WASHINGTON - For the first time, bond lawyers attending an annual workshop in Chicago are expected to focus more on the securities law issues than on the tax law issues that are confronting the municipal bond market.
About 1,000 bond lawyers, a record number, are planning to converge on the Windy City today to attend the National Association of Bond Lawyer's 19th annual bond attorneys workshop.
The workshop, an educational forum that also serves as a national clearinghouse for ideas on public finance law, is jokingly called "the bond lawyers' San Juan Capistrano" after the California town that is annually beset by swallows.
But this year marks a turning point for the meeting because the disclosure guidance and proposals issued by the Securities and Exchange Commission in March are expected to upstage the arbitrage and other tax issues that have traditionally dominated the workshop.
"This year, securities regulation and law is going to be a huge subject," said Charles Henck, the association lawyer in charge of the workshop, in an interview last week.
"For several years, while there were rumblings of things going on in the securities area, most of the federal government action was on the tax side," said Henck, a lawyer with Ballard Spahr Andrews & Ingersoll in Washington. "This year, by contrast, there's been a lot of activity on the securities front."
"This is the first workshop after the SEC pronouncements of March, and they are obviously extremely important," said Robert Dean Pope, a lawyer with Hunton & Williams in Richmond.
"The final version of them is obviously going to have a profound effect on state and local government finance, so naturally people are talking about that. We're interested and concerned," Pope said.
Unlike tax law issues, which often narrowly apply to specific types of bond offerings, securities issues tend to affect bond transactions and participants across the board, Henck and other association members said.
"Securities issues cut across practice lines in a way that some of the tax issues don't," said Henck. "There are only so many people in the country who do single-family housing or the high-tech advance refundings or other transactions that the arbitrage rules were aimed at."
"But all of us who are participants in a public offering have a stake in disclosure because if something goes wrong everybody gets sued," Henck said.
"This is an area that's going to readily affect the day-to-day practice of everyone in NABL," agreed Paul Maco, a former association board member who is now an attorney-fellow at the SEC.
The hottest topic at the annual workshop is expected to be SEC's proposed amendments to Rule 15c2-12 of the Securities Exchange Act of 1934.
The amendments, proposed last March, would bar dealers from purchasing or selling bonds unless the issuer had pledged in writing to provide financial information and notices of material events to a nationally recognized repository.
Dealers would also be prohibited from recommending bonds to investors in the secondary market unless they had reviewed the issuer's financial statements.
Another hot topic will be the SEC's legal interpretation of issuers' disclosure responsibilities under the federal antifraud statutes, which took effect when it was issued last March.
Many of the lawyers at the meeting are hoping that Maco, who is scheduled to deliver a keynote speech on securities law issues, will give them clues as to when and how the commission plans to proceed with its guidance and proposals on secondary market disclosure.
Altogether, eight SEC officials, including Maco, are scheduled to attend the workshop sessions on primary and secondary market disclosure, more than twice the number of SEC officials at the meeting last year.
Among the key issues to be discussed in the secondary market disclosure sessions is what constitutes a "material event" that would have to be disclosed by an issuer under the SEC's proposals.
"There are a lot of questions about what rises to the level of an event requiting 'event disclosure,' "said Pope, who is chairing that session.
Another topic of discussion, Pope said, will be the need to distinguish between political rhetoric and so-called "statements to the market" that are intended to influence the market. Under the SEC guidance, such statements must be filed with a repository and are subject to the liability standards traditionally applied to offering statements.
Bond lawyers and issuers fear that the SEC's legal interpretation can be interpreted to mean that virtually all remarks by public officials on fiscal, economic, and policy issues are "statements to the market" that trigger disclosure liabilities and obligations.
The workshop session on primary market disclosure is expected to focus, to some extent, on the need for the SEC's disclosure guidance to recognize distinctions between different types of bond transactions, said Douglas Rollow, a lawyer with Ballard Spahr in Philadelphia who is chairing the session.
In conduit bond issues, for example, investors should be interested in financial information from the borrower and not the issuer because it is the borrower that typically is responsible for debt service payments, Rollow said.
No workshop sessions are scheduled on political contributions, a hot topic for most market participants ever since the Municipal Securities Rulemaking Board adopted Rule Go37, which bars municipal dealers that make contributions to issuer clients from doing business for two years with them.
However, the association's board plans to set aside time during its annual meeting Wednesday night to discuss the "Statement of Professional Principles" that it adopted in February regarding political contributions.
The NABL statement says that bond lawyers should not make political contributions to obtain or retain bond business. It encourages association members to voluntarily disclose their political contributions, locally under state laws or through state or federal repositories.
The statement also says association members should work with issuers and other market participants to draft campaign finance laws and to develop guidelines for the solicitation and disclosure of political contributions.
NABL board members want to determine, at the board meeting, how firms are responding to the statement of principles and what actions they are taking with regard to political contributions.
On the tax side, the bond lawyers are expected to focus on enforcement, private-activity bonds, and derivatives.
For the first time ever, the annual workshop will feature a session on tax enforcement. Association members are hoping that Debra Kawecki, an IRS official who is involved in the agency's new bond enforcement program, will give them more information about how the IRS plans to carry out the program, which is aimed at cracking down on abusive bond transactions through increased auditing.
The lawyers will also look for IRS officials in the sessions on private-activity bonds to give them some clues about what will be included in privateactivity bond rules that the IRS is expected to issue later this year.
In addition, they will be seeking information about how the IRS might revise a rule that was proposed earlier this year to clarify what kinds of wastewater treatment facilities qualify as sewage facilities that can be financed with tax-exempt bonds.
The sessions on derivatives, which focus on both securities and tax law issues, have become increasingly popular among workshop participants, reflecting the more widespread interest in derivatives in the municipal market.
The workshop will also include several sessions on "current tax issues" or transactions that have raised questions and spurred debate among market participants.
Among the topics to be discussed in these sessions are market discount bonds, so-called insurance capacity shifts, post-issuance credit enhancement, the valuation of escrow securities in advance refundings, and "crossover refundings" of defeased bonds.
