MSRB may ask muni advisers to disclose bank loans, direct purchases

By Susanna Moon

Chicago, March 28 – The Municipal Securities Rulemaking Board said it is looking at whether to require municipal advisers to disclose bank loans and direct purchases that potentially impair the rights of bondholders.

Direct purchases and bank loan agreements may include terms that make creditors senior to bondholders or that give creditors more favorable treatment than bondholders in case of default, according to a press release by the MSRB.

Bondholders may not find out about these financings until the release of the issuer’s audited financial statements, which typically do not contain the key terms, the release noted.

Specifically, the MSRB is seeking comment on the benefits, costs and potential alternatives to requiring municipal advisers to disclose this information to the EMMA website.

“The lack of transparency around the full picture of an issuer’s indebtedness has long concerned the MSRB,” MSRB executive director Lynnette Kelly said in the press release.

“For a number of years, the MSRB has been encouraging state and local governments to voluntarily disclose bank loan financings and other similar obligations on EMMA, yet only a small number have done so.

“We are now considering whether rulemaking is necessary to ensure investors have the information they need with respect to these financings to make informed investment decisions.”

Comments may be sent until May 27.

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