340-054-0066 Clean Water State Revolving Fund Loans to CDFI Borrowers: Loan Conditions and Agreements, Terms, and Interest Rates (1) The CWSRF loan to a CDFI Borrower may only be used to finance projects to (i) repair or replace failing on-site septic systems or (ii) replace failing on-site septic systems with connections to an available sewer. (2) A CWSRF loan to a CDFI Borrower must be secured by one or a combination of the following, as determined to be appropriate by DEQ, and incorporated in the loan agreement: (a) The CDFI Borrower’s pledge of available net assets, (b) A security interest in the CWSRF sub-loan portfolio, including the revenues, income and proceeds of the portfolio; (c) A security interest in a deposit account, or (d) Other obligations acceptable to DEQ. (3) A CWSRF loan agreement with a CDFI Borrower must be: (a) Properly executed. (b) Include a covenant that requires the CDFI Borrower to maintain minimum cash flow sufficient to pay: (A) All expenses of operating and maintaining the sub-loan portfolio project; (B) All debt service on the CWSRF loan; (C) All other financial obligations including, but not limited to, contributions to reserve accounts imposed in connection with prior lien obligations; and (c) Include a provision requiring the CDFI Borrower to maintain a pledged debt service reserve account dedicated to the CWSRF that meets the following requirements: (A) The debt service reserve must be maintained in an amount equal to the lesser of: (i) 10 percent of the loan principal balance, or (ii) one year’s debt service payments. (B) A debt service reserve may be funded with the CDFI Borrower’s cash, a letter of credit, repayment guaranty or other third party commitment that is satisfactory to DEQ. (d) Maintain a loan loss reserve account at a level appropriate to the CDFI Borrower risk profile and the sub-loan portfolio and that is acceptable to DEQ. (e) Include a provision requiring the CDFI Borrower to maintain an Aeris Insight, Inc. rating score of A or better. If Aeris Insight, Inc. is no longer providing ratings, include a provision requiring a risk management and credit rating score determined to be sufficient solely at the discretion of DEQ. (f) If the CDFI Borrower cannot maintain a risk management and credit rating score determined to be sufficient by DEQ, DEQ may require the CDFI Borrower to have a higher debt service coverage ratio, a higher debt service reserve, or may take a first priority security interest in the CDFI Borrower’s sub-loan portfolio or any combination of these debt securities. (g) Include a requirement for the CDFI Borrower to conduct an annual review to ensure revenues in subsequent years will be sufficient to service the loan. (h) Include a requirement that if either the debt service reserve account or the loan loss reserve account is depleted below the required level for any reason, the CDFI Borrower must take prompt action to restore the reserve(s) to the required minimum amount. (i) Prohibit the CDFI Borrower from selling, transferring, or encumbering any asset acquired or established with the proceeds of the CDFI loan without the express written consent of DEQ. (4) A CWSRF loan to a CDFI Borrower will be active and available for loan disbursements for 12 months after the loan is fully executed. (a) After the 12 month period has ended, no further disbursements will be allowed on the loan unless an extension is granted in writing by DEQ. If necessary, the final loan amount and corresponding terms in the loan agreement will be amended to reflect the total amount disbursed during the project period. (b) A repayment schedule will be calculated to begin no later than 12 months after the project period concludes. (5) Limits for CWSRF Loans to CDFI Borrowers. There is an annual loan amount limit of $2 million for any single CDFI Borrower and any single loan. There is an annual limit in the amount of $10 million in new CWSRF Loans to CDFI Borrowers in the aggregate. (6) Interest rates for CWSRF loans to CDFI Borrowers. (a) Base rate. DEQ will develop a base rate calculated on the weekly average of prime interest rates for the preceding quarter. (b) The interest rate for a CDFI loan will be equal to 50 percent of the base rate. (c) Interest rates on a CDFI’s sub-loans shall not exceed the weekly average of prime interest rates for the preceding quarter plus one percent. (7) Interest accrual and payment period for CWSRF loans to CDFI Borrowers. Interest begins accruing when DEQ makes the first CWSRF loan disbursement to a CDFI Borrower. A CDFI Borrower must include all outstanding accrued interest with each loan repayment. (8) Annual loan fee for CWSRF Loans to CDFI Borrowers. A CDFI Borrower must pay DEQ an annual loan fee of 0.5 percent on the unpaid loan balance specified in the repayment schedule in its loan agreement. This annual loan fee is in addition to any other payments a CDFI Borrower is required to make under its loan agreement. (9) Commencement of loan repayment for CWSRF Loans to CDFI Borrowers. A CDFI Borrower must begin its loan principal and interest repayments within one year of the date of a fully disbursed loan or when DEQ determines that the project period has ended. (10) Loan term for CWSRF Loans to CDFI Borrowers. (a) A CDFI Borrower must fully repay a loan under a repayment schedule DEQ determines. DEQ will consider the useful life of the assets financed when determining the repayment schedule. The repayment term for a CWSRF loan to a CDFI Borrower may not exceed twenty years. (b) DEQ will allow prepayments without penalty on all CWSRF loans. CDFI Borrowers must provide a written prepayment notification at least 30 days before the estimated pay off date. (c) The CWSRF loan must be fully amortized with equal installment payments by the maturity date of the loan. (11) Minor variations in loan terms for CWSRF Loans to CDFI Borrowers. DEQ may authorize minor variations in financial terms of loans described in this rule to facilitate administration and repayment of a loan. (12) Principal forgiveness for CWSRF Loans to CDFI Borrowers. DEQ may provide additional subsidization in the form of principal forgiveness, to the extent the federal capitalization grant and federal regulations allow, and as the criteria established in this section provide. A CWSRF loan to a CDFI Borrower with additional subsidization is subject to standard interest rates, fees, and other loan terms as defined in this rule. (a) Eligibility. DEQ may provide additional subsidization in the form of principal forgiveness to a CDFI Borrower to the extent that the CDFI Borrower uses proceeds from the CDFI loan to fund sub-loans to sub-borrowers that have a household income at or below 75 percent of the US Census median household income in Oregon, as specified below. (b) Principal Forgiveness Amounts. In no event will the amount of principal forgiveness to a CDFI exceed $500,000 or 50 percent of the CWSRF loan amount. (A) For CWSRF loan proceeds used by a CDFI Borrower to make a sub-loan to a sub-borrower with an annual household income at or below 50 percent of the US Census median household income in Oregon, the CDFI Borrower may receive principal forgiveness of up to 50 percent of such proceeds . (B) For CWSRF loan proceeds used by a CDFI Borrower to make a sub-loan to a sub-borrower with an annual household income at or below 75 percent of the US Census median household income in Oregon, but above 50 percent, the CDFI Borrower may receive principal forgiveness of up to 25 percent of such proceeds. (c) A CDFI Borrower may receive only one principal forgiveness award per project period. (d) A CDFI Borrower must pass through 100 percent of the CWSRF principal forgiveness award to its sub-borrowers in the form of sub-loan principal forgiveness. (13) Sub-loan repayments for CWSRF loans to CDFI Borrowers. The use of principal, interest, and fees paid by sub-borrowers to the CDFI must be restricted to: (a) Costs associated with servicing the sub-loans. (b) The CDFI’s septic loan fund to be loaned again for the same purpose. (14) Debarment and suspension of CDFI Borrowers. A CDFI Borrower must comply with Subpart C of 2 C.F.R. part 180, Responsibilities of Participants Regarding Transactions Doing Business with Other Persons and Subpart C of 2 C.F.R. part 1532, Responsibilities of Participants Regarding Transactions. (15) CDFI Borrowers must submit to DEQ verification that plans and specifications, operating and maintenance requirements, inspection and certification of proper construction and performance, and any other applicable documentation required under OAR chapter 340, division 071 and division 073 to qualify for CWSRF loan disbursements. (16) Audit. If DEQ requests it, a CDFI Borrower must submit audited financial statements to DEQ each year until the loan is repaid. (17) Default remedies. A loan agreement must provide adequate remedies for DEQ to enforce the agreement’s terms. Upon default by a CDFI Borrower, DEQ may proceed with one or more of the following: (a) Pursuing any remedy available to it against the CDFI Borrower. (b) Exercising its right to collect and liquidate collateral, including proceeds of collateral, pledged as security for the loan. (c) Withholding any amounts otherwise due to the CDFI Borrower from the State of Oregon and directing such funds be applied to the debt service and fees due on the CWSRF loan. If DEQ finds the loan to the CDFI Borrower is otherwise adequately secured, DEQ may waive this right in the loan agreement or other loan documentation. (d) Declaring all or any part of the indebtedness immediately due and payable. (18) Release. A CDFI Borrower must release and discharge DEQ, its officers, agents and employees from all liabilities, obligations and claims occurring from project work or under the CDFI loan and sub-loan, subject only to exceptions previously agreed upon in a written contract between DEQ and the CDFI Borrower. (19) Reservation of rights. (a) A CDFI Borrower may require such assurances, guarantees, indemnity or other contractual requirements as it deems necessary or prudent from any party performing project work. (b) This rule does not affect DEQ’s right to take remedial action, including, but not limited to, administrative enforcement action and actions for breach of contract against a CDFI Borrower that fails to carry out its obligations under OAR chapter 340, division 71 and 73. (20) Other provisions and documentation for CWSRF loans to CDFI Borrowers. DEQ may include other provisions in a CWSRF loan agreement necessary to meet the federal Clean Water Act and ORS 468.423 to 468.440. DEQ may require documentation including, but not limited to, a legal counsel opinion that the loan agreement is enforceable. Statutory/Other Authority: ORS 468.440 & ORS 468.020 Statutes/Other Implemented: ORS 468.423 – 468.440 History: DEQ 13-2021, renumbered from 340-055-0066, filed 07/26/2021, effective 07/26/2021 DEQ 12-2021, adopt filed 07/26/2021, effective 07/26/2021