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(b) Notwithstanding the requirements of subsection (a) above, and only as and to the extent permitted by law, the City may provide a Surety Policy or Policies issued in amounts equal to all or part (as may be specified in the ordinance authorizing any series of Parity Revenue Obligations) of the average annual principal and interest requirements of the Parity Revenue Obligations, in lieu of depositing cash into the Reserve Fund; provided, however, that no such Surety Policy maybe so substituted unless (i) the substitution of the Surety Policy will not cause any ratings then assigned to the Bonds by either Moody's Investors Service or Standard & Poor's Ratings Group to be lowered and (ii) the City Council finds that the substitution of the Surety Policy for all or part of the average annual principal and interest requirements ofthe Parity Revenue Obligations is cost effective. Subject to the terms of the Surety Policy, the City shall apply the proceeds of the Revenue Fund prorata to (i) the reestablishment of any cash balance required to be maintained in the Reserve Fund and (ii) the payment of subrogation obligations of the City under the terms of a Surety Policy or Surety Policies with respect to Parity Obligations. (c) In the event a Surety Policy issued to satisfy all or part of the City's obligation with respect to the Reserve Fund causes the amount then on deposit in the Reserve Fund to exceed the average annual principal and interest requirements of all Parity Revenue Obligations, the City, may transfer such excess amount to any fund or funds established for the payment of or security for the Parity Revenue Obligations (including any escrow established for the final payment of any such obligations pursuant to Tex. Gov't Code Ann., ch. 1207) or use such excess amount for any lawful purpose now or hereafter provided by law; provided, however, that except as otherwise may be permitted by applicable law, any portion of such amount constituting proceeds of bonds or other obligations of the City, or taxes, may be used only for purposes for which such proceeds or taxes could have been used lawfully at the time of the deposit thereof into the Reserve Fund. (d) In the event (a) the issuer of a Surety Policy becomes insolvent, or (b) the issuer of a Surety Policy defaults in its payment obligations thereunder, or (c) the claims paying ability of the issuer of the Surety Policy falls below "AAA" by S&P or "Aaa" by Moody's, the obligation to reimburse the issuer ofthe Surety Policy shall be subordinate to the cash replenishment ofthe Reserve Fund. In the event (a) the rating of the claims paying ability of the issuer of the Surety Policy falls below "AAA" by S&P or "Aaa" by Moody's, the City shall either (i) deposit into the Reserve Fund, in accordance with this section, an amount sufficient to cause the money or investments on deposit in the Reserve Fund to accumulate to the average annual principal and interest requirements on the Parity Revenue Obligations within thirty-six (3 6) months, or (ii) replace such instrument with a Surety Policy, meeting the requirements of the definition of Surety Policy, within six (6) months of such occurrence. In the event (a) the rating of the claims-paying ability of the issuer of the Surety Policy falls below "A" by S&P or Moody's, or (b) the issuer of the Surety Policy defaults in its payment obligations hereunder, or (c) the issuer of the Surety Policy becomes insolvent, the City shall either (i) deposit into the Reserve Fund, in accordance with this section, amounts sufficient to cause the money or investments on deposit in the Reserve Fund to accumulate to the average annual principal and interest requirements on the Parity Revenue Obligations, or (ii) replace such instrument with a Surety Policy, meeting the requirements of the definition of Surety Policy above within six (6) months of such occurrence. SANMARCOS/W W WSRev2008: Ordinance 29