BRADENTON, Fla. — Tennessee has instituted some of the strictest guidelines ever imposed for issuing municipal debt by establishing a model requiring that all issuers adopt debt-management policies by Jan. 1, 2012.
The Tennessee Funding Board, which by law creates financial policies for state and local issuers, on Wednesday approved the model that includes best practices and minimum standards for issuers to use as a guideline.
The model was developed by state Comptroller Justin Wilson, who said he was troubled by debt-management practices he discovered after investigating the use of variable-rate debt and swaps following the market meltdown.
Wilson found many issuers — particularly small borrowers — had experienced problems after bond insurers were downgraded, liquidity costs soared, and some had to make big swap-termination payments.
Many issuers did not understand the deals, the risks, or the costs, Wilson said before winning Funding Board approval of new issuer requirements for variable-rate debt and derivatives in October 2009. Subsequently, he developed the model approved Wednesday, which contains guidelines such as setting limits on how much debt can be sold and publicly disclosing details about deals, the professionals involved, and costs of issuance.
“I don’t view this as to be revolutionary,” Wilson said. “I think this is just common-sense policy.”
