The Concern:

Increased IRS Scrutiny

The IRS has recently announced the change of the Issue Price Rules for establishing the arbitrage yield on tax-exempt bonds.  The new rules will become effective on June 7, 2017.  The change will create the need for new procedures and certifications from market participants upon closing of a tax-exempt bond issuance.

Who is Affected:

Issuers, Bond Counsels, and Municipal Advisors

The new Issue Price Rules require issuers to maintain reasonable documentation to support both the method for determining issue price and the price determinations.  Issuers, along with their counsel and advisors, must determine the appropriate method of calculation and document the issue price accordingly.

The Solution:

An Automated Bond Tracking System

MuniPriceTracker is an independent, automated bond tracking system that provides issuers, bond counsels, and advisors the reasonable documentation necessary to support issue price determinations.  Comprehensive reports are easy to review and add to the transaction file.  Get the information you need to meet the new Issue Price Rules from MuniPriceTracker.

Background

The new Issue Price Rules have been in development since 2013.  Multiple iterations have been proposed by the IRS, with substantial comments and revisions occurring with each new version, including the Final Rules.  The new Issue Price Rules seem workable for the tax-exempt marketplace, although more scrutiny is likely to occur as the June 7, 2017, effective date approaches.  In determining the issue price of municipal bonds, issuers, their counsels, and their advisors have historically relied on the underwriter’s certification of the price at which at least 10% of each maturity of the bonds were sold to the public pursuant to a bona fide public offering.  The new Issue Price Rules create scenarios where this type of certification may not be sufficient, depending on factors such as whether the General Rule or an Alternative Method for establishing the issue price is used, or whether at least three bids were obtained through a competitive sale.  As these scenarios unfold, an independent report verifying the applicability of the selected issue price calculation method and/or the issue price may be warranted.

MuniPriceTracker

Why MuniPriceTracker?

MuniPriceTracker is a fully automated bond tracking service that delivers efficient, cost-effective reports regarding the trading activity of tax-exempt bonds.  With the data and technology available to provide verification of issue price parameters, including the potential for “hold-the-offering-price” rules to apply, MuniPriceTracker can deliver answers quickly to a tax-exempt issuer, bond counsel or Municipal Advisor.  Further, MuniPriceTracker’s service includes the ability to provide an independent opinion as to the applicability of the issue price method selected.   MuniPriceTracker’s automated e-mail alerts can also provide an early warning to transaction participants so that pricing anomalies can be addressed with the underwriter prior to closing, or an alternative issue price determination can be made. Comprehensive closing reports provide all the information issuers and counsels need to identify problematic trading activity and verify the issue price certifications.

MuniPriceTracker: We’re looking out for your interest.

Compliance Issues

Under the new Issue Price regulations scheduled to become effective on June 7th, issuers will need to select one of two methods for calculating the issue price of a bond transaction: the General Method or the Alternative Method.  The selected method will then be used to calculate the issue price for the bonds which, in turn, determines the Arbitrage Yield.  Since tax-exempt bond transactions are either subject to arbitrage rebate or are yield restricted based on the Arbitrage Yield (subject to certain exemptions), calculating the issue price correctly is critical to compliance with tax-exempt regulations.

Costs of Non-Compliance

Non-compliance with the relevant tax code regulations, including the new Issue Price Rules, can lead to significant ramifications for a municipal issuer. For tax-exempt governmental bonds and qualified private activity bonds, non-compliance could ultimately result in the bonds retroactively losing their tax-exempt status, leading to potential lawsuits from bondholders for underpaid interest and difficulty finding willing purchasers for future bond issues. Furthermore, excess premium may need to be included in the calculation of the arbitrage yield, and issuers may need to rebate additional earnings to the government.

Contact Information
Phone: (800) 723-3994