WASHINGTON — The National Federation of Municipal Analysts has released the final version of its recommended
The update of recommendations, which were first made in 2001, is expected to be followed early next year by an update of disclosure recommendations for local general obligation bonds. In the past, the group combined both sets of disclosure practices into one document.
These recommendations for state GOs specifically explore the idea of making disclosures more frequently than annually and largely mirror advice the NFMA released in draft form and circulated for comment starting in November 2014.
The renewed focus on state GO disclosure best practices came after the economic downturn in 2008 where “analysts, investors, and other interested parties” found that the quality and timing of disclosure needed “further improvements for them to be effective at assisting and monitoring credit risk,” the NFMA said in the paper.
It was “reflective of the market change and the demise of the financial guarantors and the realization that disclosure was not what it could have been since there was deference to the insurer,” said Nicole Byrd, head of municipal research at Nationwide Investments and a leader on the NFMA project.
Jennifer Johnston, NFMA chair, as well as vice president and research analyst in Franklin Templeton’s municipal bond department, added that the group wants to “acknowledge the improvements in disclosure that have occurred” since 2001 and highlight areas where the industry needs to improve.
Anne Ross, a municipal consultant with Municipal Finance Specialists who led the project with Byrd, said “one of the most critical features” that the NFMA added in the update concerned bank loan disclosures, which are not required of issuers.
Direct bank loans have become more popular recently and issuers have sometimes been reluctant to disclose them, even though rating agencies and analysts have called for them to do so. NFMA suggested in its paper that issuers disclose information about their bank loans in official statements, annual updates, and in interim disclosures if any information about them changes.
NFMA also expanded its pension and other post-employment benefits section and included a list of 11 important questions related to Build America Bonds, including whether the Treasury Department has offset any subsidy payments and whether there are any redemption provisions in the bonds.
The section of the paper on pension and OPEB disclosure recommends issuers “continue to disclose many of the important elements of funding-based approach reporting, especially actuarially determined liabilities and required contributions as well as funded levels of all state pension and OPEB obligations.” It additionally recommends providing historic data for a ten-year period.
