§ 41-1-42 — When Governmental Entities Authorized to Enter into Agreements

Alabama § 41-1-42

• Jurisdiction: Alabama
• Title 41: State Government
• Ch. 1: General Provisions
• Art. 3: Swap Agreements

Text

Notwithstanding any other provision of law, governmental entities shall be authorized to enter into swap agreements as follows:
(1) Subject only to subdivision (2) of this section, any governmental entity may enter into one or more swap agreements which the governmental entity determines to be necessary or desirable in connection with, or incidental to, the conduct of its proper activities, including in connection with its acquisition or carrying of investments or the issuance, acquisition, carrying, or securing of its authorized debt instruments, bonds, notes, agreements, or indebtedness. The swap agreements shall be entered into with the financial institution or financial institutions selected by the means, and shall contain the payment, term, security (including the pledge of collateral by the governmental entity), default, remedy, and other terms and conditions, determined to be necessary or desirable by the governmental entity after giving consideration to the creditworthiness of the counterparties, based on criteria the governmental entity may deem appropriate.
(2) No governmental entity shall enter into any swap agreement unless all of the following occur:
a. The governmental entity’s governing body first finds and determines, and certifies to the counterparty, that the swap agreement is entered into for the purpose of hedging against an interest rate, investment, payment, or other similar risk that arises in connection with or incidental to the proper activities of the governmental entity.
b. The swap agreement requires the counterparty to pledge collateral to the governmental entity in the approximate amount estimated at least quarterly, that would be payable by the counterparty to the governmental entity if the counterparty defaulted under the swap agreement on such estimation date. Collateral pledged by the governmental entity hereunder must be (1) obligations eligible for investment of municipal or county funds pursuant to Sections 11-81-19 and 11-81-21, as amended from time to time, or (2) cash in United States dollars. The valuation of collateral and amounts that would be payable under the swap agreement upon default may be determined by averaging bid quotations from two or more recognized dealers or upon any other basis agreed upon by the counterparty and governmental entity.
c. The counterparty has a net worth of at least $100,000,000.00, or the counterparty’s obligations under the swap agreement are guaranteed by a person or entity having a net worth of at least $100,000,000.00.
A counterparty that enters into any swap agreement with a governmental entity may rely on a certification by the governmental entity that the factual matters relating to the governmental entity, and other matters in the certification, are correct. Any inaccuracy of the governmental entity’s certification shall not affect the enforceability of the swap agreement.

Legislative History

(Acts 1992, No. 92-589, p. 1214, §3.)