WASHINGTON — The Government Finance Officers Association’s executive board is expected on Friday to approve a new best-practice document that gives municipal bond issuers guidance about the types of fees they can expect to incur when issuing municipal debt, a GFOA consultant said.
The four-page document was released and underwent final editing Thursday at a meeting of GFOA’s committee on governmental debt management. The debt committee also agreed the same day to update existing documents and begin work on a host of new items, including guidance papers for small issuers and best practices for bank loan disclosures.
The “Costs of Issuance Incurred in a Publicly Offered Debt Transaction” best-practice paper expected to be approved, focuses on “direct” issuance costs like fees paid to attorneys, underwriters, financial advisors and other parties in a transaction.
Other existing papers already address the indirect, “underwriter’s discount” fees paid by issuers from bond proceeds.
The new paper recommends that state and local finance officers understand the role all parties play in a transaction and that they ensure they are not billed twice by different parties for the same services.
It suggests issuers retain financial advisors before hiring other financing team members. Advisors can help evaluate sales methods, structure the financing deal, negotiate fair prices, obtain credit ratings, evaluate credit enhancements and select other business partners, the paper said.
Advisors can be paid hourly fees, or their compensation can be fixed or based on a percent of par value of the bonds.
The document also describes the roles and typical compensation of lawyers, including legal counsel, disclosure counsel and tax counsel.
It says bond trustees are typically paid a one-time “acceptance fee,” an annual “trusteeship fee” and often transaction fees. Issuers should ensure trustees disperse bond proceeds as described in trust indentures or bond resolutions and invest proceeds as directed.
Rating agency fees “should be considered negotiable,” and rating price quotes can be obtained by financial advisors, the document says. In addition, issuers should consult their attorneys if a rating agency requests an issuer sign a “rating engagement” or “application” letter, which could be a binding contract.
The document also discusses the role of escrow verification agents and auditors, and recommends that some sophisticated issuers consider hiring a separate financial advisor to review transaction pricing.
GFOA’s debt committee also announced Thursday that it is creating a questionnaire to help smaller issuers understand debt issuance, part of a “small issuer” series that could include best-practice papers about debt issuance, credit structure and conduit financing.
In addition, GFOA plans to create best practices for bank loan disclosures, committee members said. GFOA and other groups have been active in recent months in a joint effort led by the National Federation of Municipal Analysts, to create bank loan disclosure guidelines.
Other GFOA goals for 2013 include creating guidelines explaining issuers’ relationships with rating agencies. Those guidelines could eventually morph into best practices, committee members said.
GFOA will also respond to expected rule changes from the Municipal Securities Rulemaking Board and other agencies by updating documents about derivatives, bond pricing and methods of sales, as well as guidelines for selecting underwriters and financial advisors, according to documents released at Thursday’s meeting.
Also on the horizon are updates to advisories about pension obligation and other post-employment benefit bonds, as well as revisions to best practices on bond proceed investments.
