Seattle City Light 2016 ANNUAL REPORT | Audited Financial Statements 48 THE CITY OF SEATTLE—CITY LIGHT DEPARTMENT NOTES TO FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 - 48 - approving the sale of that issue. Solely for purposes of setting the Reserve Fund Requirement, all series issued together under a single bond sale resolution are treated as a single “issue.” The Bond Resolution for the 2016C Bonds establishes the Reserve Fund Requirement for the 2016C Bonds as an amount equal to the additional amount necessary at the time of issuance to achieve an overall level of funding for the Reserve Fund that is equal to the maximum amount permitted by the Code as a “reasonably required reserve or replacement fund.” Until the expiration of the Surety Bond in 2029 (See “Method of Satisfying Reserve Fund Requirement”) unless earlier terminated, this amount is calculated based on the debt service requirements for all Parity Bonds that are outstanding as of the Issue Date, excluding refunded bonds. Upon the expiration or termination of the Surety Bond, this amount will be recalculated to exclude the debt service requirements of the outstanding 2015B Bonds, a multimodal variable rate bond issue, and any other issue of Future Parity Bonds that are excluded pursuant to the legislation authorizing such Future Parity Bonds. Upon the issuance of the 2016C Bonds, the aggregate Reserve Fund Requirement for all Parity Bonds outstanding was $127.3 million. Upon the expiration or termination of the Surety Bond, the Reserve Requirement for the 2015B Bonds will be reduced to zero resulting in a reduction in the aggregate Reserve Fund Requirement. Method of Satisfying Reserve Fund Requirement - The Bond Ordinance permits the Department to select the method of funding the Reserve Fund Requirement for each issue of the 2016C Bonds and for Future Parity Bonds in the applicable bond sale resolution from among the following methods: (i) depositing an amount equal to the Reserve Fund Requirement for that issue of Future Parity Bonds into the Reserve Fund out of Gross Revenues (or out of any other legally available funds, including proceeds of such Future Parity Bonds) at one time on the Issue Date, (ii) making periodic payments so that by five years from the date of such Future Parity Bonds, there will have been paid into the Reserve Fund an amount which, together with the money already on deposit therein, will be at least equal to the Reserve Fund Requirement for all Parity Bonds outstanding at the end of that five-year period, or (iii) by obtaining one or more Alternate Reserve Securities for specific amounts required to be paid into the Reserve Fund. With respect to the 2016C Bonds, the Bond Resolution provides that the Department will pay into the Reserve Fund out of Gross Revenues on the Issue Date such sums as will, together with money currently in the Reserve Fund, provide for the Reserve Fund Requirement for the 2016C Bonds. The Reserve Fund Requirement for the 2016C Bonds were satisfied by the amounts already on deposit and no additional deposit to the Reserve Fund was required as a result of the issuance of the 2016C Bonds. Upon issuance of the 2016C Bonds, there was a cash balance of $76.7 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. The Department also held approximately $24.1 million in the Reserve Fund at issuance of the 2016C Bonds that is intended to be used to satisfy the Reserve Fund Requirement upon the expiration or termination of the Surety Bond. An additional deposit of $10.0 million was made to the Reserve Fund from operating cash for this purpose. Surety Bond - Under the Bond Legislation, the City is permitted to provide for the Reserve Fund Requirement with an Alternate Reserve Security consistent with the Bond Legislation requirements. 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. The Bond Legislation does not require that the Reserve Fund be funded with cash or an Alternate Reserve Security if the provider of qualified insurance is subsequently downgraded.