Changes at DTC Regarding Debt Service Payments

Currently, DTC makes debt service payments to the registered holders of municipal bonds, regardless of whether it has received the

 funds from the paying agent or municipal bond issuer..  However, as of the end of February, 2011, DTC will only pay investors those 

payments that it believes it has received on time from the paying agent or issuer, and which have been identified properly at the

 CUSIP level.  (A CUSIP is a unique alphanumeric identifier which is specific to a bond issuer and to the maturity for which a

 payment is being made.)  If DTC has not received the funds from the issuer or paying agent by 3 PM of the day on which the debt 

service is due or the funds have not been properly identified at the CUSIP level, DTC will not pay the entitled investor, technically 

putting the bond issuer in default.  This will reflect poorly on the issuer, and may impact its credit rating as well as market reception 

for any future bond sales.

Dealing with DTC can be difficult already; when these new changes go into effect, paying your debt service in a timely manner may 

become more so.  We recommend the following: Business Administrators should know what the BOE’S debt service payments are, 

when they are due, and what for which CUSIPS the payments are applicable.  The interest that you pay on a given date is the total 

interest due on the outstanding maturities from a given bond issue.  Each one of those maturities has a separate CUSIP number and 

a portion of the total interest payment is due for each CUSIP. Typically, most BOES know their totals but not the CUSIP level details.  Knowing those details is important if your total doesn’t match DTC’s.  If not, you may need to have detailed back up, which may take awhile to compile. (You can get this information from your financial advisor or bond counsel)  DTC sends out several types of notices prior to debt service due dates: Letters of Transmittal, and/or Redemption Payment Summaries for principal payments; and auto faxes for interest payments.  Note that the notices are sent to the registered paying agent, which may not be the BOE.  Make sure they match what you believe you owe; if not, determine the discrepancy ASAP. Often an issuer acts as its own paying agent.  In some instances, a separate paying agent is used or an escrow agent is responsible for paying the interest and refunded principal portions of the debt service in the case of a refunding. If the issuer is its own paying agent, make sure the transmittal of funds is properly documented and sent on time. Check that your bank which will be wiring the funds to DTC is up to speed on what information must be included on the wire detail, (DTC has information on its web site which details this) and that it receives a wire confirmation.

Secondary Market Disclosure Requirements Update

Secondary market disclosure is a continuing requirement for all municipal bond issuers with outstanding long term bonds that require

 disclosure.  For most NJBOES, this means annually uploading your CAFR to a website maintained by the Municipal Securities

 Rulemaking Board, entitled EMMA.  The uploaded files must be word searchable pdf files.  Underwriters are becoming increasingly 

diligent about requiring disclosure compliance in bonds for which they purchase through negotiated sale or on which they competitively

 make bids, and concerned about issuers which have not made their disclosures in a timely manner, as is the SEC. 

Meeting secondary market disclosure requirements is a fairly simple process but note that you are required to upload your 2010 audit

 within six months of its completion to comply with secondary market disclosure requirements this fiscal year.   Some auditors do this;

 some do not, but it is the responsibility of the issuer.  If you are unfamiliar with EMMA, speak to your financial advisor, auditor or

 bond counsel who can help you fulfill your obligations.