71st OREGON LEGISLATIVE ASSEMBLY--2001 Regular Session
NOTE: Matter within { + braces and plus signs + } in an
amended section is new. Matter within { - braces and minus
signs - } is existing law to be omitted. New sections are within
{ + braces and plus signs + } .
LC 1165
House Bill 2120
Ordered printed by the Speaker pursuant to House Rule 12.00A (5).
Presession filed (at the request of State Treasurer Jim Hill)
SUMMARY
The following summary is not prepared by the sponsors of the
measure and is not a part of the body thereof subject to
consideration by the Legislative Assembly. It is an editor's
brief statement of the essential features of the measure as
introduced.
Authorizes State Treasurer or state agency with approval of
State Treasurer to enter into agreement for exchange of interest
rates to manage state debt obligations.
A BILL FOR AN ACT
Relating to state debt obligations; creating new provisions; and
amending ORS 295.005.
Be It Enacted by the People of the State of Oregon:
SECTION 1. { + Section 2 of this 2001 Act is added to and made
a part of ORS chapter 286. + }
SECTION 2. { + (1) As used in this section:
(a) 'Agreement for exchange of interest rates' or ' agreement'
means a contract commonly known as an interest rate swap
agreement that provides for payments based on changes in interest
rates, a contract that includes interest rate floors or caps,
options, puts or calls to hedge payment, rate, spread or similar
exposure, or any option to enter into any of the contracts
described in this paragraph.
(b) 'Obligations' mean bonds, notes, bond anticipation notes,
commercial paper or other evidences of indebtedness, certificates
of participation, leases, installment purchase contracts or other
purchasing programs.
(c) 'State agency' means the State of Oregon and any of its
agencies, departments, divisions, institutions, public
corporations or commissions, whether acting directly or through
the State Treasurer, but does not mean a unit of local
government.
(2) When the State Treasurer or a state agency incurs or
proposes to incur an obligation, the State Treasurer or the state
agency with the approval of the State Treasurer may enter into an
agreement for exchange of interest rates, in whole or in part,
for the purpose of managing payment, interest rate, spread or
similar risks related to the obligation upon a finding that the
agreement is in the best interest of the State Treasurer and the
state agency. An agreement for exchange of interest rates may
contain provisions that the State Treasurer or the state agency
finds necessary, appropriate or desirable after considering the
covenants applicable to the obligations and the creditworthiness
of the parties, including provisions for payment, term, security,
collateralization, termination, default or remedies.
(3) The State Treasurer or a state agency with the approval of
the State Treasurer may enter into an agreement for exchange of
interest rates if, at the time the State Treasurer or the state
agency enters into the agreement:
(a) The long-term and senior, unsecured and unsubordinated
obligations of the party with whom the State Treasurer or the
state agency enters into the agreement, or the party's guarantor,
are rated in one of the top three rating categories by at least
two nationally recognized credit rating services; or
(b) The obligations owed to the state by the party with whom
the State Treasurer or the state agency enters into the agreement
are collateralized by cash or by obligations rated in one of the
top three rating categories by at least two nationally recognized
credit rating services. Cash or obligations of sufficient market
value to fully collateralize the obligations must be deposited
with the State Treasurer, the state agency or an agent of the
State Treasurer or the state agency.
(4) When the State Treasurer or a state agency incurs or
proposes to incur an obligation at a variable interest rate, the
State Treasurer or the state agency may agree to pay sums equal
to the interest, at a fixed rate or rates or at a different
variable rate determined under a formula set forth in the
agreement, on an amount not to exceed the principal amount of the
obligation for which the agreement is made in exchange for an
agreement to pay to the State Treasurer or the state agency sums
equal to the interest, at a variable rate determined under a
formula set forth in the agreement, on the same principal amount.
(5) When the State Treasurer or a state agency incurs or
proposes to incur an obligation bearing interest at a fixed rate
or rates, the State Treasurer or the state agency may agree to
pay sums equal to the interest, at a variable rate determined
under a formula set forth in the agreement, on an amount not to
exceed the outstanding principal amount of the obligation for
which the agreement is made in exchange for an agreement to pay
to the State Treasurer or the state agency sums equal to the
interest, at a fixed rate or rates set forth in the agreement, on
the same principal amount.
(6) The term of an agreement entered into under this section
may not exceed the term of the obligation for which the agreement
is made.
(7) The limitations under ORS 286.036 or any other law
establishing limitations on the rate of interest payable on a
bond do not apply to interest paid under an agreement entered
into under this section.
(8) During the term of an agreement under this section, if no
payment default has occurred, the State Treasurer or a state
agency may treat the amount or rate of interest on the obligation
related to the agreement as the amount or rate of interest
payable after giving effect to the agreement for the purpose of
calculating:
(a) Tax levies, if any, to pay bond debt service; or
(b) Other amounts that are based on the rate of interest on the
obligation.
(9) Subject to covenants applicable to obligations, the State
Treasurer or a state agency may:
(a) Make payments required under the agreement from moneys
pledged to pay debt service on the obligations, tax levies, other
revenues or any other legally available moneys;
(b) Establish the order of priority for payment of obligations;
and
(c) Take actions that enhance the liquidity of the agreement or
the credit of the State Treasurer or the state agency entering
into the agreement including, but not limited to, obtaining a
line of credit, letter of credit, insurance policy or other
security. + }
SECTION 3. ORS 295.005 is amended to read:
295.005. As used in ORS 295.005 to 295.165, unless the context
requires otherwise:
(1) 'Certificate of participation' or 'certificate' means a
nonnegotiable document issued by a pool manager to a public
official.
(2) 'Custodian bank' or 'custodian' means the following
institutions designated by the depository bank for its own
account:
(a) The Federal Reserve Bank designated to serve this state, or
any branch of that bank;
(b) The Federal Home Loan Bank designated to serve this state,
or any branch of that bank;
(c) Any insured institution or trust company, as those terms
are defined in ORS 706.008, that is authorized to accept deposits
or transact trust business in this state, provided, however, that
no insured institution or trust company may be a custodian bank
unless it certifies in writing to the State Treasurer that it
will furnish the reports required under ORS 714.075 to the
Director of the Department of Consumer and Business Services.
With the approval of the State Treasurer, a depository bank may
be a custodian bank with respect to its own securities; and
(d) The fiscal agency of the State of Oregon, duly appointed
and acting as such agency pursuant to ORS 288.010 to 288.110.
(3) 'Custodian's receipt' or 'receipt' means a document issued
by a custodian bank to a pool manager describing the securities
deposited with it by a depository bank to secure public fund
deposits.
(4) 'Depository bank' or 'depository' means any insured
institution or trust company, as those terms are defined in ORS
706.008, that maintains a head office or a branch in this state
in the capacity of an insured institution or trust company.
However, an insured institution or trust company is not a
depository bank unless it has:
(a) Certified in writing to the State Treasurer that it will
furnish the reports required under ORS 714.075 to the Director of
the Department of Consumer and Business Services; and
(b) Entered into a written agreement with the State Treasurer
and a custodian that pledges the securities deposited by the
insured institution or trust company with the custodian as
collateral for deposits of public funds held by the insured
institution or trust company. The agreement shall be approved by
the board of directors or loan committee of the insured
institution or trust company and shall be continuously maintained
as a written record of the institution or company.
(5) 'Pool manager' means:
(a) The State Treasurer;
(b) Any insured institution or trust company, as those terms
are defined in ORS 706.008, that is authorized to accept deposits
or transact trust business in this state; but a depository bank
shall not be a pool manager with respect to securities that it
deposits with its custodians as collateral for the security of
public fund deposits and no insured institution or trust company
may be a pool manager unless it certifies in writing to the State
Treasurer that it will furnish the reports required under ORS
714.075 to the Director of the Department of Consumer and
Business Services;
(c) The Federal Reserve Bank designated to serve this state, or
any branch of that bank; or
(d) The Federal Home Loan Bank designated to serve this state,
or any branch of that bank.
(6) 'Public funds' or 'funds' means the funds under the control
or in the custody of a public official by virtue of office, other
than those that, under law other than ORS 295.005 to 295.165,
are:
(a) Deposited for the purpose of meeting the payment of
principal or interest on bonds or like obligations { + or
securing obligations related to an agreement for exchange of
interest rates entered into under section 2 of this 2001 Act + };
or
(b) Invested in authorized investments. Funds invested under
ORS 293.701 to 293.820 are invested in authorized investments for
purposes of this paragraph when the funds are transferred by the
State Treasurer to a third party under the terms of a contract
for investment of funds that requires such a transfer.
(7) 'Security' or 'securities' means:
(a) Obligations of the United States, including those of its
agencies and instrumentalities;
(b) Obligations of the International Bank for Reconstruction
and Development;
(c) Bonds of any state of the United States (A) that are rated
in one of the four highest grades by a recognized investment
service organization that has been engaged regularly and
continuously for a period of not less than 10 years in rating
state and municipal bonds or, (B) having once been so rated are
ruled to be eligible securities for the purposes of ORS 295.005
to 295.165, notwithstanding the loss of such rating;
(d) Bonds of any county, city, school district, port district
or other public body in the United States payable from ad valorem
taxes levied generally on substantially all property within the
issuing body and that meet the rating requirement or are ruled to
be eligible securities as provided in paragraph (c) of this
subsection;
(e) Bonds of any county, city, school district, port district
or other public body issued pursuant to the Constitution or
statutes of the State of Oregon or the charter or ordinances of
any county or city within the State of Oregon, if the issuing
body has not been in default with respect to the payment of
principal or interest on any of its bonds within the preceding 10
years or during the period of its existence if that is less than
10 years;
(f) Bond anticipation notes issued, sold or assumed by an
authority under ORS 441.560;
(g) One-family to four-family housing mortgage loan notes
related to property situated in the State of Oregon, which are
owned by a depository bank, no payment on which is more than 90
days past due, and which are eligible collateral for loans from
the Federal Reserve Bank of San Francisco under section 10(b) of
the Federal Reserve Act and regulations thereunder;
(h) Bonds, notes, letters of credit or other securities or
evidence of indebtedness constituting the direct and general
obligation of a federal home loan bank or Federal Reserve bank;
(i) Debt obligations of domestic corporations that are rated in
one of the three highest grades by a recognized investment
service organization that has been engaged regularly and
continuously for a period of not less than 10 years in rating
corporate debt obligations;
(j) Collateralized mortgage obligations and real estate
mortgage investment conduits that are rated in one of the two
highest grades by a recognized investment service organization
that has been engaged regularly and continuously for a period of
not less than 10 years in rating corporate debt obligations; and
(k) One-family to four-family housing mortgages that have been
secured by means of a guarantee as to full repayment of principal
and interest by an agency of the United States Government,
including the Government National Mortgage Association, the
Federal National Mortgage Association and the Federal Home Loan
Mortgage Corporation.
(8) 'Public official' means each officer or employee of this
state or any agency, political subdivision or public or municipal
corporation thereof who by law is made the custodian of or has
control of any public funds.
(9) 'Value' means the current market value of securities.
SECTION 4. { + Section 2 of this 2001 Act and the amendments
to ORS 295.005 by section 3 of this 2001 Act apply to bonds
issued before, on or after the effective date of this 2001
Act. + }
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