A.R.S. tit. 35 ch. 8 — Arizona Revised Statutes Title 35 Chapter 8 — Swap Agreements

35-1001. Definitions In this chapter, unless the context otherwise requires: 1. "Governmental entity" means this state, any county, city, town, municipality or other political subdivision of this state or any department, agency, board, commission, authority, political subdivision, public corporation or other public entity of any of the foregoing or controlled by any of the foregoing, provided that each of the foregoing must comprise a geographical area with a population of at least three hundred thousand persons according to the most recent United States decennial census or special census. 2. "Obligations" means bonds, notes, bond anticipation notes, commercial paper or other evidences of indebtedness or lease, installment purchase or other agreements or purchasing programs or certificates of participation. 3. "Swap agreement" means an agreement, between a governmental entity and a financial institution, including an insurance company, bank indemnity company or a company related to a financial institution, pursuant to which payments are to be made by the governmental entity to the financial institution and are also to be made by the financial institution to the governmental entity, and which is entered into in order to manage interest rate risk, investment risk, or commodity prices or is entered into in connection with carrying or securing of obligations of a governmental entity. 35-1002. Swap agreements; provisions; purposes; credit enhancement A. A governmental entity may enter into, modify, amend and terminate one or more swap agreements that it determines to be necessary or desirable in connection with, or incidental to, the conduct of its activities, including in connection with the issuance, carrying or securing of obligations or the acquisition or carrying of investments. A governmental entity may enter into swap agreements that are to be effective at a future date or that constitute an option to enter into swap agreements. Swap agreements entered into by a governmental entity shall contain such provisions, including payment, term, security, collateralization, termination penalty, default and remedy provisions, and shall be with such parties as the governmental entity determines to be necessary or desirable after due consideration to the creditworthiness of the parties. If the party to the swap agreement that is not the governmental entity is not rated by a nationally recognized rating agency in one of the top two rating categories of the rating agency at the time the swap agreement is entered into, the party shall collateralize its obligations under the swap agreement with securities or cash acceptable to the governmental entity. Swap agreements may be payable from revenues of a utility undertaking, excise taxes, ad valorem taxes, street and highway revenues, monies that may be pledged to pay debt service on any bonds or other long-term obligations relating to the swap agreements, or any other legally available monies, as determined by the governmental entity. B. A governmental entity shall not enter into a swap agreement other than to implement its investment policy or for the purpose of managing an interest rate, commodity price, investment or similar risk that arises in connection with, or incidental to, the activities of the governmental entity. A governmental entity shall not carry on a business of acting as a dealer in swap agreements. C. In connection with entering into any swap agreement a governmental entity may enter into agreements that enhance the governmental entity's credit in the swap agreement or enhance the liquidity of the swap agreement, including a line of credit, letter of credit, insurance policy or other security. 35-1003. Enforceability Absent bad faith or actual knowledge to the contrary, a counterparty that enters into a swap agreement with a governmental entity may rely on a representation by that governmental entity that it is authorized or empowered to enter into the swap agreement. Notwithstanding the failure by that governmental entity to comply with the provisions of this chapter, that counterparty may enforce the swap agreement against the governmental entity. 35-1004. Treatment, calculation and payment of amounts due under swap agreements; exemptions from budget A. A governmental entity may deduct amounts which the governmental entity is to receive pursuant to swap agreements from the amounts due on its bonds or other long-term obligations for the purposes of determining: 1. Whether a governmental entity has satisfied statutory requirements concerning revenue coverage that are applicable to its bonds or other long-term obligations. 2. Whether a governmental entity has satisfied any maximum rate of interest that may be paid on the bonds or other long-term obligations. 3. The amount of taxes, rates or charges to be levied or collected to pay amounts due upon its bonds or other long-term obligations. B. Until payment of all obligations under swap agreements and the expiration of the fiscal year in which swap agreements are paid in full, no amounts collected for the purpose of paying amounts due under the swap agreements shall be subject to the provisions of title 42, chapter 17, article 2. 35-1005. Limitation on effect of chapter For purposes of this chapter, "governmental entity" does not include any agricultural improvement district formed or operating under title 48, chapter 17, and this chapter shall not restrict or modify the powers of an agricultural improvement district to enter into swap agreements and otherwise engage in transactions pertaining to such agreements that such district deems to be advisable for the interest of the district or to carry out or accomplish any of the purposes authorized or permitted by title 48, chapter 17.