Rule Caption: Requirement for financial advisors to be registered with the Securities and Exchange Commission (SEC) and MSRB.
Adm. Order No.: OST 2-2011
Filed with Sec. of State: 4-1-2011
Certified to be Effective: 4-1-11
Notice Publication Date: 3-1-2011
Rules Amended: 170-062-0000
Rules Repealed: 170-062-0000(T)
Subject: New federal regulations require municipal financial advisors to register with the SEC (17 CFR § 240.15Ba2-6T) 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 rule conforms Oregon practice to federal regulation.
Rules Coordinator: Sally Wood—(503) 378-4990
Procedure for Submission, Review and Approval of an Advance Refunding Plan
(1) Plan Contents and Filing. An Advance Refunding Plan for a public body (as defined in ORS 287A.001(13)) consists of a:
(a) Request 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”);
(c) Statement of the primary purpose of the advance refunding sale. Permissible purposes are:
(A) A present value savings. To effect a savings, discounted to present value;
(B) A 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:
(i) Replacement of undesirable or overly restrictive bond covenants or terms, such as liquidity covenants and debt service coverage requirements or release of reserve requirements;
(ii) Restructuring of debt payments considered by the public body to be favorable to the financial health of the relevant jurisdiction or its taxpayers or ratepayers;
(C) Fiscal 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.
(d) 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;
(e) 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.
(f) A description of the escrow account, listing the type of securities to be used and the redemption date of the account;
(g) 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 determine NPVS.
(h) 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;
(j) Completed MDAC Form 1;
(k) Final Official Statement, if the bonds have been publicly offered;
(l) Final 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 bonds;
(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;
(s) Completed MDAC Form 2; and
(t) Completed MDAC Form 3, if using a synthetic fixed rate refunding issue.
(2) 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 may not also serve as the underwriter in the same negotiated bond sale. 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.
(3) 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:
(a) Present value savings of $5 million or more; or
(b) A 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.
(4) OST Approval Procedure.
(a) Preliminary 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 rule;
(b) 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;
(c) 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.
(c) Final 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.
(5) Administrative Expenses.
(a) To 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.
(6) Ongoing 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.
(7) Waiver of Certain Provisions. OST may waive certain provisions of this rule to accommodate unusual circumstances.
(8) 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.
(9) Address. Submit Advance Refunding Plans as provided in OAR 170-055-0001(4).
[Publications: Publications referenced are available from the Agency.]
Stat. Auth.: ORS 287A.365
Stats. Implemented: ORS 287A.360 - 287A.380
Hist.: TD 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; OST 2-2011, f. & cert. ef. 4-1-11
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.