Hoosier Banker 27 profile, optionality and lack of disclosure requirements should be key factors in driving the yield higher than their municipal bond counterparts. Finding that balance can be challenging, especially when bidding against your peers. Public finance is also incredibly nuanced, making the bidding process for a private placement even more challenging. One of the unintended consequences for both issuers and investors of private placements is the lack of continuing disclosure requirements. As mentioned, one benefit to the municipality is that there is no burden to produce financials or file material event disclosures in the future. This can be mistaken, however, by municipal officials to mean that they no longer need to file disclosures when they have outstanding bonds. In 2019, the SEC amended Rule 15c2-12 to require municipal bond issuers to file disclosures pertaining to the incurrence of a financial obligation. This means that if a municipality chooses to issue a private placement, it must file a material event disclosure to the Municipal Securities Rulemaking Board if it has outstanding bonds. A recent study by the Federal Reserve titled “Limits of Disclosure Regulation in the Municipal Bond Market” revealed that only about 20% to 46% of private debt was disclosed to the MSRB. This suggests that municipal officials are largely in the dark on what disclosures are needed, putting them at risk of running afoul of the Securities and Exchange Commission’s regulations. For investors, the lack of continuing disclosures for private placements negatively impacts transparency in the municipal bond market. This takes a huge step back from the improved transparency following the MSRB’s creation of the Electronic Municipal Market Access system in March 2008. Some municipalities in certain parts of the country have outright abandoned issuing traditional municipal bonds and have only CINNAIRE.COM It takes more than good intentions to transform communities. It takes capital, development capacity and trusted partnerships. In 25 years, we’ve delivered more than $7.3 billion in community impact. Overcoming challenges. Solving problems. Backed by a commitment to creating healthy communities that has never wavered. The Return on Investment: Safe, Affordable Homes. Healthy Communities. Better Lives. INVESTING IN INDIANA COMMUNITIES FOR MORE THAN 25 YEARS. Transforming Communities. Transforming Lives. used private placements for their financing needs. As a result, they no longer report any financial transparency to the market and could be missing out on better yield execution for their capital needs. More than ever before, municipal officials need the support of their local community banks for their financial needs. This relationship can be mutually beneficial to banks looking to enhance their public funds depository relationships, as well as expand into areas for more lending opportunities. Far too many municipalities are being underserved by not being shown a cost/ benefit analysis of their financing options. In certain cases, it makes sense to obtain financing through a private placement, but there are risks that must be discussed. In other cases, it would be more beneficial to go in the direction of a traditional municipal bond, obtain funds through state and/or federal aid, or seek out state revolving fund options. HB
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