Muni Bonds Best Practices Presenters:

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Tonya Kusmirek, Dunn County, WI Eric Johansen, PFM David Keller, City of Weston, FL

Date:

05/20/2014

Muni Bonds Best Practices 108th GFOA Annual Conference May 20, 2014 – Minneapolis, Minnesota

Eric Johansen Director, The PFM Group Portland, Oregon

GFOA Best Practices in Debt Management o Major Best Practice Subject Areas: • Selecting the Method of Sale and the Financing Team • Managing the Bond Sale

GFOA Best Practices: Selecting the Method of Sale and Financing Team Selecting and Managing the Engagement of Municipal Advisors

Selecting and Managing the Method of Sale

Selecting Bond Counsel

Selecting and Managing the Engagement of an Underwriter in a Negotiated Sale

Issuer’s Role in Selecting Underwriter’s Counsel

BP: Selecting Municipal Advisors o Unless the issuer has sufficient staff expertise and access to market information, GFOA recommends that issuers hire a Municipal Advisor prior to undertaking a debt financing. o Selection of Municipal Advisor should be based on merit and generally done through a Request for Proposals (RFP) process. • Experience with similar financings: type, size, structure, state • Access to timely market information

o Independent vs. Broker/Dealer advisors o “Pricing advisor” vs. municipal advisor o municipal advisor will work with issuer to determine appropriate method of sale (competitive or negotiated) and therefore should be hired before consideration of underwriters.

BP: Selecting & Managing the Method of Sale o State and local governments should sell their debt using the method of sale that is most likely to achieve the lowest cost of borrowing. o Method of sale decision should be made based on a thorough analysis of the relevant rating, security, structure and other factors pertaining to the proposed bond sale. o Unless the issuer has sufficient staff expertise and access to market information, GFOA recommends that issuers hire a municipal advisor prior to undertaking a debt financing.

The Method of Sale Decision Environment o Issuers should not use a potential underwriter to assist in the method of sale decision unless that firm has agreed not to underwrite the bonds. o Under MSRB Rule G-23, a firm acting as an issuer’s municipal advisor is not allowed to resign in order to serve as underwriter for the proposed bonds. o Issuers should be aware of the key fiduciary relationships that do and do not exist between the municipal advisor, bond counsel, underwriter and the issuer. o Relationship between issuer and underwriter is one of common purpose but also competing objectives, especially at time of bond pricing. The underwriter is not the issuer’s municipal advisor and has no legal fiduciary duty to the issuer. o MSRB Rule G-17 requires underwriter to identify responsibility to deal fairly at all times with both issuers and investors, and disclose potential conflicts.

Factors to Apply in Selecting the Method of Sale Factors Favoring a Competitive Sale:

Factors Favoring a Negotiated Sale:

o

Rating of the proposed is expected to be in the “A” or better category.

o

Rating of the proposed bonds is expected to be in the “BBB” or lower category.

o

The bonds are general obligations, full faith and credit obligations or are revenue bonds secured by a strong, known and long-standing revenue stream (e.g. water, sewer, electric).

o

Bond insurance or other credit enhancement is not available or not cost-effective.

o

The bond structure has features such as pooled borrowers, variable rate debt, deferred interest bonds or other bonds expected to require extensive communication with the market.

o

The issuer desires to target specific participants such as disadvantaged business enterprises (DBEs), retail investors or local firms.

o

Other factors that the issuer, in consultation with the municipal advisor, believes favor the use of a negotiated sale.

o

The bond structure is not expected to include “exotic” products that require extensive explanation to the market.

The majority of local government bond issues possess the characteristics listed above, yet about 80% of bonds are still sold through negotiation.

BP: Selecting Bond Counsel •

Selection of bond counsel should be based on merit and generally done through a Request for Proposals (RFP) process.

•

RFP should address scope of services, term of contract, evaluation criteria and the selection process.

•

Key qualifications of bond counsel include: • • • •

Experience with similar financings: type, size, structure, state Specialized tax advice beyond normal bond counsel services Expertise in federal securities laws and regulations Be aware of relationships that might pose conflict of interest

BP: Selecting Underwriters for Negotiated Bond Sales If a negotiated sale is deemed appropriate:  Unless the issuer has extensive in-house bond pricing experience and access to current bond market data, issuers should engage the services of a municipal advisor to assist in the negotiated sale process (if not already done).  Recognize that the role of the underwriter and the municipal advisor are separate roles and cannot be provided by same party.  Select underwriters through a Request for Proposals (RFP) that rewards firms with demonstrated experience underwriting the types of bonds the issuer proposes to sell. RFP promotes fairness, objectivity and transparency.

BP: Selecting Underwriters for Negotiated Bond Sales (continued) Key underwriter selection criteria may include:  Relevant experience with type of bonds being proposed. Experience should include both the firm’s investment bankers and underwriters (“the desk.”)  The firm’s distribution capabilities. Can the underwriter access institutional and retail buyers?  Understanding of the issuer’s financial situation and how to approach financing issues such as bond structure, rating strategies and investor marketing.  Documentation of the underwriter’s participation in the issuer’s recent competitive sales or the competitive sales of other issuers in the same state.  The proposed “spread”, or underwriter’s discount, should be requested in the RFP, but should rarely be the primary decision criterion. Proposed spread is most useful in pricing negotiations, but not as a basis for selecting the underwriter.

GFOA Best Practices: Managing the Bond Sale Pricing Bonds in a Negotiated Sale

Managing Build America and Other Direct Subsidy Bonds

Costs of Issuance Incurred in a Public Offered Debt Transaction

Expenses Charged by Underwriters in Negotiated Sales

Issuing Taxable Debt

Understandin g Bank Loans

Analyzing and Issuing Refunding Bonds

Investment of Bond Proceeds

BP: Pricing Bonds in a Negotiated Sale o Key Considerations and Recommendations in pricing bonds in a negotiated sale:  A successful negotiated sale requires extensive involvement by the issuer and its municipal advisor.  What is being negotiated? Yields, coupons, underwriter’s compensation, structure (serial vs. term bonds), optional redemption provisions, distribution of bonds.  Communicate specific financing goals to underwriter.  Manage underwriter compensation.  Understand prevailing market conditions.  Develop pre-marketing plan with municipal advisor and underwriter.  Require municipal advisor to provide independent pricing views throughout process.  Be aware of re-pricing realities.  Conduct post-sale analysis for use in future bond pricings.

BP: Costs of Issuance Incurred in a Publicly Offered Debt Transaction • Best Practice notes the two types of expenses in a bond transaction • 1. Direct Costs of Issuance – Bond sale costs paid directly by the issuer (not through underwriter’s discount) • 2. Underwriter’s Discount – Bond sale costs passed through to issuer in the underwriter’s discount.

This best practice focuses on direct costs of issuance.

Direct Costs Paid by Issuer  Municipal Advisor  Legal Counsel (including Bond Counsel, Issuer Counsel, Disclosure Counsel)  Bond Trustee  Escrow Verification Agent  Auditor  Rating Agencies  Printing/Distribution Costs  Pricing Verification Agent

BP: Expenses Charged by Underwriters in Negotiated Sales  Components of the Spread (Underwriter’s Discount) • • • •

Takedown (largest component) Management Fee Expenses Risk

 Issuers should consider a policy on underwriter’s expenses in their debt policies.  Commonly accepted underwriter’s expenses, include: • • • •

underwriter’s counsel; reasonable travel costs incurred as part of the transaction; external data service fees; charges for communication, including the rating agency presentation, mailing, printing, and telephone expenses; and, • CUSIP fees.

BP: Issuing Taxable Debt  There are actual and potential differences between issuing tax-exempt and taxable debt.  Legal  Debt Structure  Call Provisions  Market Considerations  Pricing

BP: Managing Build America and Other Direct Subsidy Bonds  Procedures for filing of IRS Form 8038-CP.  Monitor Subsidy Payment (and method of payment)  Complete Tax Questionnaire and Discuss with bond counsel  Comply with and monitor all applicable tax laws

 Governments should look for alerts from GFOA, its municipal advisor and other organizations regarding ongoing reductions in the subsidy payment due to the issuer.

BP: Understanding Bank Loans o Numerous questions to ask about using bank loans as opposed to publicly offered debt, including the use of outside professionals to determine the validity of their use. o Need to understand the terms and risks associated with these products • Fees • Terms/Balloon Payments

o Can the government enter into a bank loan? o Disclosure of bank loan information is not required in and of itself, but the issuer and counsel need to determine if the bank loan and the priority of repayment count as being a material issue for outstanding bond deals. If in doubt, disclose it.

BP: Analyzing and Issuing Refunding Bonds o Why refund outstanding bonds? • Present value savings • Debt restructuring • Elimination of burdensome covenants

• Present value savings considerations:

• Savings goals should be addressed in issuer’s debt policies • Some states require minimum p.v. savings ratio, such as 3% of refunded bond principal amount • Better savings measurements involve optional call value and historic interest rate trends • Savings goals may differ for advance vs. current refundings • GFOA recommends that issuers use an independent financial advisor to evaluate savings metrics

BP: Investment of Bond Proceeds

o Principals of good investment management and understanding of inherent risks in investing bond proceeds are critical: • Establish good guidelines for permitted investments to reduce credit risk – SAFETY • Good cash flow estimates mitigate market risk – LIQUIDITY • Integration of knowledge of expected and future market conditions with other cash flows to reduce opportunity risk – YIELD

Ongoing Management of Invested Bond Proceeds o Obtain projected cash flow schedules from project managers o Inform internal investment officer of incoming funds o Bid Investment Agreements as needed o Develop process for monitoring balances in trustee held accounts o Actively monitor construction activities o Develop procedures for reinvestment of bond proceeds

Muni Bonds Best Practices

David E. Keller Assistant City Manager & Chief Financial Officer City of Weston, FL

IV. Best Practices: Disclosure a) Understanding Your Continuing Disclosure Responsibilities b) Maintaining and Investor Relations Program c) Using a Web Site for Disclosure

d) Web Site Presentation of Official Financial Documents e) Disclosures in Official Statements Related to Pension Funding Obligations f) Understanding Bank Loans (Disclosure Section)

Muni Bonds Best Practices Disclosure

IV.a. Understanding Your Continuing Disclosure Responsibilities

Understanding Your Continuing Disclosure Responsibilities o Issuers should have a clear understanding of their responsibilities as defined in the bond’s continuing disclosure agreement (“CDA”)/certificate/undertaking o Be aware of material events that must be disclosed

o Prior to execution, CDA’s should be reviewed with bond counsel, UW and MA to ensure a full understanding of issuer obligations

Understanding Your Continuing Disclosure Responsibilities o Governments should develop continuing disclosure procedures that: • Identify the information that is obligated to be submitted in annual filing; • Disclose the dates on which filings are to be made; • List the material events as stated by the SEC and the CDA; and • Identify the person designated as responsible for making the filings

Understanding Your Continuing Disclosure Responsibilities o For many governments, a Comprehensive Annual Financial Report (CAFR) may fulfill annual financial disclosure requirements o If a government’s CDA states that information will be provided that is outside the scope of the CAFR, that information may be included as a supplement to the CAFR when filing with EMMA

Understanding Your Continuing Disclosure Responsibilities o Governments should make annual filings as soon as annual audited financial information is complete • GFOA recommends within 180 days after end of FY • Prompt filing reduces risk that information may be found inadequate or misleading because of subsequent events

o GFOA recommends that governments do NOT include a commitment in their CDA or indicate on EMMA that they will provide information 120 or 150 days following the fiscal year

Understanding Your Continuing Disclosure Responsibilities o Voluntary Disclosures • After consulting with internal and external legal counsel: • A government may wish to provide other financial information to investors (via web site and link in EMMA) that goes beyond what is specified in the CDA • Examples of additional information that could be disclosed: – Annual budgets, Financial plans, Revenue forecasts, Investment information, Monthly financial reports

Understanding Your Continuing Disclosure Responsibilities

o Additional Information

• Issuers may want to provide additional information about agreements entered into in connection with debt issuance that will enable investors to make judgments about volatility and risk: • Letters of Credit issued in connection with variable rate debt issuance • Interest rate swaps • Investment agreements for bond proceeds including reserve funds – especially if pledged as bond security • Insurance sureties used to fund reserve requirements

I didn’t worry about Continuing Disclosure, and look how I’m doing…

Muni Bonds Best Practices Disclosure IV.b. Maintaining an Investor Relations Program

Maintaining an Investor Relations Program o GFOA recommends that governmental bond issuers consider developing an investor relations program. o Benefits of developing a program: • Better investor awareness of the credit • Possible better pricing • Assists with public’s awareness

Maintaining an Investor Relations Program o Assists with providing full and comprehensive disclosure of annual financial, operating, and other significant information in a timely manner consistent with federal, state and local laws o How to establish an investor relations program: • Determine who should be responsible for external communications about the entity’s debt issues • Consider a “Disclosure Board” that will help determine what kind of information should be disclosed and provided to issuers • Implement a process for handling investor calls

Maintaining an Investor Relations Program o Identify and select which information is to be made available to investors (budgets, financial plans, CAFRs, financial reports, etc.) to post on the website o Understand the appropriate concerns/requests of investors o Identity issuances with the use of CUSIP numbers o Use your web site and post a link to your financial info on EMMA o Create documents in searchable PDF format o Determine timing of the release of information related to any debt sales o When a single investor poses a question, it should be answered in a manner so that all investors can know the information

Maintaining an Investor Relations Program o Ensure the majority of investors have access to the information o Maintain a good relationship with rating agencies and fund analysts including distribution of disclosure information, keeping them informed of changes that could affect credit quality, and actions to address financial problems o Ensure financial statements and other information needed for disclosure are on a consistent schedule o Alert database members of upcoming bond sales, new information, etc. o Keep a database of investors/interested parties

Muni Bonds Best Practices Disclosure IV.c. Using a Web Site for Disclosure

Using a Web Site for Disclosure o When using web sites to disseminate information electronically: • Keep it simple • Ensure proper security of web site • Use proper disclaimers about the information being presented • Unaudited information • Stale information

o The SEC has embraced and promoted electronic disclosure

Using a Web Site for Disclosure o Governments and bond issuers use their web sites to disseminate information to the municipal securities market regarding: • The entity’s debt, • The entity’s financial condition, and • Other related information

o Your web site is an integral part of effective communication with investors and the marketplace and should be a part of an investor relations program

Using a Web Site for Disclosure o Considerations for Web Site Disclosure: • Information solely intended for investors should be segregated from other information and clearly identified as being intended for investors • A formal process for reviewing and approving any information posted on the web site should be required to ensure accuracy, consistency, and completeness of the information • Historical or outdated information should be marked and segregated from current information through the use of a “library” or “archive” accessible on the site

Using a Web Site for Disclosure o Items governments should consider posting on their web sites are: • Relating to the sale of bonds: • • • •

Preliminary Official Statements (POS), Audited financial statements, Feasibility reports, and Other related documents to a bond sale

• Information to report post-sale of bonds: • Continuing disclosure filings • Already prepared budgetary information

Using a Web Site for Disclosure o Costs to consider are: • Staff time to prepare information for electronic posting, • Software necessary to convert files to a searchable portable document format (PDF), and

• Effort and expense necessary to design, deploy and maintain a web page solely for disclosure

Using a Web Site for Disclosure o Issuers should be familiar with the SEC’s Interpretive Release on “Use of Electronic Media” or o See www.sec.gov/rules/interp/3442728.htm o Have all information that is posted on a government’s web site reviewed by legal counsel

Using a Web Site for Disclosure o While posting financial documents on a web site is a tremendous resource to citizens and an important investor relations tool: • Governments should be reminded that web site posting DOES NOT meet the continuing disclosure responsibilities for issuers of municipal debt set forth in Securities and Exchange Commission Rule 15c2-12 or the obligation to file continuing disclosure documents with EMMA

It may become more difficult to manage

27 June 2011Getting good information out can prevent confusion…

Muni Bonds Best Practices Disclosure IV.d. Web Site Presentation of Official Financial Documents

Web Presentation of Financial Docs o The GFOA believes a web site is especially well suited for governments to demonstrate accountability and transparency by making financial information readily accessible to the public.

Web Presentation of Financial Docs o Benefits of using a website to communicate financial information include: • • • • • • • • •

Heightened awareness Universal accessibility Increased potential for interaction with users Enhanced diversity Facilitated analysis Increased efficiency Lowered costs Contribution to sustainability Broadened potential scope.

Web Presentation of Financial Docs o The GFOA encourages every government to use its web site as a primary means of communicating financial information.

Web Presentation of Financial Docs

o The GFOA recommends that a government comply with the following guidelines while using a web site for this purpose: • Formatting – consistent with hard copy if any • Legibility – font size, page layout, etc. should be consistent • Pagination – number the pages • File Size – one file should be for the entire document, or if necessary because of total size, the minimum number of files possible

Web Presentation of Financial Docs

o Technological Infrastructure:

• Security – protect from unauthorized changes • Placement – a link on the homepage • Software compatibility – commonly used software • Features – zooming, continuous page format, search • Instructions – general user instructions • Linking – table of contents should allow navigation; bookmarks for flexibility and maneuverability • Testing – the documents should be tested to ensure they will function with different operating systems

Web Presentation of Financial Docs o Other considerations: • • • •

Electronic financial reporting language Distribution Information disclaimer Historical information

Muni Bonds Best Practices Disclosure IV.e. Including Disclosures in Official Statements Related to Pension Funding Obligations

Disclosure of Pension Obligations o Growing interest to investors and rating agencies o Much of the information about a government’s pension obligations can already be found in the CAFR and budget o Issuers need to determine if their pension liabilities could affect their ability to make debt service payments

Disclosure of Pension Obligations o Issuers should discuss with counsel how much information about their pension funding liabilities are ‘material’ information to investors • Are debt service payments and pension plan funding coming from the same revenue source? • Is there potential down the road that pension plan funding could ‘crowd out’ debt service payments? • Is the priority of payment to the payment fund superior to debt service payments? • Is the current and future funding of the pension plan material in relation to the issuer’s current and projected budgets? Are pension fund trends or issues material?

Disclosure of Pension Obligations o If pension funding could adversely affect ability to repay debt service, more disclosure may be required: • • • •

Statements and schedules from the CAFR Pension data included in the budget Other public reports, such as the actuarial reports Relevant laws, statutes, etc. that regulate pension funding or obligations or the pension plan itself • Information from the pension plan related to plan investments and other policies and procedures that could be material to bondholders

Disclosure of Pension Obligations o For further information, see the National Association of Bond Lawyers, Considerations in Preparing Disclosure in Official Statements Regarding and Issuer’s Pension Funding Obligations at: o

www.nabl.org/uploads/cms/documents/pension_funding_obligations_document_5-1812_b.pdf

Muni Bonds Best Practices Disclosure

IV.f. Understanding Bank Loans (disclosure section)

Bank Loans (Disclosure Section) o Disclosure of bank loan information is not required by SEC Rule 15c2-12 in and of itself, but issuer and counsel need to determine if the bank loan and the priority of repayment count as being a material issue for outstanding bond deals. o If voluntarily disclosed, it may be held to the same standards of materiality and timeliness as information disclosed under the Rule.

Bank Loans (Disclosure Section) o Information to consider for disclosure: • • • • • • • •

Loan amount, date incurred Final maturity date of the loan Debt service schedule Interest rate method, if variable Use of loan proceeds Legal security and source of payments Covenants, events of default and remedies Term-out provisions, data on pre-payment or other nonstandard payment considerations

V. Debt Practices and Policies a) Debt Management Policy

Muni Bonds Best Practices Disclosure V.a. Debt Management Policy

Debt Management Policy o Debt Management Policy • A debt management policy improves the quality of decisions, provides guidelines for the structure of debt issuance, articulate policy goals, and demonstrates a commitment to long-term capital and financial planning. • Adherence to a debt management policy signals to rating agencies and the capital markets that a government is well-managed and should meet its obligations in a timely manner. • Should be approved by the issuer’s governing body to provide credibility, transparency and ensure there is common understanding among elected officials and staff

Debt Management Policy o Debt Limits • Legal Restrictions determined by: • State Constitution or law • Local charter, by-laws, ordinance, or covenant • Bond referenda approved by voters • Public policies • Purposes for which debt can be used • Types of debt allowable or prohibited • Relationship to capital improvement program • Policy goals related to capital development, including use of tax increment financing and public-private partnerships

Debt Management Policy o Debt Limits • Financial Restrictions: • Debt per capita • Debt to personal income • Debt to taxable property value • Debt service payments as a %age of general fund revenues or expenditures • See also revenue debt, conduit debt, short-term debt, and variable rate debt recommendations

Debt Management Policy o Debt Structuring Practices • • • • •

Maximum debt Average maturity Debt service pattern (equal payments, equal principal) Use of optional redemption features Use of variable or fixed rate debt, credit enhancements, derivatives, short-term debt • Other considerations (capitalize interest, deferral of principal, and/or other internal credit support)

Debt Management Policy o Debt Issuance Practices • Selection and use of professional service providers • Criteria for determining method of sale and investment of proceeds • Use of comparative bond pricing services or market indices as benchmark in negotiated transactions • Criteria for issuance of advance refunding and current refunding bonds • Use of credit ratings, minimum bond ratings, determination of number of ratings, and selection of rating services

Debt Management Policy o Debt management practices • • • • •

Investment of bond proceeds Primary and secondary market disclosure practices Arbitrage rebate monitoring and filing Federal and state law compliance practices Ongoing market and investor relation efforts

Debt Management Policy o Use of derivatives • The policy should clearly state whether or not the issuer can or should use derivatives. If yes, a separate and comprehensive derivatives policy should be developed.

I’m just Joe Finance…how am I supposed to remember all of this?

Muni Bonds Best Practices Disclosure V.a.i. Considerations when Issuing Bonds: Debt Issuance Checklist

Debt Issuance Checklist o Debt Issuance Checklist • Has the issuer retained a municipal advisor, bond counsel, disclosure counsel? • Is the type of debt being considered the most appropriate? • Does maturity structure and estimated debt service match revenue flow in a manner to not raise credit concerns? • For a competitive sale, do the terms and conditions of sale allow flexibility to structure the most favorable bid possible? • For negotiated sale, does the UW RFP provide sufficient data for selection of the most qualified firm at best price? • Has the issuer, with advisors, developed a POS, and are they being properly distributed?

Debt Issuance Checklist o Debt Issuance Checklist • Does the POS meet or exceed industry standards? • Has legal counsel been consulted regarding all tax and legal requirements, including notice? • Has the MA or BC been consulted to ensure appropriate level of investor outreach? • Have credit ratings been sought for the issue? Bond insurance considered? • Have post-issuance compliance policies and procedures been adopted? • Do officials have an understanding of all the fees related to the transaction? Are they necessary for a financing of this nature, size and complexity?

Muni Bonds Best Practices Disclosure V.a.ii. Post Issuance Compliance Checklist

Post Issuance Checklist o Developed jointly by the GFOA and the NABL o Covers three primary areas – tax, securities/disclosure and state law o Records document reference and responsible party.

Post Issuance Checklist o Tax section addresses topics including: • • • • • • •

General matters Use of proceeds Private activity bonds Arbitrage Special rules for pool bonds Record retention Allocations of bond proceeds to expenditures

Post Issuance Checklist o Securities/Disclosure section addresses topics including: • • • •

SEC Rule 15c2-12 requirements Notification to Underwriters of Bonds Information required to be filed with other entities Local disclosure

Post Issuance Checklist o State law section addresses topics including: • • • • • •

Security Insurance Financial covenants Transfer of property Investments Derivatives

So remember…not paying attention to details isn’t the end of the world…

Or is it? 

Changing Regulatory Environment: GFOA’s Municipal Advisor Alert o The Securities and Exchange Commission (SEC) approved a revised MA Rule on September 18, 2013. Implementation of the Rule begins on July 1, 2014. o Rule is expected to define which specific activities will be covered by the imposed fiduciary duty of a municipal advisor to its clients. o Rule is expected to limit the ability of parties without a fiduciary duty to the issuer from offering “advice” to the issuer. This is expected to fundamentally change the communication practices between issuers and underwriter that have existed to date.

o Rule provides exceptions for underwriters to communicate with issuer about specific transactions: • • •

Independent Municipal Advisor Exception RFP/RFQ Exception Underwriter Exception

Changing Regulatory Environment: GFOA’s Municipal Advisor Alert (cont.) o Independent Municipal Advisor Exception • Issuers may obtain advice from an underwriter when it has retained an independent registered municipal advisor and has represented in writing to the underwriter that it will rely on municipal advisor for advice. • Issuers may make such written communication directly to the underwriter or may post it on its website. GFOA recommends that issuers post the information on its website to enable efficient communication to the market. • GFOA does not recommend that underwriters speak directly to the issuer’s municipal advisor unless specifically permitted by the issuer or unless mandated by SEC or MSRB rules

Changing Regulatory Environment: GFOA’s Municipal Advisor Alert (cont.) o RFP/RFQ Exception • Underwriters responding to an RFP/RFQ may include recommendations about specific financings without violating the MA Rule. • For exemption to apply, RFP must not be outstanding for more than 6 months and issuer must widely distribute the RFP (to at least 3 competitive firms) • Issuers that use a pool of underwriters may have to use a “mini-RFP to receive advice from underwriting firms included in the pool.

Changing Regulatory Environment: GFOA’s Municipal Advisor Alert (cont.) o Underwriter Exception • This exception applies only if the underwriter has been selected to underwrite a specific transaction. • An issuer may receive advice from a selected underwriter without having made a final decision to issue the bonds. In such case, GFOA recommends signing a “letter of intent” with the underwriter to allow discussion of the transaction as it is being developed.

GFOA Advisories Related to Other Types of Debt Instruments o Evaluating the Use of Pension Obligation Bonds (ADVISORY). Governments should exercise extreme care and diligence when determining whether to use these products. These are taxable. o Need for Considerable Caution in Regard to OPEB Bonds (ADVISORY). These types of instruments are rarely advisable. These are taxable. o Using Variable Rate Debt Instruments (ADVISORY). While some circumstances may give a nod to their use, there are many unique risks involved with these types of bonds.

o Use of Derivatives (ADVISORY). Unless a government has a complete understanding of these products and the market, they are not advised to enter into these transactions.

Muni Bonds Best Practices