Navigating the new municipal advisor rule

To Our Issuer Clients

The new SEC Municipal Advisor Rule (MA Rule) goes into effect on July 1, 2014.  Before the effective date, underwriters can provide virtually an unlimited scope and range of unsolicited ideas to you.  The MA Rule changes this.  Please be assured that Raymond James Public Finance bankers are ready to answer your questions and discuss the details of the new Rule. The most important point is that to ensure that you continue to benefit from a robust flow of information and ideas from Raymond James as your underwriter, including specifically tailored recommendations, one of three MA Rule exemptions must be in place:

Exemption #1:  The Underwriter Exemption

  • After an issuer engages us as underwriter for a specific transaction or financing program, we can provide unsolicited ideas, including advice, within the scope of the specific transaction or financing program.
  • We may be engaged by a traditional underwriting engagement agreement, official action (e.g., being named in a resolution, ordinance, or voice vote) or by any other reasonable means.
  • As an alternative to the above, we can execute a non-binding underwriting Letter of Intent (LOI) agreement which may be terminated by either party at any time.
  • The LOI neither obligates the issuer to issue any debt nor use us as the underwriter. It will, however, enable us to provide information, ideas, and advice within the scope of the underwriting engagement.

Exemption #2:  The IRMA Exemption

  • This exemption allows underwriters to submit ideas, including advice, to issuers who have retained an Independent Registered Municipal Advisor (IRMA) and follow the procedures established by the Rule.
  • These procedures are satisfied by Raymond James sending the issuer an email letter, citing the IRMA exemption and identifying a specific IRMA (who must be cc’d on the letter), requiring the issuer to acknowledge that the identified IRMA is, in fact, on retainer to the issuer and representing that the issuer will rely on the IRMA’s advice with respect to the subject matter specified by the issuer.
  • The subject matter can be as broad as “all aspects of the issuance of municipal securities and municipal financial products” or as narrow as a specific transaction.
  • Note that if the issuer has multiple IRMAs, it will need to identify which ones are working on which matters.

Exemption #3:  The RFP Exemption

  • The Rule allows Raymond James to submit ideas, including advice, to an issuer as part of its RFP process. 
  • This option is somewhat limited, in the sense that unless the issuer wants to issue serial RFPs for evolving needs, once the RFP process closes, our window for offering ideas would also close. 
  • Additionally, issuers might need to be aware of opportunities in order to know to send out an RFP to seek ideas from underwriters.
  • The Rule does not allow issuers to issue “open ended” RFPs to their underwriting pools. In addition, there is a time limit of six months for the submission of ideas, and the scope is limited to a specific transaction or financing program. 
  • If an underwriting pool exists, an issuer could send a “mini” RFP to its pool asking for ideas on a menu of topics for a reasonable time period, and the SEC has indicated that three months will be considered reasonable regarding “mini” RFPs. 
  • However, merely being part of the pool (absent a “mini” RFP) does not give underwriters regulatory cover under the Rule to submit ideas at will.

After July 1, Raymond James will continue to provide you with information that is more general in nature than what you may really need. It will not include any recommendations, proposals or suggestions that you take action or not take action. If you want advice more specific to your needs, we will only be able to provide it pursuant to one of the above exemptions.

Providing General Information

The term “general information” is not quite as narrow as it sounds but does restrict the scope of information and ideas we may present to you when compared to the broader scope of ideas we can provide under one of the three above exemptions. The following are examples of the kinds of information we can provide without requiring one of the above exemptions and without the SEC regarding the information as advice:

  • Information about a firm’s professional qualifications and experience;
  • General market and financial information (e.g., market statistics about issuance activity or current market interest rates for different types of bonds or categories of credits), including information that might indicate favorable conditions to issue debt or refinance outstanding debt;
  • Factual information describing various types of debt financing structures, including a comparison of those structures;
  • Factual and educational information regarding various government financing programs and incentives;
  • General market information about a municipal entity’s outstanding bonds, such as current market prices and yields;
  • Information describing state law requirements that authorize municipal entities to issue certain types of bonds to finance capital projects;
  • Factual information regarding different types of debt financing structures available to the municipal entity to finance capital projects under applicable state law;
  • An indication of hypothetical new issue pricing range that takes into consideration current market conditions and certain factual information particularized to the issuer;
  • Information regarding a range of hypothetical interest rates or debt service requirements for a new money debt with various maturities; and
  • Mathematical calculations of a municipal issuer’s hypothetical potential interest cost savings if it were to issue refunding bonds at a range of estimated current market rates, based on the assumption that the refunding bonds have the same debt payment schedule and final maturity date as the bonds to be refunded.

We’re Here to Answer Your Questions

Please remember that if your needs call for more than merely “general information,” we will only be able to provide suggestions, recommendations and advice specific to your situation if at least one of the exemptions applies.  Following the guidance summarized above, prior to the MA Rule effective date of July 1, 2014, will help ensure that we can continue to provide the free flow of information, ideas and advice between us.  Please call a Raymond James Public Finance banker to answer any questions you may have.

Disclaimer

This is only a summary of certain provisions of the SEC municipal advisor rule prepared as a convenience for customers of Raymond James and other interested parties. It does not purport to be complete or authoritative and is qualified in its entirety by reference to the text of the rule and official explanatory materials promulgated by the SEC. Any commentary contained herein represents solely the views of Raymond James and does not constitute legal advice. The text of the rule may be found on the SEC’s website at http://www.sec.gov/rules/final/2013/34-70462.pdf

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