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Government-Issued
Securities
General Obligations
Industrial Revenue Bonds
Industrial Development Bonds
Revenue Bonds
Statutes: §
551.22(1), Wis. Stats. and §
551.29(3), Wis. Stats.
Used for: Securities issued or guaranteed
by the United States, any state, any political subdivision of a state,
or any agency or corporate or other instrumentality of one or more of
the foregoing. Revenue obligations payable from payments to be made in
respect of property or money used under a lease, sale, or loan arrangement
by or for a non-governmental industrial or commercial enterprise ("Industrial
Revenue Bonds" ("IRBs"), "Industrial Development Bonds"
("IDBs"), collectively referred to as "IRB/IDBs")
are also exempt subject to rules adopted by the Division (§
DFI-Sec 2.01(1)(a), Wis. Adm. Code).
Note: A Wisconsin
governmental entity issuing general obligation debt securities may use
this exemption only if its financial statements are prepared in
accordance with Generally Accepted Accounting Principles ("GAAP")
or if the statements meet the alternative-to-GAAP requirements set forth
at § DFI-Sec 2.01(1)(c)-(d),
Wis. Adm. Code. An alternative exemption for such issuers may
be available in §
551.22(17) , Wis. Stats., and §§
DFI-Sec 2.01(9) or 2.01(10) , Wis. Adm. Code.
As a result of the National Securities Markets Improvement
Act ("NSMIA"),
non-Wisconsin governmental entities issuing debt securities are subject
to a filing requirement only with respect to certain IRB/IDBs. A
filing of the Non-Wisconsin
Entity Notice is required only when the IRB/IDBs do not meet the requirements
of § 551.22(1)(b),
Wis. Stats., or §
DFI-Sec 2.01(1)(a)1. or 2., Wis. Adm. Code.
Filing requirement:
- Filing fee: $200, as set forth at §
DFI-Sec 7.01(2)(b), Wis. Adm. Code made payable to Wisconsin DFI-Division of Securities.
- Form required: There is no required form. File
a cover letter, the fee, and the required exhibits at least ten days prior to the
offering in this state, referencing §
551. 22(1), Wis. Stats., and §
DFI-Sec 2.01(1)(a)3, Wis. Adm. Code.
- Exhibits required: A copy of: the prospectus or
offering document, trust indenture, all other material to be delivered
to offerees in connection with the transaction, and all other information
the Division may require after the filing. If advertising is published
or circulated in connection with the offering for which this filing
is made, it must be filed with the Division and may not be used unless
and until the Division has allowed its use, unless the advertising
is exempt from filing pursuant to §
DFI-Sec 7.02(1), Wis. Adm. Code.
- Review time: Ten calendar days, unless extended
pursuant to §
551.24(6), Wis. Stats.
- Fee: $200 made payable to "Wisconsin DFI-Division of Securities."
- Form required: There is no required form. File a
cover letter and the fee not later than the date of the offering
in this state, referencing the statute section. Include in the letter
the name of the issuer and the amount of the offering.
- Exhibits required: None.
- Review time: There is no staff review. Such review
is preempted by NSMIA.
Administrative Code references: §§ DFI-Sec 1.02(11),
2.01(1), 2.04(3),
3.02(1)(p),
3.03,
3.04,
7.02, and
7.06, Wis. Adm. Code.
Frequently asked questions:
Q: How did NSMIA affect
the filing requirements for IRB/IDBs?
A: Because of NSMIA,
a notice
filing for an IRB/IDB of a non-Wisconsin governmental entity no longer
need include a copy of the prospectus or offering document, trust indenture,
any other material to be delivered to offerees, or any advertising.
Filing
requirements for an IRB/IDB of a Wisconsin governmental entity have
not changed. Note: If the IRB/IDB is the subject
of an irrevocable letter of credit from a designated financial institution
and is accompanied by an opinion of counsel meeting the requirements of
§ 551.22(1)(b),
Wis. Stats., no filing was required before NSMIA,
and none is required now.
Q: How did NSMIA affect
availability of the exemption for general obligation governmental securities?
A: The exemption requirements for Wisconsin governmental
entities were not changed. Since the enactment of NSMIA,
there are no longer any filing requirements for non-Wisconsin entities
offering general obligation governmental securities.
Q: What are the "designated financial institutions"
that may issue a letter of credit for the purposes of §
551.22(1)(b), Wis. Stats.?
A: Banks, savings banks, and savings and loan associations.
Q: If a portion of the revenues of a Rule 501(c)(3) not-for-profit
issuer of revenue bonds comes from commercial sources (e.g. parking revenue,
gift shops, physician office rentals, etc.), is the exemption still self-executing?
A: Yes, as long as the Rule 501(c)(3) issuer/obligor
retains its non-profit status. See §
DFI-Sec 1.02(11), Wis. Adm. Code.
Q: If an IRB/IDB is payable under a lease-type arrangement with
a public utility or its subsidiary, is a self-executing exemption available?
A: Yes, but only if the lessee is a public utility
meeting the definition set forth at §
551.22(6), Wis. Stats., which has securities registered under section
12 of the Securities Exchange Act of 1934, or is a wholly-owned subsidiary
of such a utility. See §
DFI-Sec 2.01(1)(a)1.
Q: Are general obligation bonds issued by a Wisconsin governmental entity
exempt under this section?
A: Yes, if the financial statements either are prepared
according to GAAP or meet the alternative accounting guidelines set forth
at § DFI-Sec 2.01(1)(c)
and (d), Wis. Adm. Code.
Q: If the financial statements of a Wisconsin governmental entity do
not meet the requirements for use of §
551.22(1)(a), Wis. Stats., is an alternative exemption available for
the issuance of general obligation bonds?
A: Yes, there are two alternatives. General obligation
bonds with a maturity of less than sixteen months may be issued pursuant
to the self-executing exemption set forth at § 551.22(17),
Wis. Stats., and §
DFI-Sec 2.01(9), Wis. Adm. Code. For longer-term general obligation
bonds, § DFI-Sec
2.01(10), Wis. Adm. Code, under §
551.22(17), Wis. Stats., is available for those issuers whose financial
statements have not been audited, but have been prepared in accordance
with GAAP.
Q: Is this exemption self-executing for the issuance by a municipality
of revenue bonds, such as sewer bonds, which are payable only from assessments
against individual real estate lots?
A: Yes.
Important interpretive letters:
September 26, 1996 letter re: Virginia Higher Education Tuition
Trust Fund ("Trust Fund") tuition prepayment contracts.
The opinion request related to the sale by the Fund of contracts providing
for payment in the future by the Trust of contract beneficiaries' college
tuition costs at one of Virginia's public colleges. Because the Virginia
Attorney General's Office had designated the Trust Fund as a "state
agency or instrumentality", the Division determined that the contracts
qualified for the exemption under §
551.22(1)(a), Wis. Stats., on a self-executing basis.
June 28, 1995 letter re: Northwest Minnesota Multi-County Housing and
Redevelopment Authority ("Authority"). The Authority developed
and operated multi-family rental housing projects, issued bonds, and secured
the bonds by mortgages on its properties or pledges of its revenues. Principal
and interest on the bonds was payable primarily from pooled project revenues
from all projects financed by the bonds that are required to be deposited
in the revenue account. All bonds were secured by a mortgage lien
on, and security interest in, each project, and the fee interest in the
site thereof. The bonds were not general obligations secured by the full
faith and credit of the Authority, any participating city or any other
governmental body or unit. On the basis of these facts and the federal
Rule 131 analysis discussed in the January-February,
1990 Securities Bulletin article, the securities were exempt from
registration under §
551.22(1)(a), Wis. Stats., on a self-executing basis.
October 31, 1990 letter re: Wisconsin Housing and Economic Development
Authority Single Family Housing Revenue Bonds. A determination of
whether paragraph (a) or paragraph (b) of §
551.22(1), Wis. Stats., is applicable to a revenue bond offering depends
upon the source of revenues for the payment of principal and interest
on the revenue bonds. Specifically, paragraph (a) exempts, "any
security, including a revenue obligation, issued or guaranteed by . .
. any political subdivision of a state; but any revenue obligation payable
from payments to be made in respect of property or money used under a
lease, sale or loan arrangement by or for a non-governmental industrial
or commercial enterprise is exempted only as provided under par. (b) .
. . ." The Division concluded that the two single-family home improvement
revenue bond programs of WHEDA did not trigger the restriction-from-use
language in §
551.22(1)(a), Wis. Stats., relating to "non-governmental industrial
or commercial enterprises" based on equivalent federal Rule 131 language
analysis as discussed in the January-February,
1990 Securities Bulletin article. Consequently, the bonds would qualify
for the exemption under §
551.22(1)(a), Wis. Stats., without the need to comply with the provisions
of sub. (b).
October 30, 1990 letter re: Kansas City Municipal Assistance Corporation/Leasehold
Improvement Revenue Bonds to raise funds for the city's convention center.
Revenue bonds issued by an "agency or corporate or other instrumentality"
of the city, which were payable from rental payments to be made by the
city (as a governmental entity) to the Municipal Assistance Corporation/Issuer
pursuant to the Master Lease Purchase Agreement for the city's convention
center were exempt from registration under §
551.22(1)(a), Wis. Stats. The revenue bond securities did not
trigger the restriction-from-use language in §
551.22(1) , Wis. Stats., relating to "non-governmental industrial
or commercial enterprise[s]".
Securities Bulletin January-February, 1990
article re: Non-Governmental Enterprise Exemption (set forth here in its
entirety).
Recently our opinion was requested about whether the municipal securities
exemption (§ 551.22(1),
Wis. Stats.) would apply to an offering of student loan revenue bonds
issued by student assistance commissions (SAC) of different states. According
to the Official Statement for the bonds, the proceeds from the bond offering
would be used by the SAC to purchase, from the lending institutions, student
loan notes which are warranted by the states' guaranteed loan programs
and reinsured under the Federal Higher Education Act of 1965, or reimburse
the SAC for such loan purchases. The bonds would be limited obligations
of the SAC payable only from revenues derived from repayment of student
loans and would not constitute a debt or obligation of the state.
Section 551.22(1)(a),
Wis. Stats., states:
(a) Any security, including a revenue or obligation, issued or guaranteed
by . . . any political sub-division of a state . . .; but any revenue
obligation payable from payments to be made in respect of property or
money used under a lease, sale or loan arrangement by or for a non-governmental
industrial or commercial enterprise is exempted only as provided under
para. (b) . . . (Emphasis supplied [in the original letter]).
The underscored language was added to Section 402(a)(1) of the Uniform
Securities Act when the Wisconsin Uniform Securities Law was enacted in
January 1, 1970, to restrict use of the exemption for "industrial
revenue bonds" ("IRB/IDBs"). Although the issuer of an
IRB/IDB offering might be a city or municipality, the proceeds would be
received and used by a commercial business which would also be the source
for payment of the principal and interest on the bonds. The letter requesting
our opinion indicated that the "industrial or commercial enterprise"
language in the Wisconsin exemption paralleled language in Rule 131 of
the federal Securities Act of 1933. This language provides criteria
to determine the existence of a "separate security." The correspondence
also indicated that the SEC issued eight "no action" letters
between 1977 and 1988 which involve student loan revenue bonds.
The letter we received stated that two exceptions under SEC Rule 131
were applicable to the SAC's bonds.
- Obligations which satisfy the twin test of having a public project
and being owned and operated by, on behalf of, or under the control
of an appropriate governmental unit, and
- Situations where the enterprise is "a part of a public project
which, as a whole, is owned by and under the general control of a governmental
instrumentality."
[The Division stated that because the federal Rule 131 "non-governmental
industrial or commercial enterprise" language was not triggered for
the bonds, due to the "substantial public nature" of the enterprise,
the equivalent language in §
551.22(1)(a), Wis. Stats., was not triggered. Accordingly, the bonds]
would qualify for the§
551.22(1)(a), Wis. Stats., exemption on a self-executing basis without
needing to comply with provision §
551.22(1)(b), Wis. Stats.
January 10, 1990 letter re: Illinois Student Assistance Commission
(ISAC). ISAC was issuing bonds for the purpose of providing ISAC
with funds to purchase student loan notes guaranteed pursuant to the Illinois
Guaranteed Loan Program and reinsured under the Federal Higher Education
Act of 1965. Because ISAC was a political instrumentality of the
State of Illinois, bonds of ISAC qualified for use of the registration
exemption under§
551.22(1)(a), Wis. Stats., without the need to comply with the provisions
of subsection (b). In addition, because a letter of credit did not
constitute a "guarantee" of the subject bonds, it did not constitute
a separate "security" apart and distinct from the bonds.
Securities Bulletin November-December, 1989 article. A territory
of the United States sought an opinion regarding use of §
551.22(1), Wis. Stats., to their issuance of revenue bonds on the
basis that they were a U.S. governmental instrumentality.
The Division determined that the territory was not an "agency or
corporate instrumentality of the United States" because of the statutory
definition of "state" in §
551.02(14), Wis. Stats., as "any state, territory, or possession
of the United States, the District of Columbia and Puerto Rico."
A U.S. territory, having been defined by statute as a "state"
cannot also be construed as an "agency or corporate instrumentality
of the United States."
Securities Bulletin September, 1988 article re: Insurance as a
"Guarantee." Bond payment insurance is not a "guarantee"
for purposes of §
551.22(1), Wis. Stats. Although the term "security"
as defined in §
551.02(13)(a), Wis. Stats., includes the term "guarantee,"
an insurance policy constitutes a guarantee neither in a legal context
nor for securities regulatory purposes. An insurance policy is a
contract to indemnify for losses suffered, or to pay a sum certain upon
the occurrence of a specified contingency. In contrast, a guarantee
is an undertaking by the guarantor to perform as, and in the place of,
a primary obligor. Thus the legal effect of an insurance policy differs
from that of a guarantee, in that the guarantee guarantees the performance
of an obligation according to its terms as contrasted with an insurance
policy, which pays money upon the occurrence of a contingency.
Securities Bulletin September, 1988 article re: Letter of Credit
from a Domestic Branch of a Foreign Bank. A letter of credit from
a domestic branch of a foreign bank covering industrial revenue bond principal
and interest payments can be used for purposes of the letter of credit
requirement in §
551.22(1)(b), Wis. Stats. However, to qualify for the exemption,
the letter of credit cannot expire before the due date of the bonds.
June 3, 1988 letter re: Alexandria (Virginia) Redevelopment and
Housing Authority. The existence of FDIC insurance relating to the
Certificates of Deposit (which were the underlying assets and the primary
source for payment of principal and interest on the subject bonds) would
not result in exempt status for the subject bonds under §
551.22(1), Wis. Stats., as being securities "guaranteed"
by an agency of the United States, because the FDIC insurance is not a
"guarantee."
Securities Bulletin, June, 1987 article. This article discussed
two staff opinions.
The first opinion letter involved revenue bonds offered by several counties
in Utah, with the proceeds to be used by a state agency created by the
counties to pursue economic development opportunities, including venture
capital investing. The source of the payment of contingent interest,
if any, on the subject venture capital revenue bonds issued by the counties
was to be funds in the venture capital account derived as a result of
dividends, securities sale proceeds, or other sources of income or distribution
from the private entities receiving venture capital financing from the
governmental agency. The staff determined that the bonds triggered
the exclusionary language in §
551.22(1)(a), Wis. Stats., for "any revenue obligation payable
from payments to be made in respect to property or money used under a
lease, sale or loan arrangement by or for a non-governmental industrial
or commercial enterprise . . . ." Automatic use of the exemption
was not permitted because the private entity sources of payment of bond
interest involved a "non-governmental industrial or commercial enterprise."
The second opinion letter related to principal and interest receipts
evidencing ownership of beneficial interest in a previous offering of
multi-family revenue bonds issued by an industrial development authority
of a city. The bonds to which the receipts related had been originally
issued by the authority to make a non-recourse mortgage loan to a private
real estate developer for the construction and permanent financing of
a multi-family rental housing project located in the city. Because the
source of payment of principal and interest on the bonds to which the
receipts related was a private, for-profit, limited partnership real estate
developer, the exclusionary language of §
551.22(1)(a), Wis. Stats., was triggered and thus precluded use of
the self-executing portion of §
551.22(1)(a), Wis. Stats.
February 8, 1985 letter re: University of Illinois Board of Trustees.
Refunding and Improvement Revenue Bonds issued by the Board of Trustees
of the University of Illinois ("issuer"), which was an "instrumentality"
of the State of Illinois, qualified for the exemption set forth at §
551.22(1)(a), Wis. Stats. The bonds were exempt even though
they did not constitute an obligation of the State of Illinois, but were
payable solely by the issuer from net revenues of the University and from
student tuition and fees, as well as certain other pledged funds.
This resulted because the issuer, which was the obligor under the bonds
and provided the source for payment of principal and interest on
the subject bonds from the net revenues, student tuition and fees, was
a public, not private, university. As such, the revenue obligations
were not payable from a "non-governmental industrial or commercial
enterprise . . . ," which would have precluded self-executing use
of the exemption.
January 24, 1985 letter re: Adventist Health System-West. This
opinion letter pertained to certificates of participation issued by a
bank acting as trustee, which certificates were going to evidence interests
in lease payments to be made by the city, as lessee of a hospital.
The source of the revenues comprising the lease payments made by the City
under the lease were payments made by Adventist Health System-West ("AHS-West")
under a sublease of the hospital facility. Because the primary obligor
and source for the revenues which were to provide payment of the principal
and interest on the subject certificates was a private commercial entity,
AHS-West, with the city merely acting as a conduit for those revenues
through its lease, the certificates were treated as standard Industrial
Revenue Bonds for the purposes of Wisconsin Uniform Securities Law, which
required compliance with §
551.22(1)(b), Wis. Stats.
September 6, 1984 letter re: County of Shasta (California) Public
Facilities Corporation ("Corporation") Revenue Bonds.
The bonds of the Corporation, as an instrumentality of the county, which
were payable pursuant to a lease agreement with the County, qualified
for use of the self-executing registration exemption at §
551.22(1)(a), Wis. Stats., because the governmental entity (the county)
was the obligor under the lease agreement providing the source for principal
and interest on the subject bonds. Thus, the lease agreement did
not involve a ". . . non-governmental industrial or commercial enterprise
. . . ," which would have precluded automatic use of the exemption.
Securities Bulletin December, 1984 article re: Certificates of
Participation in Lease Payments by City. Certificates of Participation
evidencing interests in lease payments on a police center to be made by
a city under a lease between the city and a private corporate lessor,
which certificates were to be sold and delivered by a bank trustee, qualified
for the "governmental security" exemption on a self-executing
basis under §
551.22(1)(a), Wis. Stats. Under the lease, the lessor would
lease the project to the city and the city would pay to the lessor
lease payments equal in amount to the annual principal and interest requirements
on the certificates. Title to the project would automatically vest
in the city at the expiration of the lease. The certificates would
represent participation interests in the lease and the certificate holders
would look to the city, not the bank trustee, for payment of principal
and interest on the certificates. In addition, the lease obligated
the city to include the lease payments in its annual budget and to make
necessary appropriations from any source of legally available funds.
The Division opined that the "governmental security" exemption
would be available on a self-executing basis for the certificates because,
in the context of the lease financing arrangement, the city, as a "political
subdivision of the state," was deemed the "issuer" of the
certificates. The economic reality of the transaction showed that
the city, as the lessee, had the lease payment obligation and was the
source for payment of the principal and interest on the certificates through
the mechanism of the lease. The trustee bank and lessor were simply
conduits of the lease payments by the city, not the "issuers"
or obligors of the securities. Similar opinions are given in a letter
of March 27, 1992, re: State of Illinois Department of Central Management
Services/Sale of Certificates of Participation in Base Installment Payments;
a letter of August 14, 1986, re: City of San Buenaventura Certificates
of Participation; a letter of November 9, 1984, re: City of
San Diego Certificates of Participation; and a letter of November
23, 1994 re: Gilpin County, Colorado.
The Division distinguished this case from the subject of a prior interpretive
opinion (see
August 31, 1982 letter re: Imperial Bank) in which the staff concluded
that the governmental security exemption was not available to the sale
of certificates representing interests in a pool of lease obligations
of various governmental entities, which were aggregated and offered by
a bank. In that situation, the staff analogized the certificates
to interests in a unit investment trust comprised of general obligation
governmental securities.
July 31, 1984 letter re: Englewood Urban Renewal Authority Tax
Incremental Bond Anticipation Notes. The subject notes triggered
the language in §
551.22(1)(a), Wis. Stats., precluding self-executing use of the exemption
for a ". . . revenue obligation that is payable from payments to
be made in respect of property or money used under a lease, sale or loan
arrangement by or for a non-governmental industrial or commercial enterprise
. . . ." Therefore, the exemption was unavailable unless payment
of principal and interest on the revenue obligation was the subject of
a letter of credit meeting the requirements of §
551.22(1)(b), Wis. Stats.
July 19, 1984 letter re: Los Angeles County Capital Asset Leasing
Corporation ("Corporation") . Because the Corporation
was an "instrumentality" of a political subdivision of the State
of California and interest on the bonds was payable pursuant to lease
agreements with the County of Los Angeles, the bonds qualified for the
self-executing registration exemption set forth at §
551.22(1)(a), Wis. Stats.
Securities Bulletin February, 1984 article re: "Sallie Mae"
Letter of Credit. A letter of credit issued by the federal Student
Loan Marketing Association ("Sallie Mae") supporting the subject
bonds of the state student loan funding corporation did not result in
automatic availability of the governmental security exemption for those
bonds under (1)(a) as securities "issued or guaranteed" by an
"agency or instrumentality of the United States" because (1)
the bonds were issued not by Sallie Mae, which is an agency or instrumentality
of the United States, but by a state corporation, and (2) though Sallie
Mae issued a letter of credit for the bonds, the bonds are not "guaranteed"
by an agency or instrumentality of the United States because a letter
of credit is not a "guarantee."
August 31, 1982 letter re: Imperial Bank.
Imperial Bank proposed an investment arrangement of non-redeemable pass-through
certificates evidencing fractional undivided interests in a pool of tax-exempt
lease obligations issued by states, political subdivisions and public
instrumentalities pursuant to lease and option agreements representing
the sale price of various items of equipment. The pool was to be a passive
entity that would serve solely as a means of assembling the lease obligations
in which interests were sold to the public. The staff determined
that the exemption set forth at §
551.22(1), Wis. Stats., was not applicable because Imperial Bank,
not a governmental entity, was the "issuer" of the Certificates
representing interests in the Pool. The governmental entities were
involved as mere obligors on the leases comprising the assets of the Pool
-- which leases were separate and distinct from the Certificates representing
the interests in the Pool being created by the Bank. The staff saw
no reason this arrangement should be treated differently under the Wisconsin
Uniform Securities Law from interests in a unit investment trust comprised
of general obligation governmental securities, but created by a corporate
or other sponsor.
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