Issuers or borrowers involved in solid-waste financings should disclose external factors that could affect their solid-waste systems, such as the controversy over flow control, environmental regulations, electric utility sector deregulation, and changes in accounting standards, the National Federation of Municipal Analysts said Friday.
Processing Content
The NFMA made the recommendation in the final version of its best disclosure practices for solid-waste transactions. The paper, which was written by a committee led by Janet Martin, a senior director at Fitch in New York City, and Chuck Emrich, a vice president and senior municipal analyst at Legg Mason Wood Walker Inc. in Baltimore, was posted Friday on the NFMA's Web site, www.nfma.org.
"The solid-waste sector is complex and has witnessed incredible changes over the last few years," the paper said. "The level of volatility has certainly intensified. Not only are the players broad-based and operating a variety of types of facilities, but judicial decisions and evolving legislative policies add another level of complexity to the analysis of these transactions. In addition, investors and other interested parties have experienced some difficulties obtaining information from solid-waste issuers and are finding it more challenging to contact borrowers to discuss relevant financial, operational, and other issues."
Solid-waste facilities range from landfills to waste-to-energy facilities, the group said. These facilities may be operated by municipalities, quasi-government organizations, or through contracts with private sector operators.
"Regardless of the type of system or ownership structure, however, primary and secondary market disclosure is essential to determine the ability and willingness of all participants to perform in accordance with their contractual commitments," the NFMA said.
Essential disclosure information includes: annual financial statements; management discussion and analyses; statistics on utilization; the amount of waste processed including spot or non-contract waste; the major waste suppliers; the competition; capital improvement plans; technical maintenance scheduled; independent technical and management oversight; and pass-through costs, the paper said. Also important is information about system maintenance and reserves, debt covenants, and compliance and environmental standards.
In addition, analysts and investors need to know about judicial, regulatory and political actions that could affect solid-waste systems. One judicial issue is flow control and whether a solid-waste system has been redesigned to avoid running afoul of a 1994 Supreme Court decision that ruled prescriptive flow control was unconstitutional because it unlawfully benefited local waste processors at the expense of out-of-state processors.
Analysts and investors also need to know about environmental regulations such as those dealing with landfill designs, closure, groundwater and resource recovery emissions, the NFMA said.
Resource recovery facilities are non-utility generators. Revenues are generated by energy sales. A deregulated environment may lead to revenue losses and this should be disclosed, the group said.
Accounting changes under new Governmental Accounting Standard Board standards also should be explained.
The NFMA urged that preliminary official statements be delivered to investors at least one week before pricing. Also, it said, secondary market disclosures of financial and operating information should be filed on a quarterly basis within two months after the close of the reporting period.
