WASHINGTON — The National Federation of Municipal Analysts has released the first part of a new set of best practices for general obligation bond disclosure that includes separate criteria for state and local securities.
"The new paper, which focuses on best practices for state GO bond disclosure, places heavy emphasis on interim disclosure, as well as disclosure of direct bank loans and Build America Bonds," said Nicole Byrd, head of municipal research at Nationwide Investments.
The NFMA is seeking comment on the state best practices paper through March 5. The local GO paper is still under development but is likely to come out within a few months.
There has been a great emphasis on disclosure by both analysts and regulators since the release of the 2001 GO best practices that covered both state and local debt, warranting the separation of the two, said Anne Ross, a municipal consultant who worked on the new best practices. "The differences between state and local debt issuance and the concomitant disclosure required became evident to us early in the process of updating the paper," she said.
NFMA chair Susan Dushock said her group reached out to other groups, including the Government Finance Officers Association, in an effort to produce a draft paper that would be acceptable to different market participants.
"We wanted to make this palatable to both sides of the fence," Dushock said. "We wanted issuers to accept what we're asking for."
Direct bank loans have grown steadily more popular in recent years, and issuers have not always been keen to provide fulsome disclosures on them despite many calls from analysts and rating agencies to do so. The NFMA paper recommends that states issuing GOs disclose information about their bank loans in their official statements, annually, and in the interim if any information about them changes.
The paper also includes an extensive list of disclosure best practices related to Build America Bonds, including a recommendation to disclose any U.S. Treasury reductions to the subsidy payments or whether there are any redemption provisions, including those that would "make whole" the investments of investors.
Bill Oliver, NFMA industry and media liaison, said the improved disclosure described in the paper would benefit the market as a whole.
"This report is an additional step in developing sector disclosure guidelines that address the perceived municipal market shortcomings cited by the Securities and Exchange Commission's 2012 report on the municipal market," he said. "The continued improvement in secondary market disclosure is essential if the municipal market is to overcome its frequent criticisms of being too opaque and illiquid."
