Prior to structuring or issuing any form of debt, the municipal issuer (local government) typically forms a team of experts to assist them with complying with all the legal requirements and structuring the issuance. While each issuance can be unique, this team typically includes an underwriting firm, bond counsel, financial adviser, rating agency, an insurer, etc. One of the important tasks of the issuance process is preparing an Official Statement – which is prepared by or on behalf of a state or local government in connection with a new issue of municipal securities. This statement is quite comparable to a fund prospectus that is often used in the sale of equities of mutual fund sales. In this article, we will take a closer look at the use of an Official Statement in debt issuances and how investors can use this information in their investment decisions. Be sure to check out our Education section to learn more about municipal bonds.
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Content continues below advertisementAs mentioned above, the Official Statement is either prepared by the issuer or the underwriter’s counsel, which is determined by whether the issuer sells its debt instruments through a competitive bid or a negotiated sale process.
The Internal Revenue Services ( IRS ) states the following in regard to competitive and negotiated sales of municipal debt and the preparation of the Official Statement:
In all public offerings and most private placements, the underwriter’s counsel renders an opinion that the Official Statement does not contain any untrue statement of a material fact and does not omit to state a material fact that was necessary to be disclosed. To be able to render this opinion, the underwriter’s counsel reviews records of the issuer, the conduit borrower and the information pertaining to the project.
Although the contents of an Official Statement may vary depending on the issuance and/or issuer, the following content is quite universal for all standard Official Statements:
In addition to all the sections above, the Official Statement includes information that’s unique to each issuance, such as credit enhancements, tax exemptions, etc.
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For prospective and current investors in municipal debt, it is critical to conduct a thorough review of the Official Statements for any potential debt instruments before your purchase. The MSRB’s Electronic Municipal Market Access ( EMMA ) website provides free access to official statements. Underwriters are required to submit to the MSRB for posting on EMMA copies of the official statement for virtually all new issues of municipal securities. Underwriters are also required to submit to the MSRB copies of any amendments to the official statement up until the 25th day after the settlement of the underwriting.
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Disclaimer: The opinions and statements expressed in this article are for informational purposes only and are not intended to provide investment advice or guidance in any way and do not represent a solicitation to buy, sell or hold any of the securities mentioned. Opinions and statements expressed reflect only the view or judgement of the author(s) at the time of publication and are subject to change without notice. Information has been derived from sources deemed to be reliable, the reliability of which is not guaranteed. Readers are encouraged to obtain official statements and other disclosure documents on their own and/or to consult with their own investment professionals and advisers prior to making any investment decisions.
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