MSRB Calls for Enhanced Municipal Market Transparency of Undisclosed Debt (Notice 2015-03) (with Lofchie Comment)

The MSRB published a Market Advisory calling for greater transparency of the debt obligations of municipal bond issuers.

The MSRB had initially called on local and state governments to make information about their bank loans publicly available on a voluntary basis in 2011 and again in 2012.

The MSRB stated that it is concerned that the increasing use of bank loans and direct-purchase debt as financing alternatives to public offerings in the municipal securities market for funding capital improvement projects or refunding outstanding bonds could "impair the rights of existing bondholders, or the credit liquidity profile of an issuer." Given this increased use, as well as the "regulatory ambiguities" of bank loans, the MSRB issued the Market Advisory to inform municipal market participants of the importance of voluntary disclosure of bank loans.

The Market Advisory provided a list of recommended disclosures, which included:

• the purpose of the additional debt obligation, use of proceeds, and impact on debt position;
• the source of repayment and payment dates including liquidity requirements and optional, mandatory, and extraordinary prepayment terms, if any;
• the interest rate, if fixed, or method of computation, if variable;
• the tax status of interest;
• the events of default, remedies and acceleration;
• the disclosure of "most-favored nation" or similar clause;
• the governing law;
• the redistribution rights, if applicable; and
• the financial reporting requirements.

Lofchie Question: Will improved disclosure from issuers of municipal securities make it harder or easier for municipal issuers to obtain funding from the capital markets? (E-mail your off-the-record views to [email protected].)

See: MSRB Notice 2015-03.