7260-7275
FINANCIAL CODE
SECTION 7260-7275
7260. Stock of a Federal Reserve bank. 7261. Bonds of the State of California and those for which the faith and credit of the State of California are pledged for the payment of principal and interest, and registered warrants of the State of California. 7262. Bonds of any flood control and water conservation districts, or any zone thereof, having an assessed valuation on taxable real property of not less than one million dollars ($1,000,000), county, city and county, city, metropolitan water district, municipal utility district, any special district established by and within any municipal utility district, transit district, rapid transit district, including sales tax revenue bonds of that district of the State of California (herein referred to generally as public corporations) except the bonds of any particular such public corporation which may be declared ineligible for investment by commercial banks by regulations of the commissioner. 7263. Bonds of any other political subdivision, public corporation, or district of the State of California (herein referred to generally as public corporations) having the power, without limit as to rate or amount, to levy taxes to pay the principal and interest of those bonds upon all property within its boundaries subject to taxation by the public corporation, if the net direct debt of that public corporation together with its net overlapping debt does not exceed 25 percent of the assessed valuation of the taxable property within its boundaries according to the last official equalized county assessment roll. 7264. Bonds or other evidences of indebtedness of, or which are unconditionally guaranteed by the State of Israel, the United States of Mexico, the Commonwealth of Puerto Rico, or any state of the United States other than California, for the payment of both principal and interest of which in United States dollars, the faith and credit of that entity is pledged; in limited obligations; and in the bonds or other evidences of indebtedness of any city, county, political subdivision, public corporation, or district (herein referred to generally as public corporations) of any state of the United States other than California, or of the State of Israel, or of the United States of Mexico, or of the Commonwealth of Puerto Rico, having the power without limit as to rate or amount to levy taxes to pay the principal and interest of those bonds upon all property within its boundaries subject to taxation by that public corporation; subject to the following: (a) In the case of bonds constituting general obligations of any such state, commonwealth, dominion, or country, the state, commonwealth, dominion, or country has not within 10 years prior to that investment defaulted for a period of more than 90 days in the payment of any part of either principal or interest of any of its debts. (b) In the case of limited obligations of any such state or commonwealth, (1) that the state or commonwealth has not within 10 years prior to the date of the investment defaulted for a period of more than 90 days in the payment of either principal or interest of any of its debts; (2) the special taxes pledged for the payment of the limited obligations shall have been collected for five fiscal years next preceding any investment and during the five fiscal years shall have averaged at least 1 1/2 times the debt service requirements, including those for principal, interest, and sinking fund, on all such special obligations existing at the time; and (3) the special taxes for each of those five fiscal years shall have equaled at least the amount of all the debt service requirements on those special obligations. (c) In the case of bonds or other evidences of indebtedness of any public corporation of any state other than California, or of such commonwealth: (1) The public corporation has had a corporate existence or been otherwise established and functioning for at least 10 years prior to the time of the investment. (2) The public corporation has a population of at least 50,000 inhabitants according to the last federal or state census. (3) The public corporation for a period of at least 10 years prior to the investment has not defaulted in the payment of any part of the principal or interest of any of its debts for a period of more than 90 days. (4) The net direct debt together with the net overlapping debt of the public corporation does not exceed 10 percent of the assessed valuation of the property subject to taxation by the public corporation according to the last, official equalized assessment roll or list upon the basis of which taxes for debt service are based. For the purposes of this subdivision: (A) The term "net direct debt" of any public corporation means all indebtedness of every kind after deducting from that indebtedness sinking funds available for the payment thereof, any indebtedness evidenced by tax anticipation notes for the payment of which nondelinquent taxes are pledged, obligations payable only from special assessments, revenue obligations payable only from special revenues pledged for their payment, and the proportion of any indebtedness issued for revenue-producing works, properties, or utilities which have been in operation for at least one year as the amount of the annual net revenue therefrom bears to the amount of the annual debt service requirements of those bonds. (B) The term "net overlapping debt" of any public corporation means that proportion of the net direct debt, as defined, of any other public corporation (herein called overlapping corporation) which lies wholly or partially within the boundaries of the public corporation as the assessed valuation of the taxable property of the overlapping public corporation lying within the boundaries of the public corporation as shown by the last official equalized county assessment roll bears to the assessed valuation of all taxable property of the overlapping public corporation as shown by the last official equalized county assessment roll. 7265. Bonds of any irrigation district, water, storage district, water conservation district, county water district, reclamation district, drainage district, and any district the primary function of which is the irrigation, reclamation, or drainage of land within its boundaries, located in California, other than bonds referred to in Section 7262, subject to any of the following: (a) The bonds qualify under Section 7263. (b) The bonds have been certified as legal securities pursuant to Chapter 1 (commencing with Section 20000) of Division 10 of the Water Code and the certification remains unrevoked. (c) The total outstanding bonded indebtedness of the district, including bonds authorized, but not issued, but excluding bonds payable solely from revenues and not directly or indirectly from assessments, does not exceed 50 percent of the aggregate of the assessed value of the lands, exclusive of improvements, subject to assessment by the district, and the value of the property owned by the district or to be acquired or constructed with the proceeds of the bonds under consideration. 7266. Bonds, consolidated bonds, collateral trust debentures, consolidated debentures, or other obligations issued by federal land banks or federal intermediate credit banks established under the Federal Farm Loan Act, as amended, the Farm Credit Act of 1971, in debentures and consolidated debentures issued by the Central Bank for Cooperatives and banks for cooperatives established under the Farm Credit Act of 1933, as amended, and the Farm Credit Act of 1971, and in stocks, bonds, debentures, participations, and other obligations of, or issued by, the Federal National Mortgage Association, the Student Loan Marketing Association, the Government National Mortgage Association, and the Federal Home Loan Mortgage Corporation. 7267. Bonds, notes, or other obligations issued by the Federal Financing Bank, the United State Postal Service, or issued or assumed by the International Bank for Reconstruction and Development, the Tennessee Valley Authority, the Inter-American Development Bank, the Government Development Bank for Puerto Rico, the Asian Development Bank, or the African Development Bank. 7268. (a) Notes with a maturity not exceeding 15 months after the date of issue, issued in anticipation of uncollected taxes, income, revenue, cash receipts, and other moneys of the State of California or any city, county, city and county, or school district, therefore, provided the notes and warrants and the interest thereon shall be a first lien and charge against, and shall be payable from, the first moneys received by the local agency from the pledged moneys, provided the total amount of the notes issued at any one time or during any specified period does not exceed 85 percent of the receipts or revenues. (b) Grant anticipation notes issued by the agencies and payable not later than 36 months after the date of issue, provided that the total amount of the notes and interest payable thereon issued at any one time or during any specified period does not exceed 80 percent of the grant funds stated in writing by the granting authority as committed, appropriated and shall be paid on a specified date or dates within a 36-month period from the dating of the notes. 7269. In revenue securities of any state of the United States, or of the Commonwealth of Puerto Rico, and of any city, county, city and county, political subdivision, public corporation, or district (herein referred to generally as public corporations) of any such state or commonwealth and of any department, board, agency, or authority of any such state or commonwealth or of any public corporation subject to the following: (a) The revenue securities constitute obligations payable out of the revenues from a revenue-producing property owned, controlled, or operated by the state, commonwealth, public corporation, or by a department, board, agency, or authority thereof and are secured by those revenues. (b) Either: (1) The new income from the property available for the payment of the securities for the five fiscal years next preceding any such investment, shall have averaged at least one and one-tenth times all debt service requirement for principal, interest, and sinking fund of all revenue securities payable only out of the revenues from the property during each of those fiscal years, and for each of those five fiscal years shall have equaled at least all debt service requirements for principal, interest, and sinking fund of those securities, and for the last fiscal year shall have amounted to at least the maximum annual debt service requirement for any fiscal year thereafter on all such securities which were outstanding during the last fiscal year and which will be outstanding in any fiscal year thereafter. The gross income from the property, the net income from which is pledged for the payment of those securities, in the last fiscal year prior to that investment was not less than one million dollars ($1,000,000), is located in California, and was not less than five million dollars ($5,000,000) if located elsewhere. The issuer is obligated to maintain rates at least sufficient to meet debt service requirements and those obligations are legally enforceable. (2) The issuer of the securities is entitled to receive under a legally enforceable contract with a corporation any of the securities of which are a legal investment for commercial banks under Division 1, annual payments averaging not less than nine hundred thousand dollars ($900,000) a year commencing with the completion of a project or projects as fixed in the construction contract therefore and continuing during the maximum term for which those revenue securities are to mature. The issuer of the securities is obligated to maintain rates to produce revenue, or will receive contract payments, either or both of which will be sufficient to meet debt service requirements and that obligation contract is legally enforceable. (c) The public corporation or any department, board, agency, or authority thereof which issues the securities, if existing elsewhere than in California, has not within 10 years prior to that investment defaulted for a period of more than 90 days in the payment of principal or interest on any of its debts. 7270. Bonds of any local public housing agency (as defined in the United States Housing Act of 1937, as amended) as are secured either, (a) by an agreement between the public housing agency and the Public Housing Administration in which the public housing agency agrees to borrow from the Public Housing Administration, and the Public Housing Administration agrees to lend to the public housing agency, prior to the maturity of those obligations (which obligations shall have a maturity of not more than 18 months), moneys in an amount which (together with any other moneys irrevocably committed to the payment of interest on the obligations) will suffice to pay the principal of those obligations with interest to maturity thereon, which moneys under the terms of that agreement are required to be used for the purpose of paying the principal of, and the interest on, those obligations at their maturity, or (b) by a pledge of annual contributions under an annual contributions contract between the public housing agency and the Public Housing Administration if the contract shall contain the covenant by the Public Housing Administration which is authorized by subsection (b) of Section 22 of the United States Housing Act of 1937, as amended, and if the maximum sum and the maximum period specified in the contract pursuant to subsection (b) of Section 22 of the United States Housing Act of 1937 shall not be less than the annual amount and the period for payment which are requisite to provide for the payment when due of all installments of principal and interest on those obligations. 7271. Bonds secured by an insurance commitment of the Federal Housing Administration. 7272. Evidences of indebtedness of companies incorporated in the United States and, directly or indirectly, engaged in manufacturing, extraction, merchandising, or commercial financing and in bonds of authorities established pursuant to the California Industrial Development Financing Act (Title 10 (commencing with Section 91500) of the Government Code), to which those institutions are obligated with respect to payment, provided: (a) Any unsecured evidences of indebtedness shall be issued by a company substantially all of whose property is free of mortgage and shall carry a covenant by the obligor that they will be secured equally with any mortgage bond, except a purchase money mortgage, which may be later issued. (b) The company is of such size as to attract at least statewide interest in its publicly held securities and its gross income shall have averaged not less than ten million dollars ($10,000,000) and its net income shall have averaged not less than one million dollars ($1,000,000) for the five fiscal years preceding the investment and its gross income was not less than one million dollars ($1,000,000) for at least three of those five fiscal years. (c) Working capital as measured by consolidated current assets less consolidated current liabilities as shown in the latest published balance sheet shall exceed 150 percent of the total of consolidated debt due in longer than one year and "minority interest" (i.e., any outstanding interest in a subsidiary having a prior claim on the earnings of the subsidiary), except that the foregoing ratio requirement shall not apply in the case of evidences of indebtedness of any corporation whose consolidated gross assets less any valuation reserves exceed five hundred million dollars ($500,000,000) and whose consolidated current assets exceed consolidated current liabilities by at least one hundred million dollars ($100,000,000) as shown by the latest published balance sheet. When new financing is involved, the changes in gross assets, capital structure, and working capital shall be considered and reliance may be placed on the representations made in the official prospectus prepared under the rules of the Securities and Exchange Commission as to the application of the proceeds of that financing. (d) The total consolidated debt of the company including current liabilities and "minority interest" (i.e. any outstanding interest in a subsidiary having a prior claim on the earnings of the subsidiary), as shown on the latest published balance sheet, does not exceed 33 1/3 percent of its gross assets less valuation reserves. (e) The consolidated annual net income for the five fiscal years next preceding the investment, before deductions of state and federal taxes imposed on or measured by income or profits but after deducting all charges (including reserves, regularly recurring charges for amortization of discount, and expense allocable to funded debt) (1) shall have averaged not less than six times the annual consolidated interest charges existing at the time the investment is made; (2) in at least three of those five fiscal years shall have been at least four times the annual consolidated interest charges for the same year; and (3) for the fiscal year next preceding the investment shall have been not less than six times the consolidated interest charges for that year and not less than six times the annual consolidated charges on the funded debt outstanding at the time of the investment. 7273. Fixed interest railroad bonds meeting the requirements of subdivisions (a) and (b), bonds secured by a mortgage on jointly operated railroad facilities meeting the requirements of subdivision (c), and railroad equipment trust certificates meeting the requirements of subdivision (d), as follows: (a) The railroad bonds are issued by or are assumed, guaranteed, or provision is made unconditionally for the payment of principal and interest on specified dates, by a solvent railroad company: (1) That operates at least 500 miles of standard gauge road within the continental United States and that has had average annual operating revenues of at least ten million dollars ($10,000,000) during the five years next preceding the investment. (2) Whose average annual balance of income available for fixed charges for the last 15 years for which the necessary statistical data are available, when divided by an amount equal to its fixed charges for the last fiscal year, shall produce a quotient that is at least 15 percent higher than the quotient obtained by dividing the average annual balance of income available for fixed charges of all class 1 railroads for the same 15-year period by an amount equal to the fixed charges of all class 1 railroads for the last year in the period. (3) Whose average "balance of net income" (computed by deducting the sum of its fixed charges and contingent interest charges for the latest fiscal year from the average annual balance available for fixed charges for the latest 15 years for which the necessary statistical data are available) when divided by its average annual railroad operating income for the same 15-year period, shall produce a quotient at least 15 percent greater than the quotient obtained by dividing the average balance of income of all class 1 railroads, computed in the same manner, by the average annual railway operating income of all class 1 railroads for the same 15-year period. (4) Whose average balance of income available for fixed charges for the last three fiscal years preceding the investment, or for the lesser number of fiscal years that may have elapsed since December 31, 1946, has not been less than one and one-half times its fixed charges for the last fiscal year. (b) The railroad bonds are secured by any of the following: (1) A mortgage, either direct or collateral, that shall be a first mortgage on not less than 75 percent of the mileage subject to the mortgage. (2) A first mortgage on terminal properties comprising the company' s principal freight or passenger terminal in a city of not less than 250,000 population according to the latest federal or state census. (3) A refunding mortgage on not less than 75 percent of the railroad mileage owned or operated by the issuing company under which bonds may be issued for retirement or refunding of all debts secured by prior liens on all or any part of the property, other than liens on equipment, subject to the mortgage, if the amount of debt senior to the refunding mortgage is not more than 50 percent of the sum of all senior debt and the refunding mortgage or if underlying mortgage bonds in an amount equal to at least 50 percent of the debt outstanding under the refunding mortgage are pledged as security under that refunding mortgage. (4) A first mortgage on railroad property leased to and operated by the company if the lease extends beyond the maturity date of the bonds and the company has guaranteed, assumed, or committed itself under the terms of the lease to pay principal and interest on the bonds. (c) Bonds secured by a mortgage on jointly operated railroad facilities shall be secured by a first mortgage on a terminal, depot, tunnel, or bridge used by or leased to two or more railroads that have jointly and severally agreed unconditionally to pay the interest and principal payment, one of which railroads shall meet the requirements set forth in subdivision (a). (d) Railroad equipment trust certificates shall be issued by a solvent class 1 railroad whose average balance of income available for fixed charges for the last three fiscal years preceding the investment, or for the lesser number of fiscal years that may have elapsed since December 31, 1946, shall be not less than one and one-half times its fixed charges for the last fiscal year. Those certificates shall be issued to provide funds for the construction or acquisition of new standard gauge railroad equipment made with the approval of the Interstate Commerce Commission and secured by an equipment trust, lease, conditional sales contract, or first lien on the equipment. The aggregate principal amount of the obligations shall not exceed 80 percent of the purchase price of the equipment and the certificates shall mature within 15 years of the date of issuance in equal annual, semiannual, or monthly installments, beginning not later than one year after the date of issuance. (e) As used in this section, "balance of income available for fixed charges," "fixed charges," "contingent interest," and "railway operating income" shall have the same meaning as in the accounting reports filed by common carriers by rail pursuant to regulations of the Interstate Commerce Commission, except that "balance of income available for payment of fixed charges" shall be computed before deduction of federal income of excess profits taxes, and "fixed charges" and "contingent interest" of the railroad shall be those charges existing as of the time the computation is made, excluding charges with respect to debt that has been retired or will be retired within six months and for the payment of which funds have been or are contemporaneously being set aside in trust but including charges with respect to new debt issued or in the process of being issued. 7274. Bonds and debentures of gas, electric, or gas and electric companies meeting the requirements of subdivision (a), bonds and debentures of telephone companies meeting the requirements of subdivision (b), and the bonds and debentures of water companies meeting the requirements of subdivision (c), as follows: (a) Bonds or debentures of gas, electric, or gas and electric companies shall be of an issue that originally amounted to not less than one million dollars ($1,000,000) and, if bonds, be secured by a mortgage on substantially all of its physical property, and, if debentures, shall be issued by a company substantially all of whose physical property is free of mortgage and shall carry a covenant to be secured equally with any mortgage indebtedness, except a purchase money mortgage, subsequently issued, and both bonds and debentures shall be issued by a public utility corporation, which does all of the following: (1) Derives more than 50 percent of its gross operating revenue from the business of supplying electricity, artificial gas, or natural gas or all or any of these services, and at least 80 percent of its gross operating revenue from all or any of the public utility businesses enumerated in this section. (2) Has a gross operating revenue of not less than seven million five hundred thousand dollars ($7,500,000) for its most recent fiscal year. (3) Has a funded debt not exceeding two-thirds of the value of its physical property as shown by the books of the corporation or by a statement of a certified public accountant issued within one year, which statement may be based upon the books of the corporation, less the amount of any reserves for depreciation, retirement, or amortization of the physical property. Physical property of a corporation shall include the physical property of a subsidiary corporation if the corporation owns not less than 90 percent of the outstanding voting shares of the subsidiary corporation. (4) Has had earnings, including earnings of subsidiaries mentioned in paragraph (3), available for interest payments, before deduction of state and federal taxes imposed on or measured by income or profits, during four of the five most recent fiscal years and during the most recent fiscal year equal to at least twice the existing annual interest charges on the corporation's total funded debt during those respective fiscal years. (b) Bonds or debentures of telephone companies shall be of an issue originally amounting to at least one million dollars ($1,000,000) and, if bonds, secured by a mortgage on substantially all of the physical property of the company, and, if debentures, be issued by a company substantially all of whose physical property is free of mortgage and shall carry a covenant to be secured equally with any mortgage indebtedness, except a purchase money mortgage, subsequently issued, and both bonds and debentures shall be issued by a company subject to the following: (1) The company has during its last fiscal year had gross revenues of at least seven million five hundred thousand dollars ($7,500,000), more than 50 percent of which was derived from owned properties used in furnishing telephone and other communication services and at least 80 percent of its gross revenues from all or any of the public utility businesses enumerated in this section. (2) The funded debt does not exceed two-thirds of the value of its physical property as shown by the books of the corporation or by a statement of a certified public accountant issued within one year, which statement may be based upon the books of the corporation, less the amount of any reserves shown on the statement for depreciation, retirement, or amortization as the physical property. Physical property of a corporation shall include the physical property of a subsidiary corporation if the corporation owns not less than 90 percent of the outstanding voting shares of the subsidiary corporation. (3) For four of the five most recent fiscal years and for the last fiscal year has had earnings, including earnings of subsidiaries mentioned in paragraph (2), available for the payment of interest charges, before deduction of state and federal taxes imposed on or measured by income or profits, at least equal to twice the interest charges on the company's total funded debt during those respective fiscal years. (c) Water company bonds or debentures shall be of an issue originally amounting to at least one million dollars ($1,000,000) and, if bonds, secured by a first mortgage on the company's property, and, if debentures, issued by a company substantially all of whose property is free of mortgage and carry a covenant to be secured equally with any mortgage indebtedness, except a purchase money mortgage, subsequently issued, and both bonds and debentures shall be issued by a company subject to the following: (1) The company is the supplier of substantially all water for domestic use in a community or communities having a population of not less than 25,000. (2) The funded debt of the company does not exceed two-thirds of the value of its physical property as shown by the published statement of the company for its next preceding fiscal period, less the amount of any reserves shown for depreciation, retirement, or amortization of the physical property. Physical property of a corporation shall include the physical property of a subsidiary corporation if the corporation owns not less than 90 percent of the outstanding voting shares of the subsidiary corporation. (3) For four out of the five most recent fiscal years and for the most recent fiscal year has had earnings, including those of subsidiaries mentioned in paragraph (2), available for the payment of interest charges, before deduction of state and federal taxes imposed on or measured by income or profits, of at least one and one-half times the interest charges on the company's total funded debt during those respective fiscal years. 7275. As used in this article, "funded debt" means all interest-bearing indebtedness of a corporation not maturing within one year of the date it was incurred.