and original issue discount will accrue to a Bond Owner before receipt of cash attributable to such excludable
income. The amount of original issue discount deemed received by a Bond Owner will increase the Bond
Owner’s basis in the applicable Bond. Original issue discount that accrues for the Bond Owner is excluded from
the gross income of such Owner for federal income tax purposes, is not an item of tax preference for purposes
of calculating the federal alternative minimum tax imposed on individuals (as described in paragraph (3) above)
and is exempt from State of California personal income tax.
(6)The amount by which a Bond Owner’s original basis for determining loss on sale or exchange
in the applicable Bond (generally the purchase price) exceeds the amount payable on maturity (or on an earlier
call date) constitutes amortizable Bond premium which must be amortized under Section 171 of the Internal
Revenue Code of 1986, as amended (the “Code”); such amortizable Bond premium reduces the Bond Owner’s
basis in the applicable Bond (and the amount of tax-exempt interest received), and is not deductible for federal
income tax purposes. The basis reduction as a result of the amortization of Bond premium may result in a Bond
Owner realizing a taxable gain when a Bond is sold by the Owner for an amount equal to or less (under certain
circumstances) than the original cost of the Bond to the Owner.
The opinions expressed in paragraphs (3) and (5) above as to the exclusion from gross income for federal
income tax purposes of interest (and original issue discount) on the Bonds is subject to the condition that the
District complies with all requirements of the Code, that must be satisfied subsequent to the issuance of the
Bonds to assure that such interest (and original issue discount) will not become includable in gross income for
federal income tax purposes. Failure to comply with such requirements of the Code might cause interest (and
original issue discount) on the Bonds to be included in gross income for federal income tax purposes retroactive
to the date of issuance of the Bonds. The District has covenanted to comply with all such requirements. Except
as set forth in paragraphs (3), (4), (5) and (6) above, we express no opinion as to any tax consequences related
to the Bonds.
Certain agreements, requirements and procedures contained or referred to in the Indenture, the Tax
Certificate executed by the District and the City and other documents related to the Bonds may be changed and
certain actions may be taken or omitted, under the circumstances and subject to the terms and conditions set
forth in such documents. We express no opinion as to the effect on the exclusion from gross income for federal
income tax purposes of interest (and original issue discount) on any Bond if any such change occurs or action is
taken or omitted upon advice or approval of bond counsel other than Stradling Yocca Carlson & Rauth, a
Professional Corporation.
Our opinion is limited to matters governed by the laws of the State of California and federal law. We
assume no responsibility with respect to the applicability or the effect of the laws of any other jurisdiction. We
call attention to the fact that the rights and obligations under the Bonds, the Indenture and the Tax Certificate
may be limited by bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and
other laws relating to or affecting creditors’ rights, by the application of equitable principles and the exercise of
judicial discretion in appropriate cases and by the limitations on legal remedies against public agencies in the
State of California.
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We express no opinion herein as to the accuracy, completeness or sufficiency of the Official Statement
or other offering material relating to the Bonds and expressly disclaim any duty to advise the Owners of the
Bonds with respect to matters contained in the Official Statement or other offering material.
The opinions expressed herein are based upon an analysis of existing statutes, regulations, rulings and
judicial decisions and cover certain matters not directly addressed by such authorities. Such opinions may be
affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. We have not
undertaken to determine, or to inform any person, whether such actions or events are taken (or not taken) or do
occur (or do not occur).
Respectfully submitted,
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APPENDIX D
APPRAISAL REPORT
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APPENDIX E
SUMMARY OF THE INDENTURE
The following is a summary of certain provisions of the Indenture which are not described elsewhere.
This summary does not purport to be comprehensive and reference should be made to the Indenture for a full
and complete statement of the provisions thereof.
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APPENDIX F
FORM OF CONTINUING DISCLOSURE CERTIFICATE
Upon issuance of the Bonds, the District proposes to enter into a Continuing Disclosure Certificate in
substantially the following form:
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APPENDIX G
BOOK-ENTRY ONLY SYSTEM
The information in this Appendix concerning DTC and DTC’s book-entry only system has been obtained
from sources that the District and the Underwriter believe to be reliable, but neither the District nor the
Underwriter takes any responsibility for the completeness or accuracy thereof. The following description of the
procedures and record keeping with respect to beneficial ownership interests in the Bonds, payment of principal,
premium, if any, accreted value and interest on the Bonds to DTC Participants or Beneficial Owners,
confirmation and transfers of beneficial ownership interests in the Bonds and other related transactions by and
between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC.
The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the Bonds.
The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership
nominee) or such other name as may be requested by an authorized representative of DTC. One fully registered bond
will be issued for each annual maturity of the Bonds, each in the aggregate principal amount of such annual maturity,
and will be deposited with DTC.
DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New
York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the
Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code,
and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934.
DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and
municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct
Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales
and other securities transactions in deposited securities, through electronic computerized book-entry transfers and
pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities
certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies,
clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust &
Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation
and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users
of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S.
securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a
custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a
Standard & Poor’s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and
Exchange Commission. More information about DTC can be found at www.dtcc.com.
Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will
receive a credit for the Bonds on DTC’s records. The ownership interest of each actual purchaser of each Bond
(“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners
will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to
receive written confirmations providing details of the transaction, as well as periodic statements of their holdings,
from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of
ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect
Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their
ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued.
To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the
name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized
representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such
other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial
Owners of the Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Bonds
are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain
responsible for keeping account of their holdings on behalf of their customers.
G-2
Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to
Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.
Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of
significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the
Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the
Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial
Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided
directly to them.
Redemption notices shall be sent to DTC. If less than all of the Bonds within a maturity are being redeemed,
DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be
redeemed.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless
authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC
mails an Omnibus Proxy to the District as soon as possible after the record date. The Omnibus Proxy assigns Cede &
Co.’s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date
(identified in a listing attached to the Omnibus Proxy).
Redemption proceeds, distributions, and dividend payments on the Bonds will be made to Cede & Co., or
such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct
Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the District or the
Trustee, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by
Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case
with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the
responsibility of such Participant and not of DTC, the Trustee, or the District, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend
payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the
responsibility of the District or the Trustee, disbursement of such payments to Direct Participants will be the
responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of
Direct and Indirect Participants.
A Bond Owner shall give notice to elect to have its Bonds purchased or tendered, through its Participant, to
the Trustee, and shall effect delivery of such Bonds by causing the Direct Participant to transfer the Participant’s
interest in the Bonds, on DTC’s records, to the Trustee. The requirement for physical delivery of Bonds in connection
with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Bonds are
transferred by Direct Participants on DTC’s records and followed by a book-entry credit of tendered Bonds to the
Trustee’s DTC account.
DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving
reasonable notice to the District or the Trustee. Under such circumstances, in the event that a successor depository is
not obtained, physical certificates are required to be printed and delivered.
The District may decide to discontinue use of the system of book-entry only transfers through DTC (or a
successor securities depository). In that event, bonds will be printed and delivered to DTC.
THE TRUSTEE, AS LONG AS A BOOK-ENTRY ONLY SYSTEM IS USED FOR THE BONDS, WILL
SEND ANY NOTICE OF REDEMPTION OR OTHER NOTICES TO OWNERS ONLY TO DTC. ANY FAILURE
OF DTC TO ADVISE ANY DTC PARTICIPANT, OR OF ANY DTC PARTICIPANT TO NOTIFY ANY
BENEFICIAL OWNER, OF ANY NOTICE AND ITS CONTENT OR EFFECT WILL NOT AFFECT THE
VALIDITY OF SUFFICIENCY OF THE PROCEEDINGS RELATING TO THE REDEMPTION OF THE BONDS
CALLED FOR REDEMPTION OR OF ANY OTHER ACTION PREMISED ON SUCH NOTICE.
BOUNDARY MAP
COMMUNITY FACILITIES DISTRICT NO. 2003-2
IMPROVEMENT AREA E (CANYON HILLS)