Resolution No. 2015-047RESOLUTION NO. 2015-47
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
VERNON APPROVING THE TERMINATION OF INTEREST RATE
SWAPS AND THE FORMS OF SWAP TERMINATION AGREEMENTS;
AND AUTHORIZING CERTAIN OTHER MATTERS RELATING
THERETO
WHEREAS, the City of Vernon (the `City") is a municipal
corporation and a chartered city of the State of California organized
and existing under its Charter and the Constitution of the State of
California; and
WHEREAS, the City is authorized pursuant to the provisions of
its Charter and the City of Vernon Municipal Facilities Revenue Bond
Law, constituting Article XI of the City Code of the City of Vernon, to
issue bonds, notes and other obligations payable from the Net Revenues
of the Electric System (capitalized terms used herein and not otherwise
defined shall have the meanings given such terms in the Indenture
mentioned below) to finance the costs of any land, improvements,
facilities, equipment and other property of any nature whatsoever which
are used in the Electric System and to refund such bonds, notes and
other obligations; and
WHEREAS, pursuant to an Indenture of Trust, dated as of
December 1, 2004, between the City and The Bank of New York Trust
Company, N.A., as trustee (the "Prior Trustee"), as amended by the
First Supplemental Indenture of Trust and the Second Supplemental
Indenture of Trust, each dated as of December 1, 2004, and each between
the City and the Prior Trustee, the City previously issued its Electric
System Revenue Bonds, 2004 Series A (the "2004 Series A Bonds") and its
Electric System Revenue Bonds, 2004 Series B (the "2004 Series B
Bonds"); and
WHEREAS, the City and Morgan Stanley Capital Services LLC
("Morgan Stanley") entered into a certain interest rate swap
transaction relating to the City's 2004 Series A Bonds (the "2004A
Transaction") and a certain interest rate swap transaction relating to
the City's 2004 Series B Bonds (the "2004B Transaction" and
collectively with the 2004A Transaction, the "Transactions"); and
WHEREAS, the 2004B Transaction was transferred from Morgan
Stanley to Deutsche Bank AG ("Deutsche Bank") through a novation
process; and
WHEREAS, the City has determined to terminate the
Transactions and in connection therewith may enter into separate
Termination Agreements with Morgan Stanley and Deutsche Bank (such
Termination Agreements, in the forms presented to the City Council with
such changes, insertions and deletions as are made pursuant to this
Resolution, being referred to herein collectively as the "Termination
Agreements" and individually as the "Morgan Stanley Termination
Agreement" and the "Deutsche Bank Termination Agreement") and to make
any payments due from the City in connection with the Termination
Agreements; and
WHEREAS, by memorandum dated July 7, 2015, the Finance
Director has recommended the termination of the Transactions and the
approval of the Termination Agreements; and
WHEREAS, the City Council of the City of Vernon desires to
terminate the Transactions and approve the Termination Agreements.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY
OF VERNON, AS FOLLOWS:
SECTION 1: The City Council of the City of Vernon hereby
finds and determines that the above recitals are true and correct.
OHSUSA:762619001.2 2
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SECTION 2: The City Council of the City of Vernon finds
that because this action is a government fiscal activity which does not
involve any commitment to any specific project which may result in a
potentially significant physical impact on the environment, it does not
constitute a "project" as defined by California Environmental Quality
Act ("CEQA") Guidelines section 15378 and is therefore not subject to
CEQA review. Furthermore, even if it were a project, this action would
be exempt from CEQA review in accordance with Section 15061(b)(3), the
general rule that CEQA only applies to projects that may have an effect
on the environment.
SECTION3: The City Council of the City of Vernon hereby
approves the termination of the Transactions.
SECTION 4: The City Council of the City of Vernon hereby
approves the Morgan Stanley Termination Agreement, in substantially the
form attached hereto as Exhibit A and made a part hereof as though set
forth in full herein, except that if a calculation pursuant to Section
7(ii) of the Morgan Stanley Termination Agreement indicates a loss to
Morgan Stanley then the City shall pay Morgan Stanley the amount of
such loss and the rate payable by the City under the Morgan Stanley
under the 2004A Transaction shall not change. Each of the Mayor, the
Mayor Pro Tem, the City Administrator, the Finance Director/City
Treasurer (each an "Authorized Officer"), acting singly, is hereby
authorized to execute and deliver the Morgan Stanley Termination
Agreement, in the name of and on behalf of the City, in substantially
the form approved hereby with such changes, insertions and deletions as
may be approved by the Authorized Officer executing the Morgan Stanley
Termination Agreement, said execution being conclusive evidence of such
approval.
OHSUSA:762619001.2 3
42797-2
SECTION 5: The City Council of the City of Vernon hereby
approves the Deutsche Bank Termination Agreement, in substantially the
form attached hereto as Exhibit B and made a part hereof as though set
forth in full herein. Each Authorized Officer, acting singly, is
hereby authorized to execute and deliver the Deutsche Bank Termination
Agreement, in the name of and on behalf of the City, in substantially
the form approved hereby with such changes, insertions and deletions as
may be approved by the Authorized Officer executing the Deutsche Bank
Termination Agreement, said execution being conclusive evidence of such
approval.
SECTION 6: The Mayor, the Mayor Pro Tem, the City
Administrator, the Finance Director/City Treasurer, the City Clerk, the
City Attorney, the Director of Gas & Electric Department and any other
proper official, officer or employee of the City, acting singly, be and
each of them hereby is authorized to execute and deliver any and all
documents and instruments and to do and cause to be done any and all
acts and things necessary or convenient in carrying out the actions
authorized by this Resolution and the transactions contemplated by the
documents and instruments approved or authorized by this Resolution,
including, without limitation, making any determinations or submission
of any documents or reports which are required by any rule or
regulation of any governmental entity in connection with the
authorization, execution, delivery and performance by the City of its
obligations under the Termination Agreements.
SECTION 7: All actions heretofore taken by the City Council
of the City of Vernon, or any official, officer, employee,
representative or agent of the City, in connection with carrying out
the actions authorized by this Resolution and the authorization,
OHSUSA:762619001.2 4
42797-2
execution, delivery, or performance of the City's obligations under the
Termination Agreements, and the other actions contemplated by this
Resolution, are hereby ratified, approved and confirmed.
SECTION 8: The City Clerk, or Deputy City Clerk, of the
City of Vernon shall certify to the passage, approval and adoption of
this resolution, and the City Clerk, or Deputy City Clerk, of the City
of Vernon shall cause this resolution and the City Clerk's, or Deputy
City Clerk's, certification to be entered in the File of Resolutions of
the Council of this City.
APPROVED AND ADOPTED this 7th day of July, 2015.
f
Name: W. Michael McCormick
Title: Mayor / M&ywro- e
AT ST:
Ma is E. yala
City Cl rk /
APPROVED AS TO FORM:
Hema Patel, City torney
Eugen Carron, Esq.
Orrick, Herrington & Sutcliffe LLP
Bond Counsel to City
OHSUSA:762619001.2 5
42797-2
STATE OF CALIFORNIA )
) ss
COUNTY OF LOS ANGELES )
I, Maria E . Ayala , City Clerk / f the City
of Vernon, do hereby certify that the foregoing Resolution, being
Resolution No. 2015-47, was duly passed, approved and adopted by the
City Council of the City of Vernon at a regular meeting of the City
Council duly held on Tuesday, July 7, 2015, and thereafter was duly
signed by the Mayor or Mayor Pro-Tem of the City of Vernon.
Executed this e, day of July, 2015, at Vernon, California.
(SEAL)
M ria E . ala
City Clerk Ci ty C1 P_r-'
�. .
C.1
EXHIBIT A
Exhibit A
[Morgan Stanley Termination Agreement Attached]
OHSUSA:762619001.2 A-]
42797-2
Morgan Stanley Municipal Capital Markets
Date:
July [ • ], 2015
CWT DRAFT 6/30/2015
To:
City of Vernon
From:
Morgan Stanley Capital Services LLC
Attn:
Mark Whitworth, City Administrator
Contact:
NY Deriv Client Services
Fax:
323-826-1439
Fax:
212-404-4726
Tel:
323-583-8811 ext. 398
Tel:
212-761-2996
E-mail:
E-mail:
Municonfirms_In@morganstanley.com
Re: Unwind of Transaction MSCS Ref. No. AUCTK (the "Original Transaction")
The purpose of this letter agreement is to confirm the terms and conditions of the unwind of the
Original Transaction. This letter agreement constitutes a "Confirmation" as referred to in the ISDA Master
Agreement below.
The definitions and provisions contained in the 2006 ISDA Definitions (as published by the
International Swaps and Derivatives Association, Inc.) (the "Definitions") are incorporated into this Confirmation.
In the event of any inconsistency between the Definitions and this Confirmation, this Confirmation will govern.
1. This Confirmation supplements, forms part of, and is subject to, the ISDA Master
Agreement dated as of December 2, 2004, as amended and supplemented from time to time (the "Agreement")
between you and us. All provisions contained in the Agreement govern this Confirmation except as expressly
modified below.
2. The terms of the unwind of the Original Transaction to which this Confirmation relates
are as follows:
Party A:
Party B:
Original Transaction Trade Date:
Original Transaction Termination Date
Unwind Trade Date:
Unwind Effective Date:
Party B Unwind Payment:
Unwind Settlement Date:
3. Account Details:
Payments to Party A:
USActive 33072516.1
Morgan Stanley Capital Services LLC
City of Vernon
December 2, 2004
April 1, 2037
July [ J, 2015
July [ ], 2015
Party B shall pay USD [_� to Party A on the Unwind
Settlement Date.
July [0], 2015
Citibank, New York
ABA No. 021 000 089
For: Morgan Stanley Capital Services LLC
Account No. 4072-4601
Morgan Stanley Municipal Capital Markets
Party A Operations Contact: Municipal Operations
Tel: 410-534-1436
Fax: 410-534-1990
E-mail: MuniOperations@MorganStanley.com
Party B Operations Contact: Mark Whitworth, City Administrator
Tel: 323-583-8811 ext. 398
Fax: 323-826-1439
4. Each of Party A and Party B hereby confirms that (i) with effect from and including the
Unwind Effective Date, the Original Transaction is unwound, and (ii) upon payment of the Party B Unwind
Payment[s] on the Unwind Settlement Date, Party A and Party B each will be released and discharged from further
obligations to each other under the Original Transaction and their respective rights against each other under the
Original Transaction are terminated; provided, that such release and discharge will not affect any obligations or
rights of Party A or Party B under the Original Transaction with respect to payments or other obligations due and
payable or due to be performed on or prior to the Unwind Effective Date and all such payments and obligations shall
be paid or performed by Party A or Party B in accordance with the terms of the Original Transaction.
5. Each of Party A and Party B hereby agrees that each representation made by Parry A or
Party B in the Agreement as of the Original Transaction Trade Date will be deemed repeated by such party as of the
date of this Confirmation as if such representation were set forth in this Confirmation.
6. Relationship Between Parties. Each party will be deemed to represent to the other party
on the date on which it enters into this Transaction that (absent a written agreement between the parties that
expressly imposes affirmative obligations to the contrary for this Transaction):
(a) Non -Reliance. It is acting for its own account, and it has made its own independent
decisions to enter into this Transaction and as to whether this Transaction is appropriate or proper for it based upon
its own judgment and upon advice from such advisers as it has deemed necessary. It is not relying on any
communication (written or oral) of the other party as investment advice or as a recommendation to enter into this
Transaction, and the other party is not acting with respect to any communication (written or oral) as a "municipal
advisor," as such term is defined in Section 975 of the U.S. Dodd -Frank Wall Street Reform & Consumer Protection
Act; it being understood that information and explanations related to the terms and conditions of this Transaction
shall not be considered investment advice, advice provided by a municipal advisor or a recommendation to enter
into this Transaction. No communication (written or oral) received from the other party shall be deemed to be an
assurance or guarantee as to the expected results of this Transaction.
(b) Assessment and Understanding. It is capable of assessing the merits of and understanding
(on its own behalf or through independent professional advice), and understands and accepts, the terms, conditions
and risks of this Transaction. It is also capable of assuming, and assumes, the risks of this Transaction.
(c) Status of Parties. The other party is not acting as fiduciary for or an advisor to it in
respect of this Transaction.
7. "The effectiveness of the termination described herein (other than in this paragraph 7) is
contingent upon the issuance (the "Closing") of Party B's [Bond Series Details] (the "Refunding Bonds") as defined
in and in accordance with the provisions of the [bond purchase agreement related to the Refunding Bonds, dated [ ]
(the "BPA")], by and between Party B and [Underwriter]. If Party B provides a notice (the "Failed Closing Notice")
to Party A on or prior to [Unwind Settlement Date] to the effect that said Closing will not occur on or prior to such
date and the Party B has elected not to the pay the Party B Unwind Payment but has elected to reinstate the terms of
the Transaction as set forth in the Amended and Restated Confirmation as amended pursuant to this paragraph 7, (i)
this Transaction will remain in effect with respect to the Notional Amount under the Amended and Restated
-2-
Morgan Stan ley
Municipal Capital Markets
Confirmation with respect to each Calculation Period, (ii) Party A will have the right to adjust the Fixed Rate
applicable to this Transaction for the remainder of the term, in good faith and subject to the approval of Party B, in
consultation with Party B's swap advisor, PFM Swap Advisors LLC, to reflect (A) its losses (expressed as a higher
rate) or gains (expressed as a lower rate) as a result of any change in value to Party A of this Transaction due to a
movement in the USD-LIBOR yield curve during the period between the Unwind Trade Date and the earlier of the
time at which Party A received the Failed Closing Notice from the Party B or [Unwind Settlement Date] and (B) its
bid -offer spread and any legal or other costs associated with the reinstatement of the Transaction (expressed as a
higher rate), (iii) the Fixed Rate that is so adjusted by Party A will be the Fixed Rate applicable to such Transaction
from and including the date of such adjustment to but excluding the Termination Date of such Transaction and (iv)
Party A shall promptly send to Party B an amended Confirmation reflecting the adjusted Fixed Rate.
-3-
Morgan Stanley Municipal Capital Markets
Please confirm that the foregoing correctly sets forth the terms of our agreement MSCS Ref. No.
AUCfK by executing this Confirmation and returning it to us promptly.
Best regards,
MORGAN STANLEY CAPITAL SERVICES LLC
al
Name:
Title:
ACKNOWLEDGED AND AGREED as of the date first written:
CITY OF VERNON
By:
Name:
Title:
-4-
EXHIBIT B
Exhibit B
[Deutsche Bank Termination Agreement Attached]
OHSUSA:762619001.2 B-1
42797-2
Deutsche Bank
Deutsche Bank AG New York
60 Wall Street
New York, NY 10005
+1212-250-2500
Date:
June 29, 2015
To:
City of Vernon
Attention:
Mark Whitworth, City Administrator
Facsimile no.:
1 323 826 1422
Our Reference:
Global No. N1359778N
Re:
Termination Agreement
Ladies and Gentlemen:
Ful
The purpose of this termination agreement ("Termination Agreement') dated as of [ ], is to set forth the
terms and conditions of the termination of the Transaction between Deutsche Bank AG ("DBAG") and City
of Vernon ("Counterparty") with a Trade Date of September 23, 2011, a Notional Amount of USD
83,575,000.00, and a Termination Date of April 1, 2029, (DBAG Reference Global No. N1359778N) (the
"Transaction"). Accordingly the parties agree as follows:
1. Termination: Effective [ ], the rights, obligations and liabilities of DBAG and Counterparty and of their
respective affiliates, subsidiaries, directors, officers, employees and agents under the Transaction are
hereby mutually terminated and discharged. Each party hereto acknowledges that, except as provided
herein, no payments or other amounts are owed to it by the other party hereto under or with respect to the
Transaction. The termination provided for under this Termination Agreement is limited to the Transaction
referenced herein and shall not affect or suspend any other obligations of the parties under the Agreement.
2. Payment Obligation: In consideration of the termination and discharge effected by the preceding
section, on [ ], DBAG/Counterparty will pay to DBAG/Counterparty an amount equal to [ ], in immediately
available funds to the account specified below.
Chairman of the Supervisory Board: Paul Achleitner
Management Board: Jurgen Fitschen (Co -Chairman), Anshuman Jain (Co -Chairman), Stefan Krause, Stephan Leithner, Stuart Lewis, Rainer Neske, Henry Ritchotte
Deutsche Bank Aktiengesellschaft domiciled in Frankfurt am Main: Local Court of Frankfurt am Main, HRB No 30 000, VAT ID No DE114103379, www.db.com
3. Condition to Effectiveness: The Termination described in section 1 is subject to Counterparty issuing
its [Insert Description of the Bonds] (the "Bonds") on or prior to the Payment Date. If Counterparty does not
issue the Bonds on or prior to the Payment Date, the Transaction shall continue in full force and effect.
Counterparty agrees to provide DBAG with notice by [1:00 pm Eastern Standard time] on the Payment Date
if the Bonds are not issued. If the Termination is not effective because the Bonds are not issued, DBAG will
determine the Transaction Loss (as defined below) on or as soon as possible following the Payment Date,
but not later than one New York Business Day following the Payment Date. If the Transaction Loss is a
positive number, an amount equal to the Transaction Loss will be payable by the Counterparty to DBAG on
the second New York Business Day following the Payment Date and, if the Transaction Loss is a negative
number, an amount equal to the absolute value of the Transaction Loss will be payable by DBAG to the
Counterparty, on the second New York Business Day following the Payment Date (each such payment shall
be a "Transaction Loss Payment"). For purposes of this paragraph, "Transaction Loss" shall mean an
amount that DBAG reasonably determines, in consultation with Counterparty and its financial advisor, in
good faith to be its total losses and costs (expressed as a positive number) or gains (expressed as a
negative number) in connection with continuing the terms of the Transaction evidenced by the Original
Confirmation, including, without duplication, any loss of bargain, cost of funding or loss or cost incurred as
a result of its terminating, liquidating, obtaining or reestablishing any hedge or related trading position.
4. Representations: Each party hereby represents, with respect to itself, that:
(i) it has full power and legal right to execute and deliver, and to perform and observe the terms and
provisions of this Termination Agreement;
(ii) the execution, delivery and performance of this Termination Agreement have been duly authorized by all
necessary action; and
(iii) this Termination Agreement is a legally valid and binding obligation, enforceable against it in accordance
with its terms (subject to applicable bankruptcy, reorganization, insolvency, moratorium or similar laws
affecting creditors' rights generally and subject, as to enforceability, to equitable principles of general
application (regardless of whether enforcement is sought in a proceeding in equity or at law)).
5. Definitions: All terms used herein which are defined in the Confirmation of the Transaction referred to
herein shall have the meaning stated therein. For these purposes, all references in the Definitions or the
Agreement to a "Swap Transaction" shall be deemed to apply to the Transaction referred to herein.
6. Miscellaneous: This Termination Agreement constitutes the entire agreement and understanding of the
parties with respect to the subject matter hereof.
7. Governing Law: The Transaction and all documentation relating thereto (including, without limitation,
this Termination Agreement) shall be governed and construed in accordance with the laws governing the
Agreement.
8. Offices
The Office of DBAG for the Transaction to which this Termination Agreement corresponds is New York.
9. Account Details:
Account Details for DBAG: Standard Settlement Instructions
Account Details for Counterparty: Standard Settlement Instructions
N1359778N 2
10. Please confirm that the foregoing correctly sets forth the terms of our agreement by having an
authorized officer sign this Confirmation and return it via facsimile or e-mail to:
Attention: Derivative Documentation
Telephone: 44 20 7547 4755
Facsimile: 44 20 7545 9761
E-mail: Derivative. Documentation@db.com
This message will be the only form of Confirmation dispatched by us. If you wish to exchange hard copy
forms of this Confirmation, please contact us.
Yours sincerely,
Deutsche Bank AG
0
Name:
Authorized Signatory
Bv:
Name:
Authorized Sicpatory
Confirmed as of the date first written above:
City of Vernon
By:
Name:
Title:
N1359778N 3
AGREEMENT REGARDING
(1) EMIR PORTFOLIO RECONCILIATION AND DISPUTE RESOLUTION
(2) TRANSACTION REPORTING CONSENT
(3) EMIR COUNTERPARTY CLASSIFICATION REPRESENTATION
dated as of ..................... 2015
between
DEUTSCHE BANK AG ("DB") and CITY OF VERNON ("the Client")
(the "Agreement")
DB and the Client hereby agree as follows:
PART I. PORTFOLIO RECONCILIATION AND DISPUTE RESOLUTION
(1) Agreement to Reconcile Portfolio Data
The parties agree to reconcile portfolios as required by the Portfolio Reconciliation Risk Mitigation
Techniques.
DB shall be the Portfolio Data Sending Entity. The Client shall be:
Please select an option by placing an "X" in the box indicating the appropriate election:
the Portfolio Data Sending Entity
the Portfolio Data Receiving Entity
X'
both the Portfolio Data Sending Entity and Portfolio Data Receiving Entity as specified by the
Client to DB.
(a) One-way Delivery of Portfolio Data.
If one party is a Portfolio Data Sending Entity and the other party is a Portfolio Data Receiving
Entity:
(i) on each Data Delivery Date, the Portfolio Data Sending Entity will provide Portfolio Data to
the Portfolio Data Receiving Entity;
(ii) on each PR Due Date, the Portfolio Data Receiving Entity will perform a Data
Reconciliation;
(iii) if the Portfolio Data Receiving Entity identifies one or more discrepancies which such party
determines, acting reasonably and in good faith, are material to the rights and obligations of
the parties in respect of one or more Relevant Transaction(s), it will notify the other party in
writing as soon as reasonably practicable and the parties will consult with each other in an
' Please select the appropriate box
0
attempt to resolve any such discrepancies in a timely fashion for so long as such
discrepancies remain outstanding, using, without limitation, any applicable updated
reconciliation data produced during the period in which such discrepancy remains
outstanding; and
(iv) if the Portfolio Data Receiving Entity does not notify the Portfolio Data Sending Entity that
the Portfolio Data contains discrepancies by 4p.m. local time in the place of business of the
Portfolio Data Sending Entity on the fifth Joint Business Day following the later of the PR
Due Date and the date on which the Portfolio Data Sending Entity provided such Portfolio
Data to the Portfolio Data Receiving Entity, the Portfolio Data Receiving Entity will be
deemed to have affirmed such Portfolio Data.
(b) Two-way Exchange of Portfolio Data.
If both parties are Portfolio Data Sending Entities:
(i) on each Data Delivery Date, each party will provide Portfolio Data to the other party;
(ii) on each PR Due Date, each party will perform a Data Reconciliation; and
(iii) if a party identifies one or more discrepancies which such party determines, acting
reasonably and in good faith, are material to the rights and obligations of the parties in
respect of one or more Relevant Transaction(s), it will notify the other party in writing as
soon as reasonably practicable and the parties will consult with each other in an attempt to
resolve any such discrepancies in a timely fashion for so long as such discrepancies remain
outstanding, using, without limitation, any applicable updated reconciliation data produced
during the period in which such discrepancy remains outstanding.
(c) Alternative Process.
If both parties are Portfolio Data Receiving Entities, the parties will agree a process for reconciling
Portfolio Data in order to meet the requirements of the Portfolio Reconciliation Risk Mitigation
Techniques.
(2) Change of Status
(a) Each party may change its own designation with the prior written agreement of the other party (such
agreement not to be unreasonably withheld or delayed and for this purpose the parties agree, without
limitation, that it will not be unreasonable for a party to withhold agreement where agreement would
result in the other party having different designations in respect of such party and one or more
Affiliates of such party). If, as a result of any such change of designation, both parties will be
Portfolio Data Receiving Entities, Part I(1)(c) will apply.
(b) If a party believes, acting reasonably and in good faith, that the parties are required to perform Data
Reconciliation at a greater or lesser frequency than that being used by the parties at such time, it will
notify the other party of such in writing, providing evidence on request. From the date such notice is
effectively delivered, such greater or lesser frequency will apply and the first following PR Due Date
will be the earlier of the date agreed between the parties and the last Joint Business Day in the PR
Period starting on the date on which the immediately preceding Data Reconciliation occurred (or, if
no Joint Business Day occurs which is within such PR Period and is on or following the date such
notice is effective, the first Joint Business Day following the later of the end of such PR Period and
the date such notice is effective).
(3) Use of agents and third party service providers
For the purposes of performing all or part of the actions under Parts I(I) and I(2), each party may appoint:
(a) an Affiliate to act as agent, immediately on prior written notice to the other party; and/or
(b) subject to the other party's agreement (such agreement not to be unreasonably withheld or delayed),
(i) an entity other than an Affiliate as agent and/or (ii) a qualified and duly mandated third party
service provider.
DB may use a third party (including TriOptima AB) as its agent and/or third party service provider for the
purposes of performing all or part of the actions under Parts I(]) and I(2).
(4) Dispute Identification and Resolution Procedure
The parties agree that they will use the following procedure to identify and resolve Disputes between them:
(a) either party may identify a Dispute by sending a Dispute Notice to the other party;
(b) on or following the Dispute Date, the parties will consult in good faith in an attempt to resolve the
Dispute in a timely manner, including, without limitation, by exchanging any relevant information
and by identifying and using any Agreed Process which can be applied to the subject of the Dispute
or, where no such Agreed Process exists or the parties agree that such Agreed Process would be
unsuitable, determining and applying a resolution method for the Dispute; and
(c) with respect to any Dispute that is not resolved within five Joint Business Days of the Dispute Date,
refer issues internally to appropriately senior members of staff of such party or of its Affiliate,
adviser or agent in addition to actions under (b) immediately above (including actions under any
Agreed Process identified and used under (b) immediately above) and to the extent such referral has
not occurred as a result of action under (b) immediately above (including any Agreed Process).
(5) Internal processes for recording and monitoring Disputes
Each party agrees that, to the extent the Dispute Resolution Risk Mitigation Techniques apply to each party,
it will have internal procedures and processes in place to record and monitor any Dispute for as long as the
Dispute remains outstanding.
(6) Relationship to other portfolio reconciliation and dispute resolution processes
This Part I and any action or inaction of either party in respect of it are without prejudice to any rights or
obligations the parties may possess in respect of each other under any Agreed Process or other contractual
agreement, by operation of law or otherwise. Action or inaction by a party in respect of this Part I will not be
presumed to operate as an exercise or waiver, in whole or part, of any right, power or privilege such party
may possess in respect of each other under any Agreed Process or other contractual agreement, by operation
of law or otherwise. In particular, but without limitation, (a) any valuation in respect of one or more Relevant
Transactions for the purposes of this Part 1 will be without prejudice to any other valuation with respect to
such Relevant Transaction(s) made for collateral, close out, dispute or other purpose; (b) the parties may
seek to identify and resolve issues and discrepancies between themselves before either party delivers a
Dispute Notice; and (c) nothing in this Part I obliges a party to deliver a Dispute Notice following the
identification of any such issue or discrepancy (notwithstanding that such issue or discrepancy may remain
unresolved) or limits the rights of the parties to serve a Dispute Notice, to commence or continue an Agreed
Process (whether or not any action under Part I(4) has occurred) or otherwise to pursue any dispute
resolution process in respect of any such issue or discrepancy (whether or not any action under Part I(4) has
occurred).
(7) Remedies for Breach
Without prejudice to the rights, powers, remedies and privileges provided by law, failure by a party to take
any actions required by or to otherwise comply with Part I, in either case, will not constitute an event of
default in respect of such party or any other event which permits either party to terminate any Relevant
Transaction.
PART II. TRANSACTION REPORTING CONSENT
Notwithstanding anything to the contrary in this Agreement, or any non disclosure, confidentiality or other
agreement entered into between the parties from time to time, , each party hereby consents to the Disclosure
of information (the "Reporting Consent"):
(a) to the extent required by, or necessary in order to comply with, any applicable law, rule or
regulation which mandates Disclosure of transaction and similar information or to the extent
required by, or necessary in order to comply with, any order, request or directive regarding
Disclosure of transaction and similar information issued by any relevant authority or body or
agency ("Reporting Requirements"); or
(b) to and between the other party's head office, branches or affiliates; to any person, agent, third
party or entity who provides services to such other party or its head office, branches or affiliates;
to a Market; or to any trade data repository or any systems or services operated by any trade
repository or Market, in each case, in connection with such Reporting Requirements.
Disclosures made pursuant to this Reporting Consent may include, without limitation, Disclosure of
information relating to disputes over transactions between the parties, a party's identity, and certain
transaction and pricing data and may result in such information becoming available to the public or
recipients in a jurisdiction which may have a different level of protection for personal data from that of the
relevant party's home jurisdiction.
This Reporting Consent shall be deemed to constitute an agreement between the parties with respect to
Disclosure in general and shall survive the termination of this Agreement. No amendment to or termination
of this Reporting Consent shall be effective unless such amendment or termination is made in writing
between the parties and specifically refers to this Reporting Consent.
PART III. EMIR COUNTERPARTY CLASSIFICATION REPRESENTATION
(1) EMIR Counterparty Classification Representation
Please select an option by placing an "X" in the box indicating the appropriate election:
Client is an FC
The Client represents to DB that it is a financial counterparty (as such term
X
incorporated in the
is defined in EMIR).
European Union
Client is an FC
The Client represents to DB that it is an entity established outside the
incorporated
European Union that, to the best of its knowledge and belief, having given
outside the
due and proper consideration to its status, would constitute a financial
European Union
counterparty (as such term is defined in EMIR) if it were established in the
European Union.
Client is an NFC+
The Client represents to DB that it is a non -financial counterparty (as such
incorporated in the
term is defined in EMIR) and is subject to a clearing obligation pursuant to
European Union
EMIR.
Client is an NFC+
The Client represents to DB that it is an entity established outside the
incorporated
I European Union that, to the best of its knowledge and belief, having given
outside the
European Union
due and proper consideration to its status, would constitute a non -financial
counterparty (as such term is defined in EMIR) and would be subject to a
clearing obligation pursuant to EMIR if it were established in the European
Union.
Client is an NFC-
(1) The Client represents to DB that:
incorporated in the
European Union
(i) it is a non -financial counterparty (as defined in EMIR); and
(ii) the notional amounts of its relevant foreign exchange,
credit, rates, equity, commodity and other derivative
portfolios are lower than the thresholds' for mandatory
clearing stipulated in respect of EMIR.
Client is an NFC-
(1) The Client represents to DB that:
incorporated
outside the
(i) an entity established outside the European Union that, to
European Union
the best of its knowledge and belief, having given due and
proper consideration to its status, would constitute a non-
financial counterparty (as such term is defined in EMIR) if
it were established in the European Union; and
(ii) the notional amounts of its relevant foreign exchange,
credit, rates, equity, commodity and other derivative
portfolios are lower than the thresholds for mandatory
clearing stipulated in respect of EMIR.
The EMIR Counterparty Classification Representation above will be deemed to be repeated by the Client on
each day when any EMIR Transaction is entered into or remains outstanding.
If the Client changes status such that the EMIR Counterparty Classification Representation is no longer
correct, then Client will immediately notify DB by email to the following address:
emir.classification@db.com.
(2) Additional terms applicable to Clients which have represented to be non -financial counterparties
with notional amounts of relevant portfolios being below the thresholds for mandatory clearing':
(a) Where the Client has represented to DB that the notional amounts of its relevant foreign exchange,
credit, rates, equity, commodity and other derivative portfolios are lower than the thresholds for
mandatory clearing stipulated in respect of EMIR and as such, the EMIR Counterparty Classification
Representation proves to have been incorrect or misleading in any material respect when made or
deemed repeated, such Client will use all reasonable efforts, negotiating in good faith and a
commercially reasonable manner, to:
(i) agree with DB and implement any amendments or modifications to the terms of EMIR
Transactions which are required to be Cleared and take any steps required to ensure that
As at 9 September 2013, the thresholds, in gross notional amounts, are: EUR Ibn gross notional for OTC credit derivatives; EUR Ibn for
OTC equity derivatives; EUR 3bn for OTC interest rate derivatives; EUR 3bn for OTC foreign exchange derivatives; and EUR 3bn for
OTC commodity derivatives and other derivative contracts. Note these amounts apply at the group level, but true hedging should be
discounted. Please seek legal advice to make the appropriate selection.
such EMIR Transactions are Cleared before the applicable regulatory deadline, and to ensure
the payment of any Balancing Payment Amount; or
(ii) agree with DB and implement any amendments or modifications to the terms of EMIR
Transactions which are not required to be Cleared and take any steps required to ensure that
the relevant Risk Mitigation Techniques are adhered to in respect of such EMIR
Transactions by the sixth Business Day following the date on which both parties are aware
that the EMIR Counterparty Classification Representation above was incorrect or
misleading, or such later date as the parties agree, and to ensure the payment of any
Balancing Payment Amount by the same day.
(b) If the remedial steps for breach of the EMIR Counterparty Classification Representation set out in
Part III(2)(a) have not been completed in time, the EMIR Transactions for which remedial steps have
not been completed may, at DB's discretion, be terminated and upon such termination any
consequences of terminating the EMIR Transactions provided for in the Underlying Agreement will
apply, provided that in respect of EMIR Transactions concluded under an ISDA Master Agreement,
a failure to complete the relevant remedial steps as set out in Part III(2)(a) will constitute an
Additional Termination Event under the relevant ISDA Master Agreement. For the purposes of such
Additional Termination Event:
(i) the relevant EMIR Transactions will be the sole Affected Transactions within the meaning
set out in the ISDA Master Agreement and the Client will be the sole Affected Party
provided that both parties will be Affected Parties for the purposes of Section 6(b)(iv) of the
ISDA Master Agreement; and
(ii) For the purposes of any determination pursuant to Section 6(e) following the designation of
an Early Termination Date within the meaning set out in the ISDA Master Agreement as a
result of such Additional Termination Event:
(A) it will be deemed that the Client is a non -financial counterparty to which mandatory
clearing stipulated in EMIR does not apply (whether or not in fact this is the case); and
(B) where "Market Quotation" is designated as the payment measure, it will be deemed that
Market Quotation would not produce a commercially reasonable result and "Loss" will
apply in relation to the relevant Affected Transaction(s).
(c) Without prejudice to the rights, powers, remedies and privileges provided by law, neither the making
by the Client of an incorrect or misleading EMIR Counterparty Classification Representation nor the
failure of a party to take any actions required by Part III(2)(a) will constitute an event of default
under the relevant Underlying Agreement (including an Event of Default as such term defined in an
ISDA Master Agreement).
PART IV. DEFINITIONS
"agent" means an entity appointed to act solely on the appointing party's behalf to deal with the other party
in relation to all or part of the actions under the relevant provision.
"Affiliate" means, in relation to any person, any entity controlled, directly or indirectly, by the person, any
entity that controls, directly or indirectly, the person or any entity directly or indirectly under common
control with the person. For this purpose, "control" of any entity or person means ownership of a majority of
the voting power of the entity or person.
"Agreed Process" means any process agreed between the parties in respect of a Dispute other than the
Dispute Resolution Procedure including, without limitation, the process in (a) Section 13 of any ISDA
Master Agreement (b) Paragraph 4 of an ISDA Credit Support Annex (Bilateral Form — Transfer) or (c)
Paragraph 5 of each of the ISDA Credit Support Deed (Bilateral Form — Security Interest) and the ISDA
Credit Support Annex (Bilateral Form), in each case as may be amended between the parties, if applicable.
"Balancing Payment Amount" means, in relation to an EMIR Transaction, the amount, if any, required to be
paid between the parties (which, for the avoidance of doubt, may be payable by or to Party B) in order to
reflect the difference between (1) pricing of the relevant EMIR Transaction by reference to the terms of such
EMIR Transaction immediately prior to any amendments or modifications agreed by the parties pursuant to
Part III (2) the pricing of the relevant EMIR Transaction by reference to the terms of such EMIR Transaction
immediately following any amendments or modifications required to be made in order to comply with Part
III(2).
"Cleared" means, in respect of an EMIR Transaction, that such EMIR Transaction has been submitted to a
central clearing house authorised under Article 14 of EMIR or recognised under Article 25 of EMIR for
clearing relevant OTC derivative transactions.
"Data Delivery Date" means each date agreed as such between the parties provided that, in the absence of
such agreement, the Data Delivery Date will be the Joint Business Day immediately prior to the PR Due
Date.
"Data Reconciliation" means, in respect of a party receiving Portfolio Data, a comparison of the Portfolio
Data provided by the other party against such party's own books and records of all outstanding Relevant
Transactions between the parties in order to identify promptly any misunderstandings of Key Terms.
"Derivative" means a "derivative" or "derivative contract" as defined in Article 2(5) of EMIR.
"Disclosure" means disclosure, reporting, retention, or any action similar or analogous to any of the
aforementioned.
"Dispute" means any dispute between the parties (a) which, in the sole opinion of the party delivering the
relevant Dispute Notice, is required to be subject to the Dispute Resolution Procedure (or other Agreed
Process) pursuant to the Dispute Resolution Risk Mitigation Techniques; and (b) in respect of which a
Dispute Notice has been effectively delivered.
"Dispute Date" means, with respect to a Dispute, the date on which a Dispute Notice is effectively delivered
by one party to the other party save that if, with respect to a Dispute, both parties deliver a Dispute Notice,
the date on which the first in time of such notices is effectively delivered will be the Dispute Date. Each
Dispute Notice will be effectively delivered if delivered in the manner agreed between the parties for the
giving of notices in respect of this Agreement.
"Dispute Notice" means a notice in writing which states that it is a dispute notice for the purposes of Part
I(4) and which sets out in reasonable detail the issue in dispute (including, without limitation, the Relevant
Transaction(s) to which the issue relates).
"Dispute Resolution Procedure" means the identification and resolution procedure set out in Part I(4).
"Dispute Resolution Risk Mitigation Techniques" means the dispute resolution risk mitigation techniques
for OTC derivative transactions set out in Article II(1)(b) of EMIR as supplemented by Article 15 of
Chapter VIII of the Commission Delegated Regulation (EU) No 149/2013 of 19 December 2012 and
published on 23 February 2013 in the Official Journal of the European Union.
"EMIR" means Regulation (EU) No 648/2012 of the European Parliament and of the Council on OTC
derivatives, central counterparties and trade repositories dated 4 July 2012.
"EMIR Counterparty Classification Representation" means the representations made by the Client in Part
III(1).
"EMIR Transaction" means any transaction which is subject to EMIR.
"European Union" means the economic and political union established in 1993 by the Maastricht Treaty,
with the aim of achieving closer economic and political union between member states that are primarily
located in Europe.
"ISDA Master Agreement" means a 2002 ISDA Master Agreement, 1992 ISDA Master Agreement
(Multicurrency — Cross Border), 1992 ISDA Master Agreement (Local Currency — Single Jurisdiction), or
1987 ISDA Interest Rate and Currency Exchange Agreement, in each case as published by the International
Swaps and Derivatives Association, Inc; or any ISDA Master Agreement entered into by execution by the
parties of a confirmation pursuant to which the parties are deemed to have entered into an ISDA Master
Agreement.
"Joint Business Day" means a day that is a Local Business Day in respect of each party.
"Key Terms" means, with respect to a Relevant Transaction and a party, the valuation of such Relevant
Transaction and such other details the relevant party deems relevant from time to time which may include the
effective date, the scheduled maturity date, any payment or settlement dates, the notional value of the
contract and currency of the Relevant Transaction, the underlying instrument, the position of the
counterparties, the business day convention and any relevant fixed or floating rates of the Relevant
Transaction. For the avoidance of doubt, "Key Terms" does not include details of the calculations or
methodologies underlying any term.
"Local Business Day" means, in respect of a party and unless otherwise agreed between the parties in
writing, a day on which commercial banks and foreign exchange markets settle payments and are open for
general business in the places specified for that purpose of such party or, if not so specified, in the place of
the location of the office(s) that such party transacts Relevant Transactions with the other party from time to
time, as determined by the other party.
"Market" means any exchange, regulated market, clearing house, central clearing counterparty or
multilateral trading facility.
"Portfolio Data" means, in respect of a party providing or required to provide such data, the Key Terms in
relation to all outstanding Relevant Transactions between the parties in a form and standard that is capable of
being reconciled, with a scope and level of detail that would be reasonable to the Portfolio Data Sending
Entity if it were the receiving party. Unless otherwise agreed between the parties, the information comprising
the Portfolio Data to be provided by a party on a Data Delivery Date will be prepared as at the close of
business on the immediately preceding Local Business Day of, and as specified in writing by, the party
providing the Portfolio Data.
"Portfolio Data Receiving Entity" and "Portfolio Data Sending Entity" each means a party to this
Agreement who has designated itself as such, subject to Part I(2)(a) above.
"Portfolio Reconciliation Requirements" means the requirements one or both parties are subject to in
accordance with the Portfolio Reconciliation Risk Mitigation Techniques.
"Portfolio Reconciliation Risk Mitigation Techniques" means the portfolio reconciliation risk mitigation
techniques for OTC derivative transactions set out in Article I I(1)(b) of EMIR as supplemented by Article
13 of Chapter VIII of the Commission Delegated Regulation (EU) No 149/2013 of 19 December 2012 and
published on 23 February 2013 in the Official Journal of the European Union.
"PR Due Date" means each date agreed as such between the parties provided that the PR Due Date will be
the PR Fallback Date where either (a) no date is agreed or (b) the agreed date occurs after the PR Fallback
Date.
"PR Fallback Date" means: (a) in respect of the PR Period starting on the PR Requirement Start Date, the
last Joint Business Day in such PR Period; and, otherwise, (b) the last Joint Business Day in the PR Period
starting on the calendar day immediately following the last calendar day of the immediately preceding PR
Period. If there is no Joint Business Day in a PR Period, the PR Due Date will be the first Joint Business Day
following the end of the PR Period.
"PR Period" means, with respect to the parties:
(a) if the Portfolio Reconciliation Requirements require Data Reconciliation to occur each business
day, one Joint Business Day;
(b) if the Portfolio Reconciliation Requirements require Data Reconciliation to occur once per
week, one calendar week;
(c) if the Portfolio Reconciliation Requirements require Data Reconciliation to occur once per
quarter, three calendar months; or
(d) if the Portfolio Reconciliation Requirements require Data Reconciliation to occur once per year,
one calendar year.
"PR Requirement Start Date" means the first calendar day on which the Portfolio Reconciliation
Requirements apply to one or both of the parties.
"Relevant Transaction" means any transaction which is subject to the Portfolio Reconciliation Risk
Mitigation Techniques and/or the Dispute Resolution Risk Mitigation Techniques.
"Risk Mitigation Techniques" means the risk mitigation techniques for OTC derivative transactions set out
in Article 11 of EMIR as supplemented by Chapter VIII of the Commission Delegated Regulation (EU) No
149/2013 published 23 February 2013 in the Official Journal of the European Union.
"third party service provider" refers to an entity that the parties agree will perform all or part of the actions
under the relevant provision for both parties.
"Underlying Principals" has the meaning given to it in Part V(a).
"Underlying Agreement" means the agreement governing the terms and conditions of the relevant EMIR
Transaction.
PART V — MISCELLANEOUS
(a) Acting as Investment Manager or Agent
If the Client is an investment manager or acting as agent for and on behalf of its relevant principals
(including without limitation any relevant existing and new clients, investors, funds and accounts of the
Client, each an "Underlying Principal"), the Client agrees that:
(a) where a Relevant Transaction has been entered into prior to the date of this Agreement, or is
entered into on the date of this Agreement between the DB and the Client (acting for and on behalf
of an existing Underlying Principal); or
(b) where a Relevant Transaction is entered into after the date of this Agreement between DB and
the Client (acting for and on behalf of a new Underlying Principal),
each such Underlying Principal shall be bound by the terms of this Agreement and references to "Client" and
the "parties" contained in this Agreement shall be construed accordingly. The Client confirms to DB that it
is authorised to bind its existing Underlying Principals and will be authorised to bind any new Underlying
Principals for the purposes as set out in this paragraph.
(b) Other Agreements Governing Transactions in Derivatives
Other than Part II (Transaction Reporting Consent) of this Agreement, this Agreement shall not apply to
agreements in writing, in electronic format, or in any other agreed official record which govern the terms and
conditions of one or more transactions in Derivatives where the parties have entered into alternative written
arrangements that document the substance of the issues covered in this Agreement or expressly stated in such
other agreements or otherwise in writing that this Agreement shall not apply.
(c) Notices
(i) Notices to DB
All notices with regard to Part I (Portfolio Reconciliation and Dispute Resolution) shall be sent to
DB at collateral.disputes@db.com.
All notices with regard to Part III (EMIR Counterparty Classification Representation) shall be sent
to DB at emir.classiffcationa_db.com.
For the avoidance of doubt, Portfolio Data will be sent to such address as agreed between the
parties from time to time.
(ii) Notices to Client
All notices with regard to this Agreement shall be sent to the Client pursuant to the applicable
notice details contained in the agreement governing the Relevant Transaction(s) to which such
notice refers or to such other address as otherwise agreed between the parties.
(d) Entire Agreement. This Agreement constitutes the entire agreement and understanding of the parties
with respect to its subject matter and supersedes all oral communication and prior writings (except as
otherwise provided herein) with respect thereto.
(e) Counterparts. This Agreement may be executed and delivered in counterparts (including
transmission by facsimile, electronic messaging system or e-mail), each of which will be deemed an original.
(f) Headings. The headings used in this Agreement are for convenience of reference only and are not to
affect the construction of or to be taken into consideration in interpreting this Agreement.
(g) Governing Law. This Agreement will be governed by and construed in accordance with English law.
(h) Jurisdiction. The courts of England have exclusive jurisdiction to settle any dispute (including a
dispute relating any non -contractual obligation) arising out of or in connection with this Agreement.
10
The parties have executed this Agreement on the respective dates specified below with effect from the date
specified first on the first page of this Agreement.
DEUTSCHE BANK AG CITY OF VERNON
By: ...................................... By:......................................
Name:
Name:
Title: Title:
m
TRANSMITTAL COMMUNICATION
CITY CLERK'S OFFICE
INTEROFFICE MEMORANDUM
DATE: July 9, 2015
TO: William Fox, Finance Director/City Treasurer
FROM: Deborah Juarez, Records Management Assistant
RE: Resolution No. 2015-47 — A Resolution of the Ci' Council of the City of Vernon
Approving the Termination of Interest Rate Swaps and the Forms of Swap Termination
Agreements; and Authorizing Certain Other Matters Relating Thereto
Transmitted herewith is a copy of Resolution No. 2015-47 referenced above, which was approved by City
Council on July 7, 2015.
Thank you.
Attachment
c: Resolution No. 2015-47
STAFF REPORT
IF -
J1,'!_ .0'3 "-i15
CITY CtFkl"S OFFICE
DATE: July 7, 2015
40
STAFF REPORT
Finance Department
TO: Honorable Mayor and City Council
FROM: William Fox, Finance Director 0;�4
RE: Approval of Resolution for Termination of Interest Rate Swap Agreements
Recommendation
It is recommended to the City Council:
A. Find that approval of the resolution to terminate the two interest rate swap contracts entered
into December 2004 is a government fiscal activity which does not involve any commitment
to any specific project which may result in a potentially significant physical impact on the
environment and is therefore not a "project" as defined by California Environmental Quality
Act ("CEQA") Guidelines section 15378 and not subject to CEQA review. Furthermore,
even if it were a project, it would be exempt under CEQA in accordance with Section
15061(b)(3), the general rule that CEQA only applies to projects that may have an effect on
the environment; and
B. Approve the resolution for the termination of the two outstanding 2004 interest rate swap
agreements with Morgan Stanley Capital Services LLC (Morgan Stanley) and Deutsche
Bank AG (Deutsche Bank). The swap agreements are being terminated in conjunction with
the issuance of 2015 Electric System Revenue Taxable Series A Bonds in the par amount of
$110.3 million. A portion of the 2015 Electric System Revenue Taxable Series A Bonds
proceeds will finance the costs of terminating the two existing interest rate swap agreements.
Background
On June 16, 2015, the City Council approved a resolution for the issuance of 2015 Electric
System Revenue Taxable Series A Bonds in the par amount of $110.3 million to provide funds to
(a) refund a portion of the City's outstanding 2009 Series A Electric System Revenue Bonds, (b)
finance costs of terminating two existing swap agreements by reimbursement of certain capital
improvements from the electric system previously paid from the Light & Power Fund, (c) fund a
deposit to the Debt Service Reserve Fund, and (d) pay cost of issuance of the 2015 Series Bonds.
In order to accomplish the termination of the two existing interest rate swap agreements, the
City's Financial Advisors, PFM, and Bond Counsel, Orrick, Herrington & Sutcliffe entered into
negotiations with Morgan Stanley and Deutsche Bank to terminate the two interest rate swap
agreements. An important aspect of the termination of the two interest rate swap agreements is
that newly enacted mandated regulatory compliance reporting requirements are required to be
incorporated into the termination contracts that previously did not exist in 2004 when the interest
rate swap agreements were originally entered into. The interest rate swap agreements are subject
to Federal reporting following the guidelines established by The Dodd -Frank Wall Street Reform
and Consumer Protection Act, commonly referred to as simply "Dodd -Frank". Dodd Frank was
enacted to lower risk in various parts of the United States financial system and to prevent the
recurrence of events that caused the 2008 financial crisis. The interest rate swap agreement with
Deutsche Bank has additional regulatory reporting requirements under the European Market
Infrastructure Regulation (EMIR). The EMIR is a European Union regulation designed to
increase the stability of the derivative markets throughout the European countries.
As of July 1, 2015, the market value of the Morgan Stanley swap agreement is $22.7 million and
the Deutsche Bank swap agreement is $13.2 million, for a total of $35.9 million. The termination
of the two agreements will result in mitigating interest rate volatility and provide more
predictability in the City's financial structure. The market value of the agreements changes daily
with market interest rates. Thus, the actual market value will not be known until the closing.
However, the final expected payoff amount is not expected to significantly change between now
and the scheduled closing date of July 21, 2015.
Council Policy Consideration
This requested action supports the prior action taken by City Council on June 16, 2015 with the
approval of the issuance of 2015 Electric System Revenue Taxable Series A Bonds in the par
amount of $110.3 million. A key component of that approval of the bond refunding was to
terminate the two existing interest rate swap agreements.
Fiscal Impact
The retirement of the two existing interest rate swap agreements is one element of the issuance of
the $110.3 million 2015 Series A bond refunding transaction. As previously reported on June 16,
2015, the forecasted reduction in cash outflow over the next 7 years is expected to be in the
range of $12.3 million annually, which fluctuates depending on the level of debt service each
year. However, after 7 years, the new refunded debt service over an additional 5 year period is
expected to be increased approximately $21.4 million per year. After that, there will be lower
debt service payments. The net impact of the financing is $7.7 million additional debt and
interest costs over the next 27 year period. The new debt structure provides a smooth
transitioning to stabilize customer electric rates so that future increases can be lower and more
predictable. The retirement of the two interest rate swap agreements eliminates the market rate
volatility that currently exists in the City's financial structure.
Attachment: Resolution Approving Termination of the Interest Rate Swap Agreements
RESOLUTION NO.
A RESOLITTTON OF THE CITY COUNCIL OF THE CITY OF
VERNON APPROVING THE TERMINATION OF INTEREST RATE
SWAPS AND THE FORMS OF SWAP TERMINATION AGREEMENTS;
AND AUTHORIZING CERTAIN OTHER MATTERS RELATING
THERETO
WHEREAS, the City of Vernon (the "City") is a municipal
corporation and a chartered city of the State of California organized
and existing under its Charter and the Constitution of the State of
California; and
WHEREAS, the City is authorized pursuant to the provisions of
its Charter and the City of Vernon Municipal Facilities Revenue Bond
Law, constituting Article XI of the City Code of the City of Vernon, to
issue bonds, notes and other obligations payable from the Net Revenues
of the Electric System (capitalized terms used herein and not otherwise
defined shall have the meanings given such terms in the Indenture
mentioned below) to finance the costs of any land, improvements,
facilities, equipment and other property of any nature whatsoever which
are used in the Electric System and to refund such bonds, notes and
other obligations; and
WHEREAS, pursuant to an Indenture of Trust, dated as of
December 1, 2004, between the City and The Bank of New York Trust
Company, N.A., as trustee (the "Prior Trustee"), as amended by the
First Supplemental Indenture of Trust and the Second Supplemental
Indenture of Trust, each dated as of December 1, 2004, and each between
the City and the Prior Trustee, the City previously issued its Electric
System Revenue Bonds, 2004 Series A (the "2004 Series A Bonds") and its
Electric System Revenue Bonds, 2004 Series B (the "2004 Series B
Bonds"); and
OHSUSA:762619001.2
42797-2
WHEREAS, the City and Morgan Stanley Capital Services LLC
("Morgan Stanley") entered into a certain interest rate swap
transaction relating to the City's 2004 Series A Bonds (the "2004A
Transaction") and a certain interest rate swap transaction relating to
the City's 2004 Series B Bonds (the "2004B Transaction" and
collectively with the 2004A Transaction, the "Transactions"); and
WHEREAS, the 2004B Transaction was transferred from Morgan
Stanley to Deutsche Bank AG ("Deutsche Bank") through a novation
process; and
WHEREAS, the City has determined to terminate the
Transactions and in connection therewith may enter into separate
Termination Agreements with Morgan Stanley and Deutsche Bank (such
Termination Agreements, in the forms presented to the City Council with
such changes, insertions and deletions as are made pursuant to this
Resolution, being referred to herein collectively as the "Termination
Agreements" and individually as the "Morgan Stanley Termination
Agreement" and the "Deutsche Bank Termination Agreement") and to make
any payments due from the City in connection with the Termination
Agreements; and
WHEREAS, by memorandum dated July 7, 2015, the Finance
Director has recommended the termination of the Transactions and the
approval of the Termination Agreements; and
WHEREAS, the City Council of the City of Vernon desires to
terminate the Transactions and approve the Termination Agreements.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY
OF VERNON, AS FOLLOWS:
SECTION 1: The City Council of the City of Vernon hereby
finds and determines that the above recitals are true and correct.
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42797-2
SECTION 2: The City Council of the City of Vernon finds
that because this action is a government fiscal activity which does not
involve any commitment to any specific project which may result in a
potentially significant physical impact on the environment, it does not
constitute a "project" as defined by California Environmental Quality
Act ("CEQA") Guidelines section 15378 and is therefore not subject to
CEQA review. Furthermore, even if it were a project, this action would
be exempt from CEQA review in accordance with Section 15061(b)(3), the
general rule that CEQA only applies to projects that may have an effect
on the environment.
SECTION3: The City Council of the City of Vernon hereby
approves the termination of the Transactions.
SECTION 4: The City Council of the City of Vernon hereby
approves the Morgan Stanley Termination Agreement, in substantially the
form attached hereto as Exhibit A and made a part hereof as though set
forth in full herein, except that if a calculation pursuant to Section
7(ii) of the Morgan Stanley Termination Agreement indicates a loss to
Morgan Stanley then the City shall pay Morgan Stanley the amount of
such loss and the rate payable by the City under the Morgan Stanley
under the 2004A Transaction shall not change. Each of the Mayor, the
Mayor Pro Tem, the City Administrator, the Finance Director/City
Treasurer (each an "Authorized Officer"), acting singly, is hereby
authorized to execute and deliver the Morgan Stanley Termination
Agreement, in the name of and on behalf of the City, in substantially
the form approved hereby with such changes, insertions and deletions as
may be approved by the Authorized Officer executing the Morgan Stanley
Termination Agreement, said execution being conclusive evidence of such
approval.
OHSUSA:762619001.2 3
42797-2
SECTION 5: The City Council of the City of Vernon hereby
approves the Deutsche Bank Termination Agreement, in substantially the
form attached hereto as Exhibit B and made a part hereof as though set
forth in full herein. Each Authorized Officer, acting singly, is
hereby authorized to execute and deliver the Deutsche Bank Termination
Agreement, in the name of and on behalf of the City, in substantially
the form approved hereby with such changes, insertions and deletions as
may be approved by the Authorized Officer executing the Deutsche Bank
Termination Agreement, said execution being conclusive evidence of such
approval.
SECTION 6: The Mayor, the Mayor Pro Tem, the City
Administrator, the Finance Director/City Treasurer, the City Clerk, the
City Attorney, the Director of Gas & Electric Department and any other
proper official, officer or employee of the City, acting singly, be and
each of them hereby is authorized to execute and deliver any and all
documents and instruments and to do and cause to be done any and all
acts and things necessary or convenient in carrying out the actions
authorized by this Resolution and the transactions contemplated by the
documents and instruments approved or authorized by this Resolution,
including, without limitation, making any determinations or submission
of any documents or reports which are required by any rule or
regulation of any governmental entity in connection with the
authorization, execution, delivery and performance by the City of its
obligations under the Termination Agreements.
SECTION 7: All actions heretofore taken by the City Council
of the City of Vernon, or any official, officer, employee,
representative or agent of the City, in connection with carrying out
the actions authorized by this Resolution and the authorization,
OHSUSA:762619001.2 4
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execution, delivery, or performance of the City's obligations under the
Termination Agreements, and the other actions contemplated by this
Resolution, are hereby ratified, approved and confirmed.
SECTION 8: The City Clerk, or Deputy City Clerk, of the
City of Vernon shall certify to the passage, approval and adoption of
this resolution, and the City Clerk, or Deputy City Clerk, of the City
of Vernon shall cause this resolution and the City Clerk's, or Deputy
City Clerk's, certification to be entered in the File of Resolutions of
the Council of this City.
APPROVED AND ADOPTED this 7th day of July, 2015.
Name:
Title: Mayor / Mayor Pro-Tem
ATTEST:
City Clerk / Deputy City Clerk
APPROVED AS TO FORM:
I
Hema Patel, Ci y Attorney
Eugen Carron, Esq.
Orrick, Herrington & Sutcliffe LLP
Bond Counsel to City
OHSUSA:762619001.2 5
42797-2
STATE OF CALIFORNIA
COUNTY OF LOS ANGELES
I,
ss
City Clerk / Deputy City Clerk of the City
of Vernon, do hereby certify that the foregoing Resolution, being
Resolution No. , was duly passed, approved and adopted by the
City Council of the City of Vernon at a regular meeting of the City
Council duly held on Tuesday, July 7, 2015, and thereafter was duly
signed by the Mayor or Mayor Pro-Tem of the City of Vernon.
Executed this day of July, 2015, at Vernon, California.
City Clerk / Deputy City Clerk
(SEAL)
OHSUSA:762619001.2 6
42797-2
EXHIBIT A
Exhibit A
[Morgan Stanley Termination Agreement Attached]
OHSUSA:762619001.2 A-]
42797-2
Morgan Stanley Municipal Capital Markets
Date:
July [ 9 ], 2015
CWT DRAFT 6/30/2015
To:
City of Vernon
From:
Morgan Stanley Capital Services LLC
Attn:
Mark Whitworth, City Administrator
Contact:
NY Deriv Client Services
Fax:
323-826-1439
Fax:
212-404-4726
Tel:
323-583-8811 ext. 398
Tel:
212-761-2996
E-mail:
E-mail:
Municonfirms_In@morganstantey.com
Re: Unwind of Transaction MSCS Ref. No. AUCTK (the "Original Transaction")
The purpose of this letter agreement is to confirm the terms and conditions of the unwind of the
Original 'Transaction. This letter agreement constitutes a "Confirmation" as referred to in the ISDA Master
Agreement below.
The definitions and provisions contained in the 2006 ISDA Definitions (as published by the
International Swaps and Derivatives Association, Inc.) (the "Definitions") are incorporated into this Confirmation.
In the event of any inconsistency between the Definitions and this Confirmation, this Confirmation will govern.
I. This Confirmation supplements, forms part of, and is subject to, the ISDA Master
Agreement dated as of December 2, 2004, as amended and supplemented from time to time (the "Agreement')
between you and us. All provisions contained in the Agreement govern this Confirmation except as expressly
modified below.
2. The terms of the unwind of the Original Transaction to which this Confirmation relates
are as follows:
Party A:
Party B:
Original Transaction Trade Date:
Original Transaction Termination Date:
Unwind Trade Date:
Unwind Effective Date:
Party B Unwind Payment:
Unwind Settlement Date:
3. Account Details:
Payments to Party A:
USActive 33072516.1
Morgan Stanley Capital Services LLC
City of Vernon
December 2, 2004
April I, 2037
July [ [, 2015
July [�], 2015
Party B shall pay USD [_� to Parry A on the Unwind
Settlement Date.
July [*], 2015
Citibank, New York
ABA No. 021 000 089
For: Morgan Stanley Capital Services LLC
Account No. 4072-4601
M o rg a n St a n ley Municipal Capital Markets
Party A Operations Contact: Municipal Operations
Tel: 410-534-1436
Fax: 410-534-1990
E-mail: MuniOperations@MorganStanley.com
Party B Operations Contact: Mark Whitworth, City Administrator
Tel: 323-583-8811 ext. 398
Fax: 323-826-1439
4. Each of Party A and Party B hereby confirms that (i) with effect from and including the
Unwind Effective Date, the Original Transaction is unwound, and (ii) upon payment of the Party B Unwind
Payment[s] on the Unwind Settlement Date, Party A and Party B each will be released and discharged from further
obligations to each other under the Original Transaction and their respective rights against each other under the
Original Transaction are terminated; provided, that such release and discharge will not affect any obligations or
rights of Party A or Party B under the Original Transaction with respect to payments or other obligations due and
payable or due to be performed on or prior to the Unwind Effective Date and all such payments and obligations shall
be paid or performed by Party A or Party B in accordance with the terms of the Original Transaction.
5. Each of Party A and Party B hereby agrees that each representation made by Party A or
Party B in the Agreement as of the Original Transaction Trade Date will be deemed repeated by such party as of the
date of this Confirmation as if such representation were set forth in this Confirmation.
6. Relationship Between Parties. Each party will be deemed to represent to the other party
on the date on which it enters into this Transaction that (absent a written agreement between the parties that
expressly imposes affirmative obligations to the contrary for this Transaction):
(a) Non -Reliance. It is acting for its own account, and it has made its own independent
decisions to enter into this Transaction and as to whether this Transaction is appropriate or proper for it based upon
its own judgment and upon advice from such advisers as it has deemed necessary. It is not relying on any
communication (written or oral) of the other party as investment advice or as a recommendation to enter into this
Transaction, and the other party is not acting with respect to any communication (written or oral) as a "municipal
advisor," as such term is defined in Section 975 of the U.S. Dodd -Frank Wall Street Reform & Consumer Protection
Act; it being understood that information and explanations related to the terms and conditions of this Transaction
shall not be considered investment advice, advice provided by a municipal advisor or a recommendation to enter
into this Transaction. No communication (written or oral) received from the other party shall be deemed to be an
assurance or guarantee as to the expected results of this Transaction.
(b) Assessment and Understanding. It is capable of assessing the merits of and understanding
(on its own behalf or through independent professional advice), and understands and accepts, the terms, conditions
and risks of this Transaction. It is also capable of assuming, and assumes, the risks of this Transaction.
(c) Status of Parties. The other party is not acting as fiduciary for or an advisor to it in
respect of this Transaction.
7. The effectiveness of the termination described herein (other than in this paragraph 7) is
contingent upon the issuance (the "Closing") of Party B's [Bond Series Details] (the "Refunding Bonds") as defined
in and in accordance with the provisions of the [bond purchase agreement related to the Refunding Bonds, dated [ ]
(the "BPA")], by and between Party B and (Underwriter]. If Party B provides a notice (the "Failed Closing Notice")
to Party A on or prior to [Unwind Settlement Date] to the effect that said Closing will not occur on or prior to such
date and the Party B has elected not to the pay the Party B Unwind Payment but has elected to reinstate the terms of
the Transaction as set forth in the Amended and Restated Confirmation as amended pursuant to this paragraph 7, (i)
this Transaction will remain in effect with respect to the Notional Amount under the Amended and Restated
Morgan Stanley Municipal Capital Markets
Confirmation with respect to each Calculation Period, (ii) Party A will have the right to adjust the Fixed Rate
applicable to this Transaction for the remainder of the term, in good faith and subject to the approval of Party B, in
consultation with Party B's swap advisor, PFM Swap Advisors LLC, to reflect (A) its losses (expressed as a higher
rate) or gains (expressed as a lower rate) as a result of any change in value to Party A of this Transaction due to a
movement in the USD-LIBOR yield curve during the period between the Unwind Trade Date and the earlier of the
time at which Party A received the Failed Closing Notice from the Party B or [Unwind Settlement Date] and (B) its
bid -offer spread and any legal or other costs associated with the reinstatement of the Transaction (expressed as a
higher rate), (iii) the Fixed Rate that is so adjusted by Party A will be the Fixed Rate applicable to such Transaction
from and including the date of such adjustment to but excluding the Termination Date of such Transaction and (iv)
Party A shall promptly send to Party B an amended Confirmation reflecting the adjusted Fixed Rate.
-3-
M o rg a n Stan ley Municipal Capital Markets
Please confirm that the foregoing correctly sets forth the terms of our agreement MSCS Ref. No.
AUCI'K by executing this Confirmation and returning it to us promptly.
Best regards,
MORGAN STANLEY CAPITAL SERVICES LLC
0
Name:
Title:
ACKNOWLEDGED AND AGREED as of the date first written:
CITY OF VERNON
By:
Name:
Title:
-4-
Deutsche Bank
Deutsche Bank AG New York
60 Wall Street
New York, NY 10005
+1 212-250-2500
Date:
June 29, 2015
To:
City of Vernon
Attention:
Mark Whitworth, City Administrator
Facsimile no.:
1 323 826 1422
Our Reference:
Global No. N1359778N
Re:
Termination Agreement
Ladies and Gentlemen:
The purpose of this termination agreement ("Termination Agreement') dated as of [ ], is to set forth the
terms and conditions of the termination of the Transaction between Deutsche Bank AG ("DBAG") and City
of Vernon ("Counterparty') with a Trade Date of September 23, 2011, a Notional Amount of USD
83,575,000.00, and a Termination Date of April 1, 2029, (DBAG Reference Global No. N1359778N) (the
"Transaction"). Accordingly the parties agree as follows:
1. Termination: Effective [ ], the rights, obligations and liabilities of DBAG and Counterparty and of their
respective affiliates, subsidiaries, directors, officers, employees and agents under the Transaction are
hereby mutually terminated and discharged. Each party hereto acknowledges that, except as provided
herein, no payments or other amounts are owed to it by the other party hereto under or with respect to the
Transaction. The termination provided for under this Termination Agreement is limited to the Transaction
referenced herein and shall not affect or suspend any other obligations of the parties under the Agreement.
2. Payment Obligation: In consideration of the termination and discharge effected by the preceding
section, on [ ], DBAG/Counterparty will pay to DBAG/Counterparty an amount equal to [ ], in immediately
available funds to the account specified below.
Chairman of the Supervisory Board: Paul Achleitner
Management Board: Jurgen Fitschen (Co -Chairman), Anshuman Jain (Co -Chairman), Stefan Krause, Stephan Leithner, Stuart Lewis, Rainer Neske, Henry Ritchotte
Deutsche Bank Aktiengesellschaft domiciled in Frankfurt am Main. Local Court of Frankfurt am Main, HRB No 30 000, VAT ID No DE114103379, www.db.com
3. Condition to Effectiveness: The Termination described in section 1 is subject to Counterparty issuing
its [insert Description of the Bonds] (the "Bonds') on or prior to the Payment Date. If Counterparty does not
issue the Bonds on or prior to the Payment Date, the Transaction shall continue in full force and effect.
Counterparty agrees to provide DBAG with notice by [1:00 pm Eastern Standard time] on the Payment Date
if the Bonds are not issued. If the Termination is not effective because the Bonds are not issued, DBAG will
determine the Transaction Loss (as defined below) on or as soon as possible following the Payment Date,
but not later than one New York Business Day following the Payment Date. If the Transaction Loss is a
positive number, an amount equal to the Transaction Loss will be payable by the Counterparty to DBAG on
the second New York Business Day following the Payment Date and, if the Transaction Loss is a negative
number, an amount equal to the absolute value of the Transaction Loss will be payable by DBAG to the
Counterparty, on the second New York Business Day following the Payment Date (each such payment shall
be a "Transaction Loss Payment"). For purposes of this paragraph, "Transaction Loss" shall mean an
amount that DBAG reasonably determines, in consultation with Counterparty and its financial advisor, in
good faith to be its total losses and costs (expressed as a positive number) or gains (expressed as a
negative number) in connection with continuing the terms of the Transaction evidenced by the Original
Confirmation, including, without duplication, any loss of bargain, cost of funding or loss or cost incurred as
a result of its terminating, liquidating, obtaining or reestablishing any hedge or related trading position.
4. Representations: Each party hereby represents, with respect to itself, that:
(i) it has full power and legal right to execute and deliver, and to perform and observe the terms and
provisions of this Termination Agreement;
(ii) the execution, delivery and performance of this Termination Agreement have been duly authorized by all
necessary action; and
(iii) this Termination Agreement is a legally valid and binding obligation, enforceable against it in accordance
with its terms (subject to applicable bankruptcy, reorganization, insolvency, moratorium or similar laws
affecting creditors' rights generally and subject, as to enforceability, to equitable principles of general
application (regardless of whether enforcement is sought in a proceeding in equity or at law)).
5. Definitions: All terms used herein which are defined in the Confirmation of the Transaction referred to
herein shall have the meaning stated therein. For these purposes, all references in the Definitions or the
Agreement to a "Swap Transaction" shall be deemed to apply to the Transaction referred to herein.
6. Miscellaneous: This Termination Agreement constitutes the entire agreement and understanding of the
parties with respect to the subject matter hereof.
7. Governing Law: The Transaction and all documentation relating thereto (including, without limitation,
this Termination Agreement) shall be governed and construed in accordance with the laws governing the
Agreement.
8. Offices
The Office of DBAG for the Transaction to which this Termination Agreement corresponds is New York.
9. Account Details:
Account Details for DBAG: Standard Settlement Instructions
Account Details for Counterparty: Standard Settlement Instructions
N1359778N
10. Please confirm that the foregoing correctly sets forth the terms of our agreement by having an
authorized officer sign this Confirmation and return it via facsimile or e-mail to:
Attention: Derivative Documentation
Telephone: 44 20 7547 4755
Facsimile: 44 20 7545 9761
E-mail: Derivative. Documentation@db.com
This message will be the only form of Confirmation dispatched by us. If you wish to exchange hard copy
forms of this Confirmation, please contact us.
Yours sincerely,
Deutsche Bank AG
DO
Name:
Authorized Signatory
By:
Name:
Authorized Signatory
Confirmed as of the date first written above:
City of Vernon
By. -
Name:
Title:
N1359778N 3
EXHIBIT B
Exhibit B
[Deutsche Bank Termination Agreement Attached]
OHSUSA:762619001.2 B-1
42797-2
AGREEMENT REGARDING
(1) EMIR PORTFOLIO RECONCILIATION AND DISPUTE RESOLUTION
(2) TRANSACTION REPORTING CONSENT
(3) EMIR COUNTERPARTY CLASSIFICATION REPRESENTATION
dated as of ..................... 2015
between
DEUTSCHE BANK AG ("DB") and CITY OF VERNON ("the Client")
(the "Agreement")
DB and the Client hereby agree as follows:
PART 1. PORTFOLIO RECONCILIATION AND DISPUTE RESOLUTION
(1) Agreement to Reconcile Portfolio Data
The parties agree to reconcile portfolios as required by the Portfolio Reconciliation Risk Mitigation
Techniques.
DB shall be the Portfolio Data Sending Entity. The Client shall be:
Please select an option by placing an "X" in the box indicating the appropriate election:
the Portfolio Data Sending Entity
the Portfolio Data Receiving Entity
X'
both the Portfolio Data Sending Entity and Portfolio Data Receiving Entity as specified by the
Client to DB.
(a) One-way Delivery of Portfolio Data.
If one party is a Portfolio Data Sending Entity and the other party is a Portfolio Data Receiving
Entity:
(i) on each Data Delivery Date, the Portfolio Data Sending Entity will provide Portfolio Data to
the Portfolio Data Receiving Entity;
(ii) on each PR Due Date, the Portfolio Data Receiving Entity will perform a Data
Reconciliation;
(iii) if the Portfolio Data Receiving Entity identifies one or more discrepancies which such party
determines, acting reasonably and in good faith, are material to the rights and obligations of
the parties in respect of one or more Relevant Transaction(s), it will notify the other party in
writing as soon as reasonably practicable and the parties will consult with each other in an
' Please select the appropriate box
0
attempt to resolve any such discrepancies in a timely fashion for so long as such
discrepancies remain outstanding, using, without limitation, any applicable updated
reconciliation data produced during the period in which such discrepancy remains
outstanding; and
(iv) if the Portfolio Data Receiving Entity does not notify the Portfolio Data Sending Entity that
the Portfolio Data contains discrepancies by 4p.m. local time in the place of business of the
Portfolio Data Sending Entity on the fifth Joint Business Day following the later of the PR
Due Date and the date on which the Portfolio Data Sending Entity provided such Portfolio
Data to the Portfolio Data Receiving Entity, the Portfolio Data Receiving Entity will be
deemed to have affirmed such Portfolio Data.
(b) Two-way Exchange of Portfolio Data.
If both parties are Portfolio Data Sending Entities:
(i) on each Data Delivery Date, each party will provide Portfolio Data to the other party;
(ii) on each PR Due Date, each party will perform a Data Reconciliation; and
(iii) if a party identifies one or more discrepancies which such party determines, acting
reasonably and in good faith, are material to the rights and obligations of the parties in
respect of one or more Relevant Transaction(s), it will notify the other party in writing as
soon as reasonably practicable and the parties will consult with each other in an attempt to
resolve any such discrepancies in a timely fashion for so long as such discrepancies remain
outstanding, using, without limitation, any applicable updated reconciliation data produced
during the period in which such discrepancy remains outstanding.
(c) Alternative Process.
If both parties are Portfolio Data Receiving Entities, the parties will agree a process for reconciling
Portfolio Data in order to meet the requirements of the Portfolio Reconciliation Risk Mitigation
Techniques.
(2) Change of Status
(a) Each party may change its own designation with the prior written agreement of the other party (such
agreement not to be unreasonably withheld or delayed and for this purpose the parties agree, without
limitation, that it will not be unreasonable for a party to withhold agreement where agreement would
result in the other party having different designations in respect of such party and one or more
Affiliates of such party). If, as a result of any such change of designation, both parties will be
Portfolio Data Receiving Entities, Part I(1)(c) will apply.
(b) If a party believes, acting reasonably and in good faith, that the parties are required to perform Data
Reconciliation at a greater or lesser frequency than that being used by the parties at such time, it will
notify the other party of such in writing, providing evidence on request. From the date such notice is
effectively delivered, such greater or lesser frequency will apply and the first following PR Due Date
will be the earlier of the date agreed between the parties and the last Joint Business Day in the PR
Period starting on the date on which the immediately preceding Data Reconciliation occurred (or, if
no Joint Business Day occurs which is within such PR Period and is on or following the date such
notice is effective, the first Joint Business Day following the later of the end of such PR Period and
the date such notice is effective).
(3) Use of agents and third party service providers
For the purposes of performing all or part of the actions under Parts I(1) and 1(2), each party may appoint:
(a) an Affiliate to act as agent, immediately on prior written notice to the other party; and/or
(b) subject to the other party's agreement (such agreement not to be unreasonably withheld or delayed),
(i) an entity other than an Affiliate as agent and/or (ii) a qualified and duly mandated third party
service provider.
DB may use a third party (including TriOptima AB) as its agent and/or third party service provider for the
purposes of performing all or part of the actions under Parts I(1) and I(2).
(4) Dispute Identification and Resolution Procedure
The parties agree that they will use the following procedure to identify and resolve Disputes between them:
(a) either party may identify a Dispute by sending a Dispute Notice to the other party;
(b) on or following the Dispute Date, the parties will consult in good faith in an attempt to resolve the
Dispute in a timely manner, including, without limitation, by exchanging any relevant information
and by identifying and using any Agreed Process which can be applied to the subject of the Dispute
or, where no such Agreed Process exists or the parties agree that such Agreed Process would be
unsuitable, determining and applying a resolution method for the Dispute; and
(c) with respect to any Dispute that is not resolved within five Joint Business Days of the Dispute Date,
refer issues internally to appropriately senior members of staff of such party or of its Affiliate,
adviser or agent in addition to actions under (b) immediately above (including actions under any
Agreed Process identified and used under (b) immediately above) and to the extent such referral has
not occurred as a result of action under (b) immediately above (including any Agreed Process).
(5) Internal processes for recording and monitoring Disputes
Each party agrees that, to the extent the Dispute Resolution Risk Mitigation Techniques apply to each party,
it will have internal procedures and processes in place to record and monitor any Dispute for as long as the
Dispute remains outstanding.
(6) Relationship to other portfolio reconciliation and dispute resolution processes
This Part I and any action or inaction of either party in respect of it are without prejudice to any rights or
obligations the parties may possess in respect of each other under any Agreed Process or other contractual
agreement, by operation of law or otherwise. Action or inaction by a party in respect of this Part I will not be
presumed to operate as an exercise or waiver, in whole or part, of any right, power or privilege such party
may possess in respect of each other under any Agreed Process or other contractual agreement, by operation
of law or otherwise. In particular, but without limitation, (a) any valuation in respect of one or more Relevant
Transactions for the purposes of this Part I will be without prejudice to any other valuation with respect to
such Relevant Transaction(s) made for collateral, close out, dispute or other purpose; (b) the parties may
seek to identify and resolve issues and discrepancies between themselves before either party delivers a
Dispute Notice; and (c) nothing in this Part I obliges a party to deliver a Dispute Notice following the
identification of any such issue or discrepancy (notwithstanding that such issue or discrepancy may remain
unresolved) or limits the rights of the parties to serve a Dispute Notice, to commence or continue an Agreed
Process (whether or not any action under Part I(4) has occurred) or otherwise to pursue any dispute
resolution process in respect of any such issue or discrepancy (whether or not any action under Part I(4) has
occurred).
(7) Remedies for Breach
Without prejudice to the rights, powers, remedies and privileges provided by law, failure by a party to take
any actions required by or to otherwise comply with Part I, in either case, will not constitute an event of
default in respect of such party or any other event which permits either party to terminate any Relevant
Transaction.
PART 11. TRANSACTION REPORTING CONSENT
Notwithstanding anything to the contrary in this Agreement, or any non disclosure, confidentiality or other
agreement entered into between the parties from time to time, , each party hereby consents to the Disclosure
of information (the "Reporting Consent"):
(a) to the extent required by, or necessary in order to comply with, any applicable law, rule or
regulation which mandates Disclosure of transaction and similar information or to the extent
required by, or necessary in order to comply with, any order, request or directive regarding
Disclosure of transaction and similar information issued by any relevant authority or body or
agency ("Reporting Requirements"); or
(b) to and between the other party's head office, branches or affiliates; to any person, agent, third
party or entity who provides services to such other party or its head office, branches or affiliates;
to a Market; or to any trade data repository or any systems or services operated by any trade
repository or Market, in each case, in connection with such Reporting Requirements.
Disclosures made pursuant to this Reporting Consent may include, without limitation, Disclosure of
information relating to disputes over transactions between the parties, a party's identity, and certain
transaction and pricing data and may result in such information becoming available to the public or
recipients in a jurisdiction which may have a different level of protection for personal data from that of the
relevant party's home jurisdiction.
This Reporting Consent shall be deemed to constitute an agreement between the parties with respect to
Disclosure in general and shall survive the termination of this Agreement. No amendment to or termination
of this Reporting Consent shall be effective unless such amendment or termination is made in writing
between the parties and specifically refers to this Reporting Consent.
PART III. EMIR COUNTERPARTY CLASSIFICATION REPRESENTATION
(1) EMIR Counterparty Classification Representation
Please select an option by placing an "X" in the box indicating the appropriate election:
Client is an FC
The Client represents to DB that it is a financial counterparty (as such term
X
incorporated in the
is defined in EMIR).
European Union
Client is an FC
The Client represents to DB that it is an entity established outside the
incorporated
European Union that, to the best of its knowledge and belief, having given
outside the
due and proper consideration to its status, would constitute a financial
European Union
counterparty (as such term is defined in EMIR) if it were established in the
European Union.
Client is an NFC+
The Client represents to DB that it is a non -financial counterparty (as such
incorporated in the
term is defined in EMIR) and is subject to a clearing obligation pursuant to
European Union
EMIR.
Client is an NFC+
The Client represents to DB that it is an entity established outside the
incorporated
I European Union that, to the best of its knowledge and belief, having given
outside the
European Union
due and proper consideration to its status, would constitute a non -financial
counterparty (as such term is defined in EMIR) and would be subject to a
clearing obligation pursuant to EMIR if it were established in the European
Union.
Client is an NFC-
(1) The Client represents to DB that:
incorporated in the
7-1
European Union
(i) it is a non -financial counterparty (as defined in EMIR); and
(ii) the notional amounts of its relevant foreign exchange,
credit, rates, equity, commodity and other derivative
portfolios are lower than the thresholds'' for mandatory
clearing stipulated in respect of EMIR.
Client is an NFC-
(1) The Client represents to DB that:
incorporated
outside the
(i) an entity established outside the European Union that, to
European Union
the best of its knowledge and belief, having given due and
proper consideration to its status, would constitute a non-
financial counterparty (as such term is defined in EMIR) if
it were established in the European Union; and
(ii) the notional amounts of its relevant foreign exchange,
credit, rates, equity, commodity and other derivative
portfolios are lower than the thresholds for mandatory
clearing stipulated in respect of EMIR.
The EMIR Counterparty Classification Representation above will be deemed to be repeated by the Client on
each day when any EMIR Transaction is entered into or remains outstanding.
If the Client changes status such that the EMIR Counterparty Classification Representation is no longer
correct, then Client will immediately notify DB by email to the following address:
emir.classification@db.com.
(2) Additional terms applicable to Clients which have represented to be non -financial counterparties
with notional amounts of relevant portfolios being below the thresholds for mandatory clearing':
(a) Where the Client has represented to DB that the notional amounts of its relevant foreign exchange,
credit, rates, equity, commodity and other derivative portfolios are lower than the thresholds for
mandatory clearing stipulated in respect of EMIR and as such, the EMIR Counterparty Classification
Representation proves to have been incorrect or misleading in any material respect when made or
deemed repeated, such Client will use all reasonable efforts, negotiating in good faith and a
commercially reasonable manner, to:
(i) agree with DB and implement any amendments or modifications to the terms of EMIR
Transactions which are required to be Cleared and take any steps required to ensure that
As at 9 September 2013, the thresholds, in gross notional amounts, are: EUR Ibn gross notional for OTC credit derivatives; EUR Ibn for
OTC equity derivatives; EUR 3bn for OTC interest rate derivatives; EUR 3bn for OTC foreign exchange derivatives; and EUR 3bn for
OTC commodity derivatives and other derivative contracts. Note these amounts apply at the group level, but true hedging should be
discounted. Please seek legal advice to make the appropriate selection.
such EMIR Transactions are Cleared before the applicable regulatory deadline, and to ensure
the payment of any Balancing Payment Amount; or
(ii) agree with DB and implement any amendments or modifications to the terms of EMIR
Transactions which are not required to be Cleared and take any steps required to ensure that
the relevant Risk Mitigation Techniques are adhered to in respect of such EMIR
Transactions by the sixth Business Day following the date on which both parties are aware
that the EMIR Counterparty Classification Representation above was incorrect or
misleading, or such later date as the parties agree, and to ensure the payment of any
Balancing Payment Amount by the same day.
(b) If the remedial steps for breach of the EMIR Counterparty Classification Representation set out in
Part III(2)(a) have not been completed in time, the EMIR Transactions for which remedial steps have
not been completed may, at DB's discretion, be terminated and upon such termination any
consequences of terminating the EMIR Transactions provided for in the Underlying Agreement will
apply, provided that in respect of EMIR Transactions concluded under an ISDA Master Agreement,
a failure to complete the relevant remedial steps as set out in Part I1I(2)(a) will constitute an
Additional Termination Event under the relevant ISDA Master Agreement. For the purposes of such
Additional Termination Event:
(i) the relevant EMIR Transactions will be the sole Affected Transactions within the meaning
set out in the ISDA Master Agreement and the Client will be the sole Affected Party
provided that both parties will be Affected Parties for the purposes of Section 6(b)(iv) of the
ISDA Master Agreement; and
(ii) For the purposes of any determination pursuant to Section 6(e) following the designation of
an Early Termination Date within the meaning set out in the ISDA Master Agreement as a
result of such Additional Termination Event:
(A) it will be deemed that the Client is a non -financial counterparty to which mandatory
clearing stipulated in EMIR does not apply (whether or not in fact this is the case); and
(B) where "Market Quotation" is designated as the payment measure, it will be deemed that
Market Quotation would not produce a commercially reasonable result and "Loss" will
apply in relation to the relevant Affected Transaction(s).
(c) Without prejudice to the rights, powers, remedies and privileges provided by law, neither the making
by the Client of an incorrect or misleading EMIR Counterparty Classification Representation nor the
failure of a party to take any actions required by Part II1(2)(a) will constitute an event of default
under the relevant Underlying Agreement (including an Event of Default as such term defined in an
ISDA Master Agreement).
PART IV. DEFINITIONS
"agent" means an entity appointed to act solely on the appointing party's behalf to deal with the other party
in relation to all or part of the actions under the relevant provision.
"Affiliate" means, in relation to any person, any entity controlled, directly or indirectly, by the person, any
entity that controls, directly or indirectly, the person or any entity directly or indirectly under common
control with the person. For this purpose, "control" of any entity or person means ownership of a majority of
the voting power of the entity or person.
"Agreed Process" means any process agreed between the parties in respect of a Dispute other than the
Dispute Resolution Procedure including, without limitation, the process in (a) Section 13 of any ISDA
Master Agreement (b) Paragraph 4 of an ISDA Credit Support Annex (Bilateral Form — Transfer) or (c)
Paragraph 5 of each of the ISDA Credit Support Deed (Bilateral Form — Security Interest) and the ISDA
Credit Support Annex (Bilateral Form), in each case as may be amended between the parties, if applicable.
"Balancing Payment Amount" means, in relation to an EMIR Transaction, the amount, if any, required to be
paid between the parties (which, for the avoidance of doubt, may be payable by or to Party B) in order to
reflect the difference between (1) pricing of the relevant EMIR Transaction by reference to the terms of such
EMIR Transaction immediately prior to any amendments or modifications agreed by the parties pursuant to
Part 111 (2) the pricing of the relevant EMIR Transaction by reference to the terms of such EMIR Transaction
immediately following any amendments or modifications required to be made in order to comply with Part
I11(2).
"Cleared" means, in respect of an EMIR Transaction, that such EMIR Transaction has been submitted to a
central clearing house authorised under Article 14 of EMIR or recognised under Article 25 of EMIR for
clearing relevant OTC derivative transactions.
"Data Delivery Date" means each date agreed as such between the parties provided that, in the absence of
such agreement, the Data Delivery Date will be the Joint Business Day immediately prior to the PR Due
Date.
"Data Reconciliation" means, in respect of a party receiving Portfolio Data, a comparison of the Portfolio
Data provided by the other party against such party's own books and records of all outstanding Relevant
Transactions between the parties in order to identify promptly any misunderstandings of Key Terms.
"Derivative" means a "derivative" or "derivative contract" as defined in Article 2(5) of EMIR.
"Disclosure" means disclosure, reporting, retention, or any action similar or analogous to any of the
aforementioned.
"Dispute" means any dispute between the parties (a) which, in the sole opinion of the party delivering the
relevant Dispute Notice, is required to be subject to the Dispute Resolution Procedure (or other Agreed
Process) pursuant to the Dispute Resolution Risk Mitigation Techniques; and (b) in respect of which a
Dispute Notice has been effectively delivered.
"Dispute Date" means, with respect to a Dispute, the date on which a Dispute Notice is effectively delivered
by one party to the other party save that if, with respect to a Dispute, both parties deliver a Dispute Notice,
the date on which the first in time of such notices is effectively delivered will be the Dispute Date. Each
Dispute Notice will be effectively delivered if delivered in the manner agreed between the parties for the
giving of notices in respect of this Agreement.
"Dispute Notice" means a notice in writing which states that it is a dispute notice for the purposes of Part
I(4) and which sets out in reasonable detail the issue in dispute (including, without limitation, the Relevant
Transaction(s) to which the issue relates).
"Dispute Resolution Procedure" means the identification and resolution procedure set out in Part I(4).
"Dispute Resolution Risk Mitigation Techniques" means the dispute resolution risk mitigation techniques
for OTC derivative transactions set out in Article II(1)(b) of EMIR as supplemented by Article 15 of
Chapter VIII of the Commission Delegated Regulation (EU) No 149/2013 of 19 December 2012 and
published on 23 February 2013 in the Official Journal of the European Union.
"EMIR" means Regulation (EU) No 648/2012 of the European Parliament and of the Council on OTC
derivatives, central counterparties and trade repositories dated 4 July 2012.
"EMIR Counterparty Classification Representation" means the representations made by the Client in Part
1I I(1).
"EMIR Transaction" means any transaction which is subject to EMIR.
"European Union" means the economic and political union established in 1993 by the Maastricht Treaty,
with the aim of achieving closer economic and political union between member states that are primarily
located in Europe.
"ISDA Master Agreement" means a 2002 ISDA Master Agreement, 1992 ISDA Master Agreement
(Multicurrency — Cross Border), 1992 ISDA Master Agreement (Local Currency — Single Jurisdiction), or
1987 ISDA Interest Rate and Currency Exchange Agreement, in each case as published by the International
Swaps and Derivatives Association, Inc; or any ISDA Master Agreement entered into by execution by the
parties of a confirmation pursuant to which the parties are deemed to have entered into an ISDA Master
Agreement.
"Joint Business Day" means a day that is a Local Business Day in respect of each party.
"Key Terms" means, with respect to a Relevant Transaction and a party, the valuation of such Relevant
Transaction and such other details the relevant party deems relevant from time to time which may include the
effective date, the scheduled maturity date, any payment or settlement dates, the notional value of the
contract and currency of the Relevant Transaction, the underlying instrument, the position of the
counterparties, the business day convention and any relevant fixed or floating rates of the Relevant
Transaction. For the avoidance of doubt, "Key Terms" does not include details of the calculations or
methodologies underlying any term.
"Local Business Day" means, in respect of a party and unless otherwise agreed between the parties in
writing, a day on which commercial banks and foreign exchange markets settle payments and are open for
general business in the places specified for that purpose of such party or, if not so specified, in the place of
the location of the office(s) that such party transacts Relevant Transactions with the other party from time to
time, as determined by the other party.
"Market" means any exchange, regulated market, clearing house, central clearing counterparty or
multilateral trading facility.
"Portfolio Data" means, in respect of a party providing or required to provide such data, the Key Terms in
relation to all outstanding Relevant Transactions between the parties in a form and standard that is capable of
being reconciled, with a scope and level of detail that would be reasonable to the Portfolio Data Sending
Entity if it were the receiving party. Unless otherwise agreed between the parties, the information comprising
the Portfolio Data to be provided by a party on a Data Delivery Date will be prepared as at the close of
business on the immediately preceding Local Business Day of, and as specified in writing by, the party
providing the Portfolio Data.
"Portfolio Data Receiving Entity" and "Portfolio Data Sending Entity" each means a party to this
Agreement who has designated itself as such, subject to Part I(2)(a) above.
"Portfolio Reconciliation Requirements" means the requirements one or both parties are subject to in
accordance with the Portfolio Reconciliation Risk Mitigation Techniques.
"Portfolio Reconciliation Risk Mitigation Techniques" means the portfolio reconciliation risk mitigation
techniques for OTC derivative transactions set out in Article I I(1)(b) of EMIR as supplemented by Article
13 of Chapter VIII of the Commission Delegated Regulation (EU) No 149/2013 of 19 December 2012 and
published on 23 February 2013 in the Official Journal of the European Union.
"PR Due Date" means each date agreed as such between the parties provided that the PR Due Date will be
the PR Fallback Date where either (a) no date is agreed or (b) the agreed date occurs after the PR Fallback
Date.
"PR Fallback Date" means: (a) in respect of the PR Period starting on the PR Requirement Start Date, the
last Joint Business Day in such PR Period; and, otherwise, (b) the last Joint Business Day in the PR Period
starting on the calendar day immediately following the last calendar day of the immediately preceding PR
Period. If there is no Joint Business Day in a PR Period, the PR Due Date will be the first Joint Business Day
following the end of the PR Period.
"PR Period" means, with respect to the parties:
(a) if the Portfolio Reconciliation Requirements require Data Reconciliation to occur each business
day, one Joint Business Day;
(b) if the Portfolio Reconciliation Requirements require Data Reconciliation to occur once per
week, one calendar week;
(c) if the Portfolio Reconciliation Requirements require Data Reconciliation to occur once per
quarter, three calendar months; or
(d) if the Portfolio Reconciliation Requirements require Data Reconciliation to occur once per year,
one calendar year.
"PR Requirement Start Date" means the first calendar day on which the Portfolio Reconciliation
Requirements apply to one or both of the parties.
"Relevant Transaction" means any transaction which is subject to the Portfolio Reconciliation Risk
Mitigation Techniques and/or the Dispute Resolution Risk Mitigation Techniques.
"Risk Mitigation Techniques" means the risk mitigation techniques for OTC derivative transactions set out
in Article 1 I of EMIR as supplemented by Chapter VIII of the Commission Delegated Regulation (EU) No
149/2013 published 23 February 2013 in the Official Journal of the European Union.
"third party service provider" refers to an entity that the parties agree will perform all or part of the actions
under the relevant provision for both parties.
"Underlying Principals" has the meaning given to it in Part V(a).
"Underlying Agreement" means the agreement governing the terms and conditions of the relevant EMIR
Transaction.
PART V — MISCELLANEOUS
(a) Acting as Investment Manager or Agent
If the Client is an investment manager or acting as agent for and on behalf of its relevant principals
(including without limitation any relevant existing and new clients, investors, funds and accounts of the
Client, each an "Underlying Principal"), the Client agrees that:
(a) where a Relevant Transaction has been entered into prior to the date of this Agreement, or is
entered into on the date of this Agreement between the DB and the Client (acting for and on behalf
of an existing Underlying Principal); or
(b) where a Relevant Transaction is entered into after the date of this Agreement between DB and
the Client (acting for and on behalf of a new Underlying Principal),
each such Underlying Principal shall be bound by the terms of this Agreement and references to "Client" and
the "parties" contained in this Agreement shall be construed accordingly. The Client confirms to DB that it
is authorised to bind its existing Underlying Principals and will be authorised to bind any new Underlying
Principals for the purposes as set out in this paragraph.
(b) Other Agreements Governing Transactions in Derivatives
Other than Part II (Transaction Reporting Consent) of this Agreement, this Agreement shall not apply to
agreements in writing, in electronic format, or in any other agreed official record which govern the terms and
conditions of one or more transactions in Derivatives where the parties have entered into alternative written
arrangements that document the substance of the issues covered in this Agreement or expressly stated in such
other agreements or otherwise in writing that this Agreement shall not apply.
(c) Notices
(i) Notices to DB
All notices with regard to Part I (Portfolio Reconciliation and Dispute Resolution) shall be sent to
DB at collateral.disputes@db.com.
All notices with regard to Part III (EMIR Counterparty Classification Representation) shall be sent
to DB at emir.classificationga db.com.
For the avoidance of doubt, Portfolio Data will be sent to such address as agreed between the
parties from time to time.
(ii) Notices to Client
All notices with regard to this Agreement shall be sent to the Client pursuant to the applicable
notice details contained in the agreement governing the Relevant Transaction(s) to which such
notice refers or to such other address as otherwise agreed between the parties.
(d) Entire Agreement. This Agreement constitutes the entire agreement and understanding of the parties
with respect to its subject matter and supersedes all oral communication and prior writings (except as
otherwise provided herein) with respect thereto.
(e) Counterparts. This Agreement may be executed and delivered in counterparts (including
transmission by facsimile, electronic messaging system or e-mail), each of which will be deemed an original.
(f) Headings. The headings used in this Agreement are for convenience of reference only and are not to
affect the construction of or to be taken into consideration in interpreting this Agreement.
(g) Governing Law. This Agreement will be governed by and construed in accordance with English law.
(h) Jurisdiction. The courts of England have exclusive jurisdiction to settle any dispute (including a
dispute relating any non -contractual obligation) arising out of or in connection with this Agreement.
10
The parties have executed this Agreement on the respective dates specified below with effect from the date
specified first on the first page of this Agreement.
DEUTSCHE BANK AG CITY OF VERNON
By: ...................................... By:......................................
Name:
Name:
Title: Title:
M
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