An official statement is a document prepared by or on behalf of a state or local government in connection with a new issue of municipal securities. In some respects, an official statement is comparable to a prospectus for a corporate equity or debt offering. An official statement describes the essential terms of the bonds. It typically provides the most detailed description of the terms and features of the bonds through maturity, unless and until these terms have been modified. In the case of a 529 college savings plan, this is sometimes referred to as a plan disclosure document.
Understanding Official Statements
Information in an official statement includes, but is not limited to, the terms under which bonds can be redeemed prior to maturity, the sources of money pledged to repay the bonds, and the state or local government's covenants for the benefit of investors. The following information is typically included in an official statement:
- The interest rate or, if the interest rate is variable, the manner in which such rate is determined
- The timing and manner of payment of the interest on and the principal of the bonds
- The minimum denomination in which the bonds may be sold
- Whether the bonds can be redeemed by the state or local government prior to maturity and, if so, on what terms
- Whether the investor has the right to require the state or local government to repurchase the bonds at their face value
- The sources from which the state or local government has promised to make payment on the bonds
- Whether any bond insurance, letter of credit or other guarantees have been provided for repayment
- The consequences of a default by the issuer
- A description of outstanding debt, the authority to incur debt, limitations on debt and the future debt burden of the issuer
- A description of basic legal documents such as authorizing resolution, indenture and trust agreement
- Legal matters such as pending proceedings that may affect the securities offered, legal opinions and tax considerations
Municipal securities investors should read the official statement carefully and should never hesitate to ask their financial professionals to answer any questions or to clarify any information contained in the official statement.
Accessing Official Statements
The MSRB's Electronic Municipal Market Access (EMMA) website provides free access to official statements. Underwriters are required to submit to the MSRB for posting on EMMA copies of the official statement for virtually all new issues of municipal securities. Underwriters are also required to submit to the MSRB copies of any amendments to the official statement up until the 25th day after the settlement of the underwriting. However, there is no explicit obligation on the part of the issuer to update the official statement. Official statements for bond offerings generally speak only as of their date and are intended for use in connection with the initial distribution of the securities through the underwriters. Official statements generally are not intended to provide complete disclosure for bonds trading in the secondary market, although they continue to be valuable as the most comprehensive source for information on the specific terms of bonds.
Municipal securities dealers or banks must provide investors with information material to their transaction at or prior to the agreement to enter into that transaction. This disclosure often will be provided by supplying the investor with a copy of the issuer's official statement. In connection with sales of new issue securities, the official statement must be delivered to the investors by no later than the settlement of the investment (generally, when the investor takes ownership and has paid for the investment). However, investors should not feel constrained to wait for the dealer to deliver the required disclosure information and can request more time to review the official statement.
In addition to official statements, many issuers may provide on their websites additional information that may be relevant in connection with making an investment in their securities.