K. UNDERSTANDING BOND DOCUMENTS by …

1 K. UNDERSTANDING bond DOCUMENTSbySunita Lough and Debra Kawecki1. IntroductionTwo questions most frequently asked by agents examining bond financingsare, "is it necessary to read all of the DOCUMENTS in the bond transcript in order toexamine a bond issue?" and, "which DOCUMENTS are important?" The size of a bondtranscript and the number of DOCUMENTS included in a transcript can beoverwhelming to a person not familiar with bond financings. The purpose of thisarticle is to assist agents examining bond financing to understand the basic bonddocuments. The article is directed towards the agent and, to receive maximumbenefit, you should use it interactively with a bond transcript.

2 If you have a bondtranscript available, use the particular DOCUMENTS in the bond transcript as you readthe corresponding sections of this are a wide variety of different types of municipal financingarrangements. These include general obligation bonds, various type of revenuebonds, special tax bonds, tax increment bonds, lease and installment salefinancings (including certificates of participation), assessment bonds, and conduitbonds issued for the benefit of nongovernmental persons. One reason there are somany types of municipal financing arrangements is that different state laws placedifferent constraints on the borrowing and taxing powers of state and localgovernments.

3 This means that municipal financing practices can vary widely fromstate to article does not attempt to describe all of these types of municipalfinancing arrangements. Rather, we attempt to provide an overview of thedocuments that will usually appear in most types of What is a bond Transcript?As the Examination Guidelines for Municipal Financing Arrangementsstate, an examination of a bond transaction is conducted at the issuer level. Afteryou have informed the issuer that its bonds are under examination, you shouldrequest to review the bond transcript. The bond transcript or the "bound volume",as it may be called, is prepared by bond counsel after the bonds have been counsel provides a copy of the bond transcript to each major party to thefinancing and its attorneys.

4 An issuer who cannot locate its copy of the bondtranscript may be able to obtain a copy from its lawyer, bond counsel or otherparties to the financing. If faced with a situation where the issuer cannot locate itsbound volume, you may suggest that the issuer obtain it from its counsel or bondcounsel. The bond transcript contains those DOCUMENTS which were considerednecessary by the parties to the transaction. The issuance and sale of the bondswould not have occurred without the execution and/or delivery of such the bond transcript includes only certain DOCUMENTS which were availableat the time of the issuance and sale of the bonds, you will, in most instances, needto review additional DOCUMENTS which are not a part of the bond transcript.

5 Forexample, requisitions, income statements, cash flows and other documentsreflecting events occurring after the issuance of the bonds. The bond transcript,however, should be your starting point and, if at all possible, it should be reviewedbefore you request other DOCUMENTS . This will permit you to make a reasonableand focused inquiry rather than asking for all and any DOCUMENTS related to thefinancing. However, nothing is cut and dry and there will be instances where youwill sense that all DOCUMENTS should be requested the first time What Does a bond Transcript Contain?There are no requirements in the municipal finance industry regarding thesequence of DOCUMENTS in a bound volume.

6 This is not to say that there is norhyme or reason as to how a particular bond transcript is arranged. However, thesequence of the DOCUMENTS in a bond transcript depends entirely upon bondcounsel. All bond transcripts contain the following categories of DOCUMENTS :Offering DocumentsPreliminary Official StatementOfficial StatementBond purchase agreementBlue sky surveyBasic Legal DocumentsIndenture/resolutionLoan/lease agreementMortgage/deed of trustRequest to authenticate and deliver bondsCredit enhancement documentsNo arbitrage certificate/tax regulatory agreementForm 8038/8038-GLand use restriction agreementTEFRA approval/volume cap certificateResolutions and Certificates of the PartiesCopy of the relevant state lawOrganizational DOCUMENTS of the issuerResolution(s)

7 Of the issuer authorizing the financingCertificates of the issuerOrganizational DOCUMENTS of the conduit borrowerResolutions of the conduit borrowerCertificates of the conduit borrowerCertificate of the credit enhancerCertificate of the TrusteeLegal OpinionsOpinions of bond counselOpinion of underwriter's counselOpinion(s) of the counsel to the conduit borrowerOpinion of issuer's counselOpinion of credit enhancer's counselMiscellaneousRating letter(s)Receipts for the bonds and proceedsFeasibility study/engineer's reportTitle insuranceFinancing statementAppraisal4. Alternative Sources of InformationA. Need for Alternative SourcesAlthough a bond transcript is part of the public record of the issuer and maybe subject to state and local sunshine laws, a person desiring to review thetranscript generally will request it from the proper administrative officer of theissuer.

8 Because bond transcripts contain information which does not interest anaverage constituent and because bond transcripts are not the most sought afterpublic DOCUMENTS , most issuers receiving a request to review a bond transcript willwant to know the requesting person's identity and reasons for review. There willbe situations where you desire to gain sufficient information to determine whetheran examination is warranted, but do not want to alarm the issuer that its bonds are,or may be, subject to an examination. In such a situation, you may not want toreview the bond transcript at the issuer's offices. You should attempt to obtaininformation regarding the financing through independent sources.

9 The municipalsecurities industry has established numerous sources from which such informationmay be obtained. The quickest way to learn about a bond financing is to read itsOfficial Statement. After reviewing the Official Statement you may determine thatan examination is not warranted. This result is desirable for both the Service andthe issuers because it avoids involving the issuer in an unnecessary Public Sources of Offering DOCUMENTS (1) MSRBThe Municipal Securities Rulemaking Board ("MSRB") is a self-regulatingboard established by broker-dealers of municipal securities. The underwriter for abond financing is required to deliver to the MSRB, no later than 10 business daysafter the execution of the bond purchase agreement, copies of the OfficialStatement and Form G-36(OS).

10 In the case of advance refunding of bonds, theparticipating underwriter is required to file with the MSRB, copies of the finalOfficial Statement, the related escrow agreement and Form G-36(ARD). Thisfiling must be made within five business days of the issuance of the refundingbonds. The information filed by the underwriter is available through MSRB'sMunicipal Securities Information Library. The Municipal Securities InformationLibrary is located at: 1640, King Street, Alexandria, Virginia 22314. Its telephonenumber is (202) 223-9508. The Library will, for a price (at this time, 20 cents apage), mail a copy of an Official Statement upon request.