TORONTO – Issuers vented their frustrations about the complicated nature of voluntary bank loan disclosure in the municipal market to the Municipal Securities Rulemaking Board chair here on Saturday.
The issuers made their pitches for potential changes to the disclosure system during the Government Finance Officers Association debt committee meeting held before GFOA's annual conference.
"I think there is a problem [with a lack of disclosure], but I think it is overstated," said Ivan Samstein, chief financial officer for Cook County, Ill., responding to past MSRB statements that only a small minority of issuers are voluntarily disclosing details about their bank loans."I feel like we have clearly, unambiguously disclosed all of the terms but we are still in that camp of issuers that [the MSRB is] saying haven't disclosed."
"Frankly, [the process] doesn't work," said Jonas Biery, senior business operations manager at the City of Portland, Ore.'s Bureau of Environmental Services and vice chair of the debt committee. Biery added that the problem with bank loan information is that "issuers don't know where to post it and investors don't know how to find it," which has led to the appearance of issuers largely under-disclosing.
Nat Singer, the MSRB board chair, said that bank loans are known as the "Nat issue" within the MSRB because of how important he thinks they are.
"Bank loans are the next major blowup potentially in the municipal market," he said. "It's a huge part of the market now."
The loans have become popular for issuers because they can be used as a cheaper and less regulated alternative to municipal bonds.
Singer told committee members of a recent experience he had during a meeting with Securities and Exchange Commission staff, including chair Mary Jo White. He brought "a big bag of documents," including a copy of a bank letter of credit and a separate loan document, both from the same issuer. He said he put them side by side, and pointed out that they looked very similar. The language in the loan document said it was parity debt, just like that from the bonds associated with the letter of credit, but when Singer flipped a few pages back, he pointed out that if the issuer's rating fell below a certain mark, the loan obligations were accelerated and the loan was immediately payable in full.
Singer pointed out that while the letter of credit document was publicly available, the loan document was not.
Later in the discussion, Singer further highlighted the need for bank loan disclosure by saying he has heard that some of the largest muni investors have adopted policies where they will not buy bonds when information about the issuer's bank loans is not readily available.
The MSRB circulated a concept release on March 28 that asked for market participants' opinions about a rule to require municipal advisors to disclose information about the bank loans or privately placed munis of their issuer clients. The self-regulator said it proposed requiring the disclosures from MAs because issuers have not readily responded to requests for voluntary bank loan disclosures on EMMA. The market has until May 27 to file comment letters on the concept release.
"We think [bank loan disclosure] is a problem," Singer said. "Is requiring MAs to disclose the answer? I don't know." He encouraged GFOA members to provide their comments on the concept.
GFOA, in an alert for its members on bank loan disclosure released on May 12, said it has significant concerns with the proposal, partly because municipal advisors are the only party in a municipal debt transaction that has a fiduciary responsibility to issuers.
The debt committee members' concerns centered more on a belief that issuers still haven't been given the right tools to show the MSRB and others that they can voluntarily disclose their loans effectively.
Biery, said that in 2015, when he was a debt manager, he took the initiative to voluntarily post bank loan information to EMMA.
He said that he and his team "thought we came up with a really cool concept where we would post the entire document with the redactions requested by the banks and a summary page, with the idea … that we would update that information as it changed materially."
Biery said what he found was that once the document was posted, it was "there forever" and couldn't be updated. He also said the lack of a bank loan category on EMMA while he was posting made the process more difficult.
"From our perspective, we have this potential momentum to create this structure that facilitates issuer posting, but the EMMA system just didn't quite seem to accommodate that," Biery said.
Ben Watkins, Florida's director of bond finance, echoed past calls for an easy process to submit bank loans when issuers try to file the information on EMMA.
"How about a dropdown menu that says 'bank loan'?" Watkins asked. "How hard is that?"
After the complaints had been registered with Singer, one member of the committee brought the discussion back to the MSRB's bank loan proposal involving MAs, saying "the important point here is … that most of us do not think municipal advisors should have any role" in bank loan disclosure.
Singer was receptive to the issuer complaints and suggestions. He said he recognized the argument that the market "will get better disclosure if [the MSRB] improves the process."
Ritta McLaughlin, chief education officer for the MSRB, said it is an issue the self-regulator is working on from a technological standpoint.
"We recognized that there are challenges and the need to be more user friendly," she said. "We're interested in getting people's thoughts and feedback. We're also going to be looking to have additional input from various market constituents."
Singer told the issuers he wants to help make the process more user-friendly for the issuer.
"If we haven't been good listeners, then let us know," Singer said. "The more we [have these discussions] the better."
