1999 Municipal Market Roundtable (Panel 2)
U.S. Securities & Exchange Commission
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U.S. Securities and Exchange Commission

Panel II: After the Closing Issues Arising Throughout the Life of a Bond Issue

1999 Municipal Market Roundtable
October 14, 1999
Washington, D.C.

United States Securities and Exchange Commission
Office of Municipal Securities

Moderator Maco: We'll begin the second panel in just about a minute after we give everyone a chance to be seated

Moderator Maco: Good morning. My name is Paul Maco and I am the Director of the Office of Municipal Securities. I'm going to ask our panelists to introduce themselves. Once again we have a panel that covers the spectrum of the marketplace from issuer to investor with, again, a representative from one of the NRMSIRs on our panel as well.

re is one substitution I will mention before he does introduce himself just from the scheduled panelists that you found in the book that was handed out. We have had one victim fall to the flu. Unfortunately, Patricia Garrison-Corbin will not be able to join us today and she will not be the financial advisor on this panel. Bob Sikora graciously agreed to switch from the previous panel which he was on and he will be joining us on this panel as our financial advisor.

Why don't we start with you, Bob, and work our way down the table. Tell us where you're from.

Mr. Sikora: Good morning. My name is Bob Sikora. I'm with Munistat Services. We're a municipal finance advisory service, financial advisory service to local governments and school districts throughout New York State. Thank you.

Mr. Anders: I'm Alan Anders. I'm an issuer. I run the bond financing officer for New York City and its various financing entities.

Mr. Ciccarone: I'm Rich Ciccarone. And I'm the co-head of municipal investments at Van Kampen. And investment advisory and mutual funds is our primary business. I also have a, just have to make a footnote there, I'm also now on a village board so I'm an elected official to a government body as well.

Moderator Maco: I'll take this opportunity just to give the disclaimer for myself and for all the Commission staff who appear on today's panels. The comments that we make represent our own point of view and not necessarily that of our colleagues on the Commission staff nor that of the Commission.

Mr. Sollers: I'm Scott Sollers, principal with Stone & Youngberg. We're a broker/dealer located on the west coast. We originate and distribute to the secondary market both insured paper and non-rated paper. I am a personal personally I'm a banker. I work with issue restructuring financings. And this panel is secondary marketing so I ask forgiveness from the traders in the room and my partners back in San Francisco if I don't say things exactly to coil.

Mr. Humble: I'm Monty Humble with Vinson & Elkins. We serve as bond counsel for and underwriters counsel for various types of issuers and borrowers.

Ms. McGuire: Hi. I'm Kate McGuire. I'm the Chief Counsel of the Division of Market Regulation. We administer Rule 15c2-12 and answer interpretive questions among our many other duties.

Mr. Burbine: Paul Burbine, the Massachusetts Housing Finance Agency. I'm the Financial Director. We are an issuer, we issue between 10 to 12 issues a year and in the amount of between $4 to $600 million.

Mr. Schmitt: Good morning. I'm Pete Schmitt. I'm the President of DPC Data. DPC Data is one of the four NRMSIRs serving the municipal market. Our company is also one of the major basic disclosure document providers and data, integrated data to the professional municipal bond market.

Moderator Maco: Let me begin with a question to you, Richard. One of the analysts in the last session made the observation that there have been some official statements that have come by his way that do not contain a continuing disclosure covenant. they may refer to it at best, it may be embodied in some other document but there is nothing contained in the official statement. Is this something you've seen? And, if so, how frequently?

Mr. Ciccarone: In all honesty I have not seen that. And that's only because I think the kind of securities that we would purchase are going to be securities in which we would absolutely demand that. And there tend to be riskier securities when they get outside of the insured area.

But I have not had any of the analysts on our team that have mentioned that to me either. But I can't, in all honesty I can't make a conclusive remark about that.

Moderator Maco: Peter, how about you, you have a good look at quite a variety of official statements that come your way. Is this something that you have experienced or seen to any degree?

Mr. Schmitt: I would say not. We get a large variety of documents. Of course not every investment opportunity that comes to market and whose documents come through the DPC Data NRMSIR or any other NRMSIR would be subject to the rule. Note financings, commercial paper and some other we see that may not from time to time have any kind of continuing disclosure language in them. But generally I'm not aware of any other type of issue that would be from an issuer that would be subject to the rule that would not have that passage in the document.

Moderator Maco: How about our other members of the panel, any experience in this matter?

(No response.)

Moderator Maco: Let me move to a second variant of that, and that is rather than less, more. One of the comments made in the adopting release to 15c2-12 was that market participants were free to add to the event notices and other requirements that would be produced under the contract that the rule has a baseline but it does not set the ceiling. And if market participants wanted to add the provision of specific information or additional events they certainly were welcome to do so.

Rich, have you seen this at all?

Mr. Ciccarone: Now that we have seen. We have frequently asked for information that is beyond the requirements of 15c2-12. They tend to be for quarterly financials and operating information. And issuers have obliged us. Unfortunately, we always ask for those even when there has become a market expectation for a lower rate of securities on the hospital area for quarterlies.

The dangerous thing there and the part that's disturbing is that we have sometimes asked for them, they have agreed to do that, and then they have retracted that after the deal has been done. And so there is no enforcement of that particular area. That's caused a great deal of problem and stress and market valuation decreases as a result of that.

Moderator Maco: How about the other panelists? Alan, in your experience as an issuer and, Paul, I'll come to you as well, have you ever been asked to add elements to the 15c2-12 contract and what's been your response? What are your general thoughts on the matter?

Mr. Anders: In introducing myself I didn't mention that I also sort of bring the perspective of GFOA as vice chairman of the Debt Committee there, and CIFA as the head of the Regulatory and Legislative Committee there. And I think the general standard of the marketplace, and it's still acknowledging your personal speeches, Paul nevertheless, that the standard in the marketplace and the New York City standard is that we report on the 11 deadly sins and that's it in terms of filings.

What we stress and what GFOA has strongly stressed is that that needs to be supplemented with a strong investor relations program. And there are other I know it's one of the questions later on, perhaps we'll go into greater detail, but there are other techniques, the most important of which is a press release. And so we certainly make other information available and tend to go that route rather than to file that with a NRMSIR.

In terms of responding to investors we try to be very careful that we're not telling investors items that we don't generally disclose. And if we find out it's relevant enough and important enough to tell them, what we'll probably do is issue a press release, not a filing, and get that information out to everybody.

Moderator Maco: Paul?

Mr. Burbine: We have issued notices at least once when we had an event that we thought was a significant event but not one that was reportable under 15c2-12. We did stop some subsidy that we were giving to particular multi-family loans and gave notice that it could result in redemption of bonds. It wouldn't necessarily result in that, but it could. And we felt that was necessary to send out on Munifax even thought not created as one of the 11 deadly sins.

Moderator Maco: Bob, as a financial advisor, and as I understand it correct me if you're wrong your practice covers quite a number of smaller issues in the northeast. Have you experienced any of those issuers going beyond the 15c2 the baseline 15c2-12 contract?

Mr. Sikora: We make a clear distinction in our practice between material event notices, the 11 deadly sins, and the annual filings. Okay. With regard to the material event notices, none of my clients have actually ever gone beyond the required 11, okay. And we are not generally responsible for reporting those on their behalf unless it's in the course of, say, a rating change or if we're doing a refunding, reporting the defeasance of the outstanding bonds.

With regard to the annual excuse me the annual filings, sometimes, depending upon the nature of the issuer or the transaction we may include information in the undertaking that wouldn't ordinarily be required by other issuers or other issues.

Moderator Maco: Can you give us a "for instance"?

Mr. Sikora: Sometimes there's statistical information that relates to a particular issuer that wouldn't actually be strictly defined as annual operating and financial information. Okay? Or there's economic and demographic information that we feel is appropriate to include and we'll do that.

Moderator Maco: And how has this been received by the investors?

Mr. Sikora: I have actually gotten ever I've never gotten any negative feedback about it. And I don't know, I've never gotten any positive feedback either.


Mr. Sikora: But if we felt that the information was material enough to include in the original official statement we've generally taken the position that the annual filing should mirror the information that's in the official statement and, therefore, include it in the undertaking.

Moderator Maco: Scott, you are between the issuer and the investors. And as an underwriter feel the direct weight of compliance with the rule.

Mr. Sollers: Uh-huh.

Moderator Maco: Have you experienced or witnessed demand from investors to go beyond the baseline in the rule?

Mr. Sollers: Well, first of all I'd make a clear distinction between, well, really kind of four distinctions, enhanced and non-enhanced financings in terms of how the market treats them, and also governmental purpose and conduit financings. With respect to the original undertaking, I think on the banking side it's common to see the annual report include things that have to do with operating data beyond just the annual financial statement, dealing with an enterprise and so forth, which is useful.

The real problem with that is the timing of the information. If it's accompanying the annual report then it's not going to be available to the market until required by the undertaking which is oftentimes seven to nine months after the end of the fiscal year. So it's of fairly limited value.

The event, material events list, given its scope and dimensions, I've never seen it expanded as part of an undertaking the value of which, of course, would get information out on a more timely basis. Even though the end report has the substantive information, it's just too late.

As a dealer trying to comply with the rule it's and satisfy investors' demands we're straddling several bridges here. With respect to just the mechanics of the rule, generically dealers are typically when they buy securities into their inventory, keystroking in a CUSIP, looking up material events to see if anything exists, and I can tell you that 95 percent of the time if there's a material event it has to do with a call notice or a redemption feature, not any sort of a credit issue.

Is there's a credit issue I can pretty well tell you the street knows about it by word of mouth well before it gets reported as a material event.

And, again, distinguishing between the enhanced and non-enhanced universes, generally speaking the dealer community will look at the material event, check to see if a rating is current, and then do the trade versus going and trying to get additional credit information from, say, a NRMSIR which would even though it might be useful it's very dated and it's not available till the next day.

On the non-rated area most dealers that we work with that take into inventory a non-rated transaction will undertake some of their own research by calling an issuer or the FA that was originally involved with the transaction. So you kind of there's kind of a cottage business there in terms of making something work outside the legal framework of the rule just so you know what you're talking about. But there is a clear distinction in the market I think between the insured and non-insured paper and the governmental purpose and the conduit areas.

Moderator Maco: Monty, you quite often sit in the middle of a transaction as the bond counsel. What's your experience? Have you ever seen anyone go beyond the 11?

Mr. Humble: Paul, I think people are reluctant in my experience to expand on the list of 11. But I have had transactions where people separately in the documents provided for direct mailings to bond holders or provision to the trustee with the bond holders having the right to request other information, particularly quarterly financials, where I'm representing the underwriters in an offering and the borrower offers quarterlies up to the investors I want to be sure that that's a covenant in the document so that it actually gets done.

Moderator Maco: So the possibility is that the issuer will provide quarterlies to bond holders but not to the marketplace through the NRMSIR mechanism?

Mr. Humble: That's correct.

Moderator Maco: Is this something that is infrequent, frequent? Is it standard to or is it common to any particular sector that you see?

Mr. Humble: Well, I guess I can only speak with any real experience to the healthcare sector because that's where I spend most of my time. And in that sector I think Scott's dichotomy is pretty clear, a credit enhanced transaction you have far less interest in additional information. For a AA credit you have far less interest in information than you have for a BBB transaction.

Moderator Maco: Scott, is this something you've seen?

Mr. Sollers: It is. In fact, it's interesting, if you've got a financing that was originally underwritten and sold to a limited group of holders and they've been the recipient of ongoing information and then there's a subsequent trade in the secondary market you really are forced to scramble. I'm now talking about a non-enhanced financing where the disclosure was very restricted and not available to the general market. You've got to do a lot of scrambling to try and get on top of the current credit situation. And I don't think that the framework of 15c2-12 in terms of the annual report, that doesn't do you any good because the information is way too dated and the list of material events that are, you know, they're reasonably precise in terms of what is asked for but that doesn't get to the underlying issues that might have caused those events.

And that's where the digging starts. The fix has got to be somewhere in the annual report in terms of compressing the time period that is available to the public or some tinkering with material event notices because there's this gap between the two. One might have the information you want but it's dated and not readily accessible. And the other is supposed to be available on an immediate basis or as nearly as practical but it's not extensive enough.

So we're the dealer to comply with this rule that you're selling bonds on a reasonable basis of the credit seeing price properly is only met through your dogged investigation internally. And I would have to say there's probably a great deal of inconsistency in the market about how thorough that individual research really is, particularly in the area of conduit financings.

Mr. Humble: Paul, on that last point let me say that I'm not entirely sure that it's completely a matter of lack of investigation by buyers. I know in one situation we had a hospital that had received a notice from the Internal Revenue Service of intent to revoke its status which is about as disastrous an event as you can have. And we made the filing with the NRMSIRs as well as trying to get it out in the press. And a year later I was still being contacted by people who had bought the secondary market and hadn't found the notice.

Mr. Sollers: It sounds like the underwriter wasn't checking to see if there was that was put out as a material event.

Mr. Humble: That's the way we filed it. In following up I was told that it had gotten mixed in with the hospital's annual filing and had disappeared there. Apparently we had filed both at the same time.

Mr. Sollers: I think the dealer community is pretty good about checking when they bring bonds into inventory the CUSIPs and material events. So if it's filed there you're going to see it.

I'm not sure how good the dealer community is on monitoring material events in their current inventory. I mean that is once you've checked it and given the duration that bonds are held in inventory I think it's probably impractical to assume that the dealer community is going through daily and monitoring material events relative to what's going on in their inventory. It's just too much data.

But when it comes in my understanding is there is widespread compliance with checking with material events.

Moderator Maco: I want to come back to this line of discussion in a moment and, in particular, give Peter a chance to provide the NRMSIR point of view. But before I do, I'm intrigued by something I heard about the provision of certain information to bond holders, but bond holders only, and not to the investing marketplace or the world of potential investors.

Richard, as a potential investor I assume you buy bonds in the secondary market as well as in primary offerings. What's your reaction to the idea that there may be information that is provided to holders who may be putting their bonds out for bid but that you haven't had access to because you're not a bond holder?

Mr. Ciccarone: That's been a continuing problem. We talked a lot about that before the amendment. The old line was why should you have to buy a bond to find out you didn't want to own it? And it still is true. We still have that problem and, unfortunately, much too often. We do walk away from those deals.

But it shouldn't have to be that way. We already have a liquidity problem on lower risk or lower rated credits in the marketplace today because of the limited number of institutional buyers out there. And many of these deals in my opinion shouldn't be sold to retail. So that there is we have a real urgency to try to find a solution that problem, and that is that we cannot be satisfied with information only available to the bond holder. It has to be to the prospective marketplace.

Moderator Maco: Alan and Paul, both of you are members of larger industry groups that reflect your the segment of the market in which you operate. And without addressing your personal experience but looking at the experience of your colleagues are you aware of colleagues who have provided information to bond holders that they don't provide generally to the marketplace? Is it frequent that you see this? And how do you feel about it from, Alan, something, the perspective you mentioned earlier on, an investor relations program, is that consistent with a good investor relations program, particularly for the potential investors as opposed to existing investors?

Mr. Anders: No. I mean clearly, as I said before, any information that's material ought to be out in the general marketplace. I would be I'd like to ask Richard, I would be surprised if, you know, we have all these various sectors out there and it's easy to extrapolate from the so-called problem sectors to the, you know, we have 30,000 issuers, the great majority of them are just plain vanilla, you know, water and sewer entities or GO-ALBA issuers and who pay attention to the best practices of GFLA And, clearly, that's not the recommended practice. The practice is that you designate someone to deal with the market and that you put out into the marketplace whatever information is deemed to be material.

I'd be surprised if for plain vanilla issuers that isn't generally the case.

Moderator Maco: Paul, do you have any thoughts?

Mr. Burbine: I'm not aware of any member of the National Council of State Housing Entities that would provide information specifically to a bond holder, not to the general public or to the buying public.

Moderator Maco: Kate, do you have any thoughts on this?

Ms. McGuire: I have a question. Is this --

Ms. McGuire: I'm sorry. My question is, is this primarily coming up in the conduit and healthcare areas?

Mr. Ciccarone: May I answer that? As far as we're concerned in the investment community there's a vast evolution, I mean there's an evolution that needs to be recognized here.

In 1984 when we in the National Federation of Municipal Analysts first started to bring this issue to attention it was very widespread. It was widespread even with governmental issuers. And today I would say that it really focuses, the issue really focuses on a minority of the market but a very key segment of the market, and that is the areas that is unenhanced and often riskier.

Issuers like New York City are a model today. And for this, the reason being on this panel is not to argue why not, I mean the argue is the reason for being on the panel would be an example of what's good out there: frequent meetings with issuers, answering questions, a lot of documents, a lot of disclosure.

But, you know, when you look at where the problems are it's not the GOs, it's not the large utilities who follow corporate standards, you know, it's and some of the best disclosure we have when you get into the conduit area is all conduits because the best conduit area we have is actually those that are filing corporate filings. So we're very pleased with those, those reports.

So it comes down to those that are not subject to that. And a very important group. And you take a look at the market this week, you had a $2 billion hospital bond issue. Now, granted it was AA, or I believe it was AA. And yet $2 billion is as big as any corporate bond deal out there and yet they're not subject to the same standards in the corporate area yet we consider it to be a corporate risk.

So we've really got to focus in on where the real heart of the issue is.

Moderator Maco: Let's move to the actual step of preparing information in compliance with the covenant. And, Bob, what's your experience? Do you participate with the issuers? Do you prepare it yourself? Do you have any involvement at all in that?

Mr. Sikora: We have a tremendous amount of involvement, Paul. As I said, we represent small issuers, and they are not about to even begin to try to do this. I don't even know if they understand what the obligation is when they sign the undertaking. And they generally defer to us or whoever their financial advisor is to assist them in compliance with the obligations of the undertaking.

So we prepare the annual statement and file it on a timely basis for each of our clients who's contracted with us to do that. And since the amendments to 15c2-12 were enacted I think we have two clients that have not retained our services. One is filing his CAFR and the other decided that they would do it themselves.

Moderator Maco: Alan?

Mr. Anders: Well, just to deal briefly with the sort of big frequent issuers, 15c2-12 is very easy for us because we can basically just file our frequent official statements and we're done. And if you issue once or twice a year it's possible to do that.

There are some big issuers, and the state of Wisconsin of course is famous as going way beyond that with their own annual statement despite the fact that they're a frequent issuer.

I think generally in the marketplace the feedback we're getting from issuers in GFOA is that they are pretty well after five years now established in terms of procedure. It's usually working with bond counsel rather than internal counsel because most issuers don't have securities law staff on their law departments and so you have to actually bring in your bond counsel. I guess occasionally it's financial advisors. The feedback I get is it's more often bond counsel. And that everyone's pretty comfortable that those, both in terms of the annual filings and the notice filings, that the system is working pretty smoothly.

Moderator Maco: Paul, you have a different type of credit that you bring to the market. Does that affect the way you put together the annual financial information? What's been your experience?

Mr. Burbine: No, since we're a very frequent issuer also we generally just file the latest official statement along with our annual report in connection with work we do with our both bond counsels. We have a single family bond counsel and a multi-family bond counsel. Together with them we make our annual filing and it's really not a big deal.

Moderator Maco: Scott, do you participate in assisting issuers? Do you have an ongoing relationship with your underwriting clients that you comply with the contract?

Mr. Sollers: Well, first of all, when you're structuring a financing you're definitely in the room helping lay out the ongoing disclosure document. And with respect to most governmental purpose financings the issuer is pretty cooperative about putting willing to be put in operating data, pretty much following the template that the OS has set forth. Again, the real problem with the usefulness of that information is it's linked in the annual report to the availability of the audited financial statements. And it just gets it's too late.

But the issuers by and large are willing to provide it as part of their normal course of business. They generally have it very close on the heels of the close of the fiscal year. Operating data I'm referring to, or enterprise data.

So we don't see any tension between the banking community and the issuer community in agreeing to provide that. I believe they'd even be willing to provide it on an earlier basis if you could de-couple the operating data with audited financial statements or instead use unaudited financial statements to be followed up with audited financial statements. That arena is kind of okay except for timing, which is a problem.

On the conduit side it's more difficult. There you're not in an adversarial role but your the juxtaposition of the dealer, the issuer's conduit and the obligor, you're circling each other a bit. And it's, you know, a negotiation to deal with what the obligor is going to be willing to provide and when. And there I think there's a great deal of variety in the marketplace which I think the NFMA to their credit is trying to moderate by virtue of the guidelines they've published, these various industry sectors. They're out for comment. And I hope that's going to evolve in raising the bar a bit and being more consistent in what goes out there.

But right now it is pretty inconsistent both in terms of timing and content on the conduit side. And it's a, you know, it's an interesting discussion in every one of those financings, I can assure you.

Moderator Maco: Monty, do your clients look to you to help prepare the annual information?

Mr. Humble: Paul, some do, some don't. I've, you know, tried when we're doing the financing to point out to them that probably just filing an unadorned financial statement that speaks as of the date four months earlier or six months earlier without spending some time to think about whether there have been subsequent developments that should be disclosed is probably not a wise course of action. You know, even if they don't call me I assume that they're either calling Rick Weber or else taking care of it on their own.

Moderator Maco: Peter, when we chatted briefly before the panel you mentioned you had some statistics. Can you share those statistics with us and, in particular, if you have any relating to the timing of filing of annual information? But interested to hear the wealth of statistics you brought with you generally.

Mr. Schmitt: Okay. Thanks. I know there's a danger to speaking to numbers without any exhibits but I will try to minimize the confusion with this. Let me talk first about material event notices.

I share Rich's sentiments on this topic. We became effective as a NRMSIR in August of 1997. Between August of 1997 and this morning 42,279 material event notices have been filed with us.

I also have a strong sense, as Rich mentioned, that very, a very large amount of relevant and material information never makes it into the public system, i.e. through material event filings with the NRMSIRs. For example, when a public relations release is made with something that might affect the trading value of an outstanding bond as opposed to putting it through a public repository, it may not make it into the hands of investors.

I don't know how many retail investors, for example, have access to Munifax or Bloomberg wire or any other private wire system. And occasionally if the issuer is large enough and the event is significant enough it will make it into the general press, but not often.

I can give you a little bit of evidence. Between August of 1997 and August of 1999 DPC Data received exactly nine requests for material event notices from the investing public. So we have to go through a great deal of expense and effort to prepare and promulgate these things, so we decided to give them away for free. We put them on our website now. And usually we get them processed and available where you can screen them by type and all the other criteria. And you can actually download a PDF version of it usually within about 15 minutes of when we receive it. And you can do that at www.dpcdata.com.

The question that comes to mind is as the market continues to evolve toward retail investors, away from sophisticated institutions, will adequate information be available to Joe Public at the point of his bond transaction? And I think that's an important issue.

Away from material events we have done some statistics. And I want to tell you what we did. We tried to measure, if such a measurement can reasonably be provided what the compliance with 15c2-12 has been with regard to continuing disclosures and the filing of financial information. This probably would require, if it were to be a formal study, a little bit more work and the assumptions would certainly be made clear. But let me tell you what we did.

We took the information on the bonds that were issued that we received documents for during the year 1998. It was a very busy year in the market. We received prospectuses from the MSRB and also others that were filed directly with our NRMSIR that were not in the MSIL collection. For purposes of this little case study we looked at 14,032 bond issues, separate issues.

And then we looked at the CUSIP numbers, the 9-digit CUSIP numbers for those, and we tried to find any kind of non-material event filings in our collection that would be among the 20,048 documents that have been filed with us between January, the first business day of 1999, through last Friday. And we found some interesting things.

I also have to say that in that collection if an issuer sold a bond in 1998 and did not make a filing because they had another public issue that was in our possession, the information from that issue was also captured.

What we found was, especially looking from three different perspectives and I will share them with you very briefly that overall compliance is not very good. Of those 1998 issues only about 42 percent have filed anything with our NRMSIR through last Friday during 1999.

What we found was something I think I heard here a moment ago was that the larger issuers actually show better compliance than smaller issuers. Let me give you a little flavor for that.

We took a look at those 14,000-some issues and we broke them down by the size of issues. Not very scientific. Bears more scrutiny. But here's an indication. For issues under 10 million, about 35.25 percent of them by the number of issue actually filed any other continuing disclosure with us, not counting material event notices, so far in 1999.

For the $10 to $50 million range it gets better, it's about 53 percent of them had filed something. And then we found a similar experience in the range of 50 to 100 million and over 100 million. Both of them are about 61 percent.

So I guess if, you know, frequency to markets, sophistication in dealer I'm sorry, with investor relations has been supposed until now I think we can develop data to indicate that that's in fact the case.

We looked at it in a slightly different way also. We took a look at security type, whether it's a unlimited tax, an enterprise revenue, a lease revenue, etc., etc., and we looked at the same sample and found the same 42 percent, of course. But we found a tighter distribution of compliance around the 42 percent number when we look at it by security type.

Let me give you an idea of this. The best compliance was demonstrated by note issuers. They're in the market all the time. DANS, CANS, FRANS, other anticipation notes. They weighed in with about a 58 percent compliance by filings something during 1999 so far.

Worse compliance was demonstrated in the lease revenue sector. That's about 18.5 percent. Think about that.

Unlimited tax, which tends to be predominantly small issuers, had about 46 percent, which means that the market is still at least for compliance statistics purposes being driven by the small issuer. Enterprise revenue is under 40 percent.

Just to take this to the next step, we looked at it by use of proceeds. There are some surprises here. Corporate guarantors of municipal debt showed the worst compliance with 15c2-12. Can't explain it.

Let me give you some examples: the corporations, the obligors behind industrial development revenue bonds, 9.6 percent of them filed anything. That's out of 479 issues that were in the sample that we looked at.

Pollution control, mostly big utilities, 15.5 percent.

Economic development, a fairly large group, 405 issues, only 160 have filed anything for about 39.5 percent.

You can see that it falls into a little bit of a shocking portrayal here.

Compliance, the best percentage of compliance by use of proceeds, interesting. Healthcare and single family mortgage revenue bonds, they both are at about 57 percent.

Multi-family housing, solid waste, resource recovery and nursing homes, which I think many would regard as being some of the riskiest sectors only complied about 35 to 38 percent of the time. Which means your chances are slightly better than one out of three that anything material and ongoing would have been filed with the repository.

A couple of summary observations just to wrap this up, most municipal issuers only file financials and continuing disclosure materials when their audits are released, which in our experience is typically six months after the end of the fiscal year. The largest month for those documents to appear in any NRMSIR collection then is December because about two-thirds reporters of municipalities, 501c3 corporations, are actually on a June 30 fiscal year.

Compliance, as I tried to portray for you here, appears to be worst among the smallest issuers and also among the riskiest sectors and the riskiest security types.

On a position note, not to be just negative, think 57 percent is very good compliance, but judging from the volume of filings that come through our NRMSIR which, by the way, number about 2,000 a month for both material event notices and also for the other kinds of continuing disclosures, the volume is clearly on an upward trend. And it's about 25 percent 25 percent increase year to year in the number of filings.

Moderator Maco: Let me ask the members of the panel if they have any reaction to this interesting data, any questions that they may have of Peter?

Mr. Ciccarone: I can just support a lot of what Peter said. One of the interesting comments you made about corporate filings are not going to the NRMSIRs and they're probably not being pushed because I know a lot of investors like us are just going straight to EDGAR and to the corporate filing methods that you would have. And when we need to talk to them they're very accessible to us. They deal with us like they deal with corporate investors.

So that's probably why they're getting by. But it's really not the way it should be, as you point out.

I, you know, I find some of those numbers consistent with our own thoughts, Peter. So, in fact, we compiled, I compiled some numbers from our collection of official statements and they come out pretty close to what you're coming out with. But I only did it for hospitals and utilities. And the hospitals in the first six months we get 53 percent of the hospitals that we're requesting.

Now, we are requesting 1,300 hospital financial reports a year and we're getting 53 percent for six months. But we're getting 32 percent in nine months or more, so, which has been our history for the last three years. So it goes to show you that data really gets stale. When everybody wants quarterly you're still getting them that late.

Utilities have a little bit record better record but they still have 28 percent that actually we, because they're small, we may never get is the way it's coming out right now.

So these are where the gaps are. We talked about the minority. I think this data that Peter has provided you and, hopefully, I could give you a little more kind of define some of the scope of this problem in terms of getting financial reports.

Mr. Schmitt: Paul, can I add one thing about material event notices?

Moderator Maco: Uh-huh.

Mr. Schmitt: Of the I took a look at our entire database of filings that went from August of '97 through the last business day of September. There are just under 42,000 of them. Of those, 87.5 percent are either bond calls or defeasances. The next largest category is other with at about 8.75 percent. And the balance, less than .7 percent have anything to do with delinquencies or defaults and they go down from there.

Mr. Sollers: Well, even as appalling as those statistics are I'm not sure that if there was widespread compliance with the timing of the filings with the NRMSIRs that that necessarily is going to help the dealer community comply with their responsibility to have a reasonable basis for a recommendation to the secondary market for the simple reason that the data are dated and difficult to access.

When you've got a bid wanted on the table and you've got to make a decision about a credit you don't have time to go to the NRMSIR and wait a day to get financials that are realistically, either if they're even available, are so dated as to be un just not usable.

So the dealer community I think is in a very vulnerable position with the existence of the rule, and we've always had the requirement to have a reasonable requirement to make a recommendation, but now it's been formalized in the context of 15c2-12 where there's this assumption that if you do the event notice check and if you get the annual report that you've got an adequate array of information to make a recommendation. I don't think you do, particularly in the conduit area. Those data are just not relevant.

And that's why I think the coupling the audited financial statements with the annual reports so you can get it filed in a more timely basis so the operating data are available three or four months at the end of the fiscal year makes some sense. And, frankly, I will be very interested to see what kind of compliance we get on the NFMA's guidelines for improving disclosure in the secondary market, if the bar doesn't get raised there. You know, then the only muscle we would have would be expanding the material event notice to include some circumstances particularly in the conduit area where you're required on an as-soon-as-practical basis to get the information out to the marketplace.

We need some help because the way it's working, I mean that's widespread failure on the issuer's side to get the information there. And even if they do, I question its usefulness.

Moderator Maco: Well, a number of panelists have mentioned timing as a concern, as have a number of questions from the audience. Alan and Paul and Bob as well, looking to your member groups, the GFOA, CIFA and the housing groups, from their perspectives are there difficulties in providing annual financial information within six months?

Mr. Burbine: We as an agency don't have any difficulty in Massachusetts because we have a 90 day requirement on our statutes that we have to file our annual financials. I think there are some other state HFAs that probably don't have that requirement. And maybe they do take a longer term. But I agree, those are very stale numbers after that.

Moderator Maco: Bob, let me ask you, I think you have a diverse base of small issuer clients. Do they have difficulty meeting a six-month timetable? What are the sources of that difficulty, if indeed they have it?

Mr. Sikora: We really don't, Paul. Our local governments and school districts in New York are required to file an annual financial report with the state within 90 days of the close of the actually within 60 days of the close of the fiscal year. They can get an additional I believe 60-day extension if they request it.

So we have unaudited financial information available to us within six months of the close of a fiscal year of every local government and school district. Where we do run into a problem sometimes is with the audited financial statements. But we've taken the position at our firm to file the annual financial and operating information no less than six months after the close of the fiscal year. And if the audit's not available, then the audit gets filed when we get it.

But I'm just addressing Scott's problem, and it is a problem, I understand that, but there are undertakings that have been promulgated by bond counsel I know that do state that the filing can wait until the audit is available. And I know that's not in conformance with the rule, and should not be, and we don't really adhere to it, we file within six months.

Moderator Maco: Alan, any thoughts on, again you belong to two different groups and two greatly different sectors of credit in each group, any thoughts as to why these statistics are as surprising as they may be or why they sound the way they sound?

Mr. Anders: Well, I don't want to be at all an apologist for to look like I'm just trying to take a point of view that compliance is universal, because I think these are very interesting statistics and they merit some examination and some thought. But just thinking about them for three or four minutes now, you know, your statistic that 80 to 90 percent of the filings are defeasances or calls, and I would add sort of I would imagine most of the rest of them are might be rating changes and perhaps substituting credit providers. If you think about smaller issuers, many some of whom, many of whom probably still are old fashioned issuing, you know, non-call, who don't do many refundings because or they go through waves of refunding, who it isn't that frequent, thinking of your former employer, Peter, that, you know, credit enhancers are changed, I guess it wouldn't necessarily surprise me or indicate that there is large scale non-compliance just because you have that 50 percent statistic or that most of your filings are in December. Maybe they're annual filings. But I don't know. I think it merits sort of thought and we ought to think about it. But I'm not sure.

Mr. Schmitt: We have to distinguish between material event notice filings and your disclosure filings. And there is confusion. I try to field most of the calls that come in to our NRMSIR regarding what has to be filed and when and how could I explain how to solve a certain problem of someone who's out of compliance, or is the failure to provide annual financial information notice, it's being filed today but we should get the financial statement Monday, what can you know, obviously I can't respond to those questions. But, you know, there seems to be some confusion there and also around enhanced issues. There is a belief out there among some issuers and some of their fiduciaries that if an issue comes to market with bond insurance they're exempt from filing annual disclosures because they have to file under the terms of the insurance policy with the insurance company, and the whole subrogation issues that, you know, arise between an issuer and an insurer. So, you know, I'm not sure that if we look broadly across the entire spectrum and talk to all counsel and all fiduciaries who are advising the issuers about this that you're going to find a consistent answer with what compliance is and what your affirmative responsibilities are.

Mr. Ciccarone: Let me just briefly comment on this, on Alan's point here too. I mean, you're questioning whether maybe that there's a reason, maybe that's justifiable that we have such a small number of filings on continuing information. And I say it's not justifiable, it's not acceptable. Because what has happened is that in the investment community analysts have come to not have a lot of faith in the NRMSIR filings because of the quality of information. It is just, it's not that interesting, you know, to look or just to call information. And when you get default information it's after the fact. I mean it's too late to worry about that at that point in time. You're looking to see how you could bail out. But, you know, your key factors that are changing, that are relevant, the same kind of key factors that when you call up and ask what's going on and they say, we can't tell you that it would be inside information. They're not filing it necessarily with the NRMSIR either. Because if it were it would be a lot more interesting to read those notices and there would be a lot more of them. So I think that because we've been preconditioned to the fact that we have this minimalist attitude or this legalistic and minimalist attitude about what goes on where it tends to defeat the whole process of what this was intended to do, which is to provide a continuing flow of information to the public. So I think we have to have a higher standard of expectation. And that comes from the part of issuers as well as the entire community.

Moderator Maco: Monty, do you have thoughts on the apparent delay that exists in filing and, indeed, apparent level of non-compliance with the filing requirements?

Mr. Humble: Well, I guess I had a series of questions that occurred to me as I listened to Peter speak. First, it sounds as if an entire year has not elapsed since the time of the original issue so it's not clear how many of the universe simply will never file and how many have not yet been required to file.

Mr. Schmitt: That's absolutely correct. And because the June fiscal year ending date, and typically we get the statement, the annual financial statements, the audits, particularly six months after the fact. If we revisited these numbers in December or in January to show the full year of 1999 the numbers would be better. They wouldn't be 100 percent but they would be better.

Mr. Humble: And then I think there are clearly some exemptions permitted by the act for, for example, variable rate test that's in a weekly as a put and is in $100,000 pieces, query whether that's included in your sample?

Mr. Sollers: They're in there. Absolutely.

Mr. Humble: So I think you have those issues, Paul. In my own experience I've only run across one issuer who when we came back to do the second issue had not made the filing required by the first issue. And we do ask because I think that's part of what the interpretive relief says you have to ask as part of your diligence process and part of your disclosure process. Also, the first question that you asked about the disclosure in the official statement about the undertaking, I guess we've gotten so that even where we believe we have an available exemption gotten used to going ahead and stating that in the offering document because we invariably get a call if we don't.

Moderator Maco: Peter, one of the questions that we've received from the audience is asking a response from you that many have experienced the problem with NRMSIRs that they know information is filed by when they go you hear this often from issuers they know that they've filed information but when they go to check to see if it's available in the NRMSIR's database it isn't.

Mr. Schmitt: I'm sure that happens. Fortunately for us, I mean we became a corporation in 1992, we were founded in 1992, and then we became a NRMSIR in 1997. And under our DPC Data's no action letter from the SEC regarding our NRMSIR status we're not required to retain paper, we have to retain electronic images.

I know the other three NRMSIRs at least when they obtained their designation were obligated to keep paper. And if you're talking about tracking a paper system, that's a problem.

But can I say categorically that we have never lost track of a single document? No. I'm sure there are a handful that have been lost. When you talk up in the 50, 60, 65,000 document realm that happens. But we do absolutely everything we can to log documents in so that when you call for if you called in to get a verification that documents have been filed that we have an operator whose job it is to go through the database and identify the document, who filed it and when.

But we take it a step further. As we look at the market statistics as a NRMSIR and we see that more of the business percentage wise is gravitating toward retail we have made those documents themselves available, usually on the day they're received and in practically every other case on the day after they're received on our website. So anybody can come to our website and download any document that is held on our NRMSIR.

Typically with prospectuses, you know, final official statements and so forth we get them up there in downloadable form in such a time frame where around two-thirds of them are available before the syndicate closing date, for example. Material event notices are available, not an edited version of them, but the entire material event notice in its original submitted form, in PDF format you can download immediately too.

Do things get lost? I think on occasion it may happen but I don't think it's a routine problem.

Mr. Burbine: I have a question on your numbers, Peter. We file one annual report but we issue ten to 12 issues a year. When you get these statistics, about 30 percent or so, do you tie our one annual report to all those issues that we've done?

Mr. Schmitt: No.

Mr. Burbine: And so maybe that's why that number is so low.

Mr. Schmitt: Here's what we did for this. And I agree with the statement that, you know, this really should bear some more refined scrutiny, particularly in a statistical sense. I present these merely as indications of in a broad sense of where these things are. But for purposes of these statistics that I shared with you a moment ago we made note of the fact whether or not a financial statement particularly had been was in a prospectus in 1999 for an issuer that sold a bond issue during 1998. We didn't look for other non-financial continuing disclosure information.

So if a prospectus, if we had a prospectus in our possession that we received in 1999 for an issue subsequent to 1998 and it had a financial statement in it that was counted in the statistics as an incidence of compliance.

Mr. Sollers: Paul? Just a quick comment on compliance.

When we're structuring financings with issuers we will set up a procedure so that there is follow-up on our part to remind them about their ongoing obligations. With enhanced financings we really don't necessarily track to make sure they've complied. The non-enhanced areas we're way ahead of the curve, we're dealing with them directly. We just couldn't wait to get the annual report to get an update on our research on that non-enhanced financing.

That being said, you know, there's really not much-- you really don't have much leverage with the issuer to comply with the ongoing disclosure document in the event in the circumstance, not in the event of default. I mean you can pursue an action to have them comply with the contract but, believe me, the dealer community is reluctant to engage the issuer community in any sort of litigious way under any circumstance. So that really is not an effective leverage.

And so procedures are one thing but the enforcement or the requirements to comply are another. And the undertaking that the issue goes into with the onus on the dealer to have this reasonable basis again I think comes around to the dealer as having the real vulnerability here in the long run.

Moderator Maco: Scott, when you do an underwriting of an issuer that has issued bonds after the effective date of the amendments to 15c2-12 do you check to see if they're --

Mr. Sollers: Yeah, part of our due diligence there is to check. And to my knowledge there has been no issuer we have worked with that has come to market subsequent to a financing that has not complied with the rule.

Moderator Maco: Do you see this as something that your competitor firms in the industry also do?

Mr. Sollers: Yeah, I think that's a typical due diligence question: have you been consistent with your filings? And I know that's why these statistics are so interesting because I don't see widespread noncompliance, at least among the issuers that have come to market over the past five years on some repeated basis. And, again, we're not checking on the enhanced areas to make sure they file, even though we remind them, but if they come to market again we do.

And I haven't seen situations where they're not providing the information. But that doesn't deal with the issue of timeliness of content.

Moderator Maco: I want to ask Paul and Alan if underwriters ask them or look into whether they're current with their filings and comply with their filing covenants as part of the and then, Kate, I'll come to you because I know you have a question what's been your experience, do underwriters check as part of their due diligence before they underwriter?

Mr. Anders: I think the short answer is yes. We have sort of such a sort of cozy group and that does many financings in New York that we all kind of work together on all of this. And so when we have the diligence meeting that's not one of the question they ask the budget director but in the process, you know, sort of monitoring us on an ongoing basis. And that's the value of having a team that does that. That's one of the things they certainly ask.

Moderator Maco: Paul, do people ask you that as part of the process?

Mr. Burbine: I can't recall the specific question being asked. But we do have an underwriting team in place that we keep in place for a couple of years. So I mean they are aware whether we do file or not. But they haven't actually specifically asked the question.

Moderator Maco: Kate, you have a comment or a question?

Ms. McGuire: I do. It seems to me that what I'm hearing is that the statistics that you've put our really suggest and support Richard's idea that and also yours that this disclosure isn't really timely and it may all come in, in December. And so everyone may be in compliance but it's very late.

And so my question was really for Alan and Bob and Paul again, and focusing more on your groups, but do you take a legalistic view of when you have to file and what you have to file? Is there resistance to Would there be resistance, for instance, to the idea of making these press releases available to the NRMSIRs or filing, taking advantage of the flexibility in the rule to file in two stages so that the audited financials come later? So what's your attitude towards the rule at this point? Do you see it as a valuable tool to investor relations or as something off to the side?

Mr. Anders: A two-part answer in this case which gives me a chance to talk about unaudited financials. Our legal team does take a legalistic view that the only thing that we file in terms of materials filings is the 11 deadly sins. And we file them extremely promptly. We don't wait till December. And certainly it's I think the viewpoint of GFOA and best practice that you don't wait, you file them promptly.

On the question of separating the operating and financial data and publishing unaudited, I really think it's so important and just really request that the analysts and others who are thinking about this issue distinguish between sectors. It's so easy to jump to corporate practice to enterprise systems of which hospitals are a very important sector and, you know, where you would think they're supposed to be publishing quarterly unaudited financials, and then not thinking about the problems that the sort of preponderance of issuers have, the GO issuers, where basically unaudited the audited financials on GAAP with accruals is derived at the last minute in the audit process from basically cash basis or budget information.

So it's not generally available at all. If it were given out it would be likely to be misleading. It would have large unintended errors. It's an extremely bad idea forGO issuers to think that the audit information that typically comes out I think like 120 days for most issues, maybe it's six, for the small issuers it's at six months or more. I think that's improving. That, that be, that there be some information available a month after the fiscal year closed.

On the other hand there are other sectors, the water and sewer sector I think of our water authority where audited financials on GAAP basis are not meaningful. We're required to do it, so it is. It comes out, you know, basically four months later. But basically the coverage numbers are on a cash basis. And those are basically our numbers in our system. And we do provide them. And we provide them, you know, in terms of our undertaking on a historical basis, not projected necessarily.

So I think it's very important to distinguish by sector and not drag it would be an extremely costly and I think an unfortunate and misleading practice to require GO issuers to provide unaudited financial statements.

Moderator Maco: Richard, as a consumer of this information how do you react to Alan's observations?

Mr. Ciccarone: That's what I'd like to do, I'd like to be very practical, pragmatic about this in saying we'd like to distinguish between the sectors, and in fact that's my intention to do it that way. But I think we need to have the spirit and I've heard people on this panel, including you, Paul, who have really advocated that we really can't go to a minimal standard here. I mean this doesn't mean that we shield ourselves when asked the question, because there's going to be times in which we might be worried about something going on in New York City or in Miami, Florida, or in Baltimore, Maryland, and although generally speaking we may not really follow those credits that closely because they're in a period of prosperity generally, there will be times in which we want to come to you and we need to talk to you, be open with us.

So how does this market work effectively so we can get the kind of pertinent market inform credit information that we need on the right time without using a shield of, well, we don't have to, and it's best we stick with our legalistic views here on that.

So I'm willing to go that route, Alan. I really believe in it. I want to stay that way without the strictness of a regulation. But at the same time, you've got to have the spirit of cooperation here to make this work.

Mr. Sikora: Paul, excuse me, just about I wanted to address something that both Alan said and something that, you know, Kate asked.

As I said before, we do make the distinction between the filing of the annual financial statement and the filing of the audit. One of the things that the panel should be aware of with regard to the small and tiny GO issuers is that audited financial statements are really of a secondary concern to many of them. And, in fact, in a lot of places, New York included, there are certain local governments that aren't even required to have them.

That being said, where they are being prepared we've taken the step and our clients have mostly complied with us of asking that the audits be prepared as soon as possible. Generally in the past they may not have been available until about this time of the year for a fiscal year that ended last December 31. But now we're getting them as early as May or June in a lot of cases.

And I really thank the auditing firms for stepping up, and our clients too, for stepping up and being proactive in that regard because we know it's important to the market and to the participants in the market to.

Thank you.

Moderator Maco: Scott and Bob I have a question for you and, Monty, I'll look to you for a reaction on this.

Bond counsel are often identified as the bad boys in the continuing disclosure milieu, characterized as advising their clients to use 15c2-12 as the maximum disclosure requirement. And is this something that you have witnessed or you believe there's any credence to this?

Mr. Sollers: Yeah, I witness a lot of it. And I think in fairness to the legal community there is there has been a reaction that I think is evolving here. There's been an attempt to shield the issuer from liability by just following the letter not the spirit of the rule. I think that's softening, Paul. I think what the NFMA has been doing in communicating with the marketplace about best practices and trying to communicate effectively with the market is beginning to take hold, in fits and starts, and it varies geographically around the country and it varies with the type of credit.

But there's a little better awareness, I think, among market participants about their obligations here in terms of making sure that we're getting the right information so we can comply with our responsibilities. Believe me, we're kind of used to them saying help us make sure we're not categorically going to violate 15c2-12 by not having reasonable basis. You've got to help us out.

And they're getting the message. And so it's a, I think it's a team effort. Coming from a fairly low point where some counsel just said flat out, this is all you've got to give. Don't give any more or you're going to subject yourself to some real liability, insider trading problems, etc. The insider trading problem is ours, not the issuers.

So, evolving would be my summary comment.

Moderator Maco: Bob, do you see have you seen situations where counsel comes in and tells your financial advisor clients to just give out this much and no more, shut the door?

Mr. Sikora: No, we haven't actually seen that, Paul. I think in the beginning counsel was much more likely to adhere to the letter of the rule. And that, as Scott said, that's evolved. I think they're not quite as stringent to the letter as they used to be.

Moderator Maco: Monty, what's your reaction to this as a bond lawyer? Feel it's a fair characterization, unfair, and if so, why?

Mr. Humble: Paul, I think it would be a fair characterization of my behavior when I've been asked by clients, I guess my overall attitude is be good citizens, recognize these people are your creditors and hold your paper and they have a right to ask questions. But, at the same time also recognize that if you have material non-public information in your possession you have to either keep it non-public or else disseminate it in a way that it's fairly available to the market as a whole and not to a single buyer or your friend or your cousin or whatever.

So I think that probably that cautionary statement gets heard either by the analyst or by the client or by the analyst by way of the client as "we don't talk to you." But that's not the way it has been couched I don't think by me or by other bond lawyers by and large.

But if, for example, I know that a hospital has gotten a friendly letter from the Internal Revenue Service saying "We don't think you're tax exempt any longer," I'm going to tell the hospital, "you can't tell the first analysts who calls that you've gotten that letter. You have to manage the disclosure of that information."

In terms of the unaudited financial statements, I guess I have a concern there about the variance between the unaudited financials and the audit. Once you've filed a set of financials or disclose the set of financials that purport to cover a period and be as of a date, if you come back then later with an audited set that show material variances I think you've already given away half of your 10(b)(5) lawsuit, you've already got the defaults part and now you're just debating about whether it's material or whether there was damage.

Mr. Ciccarone: I have to respond to a couple of these points right now because I think there are a lot of people that are in the audience that are investors, analysts, who feel very strongly about this issue. We're not seeing it go away, particularly in the riskier sectors, that they're referring to their lawyer's statement who has advised them no longer to talk to the analysts unless it goes to the NRMSIR, or just it doesn't get said at all. And it's just happening too often. It's not gone away and it's too important.

We had an extreme example of that last year, in the past year, in which the market really penalized that bond issue. As more and more people found out in the market about it went from a good, solid premium with a deep discount without interest rate help. And it was because they cut off the information flow. They'd gone from being open to very, very closed, with new lawyers that advised them in that account. And I know of at least one legal firm that has advised almost all of their clients in that area of that.

So, I have to say that I don't really I think it's incumbent that I make that clear that I don't think that this is, this problem has gone away. It's too strongly out there with too many important issuers.

But on the audited statement, one of the things there, you know, being on the village board here I see our cash statements and they're very good and they come out pretty close to the audit. And we asked the auditor about it, how did our numbers look? they came out pretty close. And, frankly, I think that with the proper hedging on this and the understanding that these numbers are estimated and made very significantly from the actual audit, I think it's sufficient disclosure. But from a material credit standpoint if that's what the legislature is getting is cash numbers and the staff is working with cash numbers throughout the year that are significantly going to be different year to year with their audit, I'd say that's all material.

I wouldn't necessarily call it 10(b)(5) if you give it the proper disclosure because I think what we're doing is we're taking a look at what goes wrong in governments like Miami, Florida, you know, it's bad management. And we need to find that out. And this becomes a very relevant tool for management.

So, I don't know, I think we should have those.

Moderator Maco: Monty, let me ask you a question going back to the advice that you may often give clients. Do you see there's a balance between advising them on lessening liability and how that may does that have any relation to what Alan mentioned very early on, an aggressive investor relations program? Are there two ways of addressing this concern: you can either clamp down and keep the information from flowing out so that you avoid, you hope to avoid liability, or can you respond to it in a different way by adopting an investor relations program that aggressively gets information out?

Mr. Humble: Paul, I guess let me say first off that before I get myself painted back into the same corner I frequently find myself in, that if you released information and you're getting a series of calls for analysts asking for clarification of that information then my advice to the client would be clarify it. Because you've obviously on the evidence produced something that is not clear and could possibly sink to the point of being misleading.

But I want to distinguish that case on the one hand from the case on the other where you have something that is material and clearly non-public and perhaps unrelated to what's been disclosed already.

In terms of investor relations, generally I haven't found hospital finance officers to be real eager to consider, for example, investor conference calls or something like that. I'm talking to one right now because I've heard so much about this that I have just an intellectual curiosity to see how it would be received and how it would be handled.

Moderator Maco: Alan and Paul and Bob as well, considering the advice that you give to your clients do you have any feel for which is, in a cost benefit sort of way, which is more sensible for you, is it the liability avoidance road of just shutting down on the information? Is that a more effective way of addressing this? Or is it more effective given your overall interest to have an aggressive investor relations program where you're putting out as much information as you can once you can get your handles on it to make sure that its' accurate and sensible when you put it out?

Mr. Anders: I think given the fact that we're public officials and we're conservative and we're going to listen to our lawyers means that the most, the logical way that good information is going to get out or should get out or bad information should get out if it's not in the 11 events is through investor relations. And I think it's possibly very conservative, if that's what your advisors are advising you on, what you put into your material event filings.

And yet, be very forthcoming through the various ways you can use investor relations program to get information out, whether it's a Munifax wire or it's a press release or a combination or websites that investors know.

For example, for New York City, and I think this is getting down to intermediate size issuers too, that you can see every press release that the mayor has issued on the mayor's website. You can see every press release the controller has issued on the controller's website. And then if we think it's relevant, we do our own press release on our water authority or TFA website. And I think people look to those websites and expect for that information to be there. It's a way to be conservative and yet get the information out.

Moderator Maco: Is such a program a budget buster or is it fairly easy to implement? The cost factor has often been raised particularly with respect to smaller issuers. And, Bob, I'd like your thoughts on that as well.

Mr. Sikora: It's been our policy to provide more information rather than less. And I think there's nothing wrong with that as long as you're clearly identifying the source of the information and the nature of it.

My clients, by the way, are most general obligations issuers so we don't have the concern that other kinds of issuers might have. But as far as the cost is concerned, we've had a website for a couple of years now, and we post a lot of information on it with regard to our clients, our official statements, our audits, things like that, and we never have a problem with it.

Moderator Maco: Paul, any thoughts?

Mr. Burbine: We do have a full-time person that does nothing but investor relations. We are very sensitive to our price in the market, very sensitive to where the rate is going to be. Most of our investors are not concerned about whether they'll get paid but when they'll get paid. And that's what they're really concerned about. It's not a credit issue at all.

Moderator Maco: Richard, let me ask you your thoughts on the merits of an investor relations program. Also, one of the sectors that much of the conversation has drifted towards is the healthcare sector. One that recently was identified by one of the rating agencies, Moody's, is being particularly stressed right now. As a consumer, as a buyer of bonds is the clamp down at all sensible or is the aggressive investor relations program more sensible? And why aren't more people following it if it is sensible?

Mr. Ciccarone: I think it's a good idea. The fact is that New York City, for instance, has proven itself in the last could be as much as ten years, the last five years for sure, as being an issuer that goes out of its way to make sure you get all the information, and some would say almost too much information. But if they can do it, so can many others and so could smaller governments.

When you talk about cost, which I think is the biggest objection, one way to handle this is to use organizations like state bond divisions like Ben Watkins' who was here this morning. And if he could be the conduit for many, many small governments in the state of Florida when you have questions you can deal with him, as long as he's able to get all the questions answers that you need to get answered. I think that may be a cost effective way to try with smaller issuers to use state facilitators like that.

So we've just got to be a little creative. Websites are still in their infancy in terms of using financial information. I know of thousands of websites are out there right now for state or local governments that I would say only 10 percent have anything to do with financials. And that's very lean. And maybe only less than one percent have CAFRs on there. Because that's not what they think who is going to be using the website.

But I think you can find that's on the governmental side you can find more advanced use of the web when you get into some of the special revenue areas which also helps and may control your costs.

When you get to the larger, special revenue bond issues the chief financial officer of the airport could assume the investor relations role but it would be better, if it's an airport like Harts Field or Orlando or O'Hare, they certainly can employ an investor relations person and to do that job.

So I really think that this idea deserves to be considered. And in terms of cost effectiveness let's be creative, let's see if we can get facilitators to handle larger groups of these so that we can get the questions answered so that the answers are consistent from one organization to another.

But the conduit, it brings up the issue that I really wanted to make, Paul, and that is and it comes to a lot of questions that have come up here, we're focusing with a problematic area that tends to be in many conduit financings like healthcare which deserves to be a risky considered sector like you said. I think that this tax exemption pledge shouldn't come so cheap, is that when the city or the state or the agency gives it away to a conduit borrower or obligated party that they give it away without ties. I think you should hold the city, states, agents, you should hold them to the same standards they would hold for themselves for timeliness of information and the completeness of the information. Why should they give that away for nothing?

And I think if the states and local governments take that up by themselves it takes it out of the federal hands and it will I think be a much better situation. And so that would apply, again, to see that they have the proper investor relations situations in play for them as well.

Moderator Maco: We are running out of time. But before we break I do have one question for Peter. And, Peter, that is do you have any way of determining who accesses your database? Can you tell if it's broker/dealers who are doing so as part of the systems and procedures they have in place? Are there investors who are accessing the information? And any idea of the frequency of that access?

Mr. Schmitt: Yeah, I can. Actually, we have a pretty clear idea. We have published products that have been in the market for several years that one is called Muni IRAs, it's a CD ROM product, has prospectuses and escrow documents. We have another product called Muni Annuals that has the continuing disclosure, CAFR, financial, audited, interim financial statement information in it. And those products are actually delivered to over 200 financial institutions every month in the country. So they're broadly available and broadly used.

About five weeks ago we moved to a more sophisticated web presence. And, of course, anyone can screen any database for any document, including material events on our website and there's no charge for it. And in order to download a document you have to register.

And we charge a nominal fee of, if you don't have a prepaid account, of $20 per document whether it's a 2-page continuing disclosure or a 400-page CAFR we don't care, it's 20 bucks. You download it. And all the material events are free. And but in order to download them you have to register. And when you register then we can track, you know, who you are. And so that is knowable.

Moderator Maco: Do you have any feel for a breakout between individual investors and are dealers doing it to satisfy their reasonable basis requirement? Are investors doing it because they want to know what it is they're buying? What's the breakout on the people tapping into your website?

Mr. Schmitt: It's hard to say. I mean one of the things that we cannot capture is the intent for use of the person that comes to us for a document. But in a general sense the buy side of the market that either buys our published products or obtains documents from us over the internet do so for a split between current research it doesn't take a day anymore to get a document, it takes you depending on if you've got fairly decent band width you can have any document you want in five minutes or less. They do it also for compliance.

The sell side tends to be more trading support and investment banking, research. We have not seen a large number of retail investors come to our website yet but we haven't promoted it through retail either. We expect that, that will develop because once information becomes generally available like that in a comprehensive way we think the market will awaken to it and use it.

Moderator Maco: Peter, thank you. And thank you to all the panelists.


On to Panel 3...