The P3 Wars Continue – Trump vs. Texas vs. Tolls (the T3s)

A few years ago, I wrote a blog post entitled “The P3 Wars”  in which I provided a brief explanation of how a P3 (i.e., a public-private partnership) works, and the general arguments for and against the use of P3s.  More recently, President Trump proposed a $1 trillion U.S. infrastructure plan that likely includes the use of P3s.  Although no details of his plan have been released, Elaine Chao, his Secretary of Transportation, recently told the Senate Environment and Public Works Committee that of the $1 trillion dollar infrastructure investment, approximately $200 billion would consist of public funding, which leaves $800 billion of private financing.  Continue Reading

As the Countdown to the New Issue Price Regulations Continues, Let the Document Negotiations Begin!

The effective date of the new issue price regulations (Regulations) is less than a week away, and because of the need to discuss and plan for application of the new rules with issuers, underwriters and financial advisors for bonds that will be subject to the new rules, we are already gaining experience with documentation relating to the Regulations.  NABL and SIFMA have done an excellent job of providing model documents – sale documents in the case of SIFMA and issue price certifications in the case of NABL – that will significantly smooth the transition from a reasonable expectations standard for establishing issue price to a general rule based on actual sales.  Use of these model documents, with some variations, should ease the burden, which could otherwise be overwhelming, of negotiating these documents for each type of bond sale with each underwriter.  Like all model documents, however, there will undoubtedly be fine tuning as we gain more and more experience working with the Regulations and  negotiating documents for specific transactions.  This post notes two negotiating issues that have been raised in current transactions.

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When Should an Issuer of Tax-Advantaged Bonds Use the Hold-the-Offering-Price Method to Establish the Issue Price of the Bonds?

Three score and thirteen years (and one day) after D-Day (June 7, 2017, for the non-history-buffs), the new regulations that prescribe the methods for determining the issue price of tax-advantaged bonds take effect.  Of the various methods for determining the issue price of tax-advantaged bonds, the hold-the-offering-price method is the only one that allows an issuer of such bonds in an underwritten transaction to know with certainty in advance of the sale date of the bonds that the issue price of the bonds will be established on the sale date.  As discussed below, however, this method will come at a cost to issuers of tax-advantaged bonds.

The question thus becomes, which federal tax circumstances warrant the increased cost of the hold-the-offering-price method to be assured that the issue price of the bonds will be established on the sale date?  For the answer, read on.

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The Countdown to June 7, 2017…..Are You Ready?

On June 7, 2017, the Final Issue Price Regulations (the “Final Regulations”) become effective.  More specifically, the Final Regulations apply to bonds sold on or after June 7, 2017 and without regard to the bonds’ issuance date.  Suffice it to say, if you have read our blog or been practicing in the area of municipal finance for any period of time, you know that June 7, 2017 is a date that is YEARS in the making.

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A Requiem for Reasonable Expectations

The “reasonable expectations” approach to determining the issue price of a tax-advantaged bond[1] has been the law since 1989. On June 7, it is scheduled to join Betamax tapes and parachute pants as another relic of that bygone decade. Barring intervention (either Divine or as part of the President’s executive order to undo recent regulations that “add undue complexity to the Federal tax laws”), the new issue price regulations will take effect for tax-advantaged bonds sold on or after June 7. Though we don’t often have to rely on reasonable expectations because underwriters usually actually sell at least 10% of each bond maturity at the initial offering price to the public on the sale date, the reasonable expectations rule has been a useful tool and a dear friend. As it prepares to ride off into the sunset,[2] a eulogy is in order. And bittersweet that eulogy shall be, for the death of the reasonable expectations standard seems senseless.

What began as a regulatory effort that, for all its faults, was at least focused around a goal, has devolved through the comment process into regular old horse-trading.

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Sometimes the Truth is Stranger than Fiction – Update

Not quite a year ago, I wrote a blog post entitled Sometimes the Truth is Stranger than Fiction. There has been a recent development in the relevant case that I think is worthy of a short update.

A very brief summary of what the relevant case involved is as follows. Two former Sprint executives (Mr. LeMay and Mr. Esrey) participated in several tax shelters that had been promoted by Ernst & Young (“EY”) in the early 2000s. As a result of its promotion of these tax shelters, EY ended up settling with both the IRS and U.S. Attorney for the Southern District of New York for not quite $140 million.  It appears that EY also paid an undisclosed sum to the two former Sprint executives.   However, in LeMay and Esrey’s collective opinion, they were not made whole in their failed attempt to defraud the IRS (and thus, the honest, tax-paying U.S. population).   Accordingly, LeMay and Esrey sued the IRS for an astounding $159 million.  Continue Reading

The Yield Curve – What It Is and Why It Matters

For those of you new to bonds and not generally familiar with financial terms, you may hear the term “yield curve” thrown around and be wondering what it means and why it matters. The yield curve is a chart showing the yield of debt instruments (such as U.S. treasuries or notes) on the y-axis and the maturity (on the x-axis). So why does it matter? It can be a crystal ball into the future of interest rates.

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Is the Pendulum of Bond Pricing Beginning to Swing Back Toward Discount Bonds? If So, We Need to Be Prepared for the Resulting Bond Yield Calculations

Premium bonds have been the choice of investors now for many years but is that preference beginning to shift in favor of discount bonds?  Discount bonds are appearing in bond structures with increasing regularity in recent months.  We lawyers leave that question for the underwriters and financial advisors as interest rates turn upward.  However, we need to be prepared for the shift in bond yield calculations that accompany a re-emergence of discount bonds.

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NABL’s Model Issue Price Certificates – Some Observations

Joel Swearingen reported last week that the National Association of Bond Lawyers (“NABL”) recently released exposure drafts of model issue price certificates that reflect the final Treasury regulations on issue price that take effect for tax-advantaged bonds sold on or after June 7, 2017.  As Joel reported, the model issue price certificates cover the direct sale of tax-advantaged bonds by an issuer to a purchaser, the public offering of tax-advantaged bonds pursuant to a negotiated sale between the issuer and an underwriter(s), and the public offering of tax-advantaged bonds pursuant to a sale of the bonds from the issuer to an underwriter in a competitive bidding process.

Joel also promised that we would have more to come on the model issue price certificates that NABL released.  If I learned anything from my mediocre high school athletic endeavors, it’s that one should never show up, or let down, a teammate.  In accordance with Joel’s promise, herewith are some observations on NABL’s model issue price certificates.

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Model Issue Price Certificates Released

As Alexios wrote about a few weeks ago (here), we are in the middle of a dry spell when it comes to new guidance from the IRS.  Thankfully, the National Association of Bond Lawyers (“NABL”) recently released exposure drafts of several model issue price certificates (see here and here).  The draft certificates are the product of collaboration between NABL and the Securities Industry and Financial Markets Association (“SIFMA”) and are intended to help implement the final issue price regulations (discussed here).  The final regulations take effect on June 7, 2017 and the draft certificates should help facilitate agreement between issuers, financial advisors, underwriters, purchasers, bond counsel, and any other interested parties within a working group.  In order to finalize the drafts in advance of the effective date of the final regulations, NABL has requested comments to be submitted no later than Friday, April 14, 2017.

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