The Internal Revenue Service, Tax Exempt & Government Entities Division, has released its Fiscal Year 2019 Program Letter, a copy of which is available here. Among other things, the Program Letter identifies the compliance areas for the tax-exempt bond community that will be a priority for the IRS in the new fiscal year which began on October 1. Continue Reading IRS Announces Tax-Exempt Bonds’ Program Priorities for 2019 Fiscal Year
On August 20, 2018 the SEC approved amendments to Rule 15c2-12 of the Securities Exchange Act to add two additional disclosure events to written continuing disclosure undertakings required to be obtained by underwriters in primary securities offerings. A copy of the final rule approving the amendments can be accessed here.
The SEC originally proposed the amendments in March 2017. Read our previous commentary on the amendments here. The new event disclosures that will be added to the Rule remain the same as was originally proposed:
- Incurrence of a “financial obligation” of the obligated person, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation of the issuer or obligated person, any of which affect security holders, if material; and
- Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of the financial obligation of the obligated person, any of which reflect financial difficulties.
The original proposed version of the amendments would have defined a “financial obligation” to mean a: (i) debt obligation, (ii) lease, (iii) guarantee, (iv) derivative instrument, or (v) monetary obligation resulting from a judicial, administrative or arbitration proceeding. A “financial obligation” would not include municipal securities as to which a final official statement has been provided to the MSRB.
The proposed amendments generated substantial comments from the municipal bond community. In response to those comments, the SEC softened the reach of the amendments by removing from the definition monetary obligations resulting from judicial, administrative or arbitration proceedings. The revised definition also limits the scope of covered guarantees, derivative instruments, and leases.
As revised, “financial obligation” now means a: (i) debt obligation; (ii) derivative instrument entered into in connection with, or, pledged as security or a source of payment for, an existing or planned debt obligation; or (iii) guarantee of (i) or (ii). The exclusion for municipal securities as to which a final official statement has been provided to the MSRB remains in place. And, while the separate, broad category for “leases” was removed, the SEC has changed its interpretation of “debt obligation” to include any lease which operates as a vehicle to borrow money.
The compliance date for the new event disclosures is 180 days after publication in the Federal Register. For bonds sold after the compliance date, underwriters will have to ensure that the new event disclosures are included in the continuing disclosure agreement entered into with the issuer or obligated person with respect to the bonds.
We’ve previously discussed on this blog the importance of continuing disclosure in the municipal bond industry, and the steps municipal issuers should take to ensure they remain in compliance with their obligations in this area. I recently recorded a video podcast on this topic. You can watch it below – or at the following link: https://www.mcneeslaw.com/continuing-disclosure-video/.
On May 23, the Pennsylvania House of Representatives approved Senate Bill 234, which creates the Property Assessed Clean Energy (PACE) Program. SB 234, which was approved by the Senate in January of this year, would help owners of agricultural, commercial and industrial properties obtain low-cost, long-term financing for energy efficiency, water conservation and renewable energy projects. The program would not include multifamily housing or other residential property. Continue Reading Pennsylvania Legislature Approves New Municipal Alternative Energy Program
On Monday, May 14, the United States Supreme Court announced its eagerly awaited decision in Murphy v. National Collegiate Athletic Association and, as many expected, struck down the Professional and Amateur Sports Protection Act (“PASPA”), a federal law that prohibits states from authorizing and regulating sports wagering. Continue Reading Supreme Court Opens Door to Sports Betting in all Fifty States
On December 12, 2017, the Board of Governors of the Federal Reserve System (FRB) issued Notice 2017-26761 (82 FR 58397, Docket Number OP-1573) expressing its intent to begin publication during the second quarter of 2018 of three overnight repurchase transaction reference rates. The FRB began publication of these rates through the Federal Reserve Bank of New York on April 3, 2018. Continue Reading Federal Reserve Board Now Publishing SOFR And Other Alternative Repo Rates
On May 11, 2016, the Department of Treasury, Financial Crimes Enforcement Network (FinCEN) published its final rule (81 FR 29298) on required “know your customer” due diligence procedures (Rule). The Rule established a compliance deadline of May 11, 2018 for all “covered financial institutions.” Continue Reading Fincen Customer Due Diligence Rule Compliance Deadline Approaches
When Congress passed the Tax Cuts and Jobs Act (TCJA) late last year, a much-heralded provision of TCJA was the reduction in the federal corporate income tax rate, from 35% to 21%. However, that reduction has had unforeseen consequences for the municipal bond industry. The reduction in the tax rate is expected to result in efforts by banks to increase the interest rates charged by banks for current outstanding loans to municipalities and 501(c)(3) tax-exempt organizations. Whether a bank may increase the interest rate on a loan will depend on the language of the loan documents. Even if the loan documents permit the bank to unilaterally increase the interest rate, some banks may be hesitant to do so, as the request is may be received poorly, potentially jeopardizing the bank’s ongoing relationship with the borrower. Continue Reading Continuing Disclosure in the Municipal Bond Market: Importance of Compliance
On April 11, 2018, the Internal Revenue Service published Revenue Procedure 2018-26, a copy of which can be accessed here, which provides new guidance to issuers on the availability of remedial actions to preserve the tax-advantaged status of their bonds in the face of a violation of the tax rules. Rev. Proc. 2018-26 applies to tax-advantaged bonds generally, i.e. traditional tax-exempt bonds under section 103 of the Code, as well as federally taxable bonds that carry with them tax credit or direct pay subsidy benefits. Continue Reading IRS Issues Guidance on Remedial Actions for Tax-Advantaged Bonds
On March 29, 2018, the National Association of Bond Lawyers (NABL) formally requested guidance from the IRS regarding the ability of municipal issuers to issue tax-exempt advance refunding bonds to refund taxable bonds after the enactment of the Tax Cuts and Jobs Act (TCJA). The request comes on the heels of public statements by Treasury and IRS representatives regarding their belief that notwithstanding the passage of TCJA, municipal issuers may continue to issue tax-exempt advance refunding bonds to refund taxable bonds, so long as the taxable bonds to be refunded are not tax-advantaged bonds such as Build America Bonds, and the refunding otherwise complies with the requirements of section 149 of the Code and the regulations thereto. Continue Reading NABL Requests IRS Guidance on Tax-Exempt Advance Refundings of Taxable Bonds