MSRB Weighs in on Popular New Build America Bonds
In a notice to dealers, issuers and the investment community, the Municipal Securities Rulemaking Board (MSRB) recently issued official guidelines pertaining to Build America Bonds (BAB). These taxable municipal bonds, designed to bolster local economies, were authorized by the federal government as a provision of the American Recovery and Reinvestment Act of 2009 (ARRA).
As explained in MSRB Notice 2009-15, the ARRA authorizes state and local governments to issue two types of Build America Bonds:
- "Tax Credit” – Provide a federal subsidy through federal tax credits to investors. The tax credits may also be stripped and sold to other investors pursuant to Treasury regulations.
- "Direct Payment” – Provide a federal subsidy through a refundable tax credit paid to state or local government issuers by the Treasury Department and the Internal Revenue Service.
Because Build America bonds are issued by state and local governments and their agencies, they are municipal bonds and, therefore, are still subject to all MSRB rules and guidelines.
These include Rule G-36, which requires underwriters to submit official statements to the MSRB for most primary offerings of municipal securities, and Rule G-32 which sets forth official statement delivery responsibilities to customers – including requirements to submit official statements electronically through the MSRB’s Electronic Municipal Market Access (EMMA) system.
In addition, Rule G-27 requires that municipal securities principals must supervise all municipal securities (including taxable) activities, while Rule G-14 stipulates the time period in which all municipal securities transactions must be reported.
The MSRB also points out that other types of tax credit bonds – Recovery Zone Economic Development Bonds, Qualified School Construction Bonds, Clean Renewable Energy Bonds, Midwestern Tax Credit Bonds, Energy Conservation Bonds, and Qualified Zone Academy Bonds – are also municipal securities subject to the same set of rules and guidelines.
"Many municipalities are taking advantage of the opportunity to issue Build America Bonds and the MSRB is seeking to ensure that investors are protected by existing MSRB rules regulating dealer activities,” according to MSRB Chair Ronald A. Stack.
"Municipal bond investors should expect the same high standards of dealer conduct with respect to Build America Bonds as they do for all other municipal securities.”
NEW_SECTIONBuild America Bonds … Gaining SteamEND_SUPP_HDRThe Illinois State Toll Highway Authority brought a $500 million bond issue to market on May 12, 2009, making it one of the first governmental agencies in the state to issue Build America Bonds. The bonds will help finance its $6.3 billion “Open Roads for a Faster Future” Congestion Relief program.
Crain’s Chicago Business reports that the Plainfield Fire Protection District was the first issuer of Build America Bonds in Illinois in April. “The State of Illinois and Cook County are among other potential issuers,” according to Crain’s.
With a $3.65 million private placement deal in April, Stevens Point, Wisconsin was the first issuer of Build America Bonds.
Under the Build America Bond program, the New Jersey Turnpike Authority sold a $1.3 billion issuance – five times the originally planned amount due to strong investor demand.