A National Association of Bond Lawyers' committee is working on a paper that is designed to provide members with recommended best practices on how to deal with the disclosure issues posed by muni-related derivatives transactions.
A first draft of the paper may be completed during the next few weeks and a final version could be sent to members as early as late April or the beginning of May, said John C. Leatherberry, a lawyer at Vinson & Elkins in Dallas who is heading up the project.
"Disclosures about derivatives definitely have increased over the last three or four years, but the intent [of the paper] is to make sure that everybody's on the same playing field, has the same level of disclosure, and has the right tools so that they are able to make appropriate disclosures to the market," Leatherberry said in a brief interview this week.
The paper will focus on the due diligence process that bond lawyers, underwriters' counsel, and lawyers representing issuers or borrowers must undertake to determine the information that should be included in the official statements for bonds concerning any derivatives transaction the issuer or borrower is about to enter into, as well as its previous derivatives transactions, he said.
"To get the proper disclosures, you have to ask the right questions," Leatherberry said.
The paper will detail the types of questions that lawyers need to ask to be able to fully understand the risks associated with the derivatives transactions.
"The intent is not to go into how to negotiate a swap transaction because, in my personal view, it's not the role of the bond counsel to get involved in the business aspects, to figure out if the costs are appropriate or too high or too low," Leatherberry said.
The committee is made up of about 12 NABL members who represent various transaction participants. "We have a pretty diverse group," he said.
The paper may become an "ongoing project" that gets updated as new guidance comes out or new issues arise in the market, according to Leatherberry.
The Governmental Accounting Standards Board has already issued guidance on the derivatives information that state and local governments should include in their financial statements and is currently working on a project to determine how derivatives should be accounted for on governments' balance sheets.
