Jerry Brown Signs Law Requiring Bank Loan Disclosure

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SAN FRANCISCO - California Gov. Jerry Brown Wednesday signed into law a bill that expands disclosure requirements for municipal issuers to include direct loans from banks.

Existing law requires issuers of debt to file a report with the California Debt and Investment Advisory Commission within 45 days of signing a bond purchase contract.

The new law, Assembly Bill 2274, will clarify that such disclosure includes direct loans, along with other debt transactions. The law will also shorten the amount of time that issuers have to file the information to 21 days.

"This new law puts California in the forefront of ensuring that information about the direct loan transactions are disclosed to the public," said Tom Dresslar, a spokesman for Treasurer Bill Lockyer. "So we'll get greater and timelier disclosure."

Dresslar said many issuers had already been making bank loan disclosures under existing law, but some said that since bank loans do not have bond purchase contracts, they do not have to be reported.

The new language will make sure that there is no ambiguity of what issuers are required to disclose to CDIAC, which serves as the statistical clearinghouse for municipal bond issuance in California. Lockyer, as treasurer, is CDIAC's chair.

"We fully expect, as is the case now, that the vast majority of issuers are going to provide the information that's required under law," Dresslar said.

The new law will go into effect on Jan. 1.

Concerns over bank loan disclosure have increased nationwide, as municipal issuers increasingly have used non-traditional financing.

A recent estimate from Municipal Market Advisors, a municipal bond research and advisory firm, pegs the amount of direct loans by municipal issuers between $40 billion to $50 billion in 2013, with similar projections for 2014.

In May, Standard & Poor's told issuers that such financings potentially carry considerable credit risk, and that the agency now requires notification and documentation of any private debt they owe. This includes bank loan financings, whether or not that debt is rated by S&P.

The announcement from the credit ratings agency follows years of requests and recommendations from groups such as the Municipal Securities Rulemaking Board and the National Federation of Municipal Analysts that issuers voluntarily disclose information about their bank loan financings.

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