Municipal Bond Forum
Disclosure of ‘material events’ improving
Q
Please address the issue, recently described in The Wall Street Journal, that the bond rating agencies rely on state and local governments to provide updated financial information and that, in most cases, the agencies are basing their evaluations on information that is out of date.
A
James A. Klotz responds:
There is no question that historically, some municipal bond issuers have been slow in providing timely financial disclosures.
Recently however, the regulatory agencies have made a concerted effort to improve the disclosure of “material events,” and we believe this situation is improving.
In our opinion, the assertion that municipal credit analysts are forced to work with “stale” information for the majority of credits would be a major overstatement. This is particularly true, as the Journal article mentions, because the rating agencies will withdraw ratings for borrowers who are “perennially tardy with filings.”
In addition, the rating agencies have enhanced their staffs in an effort to uncover information that may not have been adequately disclosed.
It has always been our position that bond ratings should not be an investor’s sole criteria for making a bond purchase, but as the Journal article points out, currently it is the only game in town.
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