As we have seen in our series of articles on Blue Sky Laws, a lack of uniformity (and sometimes a lack of guidance) presents challenges in properly interpreting regulations governing the issuance of municipal bonds.

Subtle differences exist between states that can sometimes lead to confusion and worse: a potentially costly enforcement action. To help provide clarity, we’ve been carefully analyzing the laws in each state. Last month we looked at Arizona; this month, we head across the border to explore Blue Sky laws in Nevada.

There are a few unique aspects to Nevada’s Blue Sky Laws in connection with the municipal issuer exemption. The Nevada Revised Statutes include a general exemption from registration for municipal bonds other than those payable from payments to be made by an “enterprise,” unless certain exceptions apply such as a security (A) insured or guaranteed by the United States or a political subdivision, (B) issued by insurance companies and (C) issued by an issuer that is listed on the New York Stock Exchange, among others.

More interestingly, another exception is whether the payments on the securities being issued are insured or guaranteed by a person who, within the 12 months next preceding the date of issuance, has received a rating in one of the top four rating categories of Moody’s or S&P. We have already discussed in previous posts the ambiguity associated with this type of language. More specifically, what does it mean to be in one of the top four rating categories and what if someone other than Moody’s or S&P rates the bonds?

Additionally, there are several unique elements to Nevada’s decision to exclude the municipal bond exemption for bonds payable from payments to be made by an “enterprise.” First, under the law, the exclusion does not apply to Nevada issuers. Secondly, keep in mind that the term “enterprise” is not defined in the statute and the exclusion from the exemption from registration was at one point narrower. A prior version of the Nevada law excluded bonds payable from payments to be made by a nongovernmental industrial or commercial enterprise.

Based solely upon review of several denials by the Nevada Securities Division of no action requests, one could conclude that this means that governmental “enterprises,” such as municipally owned and operated airports, water and sewer systems and single family mortgage loan programs, are also excluded from the municipal bond exemption, unless one of the requirements set forth in the law are satisfied.

The reasoning used by the Securities Division to reach its conclusion was that since the bonds were paid out of the revenues of the “governmental enterprise” and not supported by the sponsoring municipality or taxes, the bonds were riskier investments and therefore if no other requirements were satisfied, registration was required in order to protect investors. Accordingly, out-of-state issuers should be aware that they may face a notice filing requirement.

As we’ve seen in this and previous posts, Blue Sky laws do not have the clarity their name implies. Navigating this area in any state is easier with an experienced counselor. For questions regarding Blue Sky Laws or Blue Sky Surveys, please contact Chris Andreucci at 585-419-8606 or