In addition to welcoming more new subscribers and talking with issuers, underwriters, bond counsel and public officials about “all things compliance”, we followed many interesting news items this past week impacting public finance and you, our fellow issuer.
Several of the hottest topics are highlighted in this week’s edition…
CURRENT EVENTS
Interesting information came out in Friday’s issue of The Bond Buyer from Kevin Guerrero, a senior counsel in SEC’s enforcement division’s municipal securities and public pensions unit, regarding what to expect from the MCDC settlements. Guerrero stated “The SEC probably will not wait until the issuer reporting deadline of Dec. 1 to start releasing those dealer settlements”.
This is potentially good news for issuers and borrowers of municipal debt, giving us the opportunity to see SEC settlements with broker-dealers before our December 1st deadline to report any disclosure failures. These settlements may give us insight into what the SEC deems as material disclosure items they may or may not settle. We will all be paying close attention to this topic, as issuers continue their review and determine whether or not they need to file under the MCDC Initiative.
In other news this past week:
Appeal Denial’s MCDC Implications (BB open article 9-16-14)
- The National Association of Bond Lawyers (NABL) have stated they are planning to release a “higher-plane analysis” of the long-term implications of the MCDC initiative which may include creating a best execution rule for munis “that is now pending”. NABL may also hold another MCDC teleconference. NABL had previously released guidance on materiality, which is posted on our website.
- The Treasury Department and the IRS are still working on next steps with some arbitrage rules, including defining certain aspects of how issuance prices should be determined, as well as the valuation of investments allocated to an issue.
- There was a lot of buzz on redefining private use related to management contracts and partnerships, as well as proposed regulations with public approval requirements for private activity bonds. We should see this activity more well defined within the 2014-2015 time period.
SEC Could Halt Muni Bond Sales (BB open article 9-18-14)
Although the SEC can and does seek emergency court action to prevent a party from making a fraudulent offering, this is the first time the SEC has halted a municipal bond sale for prior fraudulent activity – in this case, the city of Harvey, Ill. However, Kevin Guerrero, a senior counsel in the Enforcement Division of the SEC also stated, “I don’t think it will be the last.”
This article then turns to several smoldering MCDC questions, including these key points:
- The SEC continued to offer minimal concrete guidance on what is considered “material” or further procedural guidance on how to submit reports.
- Issuers need to use their own judgment, but a “bucket approach” for violations may be reasonable.
- Issuers can write a letter to the SEC if underwriters reported a violation the issuer feels is not enforceable or should be excluded.
OUT AND ABOUT
This was a quieter week on Out and About. Colleagues recovered from the information-packed conference in Las Vegas, while catching up on emails and things at home.
As we shared last week, the live webinar – The Changing Landscape of Municipal Bankruptcy, hosted by the Bond Buyer and presented by Orrick, will be held tomorrow, Tuesday, September 23rd. It will be interesting to hear how recent and pending bankruptcies could impact future bond issues and reporting going forward.
Live: September 23rd – The Changing Landscape of Municipal Bankruptcy
Tuesday, September 23, 2014 9:00 am – 10:00 am
Pacific Daylight Time (San Francisco, GMT-07:00)
Register: http://www.bondbuyer.com/webinars/-1065275.1.html
Additionally, several conferences are being held in October and November:
For our California Issuer friends:
The California Public Finance Conference (Oct 8th-10th, San Diego, CA)
For Healthcare and Higher Ed:
Healthcare and Higher Education Super Conference (Oct 26th-28th, New York, NY)
And another hot area, Transportation/P3s:
The Transportation Finance/P3 Conference (Nov 16th-18th, Arlington, VA)
SOLVING THE COMPLIANCE PUZZLE
Debbie just loves this graphic as it so clearly and brilliantly represents the puzzling complexity we are dealing with, as issuers, in meeting our compliance needs. We also know that both the IRS and SEC are paying much closer attention to it these days – and that it is our obligation as issuers to understand (and have fully complied with) our respective bond covenants. As part of a 10 week series called Solving the Compliance Puzzle, we will focus on providing tips, insights and resources for one new line of our compliance puzzle.
So, are you ready?
Today, we are going to take a closer look at the third line of our puzzle – Terms.
Terms, just like regulations, is a very complex topic. As we begin, why are terms so important anyway?
Simply stated, terms which are agreed to during a bond issuance or refunding will define the legal criteria for obligations the issuer, and all other parties to the transaction, must follow…for as long as those bonds are outstanding.
When working on the offering documents and related transcript items needed for your bond deal – the POS & OS (including Appendix A), and the vast array of Resolutions, Agreements and Certifications – there is a key element which can dramatically change the tone and impact of a sentence … the Term. When you are reading a document and you see a word capitalized – it is generally a Term.
As an example, I pulled the Official Statement of a bond deal I worked on a few years ago. The definition of terms was listed as part of Appendix C – and it was an alphabetized listing that spanned 22 pages!
Now, many terms in this list have meanings which appear to be fairly standardized across the municipal community. Terms such as Accountant, Bondholder, Book Value, DTC and GAAP are good examples.
However, other terms can have very specific meaning to your organization. A few of my favorite ones include Maximum Annual Debt Service, Obligated Group, Member and Authorized Representative. It is also important to think about the context in which the term is used, particularly across documents.
During document review calls, we would spend considerable time clarifying the context of certain sentences, especially if it related to covenant calculations or the timing of future reporting obligations.
Let me share an example…
Quarterly EMMA Reporting for Continuing Disclosure
Your quarterly filing on EMMA is due 45 calendar days after quarter-end. Your Dissemination Agent (DA), who files it for you, needs the completed packet 15 business days before the due date. This means that your quarterly filing must be in the DA’s hands nearly 3 calendar weeks before the due date.
So, let’s walk through this timing: 45 calendar days – 3 calendar weeks = roughly 3 weeks left
3 weeks left to close the books, prepare financial statements, review the results, assemble & cross-check the EMMA packet, have it approved & certified by an Authorized Representative and timely submitted to the Dissemination Agent. Is that a reasonable time frame for your organization? If not, this “misunderstanding” will hurt…again and again.
You can see how important it is to carefully review and analyze the terms in your bond transcripts. However, getting your arms around the “Big 3” below will help you effectively and efficiently document your compliance needs:
- your Master Trust Indenture (your overarching covenant document)
- your Continuing Disclosure Agreement (periodic reporting on your bonds after issuance)
- your Tax Certificate ( projected use of new $$ or proper use of original proceeds for refunding)
In closing, understanding the terms in your bond documents, while confusing at first, is really very doable. Take small bites. Look at the great resource links in our Knowledge Library. You can also ask a question in the comments section or reach out to us privately via e-mail and we’ll do our best to help.
We hope you found this segment helpful! Stay tuned – next week, we will dive into possibly one of the hottest, high profile topics in post issuance compliance. It’s line 4 of the puzzle –Transparency.
To your compliance success,
Debbie
P.S. Are we hitting the mark? What do you like and what other topics would you like us to cover? Please take 30 seconds, drop us a line in the comments box below, and let us know. We’d really appreciate it!