Bonds may be refunded by defeasance or call for redemption, subject to all of the following requirements:

(a) Notwithstanding Sections 53557 and 53585 of the Government Code, the proceeds of the sale of refunding bonds deposited in escrow or trust may be invested or reinvested in any combination of federal securities and securities permitted by subdivisions (c) and (d) of Section 53635 of the Government Code, except that investment and reinvestment of the proceeds shall not be permitted in securities issued by the district or on behalf of any of its improvement districts. The ratings of any securities permitted by subdivision (d) of Section 53635 of the Government Code in which the escrow or trust is invested or reinvested, or debt service insurance or other credit enhancement with respect to those securities, or any combination thereof, shall produce a rating on those securities when acquired equivalent to the highest long-term debt rating category of either Moody’s Investors Service, Inc., or Standard and Poor’s Corporation. Notwithstanding Section 53584 of the Government Code, the securities may be acquired from the issuer thereof or any other source approved by the board.

(b) The escrow or trust shall be established in an amount sufficient to pay when due the principal of, redemption premium, if any, and interest on, the bonds being refunded. Securities in the escrow or trust may be exchanged or sold and the proceeds used to purchase other securities only when the escrow agent or trustee holding the fund deems the exchange or sale necessary to maintain the ability to pay when due the principal of, redemption premium, if any, and interest on, the bonds being refunded. If the escrow or trust becomes insufficient to pay the principal, redemption premium, if any, and interest when due, the board may, to the extent of the insufficiency, augment the escrow or trust from assessments or charges, or both, fixed and collected for that purpose, notwithstanding Section 53561 of the Government Code and Section 36063 of this code.

(c) Notwithstanding Section 53583 of the Government Code, the bonds being refunded need not be called and paid at the first or any subsequent date on which the bonds may legally be called, if the board determines that to do so would be consistent with prudent management of the district’s fiscal affairs.

(Added by Stats. 1985, Ch. 340, Sec. 1. Effective July 29, 1985.)