During the morning of Thursday, July 25th, the law firm Fox Rothschild, in collaboration with the Bank of New York Mellon Corporation, Janney Montgomery Scott LLC and the Philadelphia Industrial Development Corporation, hosted a workshop for charter schools in the City of Philadelphia and their advisors. The topic of the workshop was the post-issuance compliance of issuers and borrowers of tax-exempt bonds, which has the attention of both the IRS and SEC as evidenced by some of the new questions on Schedule K of the IRS Form 990 and the SEC’s settlement with the City of Harrisburg during May of 2013.
Michael Judge with BNY Mellon presented the key reporting covenants pursuant to the bond documents, namely the Indenture, Loan & Trust Agreement, Lease and Continuing Disclosure Agreement, as well as the responsible parties (school versus affiliated foundation, if applicable).
Alan Wohlstetter with Fox Rothschild discussed the continuing tax requirements associated with tax-exempt bonds, such as monitoring the use and timing of the use of tax-exempt bonds. One suggestion offered is that charter schools designate a staff person(s) that is accountable for ensuring continuing disclosure compliance. Alan concluded his presentation with a discussion of the implications of adhering to ongoing reporting compliance, including (i) protection for the school from federal liability, (ii) support of a secondary market (market where bonds are sold and purchased after the initial sale) for charter school tax-exempt bonds as well as (iii) support for continued transparency within the tax-exempt market, generally, and specifically, within the charter school sector. The goal of all three implications is increased investor confidence.
As Dan O’Brien with Janney Montgomery Scott commented during his presentation, a transparent secondary market may benefit borrowers with lower borrowing costs on subsequent bond issues, such as a refinancing of existing debt. This is resultant the positive correlation between the timely availability of operational and other financial information on a school and investors’ confidence of the school’s management and long-term viability. Dan also discussed the ongoing expectations of rating agencies for rated transactions namely an annual review of the school’s outstanding credit rating.
One takeaway for participants was that there remains a number of resources available to them post-issuance, primarily the professionals active in public finance. Additionally, for borrowers that have not adopted post-issuance compliance procedures, PAID’s post-issuance procedures includes a sample policy for conduit borrowers.
The workshop will be held again in the Fall for all 501(c)3 not-for-profit institutions within the City of Philadelphia. Additional details are forthcoming in subsequent PIDC newsletters.
For more information on tax-exempt financing, please contact Carol de Fries at 215-496-8150 or firstname.lastname@example.org.