Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 Page 11 Page 12 Page 13 Page 14 Page 15 Page 16 Page 17 Page 18 Page 19 Page 20 Page 21 Page 22 Page 23 Page 24 Page 25 Page 26 Page 27 Page 28 Page 29 Page 30 Page 31 Page 32 Page 33 Page 34 Page 35 Page 36 Page 37 Page 38 Page 39 Page 40 Page 41 Page 42 Page 43 Page 44 Page 45 Page 46 Page 47 Page 48 Page 49 Page 50 Page 51 Page 52 Page 53 Page 54 Page 55 Page 56 Page 57 Page 58 Page 59 Page 60 Page 61 Page 62 Page 63 Page 64 Page 65 Page 66 Page 67 Page 68 Page 69 Page 70 Page 71 Page 72 Page 73 Page 74 Page 75 Page 76 Page 77 Page 78 Page 79 Page 80 Page 81 Page 82 Page 83 Page 84 Page 85 Page 86 Page 87 Page 88 Page 89 Page 90Seattle City Light 2015 Annual Report THE CITY OF SEATTLE—CITY LIGHT DEPARTMENT NOTES TO FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 - 42 - For the Parity Bonds issued prior to 2011, Reserve Fund Requirement means, at any time, the lesser of (i) the maximum Annual Debt Service on all Parity Bonds then outstanding and (ii) the maximum amount permitted by the Code as a “reasonably required reserve or replacement fund.” Thereafter, the definition of Reserve Fund Requirement was amended to mean, for any issue of Parity Bonds, the Reserve Fund Requirement established in the authorizing resolution approving that issue. The Reserve Fund Requirement for the 2011 Bonds and 2012 Bonds was established as the lesser of (i) the 2011 Bonds’ and 2012 Bonds’ proportionate share of the maximum Annual Debt Service on all Parity Bonds outstanding at the time of issuance, and (ii) the maximum amount permitted by the Code as a “reasonably required reserve or replacement fund.” The Reserve Fund Requirement for the 2013 Bonds, the 2014 Bonds, and the 2015A Bonds was established as the additional amount necessary at the time of issuance to achieve an overall Reserve Fund Requirement for all outstanding Parity Bonds and the Parity Bonds then being issued equal to the maximum amount permitted by the Code as a “reasonably required reserve or replacement fund.” The bond legislation has established the Reserve Fund Requirement for the 2015B Bonds as zero. For any issue of future parity bonds, the “Reserve Fund Requirement” will mean the Reserve Fund Requirement specified for that issue in the legislation authorizing such bonds. The aggregate Reserve Fund Requirement for all Parity Bonds outstanding, which is the sum of the Reserve Fund Requirements for each issue of Parity Bonds outstanding, including the 2015 Bonds, is $120.0 million. The maximum annual debt service on prior lien bonds is $202.8 million due in 2016 and the average annual debt service was $112.7 million at issuance of the 2015B Bonds. Under the bond legislation, the Department is permitted to provide for the Reserve Fund Requirement with a surety bond or letter of credit consistent with the Bond Legislation requirements. The Department currently has a surety bond authorized under previous bond legislation (the “Surety Bond”) purchased from Financial Security Assurance, Inc. (“FSA”) in the amount of $77.1 million, expiring on August 1, 2029, providing the majority of the Reserve Fund Requirement. Upon issuance of the 2015B Bonds, there was a cash balance of $63.4 million in the Reserve Fund, which, together with the Surety Bond, fully satisfies the Reserve Fund Requirement for the Outstanding Parity Bonds and the Bonds. In addition, the Department deposited $20.5 million in the Reserve Fund that is expected to be used toward the eventual replacement of the Surety Bond upon its expiration. The Reserve Fund balance was $73.7 million and $47.9 million at December 31, 2015 and 2014, respectively. FSA was acquired by Assured Guaranty Corporation in 2009. In 2009, Assured Guaranty Corporation changed the name of its FSA subsidiary to Assured Guaranty Municipal Corporation (“AGM”). AGM is currently rated A2 and AA by Moody’s Investors Service and Standard & Poor’s Ratings Services, Inc., respectively. The bond legislation does not require that the Reserve Fund be funded with cash or a substitute surety bond or letter of credit if the provider of qualified insurance is downgraded. Under the bond legislation, a surety bond qualifies as Qualified Insurance for purposes of satisfying the Reserve Fund Requirement if the provider’s ratings are in one of the top two rating categories at the time the policy is issued. There were no bonds advance refunded or defeased in 2015. A portion of the 2014 Bonds proceeds were placed in a separate irrevocable trust account to provide for all future debt service payments on certain 2004 prior lien bonds that were defeased. All funds in irrevocable trust accounts from prior years were fully drawn to pay for debt service on certain advance refunded bonds prior to 2015. Therefore, there was no outstanding principal balance of defeased bonds and there were no irrevocable trust account assets as of December 31, 2015 and 2014. 42