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Considering New Issue Price Regulations Considering New Issue Price Regulations

Considering New Issue Price Regulations

On June 7, 2017, the U.S. Treasury Department issued new "issue price" regulations effective for all bonds pricing after that date. Issue price is important to issuers and conduit borrowers of tax-exempt obligations, because the issue price is the basis for determining the yield on a bond issue. An issue price that is incorrectly low may cause the yield on the bonds to be high, thereby, permitting issuers and conduit borrowers to earn impermissibly high returns on the investment of the tax-exempt bonds. Further, an incorrect issue price can jeopardize the sizing of a defeasance escrow. As a result, it is critical that the issue price is accurately determined using the methodology set forth in the new issue price regulations. All tax-exempt obligations are now subject to these new rules, which generally provide three options for determining issue price. 

The new regulations contain some provisions that are advantageous to issuers and conduit borrowers, but the new rules are more technical and complex than previously existing regulations. The changes mark a significant departure from the prior regulations and the long held methods for how municipal market participants established issue price. Certain certifications from underwriters, financial advisors and purchasers of tax-exempt obligations will be critical to establishing the issue price under the new rules. It would be prudent to consider issue price expectations as a factor in the process for selecting underwriters or purchasers.

For more information regarding the new issue price regulations and how these regulations might impact a plan of finance, please contact a member of the Ice Miller Municipal Finance Group.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.

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