Gov't Code Section 1371.056
Authority to Enter into and Execute Credit Agreements
(a)An issuer may execute and deliver any number of credit agreements in anticipation of, related to, or in connection with the authorization, issuance, security, purchase, payment, sale, resale, redemption, remarketing, or exchange of some or all of the issuer’s obligations or interest on obligations, or both, at any time, without regard to whether the:
(1)obligations have been authorized or issued; or
(2)credit agreement was contemplated, authorized, or executed in relation to the initial issuance, sale, or delivery of the obligations.
(b)Except as provided by this section, a credit agreement must substantially contain the terms and be for the period the governing body approves. A credit agreement may provide that it:
(1)may be terminated with or without cause; or
(2)becomes effective at the option of another party to the credit agreement, if the governing body first finds that the option serves best the interests of the issuer.
(c)The governing body may delegate to any number of officers or employees of the issuer the authority to approve specific terms of, to execute and deliver, or to terminate or amend in accordance with its terms, a credit agreement or transactions under a credit agreement on the behalf of the issuer, subject to any condition the governing body specifies. The delegation must include limits on:
(1)the principal amount or the notional amount;
(4)the source of payment;
(6)the identity or credit rating of an authorized counterparty;
(7)the duration of the authorization; and
(8)for an interest rate management agreement, the:
(A)fixed or floating rates;
(C)early termination provisions;
(F)costs of credit enhancement.
(d)The cost to the issuer of a credit agreement or payments owed by an issuer under a credit agreement may be paid from and secured by any source, including:
(1)the proceeds from the sale of the obligation to which the credit agreement relates;
(2)any revenue and money of the issuer that is available to pay the obligation;
(3)any interest on the obligation or that may otherwise be legally used; or
(4)ad valorem taxes if the credit agreement is authorized in anticipation of, in relation to, or in connection with an obligation that is wholly or partly payable from or is to be wholly or partly payable from ad valorem taxes.
(e)A credit agreement is an agreement for professional services but is not a contract subject to Subchapter I (Definitions), Chapter 271 (Purchasing and Contracting Authority of Municipalities, Counties, and Certain Other Local Governments), Local Government Code.
(f)If a credit agreement is authorized and is executed in anticipation of the issuance of an obligation described by Section 1371.001 (Definitions)(5)(B) because the issuer is authorized by Subchapter C (Short Title), Chapter 271 (Purchasing and Contracting Authority of Municipalities, Counties, and Certain Other Local Governments), Local Government Code, to issue certificates of obligation:
(1)notice required by Section 271.049 (Notice of Intention to Issue Certificates; Petition and Election), Local Government Code, in addition to the other requirements for the notice, must describe the time and place tentatively set for the adoption of the order or ordinance authorizing the credit agreement, the maximum amount and term of the obligations and credit agreement, and the manner in which the certificates of obligation and credit agreement will be paid; and
(2)the issuer may enter into the credit agreement and issue the certificates of obligation only if:
(A)the municipal secretary or clerk or person with similar authority does not receive a petition signed by at least five percent of the registered voters of the issuer that protests the issuance of the certificates of obligation or the execution of the credit agreement before the later of the date tentatively set for the adoption of the order or ordinance to authorize the credit agreement or the date the order or ordinance is adopted;
(B)the issuance and execution are approved at an election held for that purpose conducted as provided for a bond election under Chapter 1251; or
(C)notice is not required by Section 271.049 (Notice of Intention to Issue Certificates; Petition and Election), Local Government Code, before the certificates of obligation are authorized.
(g)Payments received by an issuer under a credit agreement or on termination of all or part of a credit agreement may be used to:
(1)pay the obligations in anticipation of which, in relation to which, or in connection with which the credit agreement was entered into or pay the costs to be financed by the obligations in anticipation of which, in relation to which, or in connection with which the credit agreement was entered into;
(2)pay other liabilities or expenses that are secured on parity with or senior to the obligations in anticipation of which, in relation to which, or in connection with which the credit agreement was entered into; or
(3)after the satisfaction of the obligations or costs described by Subdivision (1) and of the liabilities and expenses described by Subdivision (2) that are due, make payments for any other purpose for which the issuer may issue obligations under this subchapter or that is otherwise authorized by law, unless the credit agreement is paid primarily from ad valorem taxes.
(h)An issuer may agree to pay or receive a payment on early termination of an interest rate management agreement due to a breach or for another reason as provided by the interest rate management agreement. The agreement may specify the payment by a specific amount, by a formula, or by a process or algorithm.
(i)A credit agreement secured in the manner described by Subsection (d)(4) may be executed without an election or the imposition of an ad valorem tax for the credit agreement unless required by the Texas Constitution. If the Texas Constitution requires an election for the credit agreement, the election must be held substantially in the manner provided for an election under Chapter 1251 (Bond Elections).
(j)An issuer may enter into an interest rate management agreement transaction only:
(1)if the issuer has either entered into at least three interest rate management transactions before November 1, 2006, or has entered into one or more interest rate management transactions with notional amounts totaling at least $400 million before that date; or
(2)as provided by Subsection (k).
(k)An issuer may enter into an interest rate management transaction if:
(1)the governing body has adopted, amended, or ratified during the preceding two years a risk management policy governing entering into and managing interest rate management agreements and transactions that addresses:
(A)conditions, if any, under which the issuer may enter into an interest rate management agreement transaction without independent advice from a financial advisor or swap advisor who has experience in interest rate management transactions; and
(B)authorized purposes, permitted types and creditworthiness of counterparties, credit risks and other risks, liquidity, methods of selection of counterparties, and limits concerning awarding a transaction, monitoring, and exposure;
(2)the issuer has received from the counterparty:
(A)if the transaction was not awarded through a competitive bidding process:
(i)a statement that, in the counterparty’s judgment, the difference in basis points between the rate of the transaction and the mid-market rate for a comparable transaction falls within the commonly occurring range for comparable transactions;
(ii)a statement of the amount of the difference as determined by the counterparty; or
(iii)if the counterparty does not know of a comparable transaction or mid-market rate, a statement of another suitable measure of pricing acceptable to the counterparty; and
(B)the counterparty’s disclosure of any payments the counterparty made to another person to procure the transaction; and
(3)the governing body or an authorized officer or employee of the issuer has determined that the transaction will conform to the issuer’s interest rate management agreement policy after reviewing a report of the chief financial officer of the issuer that identifies with respect to the transaction:
(B)the anticipated economic benefit and the method used to determine the anticipated benefit;
(C)the use of the receipts of the transaction;
(D)the notional amount, amortization, and average life compared to the related obligation;
(E)any floating indices;
(F)its effective date and duration;
(G)the identity and credit rating of the counterparties;
(H)the cost and anticipated benefit of transaction insurance;
(I)the financial advisors and the legal advisors and their fees;
(J)any security for scheduled and early termination payments;
(K)any associated risks and risk mitigation features; and
(L)early termination provisions.
(l)While an interest rate management agreement transaction is outstanding, the governing body of the issuer shall review and ratify or modify its related risk management policy at least biennially.
Section 1371.056 — Authority to Enter into and Execute Credit Agreements,
https://statutes.capitol.texas.gov/Docs/GV/htm/GV.1371.htm#1371.056 (accessed Nov. 25, 2023).