We continue our series exploring the lack of uniformity – and sometimes lack of guidance – that makes it challenging to interpret state Blue Sky laws. Today’s example addresses the exclusion from the use of the municipal issuer exemption if the securities being issued a paid from a non-governmental source.
Some states exclude from the municipal exemption the registration of municipal securities that are paid from a non-governmental industrial or commercial enterprise, unless the payments and insured are guaranteed by a person whose securities are exempt from registration under certain other enumerated sections of the law.
There is substantial disagreement among these states as to whether conduit 501(c)(3) bonds, student loan bonds and single family mortgage revenue bonds constitute bonds payable from revenues to be received from a non-governmental industrial or commercial enterprise.
Assuming you have determined that the municipal securities being issued will be paid from a non-governmental industrial or commercial enterprise, does the “separate security” analysis apply? Does the state in question include within the definition of exempt securities any “separate security” as defined in Rule 131 (17 C.F.R. 230.131) adopted under the Securities Act of 1933? If yes, then you can proceed without any further action but if no, one must consider:
- Is it a federal covered security, and if so, does that state require a notice filing for such a security instead of a full-blown registration?
- Is the state in question one that only prohibits the use of the municipal exemption for securities that are paid from a non-governmental industrial or commercial enterprise to IN-STATE issuers only?
- Is the state in question one that allows for the use of the municipal exemption if the securities being offered obtain a rating high enough so as to not require any registration or notice filing?
State opinions can sharply differ regarding exclusions from municipal bond exemptions. With the lack of guidance and uniformity, can make practicing in this area confusing which is why it’s key to rely on experienced consultants.