WASHINGTON -- The Public Securities Association this week joined forces with bond analysts in calling on issuers to declare one way or the other in official statements whether they will provide ongoing information to the secondary market.
"It's a step in the right direction for the issuer to at least express his intentions," said David Thompson, chairman of the PSA's municipal securities division, about model language for official statements approved recently by the board of directors of the National Federation of Municipal Analysts.
"If the issuer responds in the positive, then he is obligated to follow through" with that pledge, said the president of Griffin, Kubik, Stephens & Thompsom Inc. "If the expression is negative, it allows us to be forewarned and forearmed."
The PSA is the first industry group to formally sign on with the analysts group on its model language, which goes one step further than disclosure guidelines published by the Government Finance Officers Association last year. The GFOA says issuers should declare in official statements that they will provide annual reports and other ongoing information, but it does not address what to do if issuers do not plan to do so.
Spokesmen for the Government Finance Officers Association and the National Association of Bond Lawyers said yesterday they also support the move. Stanley Keller, chairman of the NABL's disclosure committee, said he did not think there would be a formal statement from his group.
Jeffrey Green, acting general counsel of the Port Authority of New York and New Jersey and chairman of the GFOA's disclosure task force, said his association has not decided whether to make a formal endorsement.
Market participants yesterday said the analysts' move is a step forward, but they warned that it will not have any recognizable impact until buyers of municipal bonds start rewarding deals that have improved disclosure.
"Anything that encourages secondary-market disclosure is a positive development," said Mr. Green. "However, unless the market recognizes sound disclosure practices through pricing differentials in the sale and trading of municipal securities, infrequent and nongovernmental issuers have little incentive to provide information."
There may be some difference in the pricing of deals depending on whether they pledge or do not pledge to provide disclosure, but it will be "modest," at least in the near term, said one key securities industry official. The analysts can "jawbone all they want," said a dealer, but until their companies start paying for the quality of disclosure in the deals of rating agencies start taking disclosure into account more, there will be no substantial changes.
Mr. Keller said the new language will help. He said that faced with having to disclose that they do not intent to provide ongoing disclosure, issuers are likely to say, "Well, we better."
Mr. Thompson said he personally would prefer that issuers were required by law or regulation to provide investors with secondary-market information. Short of that, it is helpful to at least know in advance the issuer's intention, he said. "And we can make an adjustment in thinking about how to treat that issue in the market," he added.
"As an investor contemplating investing some of my resources into an issuer's debt, I have to ask myself whether I'm comfort with the knowledge that I'm not going to be able to stay current with its fiscal condition?" Mr. Thompson said.
One dealer said rumors are beginning to circulate about deals where state-of-the-art disclose has had an impact on pricing. "I'm hearing they are starting to show up. But there are no concrete examples."
The NFMA's resolution calls for official statements to include one of the following two statements: "The issuer (or the issuer's agent) will provide annual financial statements and other pertinent credit information, including the comprehensive annual financial report, if one is prepared upon request," or, "The issuer has made no provision to provide any annual financial statements or other credit information to investors on a periodic basis.