2.4.8.2 Remedies

Remedies include the right to sue for payment, to pursue contractual damage claims, and to seek performance by the public agency of its obligations through judicial or administrative action. A key question is whether remedies include a right of acceleration: the right to declare all principal (including principal not scheduled to be paid until a future date) to be immediately due and payable. Acceleration is not a permitted remedy under leases relying on the Lease Exception to the constitutional debt limit. See Section 1.2.4.3, Lease Exception (the “Offner-Dean Lease Exception”). For bonds such as general obligation bonds secured by annual property tax levies, assessment bonds and sales tax bonds acceleration may not be of practical value.

The impact of acceleration when available is to place all bondholders on the same footing (bondholders whose principal is due currently do not have a claim greater than those of bondholders whose bonds mature later). Because accelerated obligations are effectively moved ahead of nonaccelerated obligations payable from the same security (e.g., senior lien or enterprise revenues), if any parity or cosecured obligations are subject to acceleration, all debt holders will want a right to accelerate.

Remedies are generally exercised by the bond trustee on behalf of bondholders, although bond documents generally allow the holders of a majority or supermajority of the principal amount of the bonds to direct the trustee’s actions. When there is credit enhancement, the credit enhancement provider is generally allowed to control the exercise of remedies and bond insurers require the ability to prevent acceleration.