BRADENTON, Fla. — The Louisiana State Bond Commission plans to hire disclosure counsel to assist in determining if the state complied with continuing disclosure requirements.
The Bond Commission decided to get legal assistance Thursday as it considered the Securities and Exchange Commission's Municipalities Continuing Disclosure Cooperation initiative, which was announced in March.
The initiative allows issuers and underwriters to get favorable settlement terms if they self-report continuing disclosure omissions by Sept. 10.
The SEC has said issuers should look back five years, but some bond attorneys have suggested that a decade-long review might be needed if bonds offered five years ago in 2009 had misleading official statements due to disclosure failures in the five years prior to 2009.
Bond Commission staff has been working to conduct the review, but may have to go back 10 years, director Lela Folse told the commission Thursday.
It has been a "massive undertaking" to identify all the series of bonds sold, and to make sure all disclosures were made accurately and timely, she said.
Renee Boicourt of Lamont Financial Services, the commission's financial advisor, recommended the commission hire disclosure counsel to assist with the work and develop, if necessary, a report to file with the SEC.
Some market experts have suggested that issuers, obligors, and underwriters must prepare a report for the SEC's initiative regardless of whether a matter is considered to be immaterial.
The deadline to file a report with the SEC is fast approaching, said State Treasurer John Kennedy, chairman of the commission.
He also wants to notify local governments about their responsibility to comply with the SEC program.
"I want to make sure our colleagues in local government know about this," he said.
Kennedy pointed out that if an issuer fails to disclose problems to the SEC, underwriters will report omissions to avoid incurring liability.
A detailed report on the state's initiative and notices to local governments will be discussed at the commission's meeting next month.
The Bond Commission also accepted a report showing that the total net state tax supported debt is $11.54 billion, which includes outstanding general obligation bonds, appropriation debt, revenue bonds, and other self-supporting issues.
The panel also examined the impact of Act 419, passed by the legislature in 2013, requiring the revenue estimating conference forecast to include statutorily dedicated funds and self-generated funds that were never incorporated into the forecast previously.
An unintended consequence is that the funds are calculated into the state debt limit even though they are not necessarily available to pay debt service, Kennedy said.
As a result, the state's debt capacity could increase by $3.73 billion, based on 2015 revenue projections.
While the increase does not necessarily bump up against the state's debt cap, Boicourt said rating agencies are aware of the issue and the state has disclosed the potential debt-limit increase in offering documents.
Boicourt said investors and analysts may become concerned if the state no longer has a constraint on how much debt will be issued. She recommended that the commission establish a debt management policy.
"It's probably appropriate that we start talking now about some sort of policy to share with rating agencies about how we intend to conduct ourselves in the future in light of Act 419," said Kennedy said.