Muni Disclosure Challenges

November 9th, 2015

This week we explore the challenges often faced by Issuers and Underwriters in navigating the municipal bond disclosure regime. We also take an early look at the impact of the reopening of the SLGS window.

Springfield City Water, Light and Power Illustrates Disclosure Difficulties

One of the largest deals scheduled for this week is a $496mm sale of Senior Lien Electric Revenue bonds by the City of Springfield, Illinois.  Springfield is restructuring its outstanding debt to solidify what it believes is a successful turnaround effort by Springfield City Water, Light and Power (“CWLP”).

This deal provides a good example of how difficult it has become for Issuers and Underwriters to navigate the tangled municipal disclosure regime.

Using what can be a confusing submission system with heightened enforcement standards and an evolving understanding of materiality, even well-meaning Issuers sometimes have trouble tracking their compliance with the regulations and their disclosure obligations.

The summary of the Continuing Disclosure Undertaking (“CDU”) provided in the CWLP Preliminary Offering Statement identifies the City of Springfield as the Continuing Disclosure Obligated Party (“CDOP”) and CWLP as the Subject (“Subject”) of the CDU obligations. See our recent white paper “Municipal Underwriting Diligence” for more details on using the CDOP/Subject approach for evaluating compliance (both historical and future) with Rule 15c2-12 commitments.

In past borrowings, Springfield covenanted to provide Annual Financial Statements and Operating Data regarding CWLP within 210 days of Fiscal Year End.  As the DIVER Underwriter “stop light” report demonstrates, Springfield has fully complied with these commitments:


Source:  DIVER Underwriter

Based solely on the disclosure history for CWLP as Subject, Springfield gets a clean report card.  All filings were made on time and posted to the correct MSRB categories.

However, as we pointed out in the article, many market participants believe that evaluation of historical compliance should not be limited to one particular Subject.  They believe that the historical evaluation should cover all previous obligations of the CDOP, regardless of Subject.

Using this approach, Springfield’s report card is mixed.  As the POS and Supplement point out, despite good intentions, Springfield has numerous “Failures to File” related to commitments on its GO bonds.


Source:  DIVER Underwriter

As the screen shot above shows, Springfield has been consistently late in filing both its Audited Financials and Operating data.  Springfield acknowledges these late filings in the current CWLP POS.

In addition to filing late, Springfield sometimes didn’t tag its filings to all the relevant years or submit them in the designated category (these are the filings marked with the blue triangles). As we noted in our white paper, the market awaits guidance from the SEC on the consequences of misclassified filings but, in the interim, we believe the same should be disclosed in the POS.

Treasury SLGS data shows little pent up demand

As we discussed several weeks ago, the settlement of the U.S. debt ceiling debate allowed the Treasury department to reopen the “SLGS” window.  At that time, we wondered whether the market would care about the reopening.   We speculated that poor refunding economics and little “yield to burn” on open market securities would limit demand for SLGS.

So far the data is mixed.  During the three days since the window reopened, subscription requests totaling $3 billion were registered.  This is about 50% higher than the long-term average rate, but doesn’t indicate any great pent up demand for SLGS.


Last week’s volume looks stronger when compared to the subscription data for the period since ’08.


We will continue to monitor the SLGS data for signs of resurgence in refunding activity.


Have a Great Week,

Michael Craft, CFA