WASHINGTON - The Municipal Securities Rulemaking Board is calling again for transparency of undisclosed debt such as bank loans, warning that failure to improve disclosure practices could impair market pricing or even threaten the rights of bondholders.
The MSRB expressed its concerns in a market advisory Thursday, urging muni market participants to follow voluntary bank loan disclosure best practices. The MSRB notice focuses on bank direct loans to issuers and private placements of bonds, but contains a footnote that the guidelines could apply to other alternative debt, such as direct loans from hedge fund investors. Information about bank loans is often hard to find because neither banks nor issuers are required to make disclosures of these transactions.
"Given the current regulatory ambiguities regarding bank loans, inconsistent market practices and lack of commonly accepted provisions within bank loan agreements, the MSRB believes that informing the market of the incurrence of a bank loan and its terms is beneficial to the continued fairness and efficiency of the municipal securities market," the board said in its notice.
The board has previously asked issuers to disclose at least the basic terms of any bank loans on EMMA, and has also warned that some loans actually can qualify as municipal securities subject to Securities and Exchange Commission and MSRB regulation.
In its latest notice, the MSRB said it would like issuers to understand and analyze the natures of their loans, including any debt acceleration provisions or instances in which the interest rate could change under the terms. Information about these terms as well as other information should ideally be available on EMMA, the MSRB said.
"The implications of delayed or undisclosed debt-like obligations could impair the rights of the issuer's existing bondholders, including their impact on the seniority status of existing bondholders, or impact on the credit or liquidity profile of an issuer," the board warned.
The MSRB notice comes just days after Standard & Poor's released data showing that state and local governments of all sizes are using direct bank loans as an alternative to traditional bond financing. The volume of such loans has been estimated at north of $55 billion.
