Public Finance

Detroit’s increasingly distressed financial condition has created a dynamic and rapidly evolving situation where the potential of a Chapter 9 filing appears to be the subject of renewed discussion and legislative attention. 

Since August 2, 2012, investment banking firms retained to act as underwriters on municipal finance transactions have been required to provide written disclosure to issuers concerning the relationship between issuers and underwriters.

Please find today’s special revenue decision in the Jefferson County bankruptcy case.

The IRS is planning on sending out letters (“Letters”) over the next few months to several hundred issuers who have experienced covenant or payment defaults from 2007 to the present.

While the Investor Bulletin is fairly basic and addressed primarily to investors generally, the list of some of the risks of investing in municipal bonds included in the Bulletin may be helpful to issuers and underwriters when preparing or reviewing disclosure documents. 

On March 19, the SEC’s Office of Compliance Inspections and Examinations released a National Examination Risk Alert http://www.sec.gov/about/offices/ocie/riskalert-muniduediligence.pdf reporting on its examinations of broker-dealers for compliance with municipal bond underwriter due diligence obligations under the SEC’s prior interpretive releases and under SEC Rule 15c2-12.

The MSRB has put out for comment a proposed interpretive notice http://www.msrb.org/Rules-and-Interpretations/Regulatory-Notices/2012/2012-04.aspx designed to eliminate or reduce instances in which underwriters of new bonds issued under a parity indenture or bond resolution consent to amendments to such instrument on the issuance date of the new bonds.

The Massachusetts Attorney General recently promulgated regulations authorizing remote participation in meetings subject to the Open Meeting Law under certain prescribed circumstances.

Following the advent of Build America Bonds (BABs) in 2009 and securities law rulemaking that has resulted in the posting of virtually instantaneous trading data on the EMMA website (msrb.emma.org) hosted by the Municipal Securities Rulemaking Board (MSRB)

The Bankruptcy Court held a status conference in the Harrisburg Chapter 9 earlier today. The principal purpose of the hearing was for the court to set a schedule for objections to Harrisburg’s chapter 9 eligibility. 

In a decision that may have implications for holders of community development district bonds and other similar “dirt bonds,” a Florida bankruptcy court has ruled that holders of community development district bonds do not always have plan voting rights when the underlying developer — as opposed to the development district itself — is the bankruptcy debtor.

A case of interest to holders of bonds issued by Indian tribes to finance gaming facilities continues to wend its way through the courts.  On September 6, 2011, the United States Court of Appeals for the Seventh Circuit issued its opinion in Wells Fargo Bank, National Association v. Lake of the Torches Economic Development Corporation.

Legislatures legislate, and courts decide what they meant. The principal federal law recourse for investors in municipal bonds and other unregistered securities for investment losses caused by fraudulent disclosure arises from a judicial reading of SEC Rule 10b-5 as creating an “implied” private cause of action.

Restructurings of tax-exempt bonds payable by an entity experiencing financial difficulties typically feature the yin of an obligor seeking debt relief that will permit it to operate without the stigma of potential insolvency and the yang of creditors who may wish to accommodate but do not want to leave money on the table.

As reported in the April 21, 2011 Bond Buyer, Assured Guaranty has announced its willingness to  insure directly bonds originally insured by CIFG bond insurance, provided the existing CIFG bond insurance is extinguished. 

The much-publicized IRS audit of the Mission Ridge project in Montana has been resolved favorably, with the IRS concluding that the bonds are not “arbitrage bonds” and remain tax-exempt.

It is not just Green Bay that is feeling super in Wisconsin these days.  The Public Finance Authority, a conduit bond issuer established under Wisconsin law that began operations in 2010, has the statutory authority to provide tax-exempt financing in all 50 states.

Various comment letters have been filed, and more are being prepared, on the can of worms opened up by the SEC’s December 20, 2010 interpretation that the term “municipal advisor” includes unelected board members of municipal entities who provide “advice” to the entity they serve regarding the issuance of municipal securities, swap transactions and/or investments.