MSRB Rule G-17:
Interpretive Notice on Duties of
Underwriters to Issuers
Webinar Part 3:
Required Disclosures for Complex Financings
Required Disclosures for Complex
Financings
• MSRB Notice 2012-25 requires an underwriter in a
negotiated offering making a recommendation about a
financing to provide disclosures on certain key features
of the financing
• An underwriter in a negotiated offering must make
reasonable determination about whether recommended
financing is “complex”
• Complex municipal securities financings are structured
in a unique, atypical or otherwise complex manner
– Examples: VRDOs, swaps or other derivatives
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Required Disclosures for Complex
Financings
• If a recommended transaction in a negotiated offering is
a complex financing, the underwriter must disclose:
– Material financial characteristics of the financing
– Material financial risks of the financing that are known or
foreseeable
• Information about the risks and characteristics of a
complex financing is crucial for issuers to evaluate
whether this type of financing is appropriate for them
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Required Disclosures for Complex
Financings
• Example: An underwriter recommending VRDOs should
disclose:
– Risk of interest rate fluctuations, material risk of potential inability to
replace liquidity facility upon expiration and material risk of potential
shortening of maturity schedule if bonds not remarketed but instead
held as bank bonds, among other disclosures
• Example: An underwriter recommending a swap should
disclose:
– Material market risk, credit risk, operational risk and liquidity risk;
material economic terms, operational terms and parties’ material
rights; and possibility of accounting and legal risks, among others
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Required Disclosures for Complex
Financings
• Tailoring disclosures to issuer personnel for complex
financings is permitted based on:
− Issuer’s knowledge or experience with proposed financing
structure or similar structures;
− Issuer’s capability of evaluating risks of recommended
financing; and
− Issuer’s financial ability to bear risks of recommended
financing
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Required Disclosures for Complex
Financings
• Determination of an issuer’s level of expertise and
ability to bear financial risk will dictate whether
disclosures may be abbreviated or must be more
fulsome
• The level of disclosure should be re-evaluated
over time as the issuer:
− Gains experience with a complex financing over the
course of multiple new issues utilizing that structure
− Undergoes personnel changes since new employees
may have differing levels of expertise
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Required Disclosures for Routine
Financings
• Underwriters may also need to disclose information
about more routine financings depending upon the
expertise of the issuer
– If issuer personnel charged with executing the transaction
lack knowledge or experience with the structure, material
aspects of the structure must be disclosed
– If an otherwise routine financing incorporates a less
understood element, that element and its impact on the
financing is subject to the same disclosure requirements
as complex financings
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Required Disclosures to Issuers
• If an underwriter does not reasonably believe issuer
personnel are capable of independently evaluating
disclosures, the underwriter must make additional
efforts to inform the official or its employees or agent of
risks
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Specificity of Required Disclosures for
Complex Financings
• Disclosures concerning a complex financing must address
specific elements of the financing
• Requirement not satisfied by:
– Broad overview of generic characteristics and risks not addressing
specific features of complex financing, or
– Document covering broad range of financing options without
prominent and specific reference to features of particular complex
financing
• Underwriter may prepare, in advance, standardized
disclosures for each type/variety of complex structure it
offers, to be tailored to unique features and risks of specific
complex financing
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MSRB Rule G-17:
Interpretive Notice on Duties
of Underwriters to Issuers
Webinar Part 3:
Required Disclosures for Complex Financings