Transcription:
00;00;03;15 - 00;00;21;22
Kyle Glazier
Hello and welcome to another Bond Buyer podcast. I'm Kyle Glazier, the Washington bureau chief of the Bond Buyer. And I'm joined today by Ken Bentsen and Leslie Norwood. Ken is the president and CEO of SIFMA. And Leslie is a managing director and associate general counsel, head of Municipal Securities Thank you both for joining me today.
00;00;22;06 - 00;00;23;13
Ken Bentsen
Thank you. Thank you for having us.
00;00;23;20 - 00;00;24;00
Leslie Norwood
Thank you.
00;00;24;17 - 00;00;37;02
Kyle Galzier
So Sifma recently added to its Washington advocacy team. Several names were added that we saw. And can you tell us a little bit more about how you see that impacting what you're able to do on the advocacy side?
00;00;37;23 - 00;01;08;04
Ken Bentsen
Sure. So. So, again, that thank you for having us again. Always great. Always great to talk to Kyle and talk to your talk to your listeners. Most of your readers, but in this case, your listeners that the bond buyer so yes. I mean, so for starters, we have a great team at settlement and we always want to maintain a top notch team across the organization and including in our in our advocacy, which is a key or core function that we do on behalf of our members.
00;01;08;04 - 00;01;33;13
Ken Bentsen
And we recently added Jennifer Jacoby to our lobbying team, federal advocacy team. She joined us. So it has a really interesting background. Joined us from a actually more in the area of maternal health where she had been involved as head of government affairs for an organization known as In Our Own Voice, which is part of the National Black Women's Reproductive Justice Agenda.
00;01;33;22 - 00;02;09;22
Ken Bentsen
But before that, Jennifer was a securities lawyer at WilmerHale, which is one of the one of the many preeminent securities law firms in the country. And and so we're very happy to have her join the team. Matthew Grant Grundy joined us as well. More on sort of the communication side of advocacy, and that's had a really good background having recently worked as a senior advisor to the director of the Federal Housing Finance Agency and as the deputy director of speechwriting before that for Vice President Pence.
00;02;09;26 - 00;02;36;26
Ken Bentsen
And then we added Nicky, who's a lawyer as a senior associate in our advocacy group. And they joined they compliment a very strong team that we have in place. I should note as well for your listeners that we very recently promoted Lindsey Calio who had been managing director and associate general counsel to be the head of our Systems Asset Management Group.
00;02;36;26 - 00;02;57;18
Ken Bentsen
And Lindsey's been active in that organization for many, many years, joining us originally as a vice president and associate general counsel. And so as I'd like to think of some as a great place to work we have top notch people and a lot of longevity. Leslie and I have been here for many, many years and hopefully for many, many more years.
00;02;57;25 - 00;03;11;11
Ken Bentsen
But we also are able to attract top talent. And that's to that's to the benefit, I believe, of our members that we have the very best people representing our members on the issues that are important to them.
00;03;11;23 - 00;03;16;04
Leslie Norwood
This week represents eight years at its predecessor organizations for me.
00;03;16;16 - 00;03;45;28
Ken Bentsen
So, Leslie, Leslie Leslie joined us right out of law school. She's very young, which I know she actually had a pretty extensive career in private practice, as young as she is. And again, I think that I will say, I think the combination of senior talent with longevity and tremendous institutional knowledge of not just the regulatory or legislative agenda, but also our members and the businesses that they're in and our members are not, you know, not homogeneous.
00;03;45;28 - 00;04;17;10
Ken Bentsen
Right. You know, people are different business lines, different products, mix, etc. And but at the same time that we can bring in seasoned people who haven't been here for a long time and as well as bringing up younger talent again, like any organization that is beneficial to us and I as a CEO, I always also, you know, hope is is beneficial to the employees that they're learning as well while they're working on behalf of our members.
00;04;17;25 - 00;04;30;02
Kyle Glazier
Well, it sounds like you've got an advocacy team in place that you're feeling pretty good about building on that. Can you tell us a little bit about some of SIFMA's muni and tax policy priorities right now? I mean, what are you what are you looking at?
00;04;30;07 - 00;04;58;20
Leslie Norwood
Of course, our top agenda item is always preserving the tax exemption for municipal securities. And our for that follow that quite quickly are the four that we've been focused on on for quite some time. And the first, of course, is reinstating the ability for issuers to advance refund their their debt on a tax exempt basis. The second is a new direct pay bond program.
00;04;58;28 - 00;05;24;23
Leslie Norwood
Third is expansion of volume cap and expansion of private activity bond programs generally And the fourth is raising the limit on the small issuer exception. And really, our focus right now of these four is reinstate advanced refunding. And we think this is a particular area where Congress needs to act. We feel this is a particularly helpful tool for state and local governments.
00;05;25;03 - 00;05;50;26
Leslie Norwood
To reduce the interest rate on their outstanding debt and generate billions in savings over over time. Right now, it's very important as interest rates start to rise. And whereas taxable advanced rate fundings may have worked in the recent past, they are not economical by and large in the current environment. And as interest rates start to rise, they'll be less and less economical.
00;05;51;04 - 00;06;03;10
Leslie Norwood
And so the key tool to reduce interest costs would be a tax exempt advance refunding, which it right now is still in the money. And so we hope to get some traction there.
00;06;03;15 - 00;06;25;19
Ken Bentsen
Yeah, I just I would add to that, I mean, you know, we we got we got very close on this last year and is part of the broader budget bill that ended up not going anywhere. But this got dropped out it sort of in late stages. And that's unfortunate and frustrating. But but it's kind of the legislative process as it works.
00;06;25;19 - 00;06;59;05
Ken Bentsen
You know, sometimes it takes a long time to get something and then and you're working on it and then all of a sudden within a second it happens. And so you have to you have to be diligent and you have to be prepared. I give Lesley and the team a lot of credit for setting this up as they have working very closely with our members, engaging Congress, with our members, working with the broader public finance, the issuer community, and building really strong bipartisan, bicameral support for this.
00;06;59;07 - 00;07;22;10
Ken Bentsen
So we were hoping to get this in the in the broader budget package last year. That didn't happen, but that package didn't happen either. And so we we continue to pound away on this and and I continue to be optimistic we're going to get this done. It may not be on the timeline we want, but I do think we will get it done.
00;07;22;16 - 00;07;50;19
Kyle Glazier
I'm glad you raised the issue of the rising interest rates. Obviously, nobody likes to see the economy trending negatively. But over the past couple of years, we have heard people make the argument that taxable issuance, taxable re findings have have certain advantages in expanding the potential investor base and that they were working very efficiently for the market. So do you feel that current events might give additional steam to the argument for reinstating tax exempt from advanced refunding?
00;07;51;16 - 00;08;23;04
Leslie Norwood
I think the economics definitely gives some support for the reinstatement of tax exempt advance refunding. I think it's very important to try to get the lowest possible cost of financing for state and local governments for these long term assets. And tax exempt financing is where that is at. I think anybody can recognize if you were doing an advance refunding, the tax exempt advance refunding would always be cheaper than the taxable advance refunding.
00;08;23;12 - 00;08;45;20
Leslie Norwood
And so as we go into a rising interest rate environment, it's there are situations even now where that taxable advance refunding is no longer economical to do for savings. Now, of course, there may be reasons to do it other than for savings, for restructuring purposes or or otherwise. But, you know, I think the key reason to do that would be for that the savings.
00;08;46;05 - 00;09;16;18
Ken Bentsen
Yeah, I agree with that. I think I mean, I also and I think Leslie's sort of hitting on this as well. The taxable muni bond markets, an important market, growing market. And that raises the other issue of things like direct pay bonds and and that are a key priority as well. That has its own advantages separate apart from the refunding aspect and which is, you know, refunding are I mean, there's a quantitative a largely a quantitative factor related to refunding since Leslie's pointed out, there could be others.
00;09;16;18 - 00;09;41;27
Ken Bentsen
But but to a large extent, it's a quantitative issue. And and it is taxable to rise. And, you know, and the spread widens in that respect. It makes it definitely makes taxes a much more economically or quantitative play appropriate having at the same time. In the new issue market where you're depending on what what's being financed or the structures around the finance taxable markets still are very important market.
00;09;41;27 - 00;10;08;16
Ken Bentsen
And and the you know, the direct pay market. I think if you look I think people would say if you looked back when you had the build America bonds you know you broadened the universe for investors in state and local debt or municipal debt. And that's a good thing and that's something that another reason to also pursue a new authorization I guess we would call it for the direct pay you know, direct pay debt.
00;10;08;23 - 00;10;27;03
Leslie Norwood
And specifically there we'd be trying to tap pension funds or their retirement investors property and casualty insurance companies who are looking to to match their their liabilities and foreign investors are really the three key buckets of of those who are looking for for taxable muni investments.
00;10;27;20 - 00;10;32;15
Kyle Glazier
All right. Thank you. We're going to pause for a short break here and we'll be right back.
00;10;35;28 - 00;11;01;22
Kyle Glazier
And we're back with Ken Benson and Leslie Norwood. We just finished talking briefly about some of September's muni and tax priorities And Ken, you mentioned how close we did appear to come to getting tax exempt advance refunding back around the end of last year. Are you still hopeful for for near-term developments on that and some other muni priorities in any upcoming tax legislation?
00;11;01;22 - 00;11;13;08
Kyle Glazier
Or do you think, you know, at this point it's almost April yet with a midterm election coming up? Is it time to start looking at more realistically efforts on what might be achieved in the next Congress?
00;11;13;13 - 00;11;34;17
Ken Bentsen
You know, we don't know what the you know, what the Congress or the or the majority is going to do. It certainly appears that the Biden administration and the Democratic leadership in the House and the Senate would still like to do some sort of a budget reconciliation bill with a a tax and spending with tax and spending components in it.
00;11;35;13 - 00;12;00;12
Ken Bentsen
And while it may be given the end, it appears it would appear a more narrow version than what they were talking about last year in order to get the votes they need to get it passed. And that would you on at a high level, you would say, well, that would probably make it more difficult to add things that have a revenue score like advance refunding or direct pay perhaps.
00;12;00;12 - 00;12;19;04
Ken Bentsen
But but nonetheless, I know I go by the old adage, you know, if you don't ask, you don't get and you know, and or back in the days when when I was in the in the business, which was a long time ago, you know, at a senior bank or saying, you know, if you don't ask for the order, you're not going to you're just not going to get it.
00;12;19;04 - 00;12;53;25
Ken Bentsen
So here, you know, we have to keep pushing it. We are continuing to push it. I mean, Leslie and her team working with our advocacy team are constantly engaging members of Congress on Capitol Hill looking for any avenue, any any piece of legislation that we could we could catch a ride on. So one option might be a modified budget bill if, in fact, the the administration and the Democratic leadership in the Congress were able to cobble something together that they think they can get, you know, 50 votes in the Senate on another option could be an end of the year package where there could be tax extenders that need to be done.
00;12;54;03 - 00;13;29;27
Ken Bentsen
And again, you know, you're also always thinking down. You're thinking down the road of whatever next option may come up in the next Congress. You know, when it convenes in January of 20, 23. So I, I personally think it's a mistake to sort of say, well, let's punt for this year and go to next year. You know, it may be hard, it may be hard to score this year, but we got to try because even if we don't, the fact that we're on the field and we're trying just adds allows us to build support, you know, getting to wherever, to wherever that point is that we are going to score.
00;13;29;27 - 00;13;32;18
Ken Bentsen
So I think we have to be engaged at all times. That's what we're doing.
00;13;33;00 - 00;13;37;06
Kyle Glazier
All right. I appreciate your extended football metaphor here in late March.
00;13;38;02 - 00;13;44;13
Ken Bentsen
The baseball in the second, I'm still getting over the Korea trade at it from Houston. But we can switch to baseball when you're ready.
00;13;45;28 - 00;14;13;07
Kyle Glazier
Well, speaking of switching topics, ESG, huge topic of discussion in all in the financial market widely right now. You know, the SEC just the other day propose a set of potential regulations for the corporate side of things. And as you know, as if Mark commented on the MSB recently concluded its comment period gathering information It says On ESG practices.
00;14;14;04 - 00;14;23;04
Kyle Glazier
What's your what's your sense of how my members are feeling about the trajectory of the ESG? Discussion? And where do you think this is headed?
00;14;23;16 - 00;15;18;09
Ken Bentsen
So maybe, maybe, maybe I'll start at a high level. And then Leslie and Leslie have been super engaged on the MSR B stuff, and so I'll let her talk about that. So at a high level, our members buy side, sell side are very are supportive of a enhanced disclosure regime that is is more uniform. But principles based and based on the on the principles of materiality that have been the bedrock of disclosure in U.S. securities markets and you know, we we have been in our members, I should also note, have been engaged in in all facets of finance, have been engaged in ESG, whether it's in disclosure, product development, there's increasing demand and has been increasing
00;15;18;09 - 00;15;39;04
Ken Bentsen
demand for many years on both the retail and institutional side for ESG product. So and we've also, you know, from a higher, you know, broader perspective have even been engaged in some of the activities in Europe where Europe has probably been more advanced in some of this area than as a matter of public policy than than the US.
00;15;39;17 - 00;16;13;21
Ken Bentsen
I would add to that there are lessons to learn from Europe's efforts in this area as well. And I think the Europeans would even tell you that, you know, with respect to the SEC proposal that came out this week, I mean, it was only 500 plus pages and we're still going through it, I think, on the positive. It does seem to seek to align with some of the sort of the global efforts around disclosure, like the task force for climate disclosure that a lot of the different jurisdictions have been looking at.
00;16;14;07 - 00;16;49;26
Ken Bentsen
We do have some concerns around the inclusion of scope three because there's just a concern and this is really from a from a an investor and an underwriter perspective that the data, the scope three data is really nascent and not people don't have a lot of confidence right now. And it's reliability. And so we have to get a better handle on how the commission is seeking to include that, how investors can use it and rely upon it.
00;16;50;12 - 00;17;16;08
Ken Bentsen
It's it's good they put a safe harbor in for that. But it's unfortunate they didn't include a safe harbor for scope one or two. And and which we believe they should as well. I think we need we want to better understand how they are giving how they are interpreting materiality, because we think it's very important that we don't think you should redefine materiality through a rulemaking.
00;17;16;09 - 00;17;44;16
Ken Bentsen
I think you know, there's pretty strong precedent as to what's material and what's not. So we're supportive. Our members, I should say, are supportive of a uniform standard of climate related disclosure for issuers. And we've been very clear about that in previous comment. We have to really dig in to the details of this rule proposal to understand how it's supposed to work.
00;17;45;07 - 00;18;08;05
Ken Bentsen
Is it based on the principle existing principles of materiality? How can the Scope three work where it is really usable, particularly to investors? So, so so we'll have more to say on this as we dig into the rule. I should note, I'd be remiss if I didn't note for your listeners, as I've noted for the commission and others, it is also it is a very complex rulemaking.
00;18;09;02 - 00;18;35;05
Ken Bentsen
And it is unfortunate, beyond unfortunate that the commission once again chose to only allow a 60 day comment period for what is an extremely complex rulemaking proposal. This happens to be the 14th rulemaking proposal that we accept from the FCC that we are engaged in. A few of those have the comment periods have closed. Those were 30 day comment periods.
00;18;35;18 - 00;18;58;06
Ken Bentsen
A lot of these rules are interconnected and we are just very concerned that the Commission is trying to jam a lot through the pipes without providing sufficient time or ample time for stakeholders to give their views, to provide data that the Commission really needs to utilize. If they review these rules as they do their Cost-Benefit analysis, which say they need to do so.
00;18;58;20 - 00;19;13;16
Ken Bentsen
It's unfortunate and I've expressed that to the Commission that they're not really providing the time that's necessary particularly given the volume of rulemaking. So maybe I'll stop there on that on the FCC. More to come on that from us and let Leslie talk about what we've been doing with the MSR.
00;19;13;16 - 00;19;43;15
Leslie Norwood
Be sure from municipal securities perspective, we're appreciative of the MSR. Be opening up this dialog between the stakeholders and the MSR. Be on ESG Although I think many of us have a little bit of a smile when we talk about ESG in the muni space, because we think of ourselves as the original ESG product when Tax Tax-Exempt Municipal Securities must have a public purpose for which they're issued, and we think we're just de facto ESG.
00;19;43;15 - 00;20;15;22
Leslie Norwood
So that's certainly one point that we look at when we're talking about classifications of what is ESG, what is not, you know, an ESG bond and how to classify them either for issuer self designation or, you know, a third party or second party confirmation of those designations. A primary concern with the MSR B's requests for information related to potentially regulated disclosures in this area.
00;20;15;22 - 00;20;39;25
Leslie Norwood
And we want to make sure, first of all, that the disclosure regime is is regulated in the appropriate place. And we feel that that if if there is authority here to regulate municipal securities disclosure, either in the primary markets or certainly there is authority for the SCC in secondary markets that it be with the appropriate regulator. And we think that regulator is the FCC.
00;20;40;07 - 00;21;14;03
Leslie Norwood
And so we would expect to hear more from the SEC going forward on on this point. We do think, though, that it is also important that the concepts of label of these bonds and the risk disclosures of these bonds be distinct conversations. You know, for many years since the implementation of Rule 15 C, 12 municipal securities issuers and obligors have had to provide disclosures in the secondary market regarding their material events.
00;21;14;03 - 00;21;41;18
Leslie Norwood
And many of these ESG type risk disclosures are incorporated in those what is material even in a primary disclosure if there is material environmental issues that would have been already incorporated into the SEC's rule set. And so we continue to look at those issues in terms of how they fit within the current rules set and how that might be enhanced going forward.
00;21;41;28 - 00;22;36;12
Leslie Norwood
The issue of self designation of bonds is an interesting one. We definitely see the value in our members, see the value in encouraging the market for ESG bonds and do not want to do anything to stop the development of this this nascent yet rapidly developing sector. We want to make sure that the standards are clear and that investors understand what self-test Ignatian and issuer might have made, although we feel that really just clear disclosure is the most important thing as opposed to a self designation There are some concerns as well with the MSR BS adoption of the IHS Markit designation on new issue calendar and I think we'd like to see a little bit more clarity
00;22;36;12 - 00;23;00;29
Leslie Norwood
on that. It doesn't necessarily mean the same thing with regards to every bond, and we're worried about investor confusion. So we want to make sure that any designations that go out with the MSR be Emma information are are clear to investors. And that's really some of our pieces of where we're focusing on going forward.
00;23;01;13 - 00;23;14;25
Kyle Glazier
Certainly seems to be a topic that we're only going to be talking about more going forward. Is there anything else that the cinema's doing right now or any final thoughts that you think our, our listeners should hear before we say goodbye?
00;23;15;26 - 00;24;00;28
Ken Bentsen
I guess the only other thing I would say it'll be even encompassing the municipal market and beyond. I mean, there's a tremendous amount of work going on, I would say, in the operations space that we're involved in. So in the sort of broader, longer term is the effort to move from two plus two to two plus one. And we've been actually we've been working on that really since the fourth quarter of 20, 20 and having discussions with DTCC and then subsequently I.s.i. and investment company is to and and then obviously post the meme stock effort at issue gain interest and the SEC now has proposed rulemaking on going to two plus one.
00;24;00;28 - 00;24;23;10
Ken Bentsen
We've done a tremendous amount of work across the industry in putting together an analysis of all the things would have to be done to move you know really cutting the settlement cycle in half and now we're working on the rulemaking so that that's that's number one I think the other is in our normal business continuity planning efforts which you know we do a lot.
00;24;23;11 - 00;24;59;23
Ken Bentsen
We did it back in in the first quarter of 2020 with the onset of COVID and pulled out the playbooks and the like and then but now fast forwarding related to that with our cyber resiliency efforts and the like in the current geopolitical situation that we're in, again we're spending a lot of time with members on rethinking, not rethinking, but thinking about your backup plans, thinking about your contingencies, thinking about your cyber resiliency and contingencies around that and spending a good deal of time and discussing with our official sector partners at Treasury and Homeland Security and across the industry on that.
00;24;59;23 - 00;25;12;20
Ken Bentsen
So always things going on. That impact certainly impact the muni market and the broader securities market and things that we always want to remain vigilant on post-pandemic.
00;25;12;21 - 00;25;46;28
Leslie Norwood
I think we're looking at some of those pieces of emergency relief and how people are working, going forward. You know, many companies have returned to the office, at least on a hybrid basis, but that means that people are still working from home part of the week and quite a number of situations. And so we're trying to take a look at those emergency pieces of guidance to see what might be appropriate to make permanent particularly with regards to supervision of professionals as well as those remote examinations.
00;25;47;09 - 00;26;12;19
Leslie Norwood
And really the definition of what is an OSHA, what is a location that needs to be supervised. Do you actually need to go to that location or could you do it on on a remote basis? So I think that's kind of an interesting area, which is getting a lot of focus right now. Of course, you know, investor protection, diversity, equity, inclusion issues expanding retirement and savings for all Americans.
00;26;12;26 - 00;26;18;11
Leslie Norwood
These are are really evergreen issues for the board level. And we continue to focus on those as well.
00;26;18;16 - 00;26;34;14
Ken Bentsen
Yeah, I just want to maybe put a plug on the on the on the you know, we've gone from going remote to returning to office. And as Leslie point out, the new office is looking somewhat different than the old office, even though we're in the office. But the executives are telling us they are going to have some form of hybrid.
00;26;34;14 - 00;26;57;25
Ken Bentsen
It won't be uniform across the industry or different firms to do it differently. But there's going to be some and this is really a, you know, working with our regulators across the range and in the MSR be it's definitely been involved in this. And I appreciate their you know, their receptiveness to hearing our views on this. But it's not just the MSR be it's it's the SEC, it's FINRA, it's the state regulators.
00;26;58;07 - 00;27;18;17
Ken Bentsen
And, you know, this is something that the regulators themselves have been dealing with remote issues as well. I had a discussion the other evening with a a senior state securities regulator and we talked mostly about how they were handling return to office. And so all of us are going to have to manage this process. And it's going to come down to how you do inspections and things and the answer.
00;27;18;25 - 00;27;39;28
Ken Bentsen
I personally don't think the answer can be that everybody's home with their working mode is an OSHA. And I think deep down, I think the regulators agree with that. And so so we're all having to think what what does the rulebook need to look like in this new, new, normal, overused term? But this is a lot of work, you know, a lot of work coming out on that.
00;27;40;07 - 00;27;43;06
Kyle Glazier
All right, Ken Leslie, thank you so much for joining me today.
00;27;43;13 - 00;27;43;25
Ken Bentsen
Thank you.
00;27;44;08 - 00;27;44;27
Leslie Norwood
Thank you. Go.
00;27;45;18 - 00;27;57;06
Kyle Glazier
Thank you to Kellie Malone, who did the audio production for this episode. And don't forget to rate us reviews and subscribe at bondbuyer.com/subscribe. From the Bond Buyer, I'm Kyle Glazier. Thank you for listening.