Rule Caption: Requirements for municipal financial advisors.
Adm. Order No.: OST 5-2010(Temp)
Filed with Sec. of State: 11-29-2010
Certified to be Effective: 12-1-10 thru 5-29-11
Notice Publication Date:
Rules Amended: 170-062-0000
Subject: New federal regulations require municipal financial
advisors to register with the SEC (17 CFR Sec. 240.15Ba-2-6T) and prohibit a
municipal financial advisor from serving as an underwriter in the same
negotiated bond sale (municipal Securities Rulemaking Board (MSRB) Rule G-23).
This temporary rule will keep Oregon bond issues in conformance with federal
regulations until a permanent rule can be established.
Rules Coordinator: Sally Wood—(503) 378-4990
for Submission, Review and Approval of an Advance Refunding Plan
Contents and Filing. An Advance Refunding Plan for a public body (as defined in
ORS 287A.001(13)) consists of a:
for approval for an advance refunding bond sale submitted to OST. The request
should include the name, phone number, U.S. mailing and e-mail address for the
public body and for their bond counsel, financial advisor, escrow verification
agent, underwriter and trustee;
(b) Copy of
the resolution, ordinance or other documents authorizing submission of the plan
to the Office of the Oregon State Treasurer (“OST”);
Statement of the primary purpose of the advance refunding sale. Permissible
present value savings. To effect a savings, discounted to present value;
favorable reorganization of debt. Bonds issued for a favorable reorganization
of debt require submission of a detailed written analysis elaborating the
financial, legal or other benefits of the reorganization to the public body or
state agency. Valid reasons for a reorganization of debt may include, but are
not limited to:
Replacement of undesirable or overly restrictive bond covenants or terms, such
as liquidity covenants and debt service coverage requirements or release of
Restructuring of debt payments considered by the public body to be favorable to
the financial health of the relevant jurisdiction or its taxpayers or
distress. To pay or discharge all or any part of a bonded obligation or series
or issue of bonds, including any interest thereon, in arrears or about to
become due and for which sufficient funds are not available.
Description of the bonds to be refunded, including: date and premium, if any,
when each is first callable; semi-annual debt service to final maturity for
each issue; par amount originally issued, current amount outstanding, proposed
amount and maturities to be refunded; the dated date; and the purpose for which
the bonds were issued;
Description of the advance refunding issue including the proposed: call date
and premium, if any; semi-annual debt service to final maturity; present value
of each semi-annual payment; par amount; dated date; sale and closing date;
True Interest Cost as set forth in OAR 170-061-0000(l); and the federal
arbitrage yield limit.
description of the escrow account, listing the type of securities to be used
and the redemption date of the account;
Preliminary Net Present Value Savings (NPVS): Present value savings is defined
as the present value of the difference in debt service between the proposed
refunded debt service and the proposed refunding debt service, discounted at
the arbitrage yield of the refunding debt service. Any issuance expenses paid
from sources other than bond proceeds and any other cash contributed to the
escrow other than from bond proceeds must also be subtracted from proceeds to
Itemization of all administrative costs, expenses or fees associated with the
refunding. OST will determine if the fees are comparable to similar offerings
and if excessive, approval may be withheld;
(i) For a
public body, a copy of the contract with their financial advisor;
Completed MDAC Form 1;
Official Statement, if the bonds have been publicly offered;
Net Present Value Savings as described in subsection (g) of this section;
(m) Copy of
the arbitrage or tax certificate for the refunding;
(n) Copy of
bond counsel’s approving legal opinion;
(o) Copy of
the escrow verification report demonstrating the ability of the escrow account
to meet all future debt service and related costs relative to the refunded
(p) Copy of
the Escrow Deposit Agreement;
(q) Copy of
the underwriting or bond purchase agreement, if sold on a negotiated basis;
(r) Copy of
the letter from the financial advisor to the public body or state agency as
described in section (2) of this rule;
Completed MDAC Form 2; and
Completed MDAC Form 3, if using a synthetic fixed rate refunding issue.
Financial advisor required. A public body must employ a financial advisor whose
function is to advocate the interest of and advise them on the refinancing
transaction. The financial advisor must be registered with the Securities and
Exchange Commission as a financial advisor as required under 17 CFR §
240.15Ba2-6T, or its successor permanent rule. The financial advisor cannot
also serve as the underwriter in the same negotiated bond sale as required in
Rule G23 of the Municipal Securities Rulemaking Board. Prior to closing, the public
body must receive from the financial advisor a letter stating that the advisor
has reviewed the assumptions included in the plan and that the plan is
consistent with this rule. The letter must include a recommendation on the
desirability or undesirability of doing the advance refunding and the reasons
therefor. The contract with the financial advisor must reflect the obligations
of the parties in the event the sale is not consummated as planned.
Significant Savings Tests. Equating or surpassing any one of the following
tests indicates that the present value savings purpose, as required by
subsection (1)(c)(A) of this rule, has been met:
value savings of $5 million or more; or
minimum savings ratio of 3.0 percent for a fixed rate refunding issue or a
minimum savings ratio of 5.0 percent for a synthetic fixed rate refunding issue
or other interest rate exchange agreement in conjunction with the refunding
issue. If using an interest rate exchange agreement to synthetically fix a variable
rate issue, the agreement must be for the maturity of the variable rate issue.
The savings ratio is the net total present value savings divided by the
proceeds of the refunding bonds, expressed as a percent.
Approval. Items in subsections (1)(a) through (1)(j) of this rule are initial
components of an advance refunding plan and are required for preliminary
approval. If approved, the OST will notify the public body of OST’s preliminary
approval and state its intention to issue a final approval conditional upon
receipt and approval of items in subsections (1)(k) through (1)(t) of this
Preliminary advance refunding plans should be submitted to OST sufficiently in
advance to allow 10 working days for review. The 10-day review period begins
the working day after all items (1)(a) through (1)(j) of this rule and the
application fee identified in OAR 170-061-0015 have been received;
Preliminary approval is valid for a period of six months from the date of the
preliminary approval letter. After the six month period expires a new
application fee and advance refunding plan are required.
Approval. Items in subsections (1)(k) through (1)(t) of this rule are the final
components of an advance refunding plan and must be received at least five
working days prior to final approval. The five-day period begins after receipt
of all items required for final approval.
(d) At the
discretion of OST, drafts of preliminary and final components of advance refunding
plans may be acceptable with the understanding that finalized documents will be
provided within five working days of the bond closing.
reimburse OST for the services, duties and activities of OST in connection with
reviewing proposals, a fee and other expenses will be charged to public bodies
as identified in OAR 170-061-0015.
Evaluation. OST evaluates the statewide impact of advance refunding. Adverse
trends associated with advance refunding bond sales may result in a review and
revision of the savings tests, thereby diminishing any undesirable impact upon
the higher priority “new money” bond issues.
of Certain Provisions. OST may waive certain provisions of this rule to
accommodate unusual circumstances.
Noncompliance. If OST finds that an advance refunding plan is not in
substantial compliance with ORS 287A.370 and this rule, the plan may not be
approved. Notice that the plan does not comply, and the reasons for this
finding will be sent to the public body or state agency and its bond counsel
within 30 business days after receipt of the plan.
Address. Submit Advance Refunding Plans as provided in OAR 170-055-0001(4).
Publications referenced are available from the Agency.]
Auth.: ORS 287A.365
Implemented: ORS 287A.360 - 287A.380
2-1986, f. & ef. 6-16-86; TD 2-1990, f. 9-18-90, cert. ef. 9-19-90; TD
2-1994, f. & cert. ef. 9-9-94; OST 5-2004, f. & cert. ef. 6-23-04; OST
2-2006, f. & cert. ef. 8-4-06; OST 7-2008, f. & cert. ef. 12-29-08; OST
5-2010(Temp), f. 11-29-10, cert. ef. 12-1-10 thru 5-29-11
Notes 1.) This online version of the OREGON BULLETIN is provided for convenience of reference and enhanced access. The official, record copy of this publication is contained in the original Administrative Orders and Rulemaking Notices filed with the Secretary of State, Archives Division. Discrepancies, if any, are satisfied in favor of the original versions. Use the OAR Revision Cumulative Index found in the Oregon Bulletin to access a numerical list of rulemaking actions after November 15, 2010.