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(2) Debt Service Reserve Account. The <br /> City shall deposit, if necessary, as a reserve <br /> for the Bonds into the Debt Service Reserve <br /> Account hereby created and established (the <br /> "Debt Service Reserve Account") either <br /> revenues of the Waterworks on a monthly basis <br /> or funds of the Waterworks now on hand so that <br /> the reserve equals the reserve requirement for <br /> the Bonds (the "Reserve Requirement") . The <br /> Reserve Requirement for the Bonds shall be <br /> equal to the lesser of (i) the maximum annual <br /> debt service on the Bonds, or (ii) one hundred <br /> twenty-five percent (125%) of the average <br /> annual principal and interest payable on the <br /> Bonds, or (iii) ten percent (10%) of the <br /> proceeds of the Bonds (plus a "minor portion" <br /> thereof defined and permitted pursuant to the <br /> Internal Revenue Code of 1986 as amended and <br /> as in effect on the date of delivery of the <br /> Bonds (the "Code") ) . If the City deposits <br /> revenues into the Debt Service Reserve Account <br /> on a monthly basis, the amount of the monthly <br /> deposit shall be sufficient to accumulate the <br /> Reserve Requirement within five (5) years from <br /> the date of delivery of the Bonds. The Debt <br /> Service Reserve Account shall constitute the <br /> margin for safety and as protection against <br /> default in the payment of principal of and <br /> interest on the Bonds and the moneys in the <br /> Reserve Account shall be used to pay current <br /> principal and interest on the Bonds to the <br /> extent that moneys in the Bond and Interest <br /> Account are insufficient for that purpose. <br /> Any deficiency in the balance maintained in <br /> the Debt Service Reserve Account shall be <br /> promptly made up from the next available Net <br /> Revenues remaining after credits into the Bond <br /> and Interest Account. In the event moneys in <br /> the Debt Service Reserve Account are <br /> transferred to the Bond and Interest Account <br /> to pay principal and interest on the Bonds, <br /> then such depletion of the balance in the Debt <br /> Service Reserve Account shall be made up from <br /> the next available Net Revenues after the <br /> credits into the Bond and Interest Account <br /> hereinabove provided for. Any moneys in the <br /> Debt Service Reserve Account in excess of the <br /> Reserve Requirement may be used for the <br /> prepayment of installments of principal on the <br /> then outstanding Bonds which are then callable <br /> or prepayable, or for the purchase of <br /> outstanding Bonds or installments of principal <br /> 15 <br />