Texas MAC streamlines municipal securities underwriting process



Publication September 26, 2018

The Municipal Advisory Council of Texas (MAC) has announced recommendations and a new service for syndicated underwritings of municipal bonds in Texas. The recommendations are expected to reduce expense and risk and support pricing, if accepted by issuers and their advisors.

Last year, the Texas legislature enacted H.B. 89 and S.B. 252, which prohibit contracts for goods and services between Texas governmental entities and companies that engage in certain foreign business activities or appear on a list of entities that do so. As interpreted by the Attorney General’s Public Finance Division (AG), the prohibition (1) applies to bond purchase agreements, including those formed by accepted bids in competitive offerings, and (2) disqualifies contracting parties if they or their parent or any other affiliate is a disqualified company. To obtain AG bond approvals, issuers have requested underwriter representations in various forms. The requested representations take time and effort for underwriters to confirm, and, in syndicated offerings, require issue-by-issue communication among syndicate members and the syndicate representative and counsel. In MAC’s view, compliance with the prohibitions has added avoidable time, expense and risk to affected underwritings.

To streamline the underwriting process, MAC has recommended that (1) issuers accept representations from underwriters in standard form, (2) underwriters submit (and periodically update or verify) standing representation letters to MAC, which will post them on its website, and (3) syndicate representatives consult the website to confirm that they can make the standardized representations on behalf of syndicate members. Read the full text of MAC’s recommendations (including the text of recommended standardized representations).

If MAC’s recommendations are followed, MAC believes they will reduce the time and expense required to complete bond offerings, will reduce risk (by producing more reliable underwriter representations), and will support pricing (by removing a disincentive to bidding in competitive offerings).

MAC’s recommendations were developed by a task force of underwriters and Texas bond counsel, led by Fredric Weber, Of Counsel to our firm. We applaud MAC’s efforts. Please contact our public finance team for further information on MAC’s recommendations.

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