Staff Report
PREPARED BY: MATT MORLEY
PARKS AND PUBLIC WORKS DIRECTOR
Reviewed by: Town Manager, Town Attorney, and Finance Director
110 E. Main Street Los Gatos, CA 95030 ● 408-354-6832
www.losgatosca.gov
TOWN OF LOS GATOS
COUNCIL AGENDA REPORT
MEETING DATE: 12/20/2016
ITEM NO: 7
DATE: DECEMBER 7, 2016
TO: TOWN COUNCIL
FROM: LAUREL PREVETTI, TOWN MANAGER
SUBJECT: AUTHORIZE THE TOWN MANAGER TO EXECUTE A SUBORDINATION
AGREEMENT WITH RIVER CITY BANK IN CONJUNCTION WITH THE CREDIT
AGREEMENT TO PROVIDE FINANCING FOR THE SILICON VALLEY CLEAN
ENERGY (SVCE) AUTHORITY
RECOMMENDATION:
Authorize the Town Manager to execute a subordination agreement with River City Bank in
conjunction with the Credit Agreement to provide financing for the Silicon Valley Clean Energy
(SVCE) Authority.
BACKGROUND:
On February 2, 2016 the Town Council approved the Town participation in a regional Joint
Powers Authority (JPA) called Silicon Valley Clean Energy (SVCE). The goal of SVCE is to act as
the electricity procurement authority for all participating jurisdictions, taking over this role from
Pacific Gas & Electric (PG&E). This allows for greater flexibility in the electricity purchased, with
a focus on reducing Green House Gas (GHG) emissions and increasing the amount of renewable
energy purchased beyond what PG&E can provide.
The Council also approved the allocation of $150,000 as the proportionate share of startup
costs for SVCE, with the commitment that SVCE would repay the startup costs by March 31,
2020. To date the Town has contributed $100,000 to the startup costs. The additional $50,000
was anticipated to cover the share of costs for any jurisdiction(s) that did not join the JPA;
however, all jurisdictions have joined and those funds were not needed. As the $50,000
amount was not appropriated by the Town, no budget action has needed to occur with respect
to those funds and they remain in the General Fund.
PAGE 2 OF 3
SUBJECT: AUTHORIZE THE TOWN MANAGER TO EXECUTE A SUBORDINATION
AGREEMENT WITH RIVER CITY BANK IN CONJUNCTION WITH THE CREDIT
AGREEMENT TO PROVIDE FINANCING FOR THE SILICON VALLEY CLEAN
ENERGY (SVCE) AUTHORITY
DECEMBER 7, 2016
S:\COUNCIL REPORTS\2016\12-20-16\07 Subordination Agreement for SVCE\07 Staff Report FINAL.docx 12/15/2016 10:19 AM MM
BACKGROUND (cont’d):
Councilmember Rennie was appointed as the Town’s representative on the JPA Board and since
its inception SVCE has continued to move towards the goal of distributing green electricity. The
current schedule calls for implementation in three phases, with the first phase beginning in
April, 2017.
DISCUSSION:
SVCE has identified the need for up to $2.0 million in a Non-Revolving Line of Credit (NRLOC) for
pre-launch activities and up to an $18.0 million Revolving Line of Credit (RLOC) to fund reserves
and negative cash flow associated with power supply acquisition.
Initially, it was anticipated that the member agencies may need to provide some form of limited
guarantee to the selected bank, as has been the case for all other CCEs. River City Bank (RCB),
however, required guarantees for only $2.0 million associated with the NRLOC. The agencies of
Sunnyvale, Mountain View, Gilroy and the County of Santa Clara have agreed to provide this
guarantee.
The Credit Agreement with RCB requires each agency agree to subordinate the repayment for
their share of the initial contribution, totaling $2.7 million, until the LOC is retired. Both RCB
credit facilities are projected to be repaid by SVCE within 12 months of operations.
The SVCE Board approved RCB banking services in September and approved the Credit
Agreement on November 9, 2016. In order for RCB to make funds available post entering
power supply agreement in January 2017, it is necessary for all member agencies to approve
the subordination agreement.
Future SVCE Activities
In January, SVCE will begin distributing notifications of the upcoming switch of PG&E customers
to SVCE. This is an opt out process, with the end result fairly transparent to the customer as
billing and distribution will continue to be provided by PG&E. This is also the time that
customers will be able to opt for a different mix of energy. SVCE will b e offering a base level
called GreenSmart that is 50% renewable and 100% carbon free. There will also be a second
option called GreenPrime which will be 100% renewable and 100% carbon free. GreenSmart
will achieve modest savings to the current PG&E rates while GreenPrime will be at a premium
to PG&E rates. Staff anticipates bringing a discussion of this item to the Council for the January
PAGE 3 OF 3
SUBJECT: AUTHORIZE THE TOWN MANAGER TO EXECUTE A SUBORDINATION
AGREEMENT WITH RIVER CITY BANK IN CONJUNCTION WITH THE CREDIT
AGREEMENT TO PROVIDE FINANCING FOR THE SILICON VALLEY CLEAN
ENERGY (SVCE) AUTHORITY
DECEMBER 7, 2016
S:\COUNCIL REPORTS\2016\12-20-16\07 Subordination Agreement for SVCE\07 Staff Report FINAL.docx 12/15/2016 10:19 AM MM
DISCUSSION (cont’d):
31, 2017 priority setting session so that costs associated with the program can be evaluated
with other potential priorities. At the February 7, 2017 Council meeting, staff will provide a
staff report with the recommended selection and all municipal accounts will switch to SVCE in
the first phase in April 2017.
CONCLUSION:
Staff recommends that the Town Council Authorize the Town Manager to execute a
subordination agreement with River City Bank in conjunction with the Credit Agreement to
provide financing for the Silicon Valley Clean Energy (SVCE) Authority.
COORDINATION:
This report has been coordinated with the Town Attorney and the Finance Department.
FISCAL IMPACT:
There is no fiscal impact as a result of this action.
Attachment:
1. Subordination Agreement
SUBORDINATION AGREEMENT
River City Bank (the “Lender”) and the other parties signatories hereto (each, a
“Subordinated Creditor” and collectively, the “Subordinated Creditors”), agree, effective
November 15, 2016, as follows:
Section 1. Background and Purpose.
1.1 The Lender is making loans to Silicon Valley Clean Energy Authority, a
public agency formed under the provisions of the Joint Exercise of Powers Act of the State of
California, Government Code Section 6500 et. seq. (the “Obligor”), pursuant to that certain
Credit Agreement dated as of the date hereof (as modified, amended, restated or replaced from
time to time, the “Senior Loan Agreement”). The loans are evidenced by a Non-Revolving
Promissory Note in the original principal balance of $2,000,000 (“Non-Revolving Note”) and a
Revolving Credit Promissory Note in the original principal balance of $18,000,000 (together
with the Non-Revolving Note, the “Senior Notes”). The Obligor is currently indebted to the
Subordinated Creditors as set forth on Exhibit A attached hereto and incorporated herein (as the
same may be amended, modified or refinanced, “Subordinated Debt”). The Lender and the
Subordinated Creditors desire to enter into this Agreement to effectuate the subordination of the
Subordinated Debt to the Senior Debt (as defined below). Capitalized terms used, but not
otherwise defined, in this Subordination Agreement shall have the meanings ascribed to them in
the Senior Loan Agreement.
Section 2. Subordination.
2.1 Each Subordinated Creditor hereby irrevocably subordinates, in
accordance with the terms hereof, the payment and performance of the Subordinated Debt by the
Obligor to it, to the prior payment and performance in full of all of the obligations specified in
the Senior Loan Agreement and the Senior Notes (collectively, the “Senior Debt”). Each
Subordinated Creditor acknowledges that it has been represented by counsel in connection with
the transactions that are the subject of this Subordination Agreement. This Subordination
Agreement shall be effective as to a Subordinated Creditor when such Subordinated Creditor
signs this Subordination Agreement and execution by all Subordinated Creditors is not a
condition to such effectiveness.
2.2 Under no circumstances will the Senior Debt be deemed to have been paid
in full unless and until such time as, and when used in this Subordination Agreement with
respect to the Senior Debt, the words “paid in full,” “payment in full,” and similar phrases shall
mean that, the Lender has received payment, in immediately available funds, of 100% of all
outstanding Senior Debt, and all of the Lender’s obligations to extend credit under the Senior
Loan Agreement have terminated.
ATTACHMENT 1
2.3 The Subordinated Debt is subordinated in right of payment to the Senior
Debt in accordance with this Agreement. Each Subordinated Creditor agrees to make
appropriate entries in its books and records and stamp all Subordinated Debt documents
evidencing the Subordinated Debt with the following legend:
“The indebtedness evidenced by this instrument is subordinated to the prior
payment in full of the Senior Debt (as defined in the Subordination Agreement
hereinafter referred to) pursuant to, and to the extent provided in, the
Subordination Agreement effective as of November 15, 2016 by the maker hereof
and payee named herein in favor of River City Bank.”
Section 3. Payments.
3.1 Until the payment in full of the Senior Debt, without the prior written
consent of the Lender (which consent the Lender may refuse to give for any or no reason), under
no circumstances will any Subordinated Creditor, directly or indirectly, take any action to
enforce payment of or to collect the whole or any part of the Subordinated Debt or enforce any of
the rights and remedies available to the Subordinated Creditor, other than in the manner and to
the extent permitted by Section 4 hereof, or ask, demand, take or receive any collateral,
mortgages or other security from the Obligor in respect of the Subordinated Debt. Any amou nts
paid by the Obligor to a Subordinated Creditor in violation of the terms of this Subordination
Agreement shall be held by such Subordinated Creditor in trust and promptly paid over to the
Lender for application to the Senior Debt in accordance with the Senior Loan Agreement.
3.2 Notwithstanding anything to the contrary contained in this Subordination
Agreement, each Subordinated Creditor agrees that it will not, without the Lender’s prior written
consent (which the Lender may refuse to give for any or no reason), directly or indirectly permit
the modification or amendment of any of the terms or provisions, as they exist on the date
hereof, of the note reflecting the Subordinated Debt (“Subordinated Note”), to the extent that any
such modification or amendment would (a) result in any increase in the amount of the
Subordinated Debt, (b) increase the amount, or accelerate the due date, of any payment or
distribution in respect of the Subordinated Debt.
Section 4. Allowable Payments.
4.1 Subject to other applicable provisions of this Subordination Agreement,
including, without limitation, those contained in Section 5 hereof, without the Lender’s prior
written consent, the Obligor may not make, and a Subordinated Creditor may not accept from the
Obligor, any payment in respect of the Subordinated Debt.
4.2 Notwithstanding anything to the contrary in this Subordination
Agreement, the Obligor may set-off against amounts payable in respect of Subordinated Debt
under the circumstances set forth or referenced in any documentation of such Subordinated Debt.
Section 5. Readjustment. Each Subordinated Creditor further agrees that, upon any
distribution of the assets or readjustment of the indebtedness of the Obligor, whether by reason
of liquidation, composition, bankruptcy, arrangement, receivership, assignment for the benefit of
creditors, or any other action or proceeding involving the readjustment of all or any of the
Subordinated Debt, or the application of the property of the Obligor to the payment or liquidation
thereof, the Lender, in any such instance, shall be entitled to receive payment in full of the Senior
Debt prior to the payment of all or any part of the Subordinated Debt.
Section 6. Bankruptcy Issues. To the extent that the Obligor makes a payment to the
Lender, which payment(s) (or any part thereof) subsequently are voided, invalidated, declared to
be fraudulent or preferential, set aside, or required to be repaid to a trustee, receiver, or any other
person or entity pursuant to Chapter 11 of Title 11 of the United States Code (11 U.S.C. § 101 et
seq.) (the “Bankruptcy Code”), any other bankruptcy act, state or federal law, common law or
equitable cause (“Insolvency Law”), then, to the extent any such payment(s) or proceeds are
repaid by the Lender, the Senior Debt (or the part that was intended to be satisfied) will be
revived for all purposes of this Subordination Agreement and will continue in full force and
effect, as if such payment or proceeds had not been received by the Lender.
Section 7. Waivers. Each Subordinated Creditor hereby waives until the Senior Debt
is paid in full any and all rights at law or in equity to subrogation, reimbursement or set off or
any other rights which such Subordinated Creditor may have or hereafter acquire against the
Obligor in connection with or as a result of such Subordinated Creditor’s execution, delivery
and/or performance of this Subordination Agreement.
Section 8. Attorney-In-Fact. Each Subordinated Creditor irrevocably appoints the
Lender as its attorney-in-fact, with full power of substitution, in either the Lender’s name or such
Subordinated Creditor’s name, to do the following (but the Lender shall have no obligation to do
so): (a) endorse and collect all checks, drafts, other payment orders and instruments representing
or included in, any payment, dividend or distribution relating to, the Subordinated Debt or any
Collateral securing the Subordinated Debt; (b) take any action to enforce, collect or compromise
any of the Subordinated Debt; (c) exercise any other right, remedy, privilege or option of such
Subordinated Creditor pertaining to any Subordinated Debt or Subordinated Debt documents;
(d) take any actions or institute any proceedings that the Lender determines to be necessary or
appropriate to collect or preserve the Subordinated Debt or any Collateral for the Subordinated
Debt; (e) execute in the name of or otherwise authenticate on behalf of such Subordinated
Creditor any record reasonably believed necessary or appropriate by the Lender for compliance
with laws, rules or regulations applicable to any Subordinated Debt or any Collateral for the
Subordinated Debt, or in connection with exercising the Lender’s rights under this Agreement;
and (f) execute and file claims, proofs of claim or other documents, and to take any other action
regarding all or any part of the Subordinated Debt necessary or appropriate to insure payment to
and receipt by the Lender of all payments, dividends and other distributions on account of the
Subordinated Debt, instruments evidencing the Subordinated Debt, or any Collateral for the
Subordinated Debt. This appointment is irrevocable and coupled with an interest and shall
survive the dissolution or disability of such Subordinated Creditor. Notwithstanding the
foregoing, the Lender shall not be liable to any Subordinated Creditor for any failure (i) to prove
the existence, amount, or circumstances of the Subordinated Debt; (ii) to exercise any right
related to the Subordinated Debt; or (iii) to collect any sums payable on or distributions
attributable to, the Subordinated Debt.
Section 9. Representations and Warranties. Each Subordinated Creditor represents
and warrants to the Lender as follows: (a) the execution, delivery and performance of this
Agreement and each of the Subordinated Debt documents now outstanding (true and complete
copies of which have been furnished to the Lender) have been duly authorized by all necessary
action, are within the power and authority of the Subordinated Creditor and do not and wi ll not
(i) contravene the articles, charter, bylaws, partnership agreement, operating agreement,
regulations or other organic documents, if any, establishing or governing such Subordinated
Creditor, any applicable law or governmental regulation or any contractual restriction binding on
or affecting such Subordinated Creditor or any of their respective properties, (ii) result in or
require the creation of any lien upon or with respect to any of such Subordinated Creditor’s
properties or (iii) violate the rights of any person or entity; (b) this Agreement and each of the
Subordinated Debt documents are legal, valid and binding obligations of such Subordinated
Creditor, enforceable against such Subordinated Creditor in accordance with their respective
terms except as limited by bankruptcy, insolvency or other laws of general application relating to
the enforcement of creditors’ rights and by general equitable principles; (c) there exists no
default, event of default, or event which with the passage of time, the giving of notice or both
may result in a default or event of default under the Subordinated Debt or any Subordinated Debt
documents or any event or occurrence that gives a Subordinated Creditor the right to terminate a
commitment, refuse to make an advance, accelerate a maturity with or without notice or the
passage of time; and (d) if such Subordinated Creditor is an entity, that entity is and will remain
duly organized, validly existing and in good standing under the laws of the jurisdiction of its
incorporation, organization or formation and in good standing in the jurisdictions in which it is
doing business. Each Subordinated Creditor further represents and warrants to the Lender as
follows: (A) such Subordinated Creditor owns and holds the Subordinated Debt now
outstanding free and clear of any lien that has not been disclosed in writing by such Subordinated
Creditor to the Lender; (B) such Subordinated Creditor is now solvent, the execution, delivery
and performance of this Agreement will benefit such Subordinated Creditor directly or indirectly
and such Subordinated Creditor has and will receive fair and reasonably equivalent value for the
obligations undertaken in this Agreement; (C) such Subordinated Creditor has (1) without
reliance on the Lender or any information received from the Lender and based upon the
documents and information such Subordinated Creditor deems appropriate, made an independent
investigation of the transactions contemplated by this Agreement and the Borrower, the
Borrower’s business, assets, operations, prospects and condition, financial or otherwise, and any
circumstances that may bear upon those transactions, the Borrower or the obligations and risks
undertaken in this Agreement with respect to the Senior Debt; (2) adequate means to obtain from
the Borrower on a continuing basis information concerning the Senior Debt and the Lender has
no duty to provide to such Subordinated Creditor any information; (3) full and complete access
by and through the Borrower to the Lender’s loan documents; (4) not relied and will not rely
upon any representations or warranties of the Lender not embodied in this Agreement or any acts
taken by the Lender (including but not limited to any review by the Lender of the affairs of the
Borrower) prior to or after the date of this Agreement; (D) such Subordinated Creditor is the sole
holder of the Subordinated Debt with full power to make the subordinations set forth in this
Agreement; and (E) such Subordinated Creditor has not made or permitted any assignment or
transfer, as security or otherwise, of the Subordinated Debt, any Subordinated Debt documents or
of any of the Collateral securing the Subordinated Debt, and such Subordinated Creditor shall
not do so except in favor of the Lender as long as this Agreement remains in effect.
Section 10. Successors and Assigns. This Subordination Agreement immediately
shall be binding on each Subordinated Creditor and on its heirs, representatives and assigns, and
shall inure to the benefit of the Lender and its successors and assigns. Whenever reference is
made in this Subordination Agreement to the Obligor, such term shall include any successor or
assign of the Obligor, including, without limitation, a receiver, trustee, or debtor or debtor -in-
possession under the Bankruptcy Code.
Section 11. Notices. Any notice required or permitted hereunder shall be given in
writing by personal delivery, by overnight delivery through a recognized courier service, by
certified U.S. mail, or by telecopier (fax) (i) as to a Subordinated Creditor, by giving such notice
to such Subordinated Creditor at the address set forth below such Subordinated Creditor’s
signature hereon, and (ii) as to the Lender, by giving such notice to the Lender at the address set
forth below its signature hereon. All such notices shall be deemed to have been received on the
date given, except that any such notice given by overnight delivery will be deemed to have been
received on the next business day after such notice was delivered to such a carrier for delivery,
and any such notice given by certified U.S. mail will be deemed to have been received three days
after such notice was deposited in the U.S. mails, postage prepaid.
Section 12. Governing Law. THIS SUBORDINATION AGREEMENT SHALL BE
GOVERNED BY CALIFORNIA LAW (WITHOUT REGARD TO ANY JURISDICTION’S
CONFLICT OF LAWS PRINCIPLES). EACH SUBORDINATED CREDITOR AND THE
LENDER EACH WAIVES TRIAL BY JURY WITH RESPECT TO ANY ACTION, CLAIM,
SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS SUBORDINAT ION
AGREEMENT. This is a “Subordination Agreement” within the meaning of Section 510(a) of
the Bankruptcy Code and shall be interpreted and construed accordingly in any proceeding under
the Bankruptcy Code.
Section 13. Counterparts. This Agreement may be executed in any number of
counterparts with the same effect as if the parties had all signed the same document. All
counterparts shall be construed together and shall constitute one agreement.
[Remainder of this Page Intentionally Left Blank]
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SIGNATURE PAGE TO
SUBORDINATION AGREEMENT
IN WITNESS WHEREOF, the undersigned has caused this Subordination Agreement to
be executed as of the Effective Date.
City of Campbell
By:
Name:
Title:
Address for notice and service of process:
City of Cupertino
By:
Name:
Title:
Address for notice and service of process:
City of Gilroy
By:
Name:
Title:
Address for notice and service of process:
(Signature Blocks Continue on Following Pages)
{2149277.DOCX;4}
SIGNATURE PAGE TO
SUBORDINATION AGREEMENT
City of Los Altos
By:
Name:
Title:
Address for notice and service of process:
Town of Los Altos Hills
By:
Name:
Title:
Address for notice and service of process:
Town of Los Gatos
By:
Name:
Title:
Address for notice and service of process:
(Signature Blocks Continue on Following Pages)
{2149277.DOCX;4}
SIGNATURE PAGE TO
SUBORDINATION AGREEMENT
City of Monte Sereno
By:
Name:
Title:
Address for notice and service of process:
City of Morgan Hill
By:
Name:
Title:
Address for notice and service of process:
City of Mountain View
By:
Name:
Title:
Address for notice and service of process:
(Signature Blocks Continue on Following Pages)
{2149277.DOCX;4}
SIGNATURE PAGE TO
SUBORDINATION AGREEMENT
County of Santa Clara (Unincorporated Area)
By:
Name:
Title:
Address for notice and service of process:
City of Saratoga
By:
Name:
Title:
Address for notice and service of process:
City of Sunnyvale
By:
Name:
Title:
Address for notice and service of process:
(Signature Blocks Continue on Following Page)
{2149277.DOCX;4}
SIGNATURE PAGE TO
SUBORDINATION AGREEMENT
RIVER CITY BANK, as Lender
By:
Name:
Title:
Address for notice and service of process:
River City Bank
2485 Natomas Park Drive, Suite 100
Sacramento, CA 95833
Attention:
Fax: (916)
{2149277.DOCX;4}
Exhibit A
Lender Total Amount
City of Campbell $ 100,000
City of Cupertino $ 520,000
City of Gilroy $ 100,000
City of Los Altos $ 100,000
Town of Los Altos Hills $ 25,000
Town of Los Gatos $ 100,000
City of Monte Sereno $ 25,000
City of Morgan Hill $ 100,000
City of Mountain View $ 520,000
County of Santa Clara (Unincorporated Area) $ 520,000
City of Saratoga $ 100,000
City of Sunnyvale $ 520,000
Total $2,730,000
{2149277.DOCX;4}
ACKNOWLEDGMENT
Silicon Valley Clean Energy Authority, a public agency formed under the provisions of
the Joint Exercise of Powers Act of the State of California, Government Code Section 6500 et.
seq. (the “Company”), acknowledges receipt of a copy of the Subordination Agreement by and
between River City Bank (the “Lender”), and the cities, towns and counties parties thereto (each
a “Subordinated Creditor”), dated as of November ____, 2016 (as amended from time to time,
the “Subordination Agreement”), and agrees that: (a) it will not: (i) except to the extent
permitted by the Subordination Agreement, pay any of the Subordinated Debt until the p ayment
in full of the Senior Debt, (ii) provide any security or collateral for any of Subordinated Debt
until the payment in full of the Senior Debt, or (iii) take or omit from taking any action that
would cause a breach of the Subordination Agreement; (b) neither the Company nor any of its
successors or assignees, by operation of law or otherwise, is a party to the Subordination
Agreement, and neither the Company nor any of its successors or assignees will have: (i) any
right in, or to enforcement of, the Subordination Agreement as against the Lender or a
Subordinated Creditor, (ii) any claim of damage if the Lender or a Subordinated Creditor
defaults under the Subordination Agreement, or (iii) any right to object to any amendment,
modification, or supplement to, or any restatement or replacement of, the Subordination
Agreement that is agreed upon by a Subordinated Creditor and the Lender; and (c) none of the
provisions of the Subordination Agreement limit or impair the Lender’s rights against the
Company or its successors and assigns or any of their respective obligations, indebtedness, or
liabilities to the Lender under the Senior Loan Agreement, any related documents, or otherwise.
All capitalized terms used in this Acknowledgment that are defined in the Subordination
Agreement and not otherwise defined in this Acknowledgment have the meanings specified in
the Subordination Agreement.
IN WITNESS WHEREOF, the Company has executed and delivered this
Acknowledgement to the Lender as of the Effective Date.
Silicon Valley Clean Energy Authority
By:
Name:
Title: