WASHINGTON — The National Association of Bond Lawyers has released several draft model issue price certificates to help muni transaction participants comply with the Treasury's new issue price rules, which take effect on June 7.
The model certificates were released on Friday two days after the Securities Industry and Financial Markets Association released draft riders to other bond documents for the new rules.
SIFMA and NABL have been collaborating and making sure the documents will be ready before the final issue price rules take effect. NABL also reached out to other muni market groups like the Government Finance Officers Association and the National Association of Municipal Advisors.
The bond lawyers group has asked for comments to be submitted on the draft model issue price certificates to Darren McHugh, at Stradling Yocca Carlson & Rauth, by April 14. NABL also plans to hold a teleconference on the drafts on Tuesday, April 25 from 1:00 to 2:30 eastern standard time.
The issue price certificate is the document the underwriter typically provides the issuer after the sale of the bonds in a negotiated sale and it is usually executed as the closing of the transaction approaches, said Cliff Gerber, NABL's president and a partner at Norton Rose Fulbright in San Francisco.
"One of the biggest takeaways from this whole exercise," said Gerber, echoing Leslie Norwood, SIFMA]s associate general counsel and co-head of its muni division, "Is that what's going to be really key is for the issuer, financial adviser, bond counsel and underwriters to reach an understanding early on in the deal about how to implement these issue price rules."
The general rule is that the issue price will be the price at which the first 10% of a maturity of bonds is actually sold to the public. But if 10% of a maturity is not sold, a special "hold-the-offering-price rule" can be used under which the issue price is the initial offering price (IOP) as long as the underwriters hold it for five business days after the sale date. This holding requirement is designed to prevent pricing abuses such as flipping. The lead underwriter must certify the IOP to the issuer, as well as provide documentation, such as the pricing wire. Each underwriter in a syndicate must agree in writing that it will not offer or sell the bonds at a price higher than the IOP for five business days after the sale date.
There is an exemption from the new issue price rules for competitive sales under which an issuer may treat the reasonably expected IOP of the bonds to be the issue price if the issuer obtains a certification from the winning underwriter bidder as to the reasonably expected IOP upon which it based its bid. But this exemption is conditioned on, among other things, the issuer receiving at least three bids from separate underwriters and awarding the bonds to the bidder who offers the highest price or lowest interest cost.
Issuers have the option of using any of these rules up until the closing (issue) date for their bond transactions.
NABL has drafted several versions of issue price certificates for negotiated deals. One can be used when at least 10% of each maturity is sold in a public offering. Another is for use when all bonds will be held at the initial offering price for at least five business days. A third certificate can be used when some bond maturities are sold at 10% and some have IOPs held for five days. There is also a consolidated form that includes provisions for both 10% maturities sold and hold-the-offering price so that the underwriter can select which to use. The drafts have attachments for sales prices of bonds that actually sold and pricing wires or equivalent communications, as well as IOPs in some cases.
NABL also drafted a model issue price certificate that a municipal advisor would use in a competitive sale. It has attachments for the Notice of Sale and for bids received as well as a comparison of bids. There is also a draft issue price certificate for bonds sold through a private placement.
