Municipalities Should Disclose Use of Direct Bank Placements, Fitch Says

U.S. municipalities should make public disclosures about direct debt sales to banks, which are increasingly used in place of variable-rate demand bonds, Fitch Ratings said.

Because there is no disclosure requirement for direct bank placements, ratings companies and investors may not be aware of them, New York-based Fitch said in a statement today.

The direct sales tend to be bonds maturing in three to seven years that are privately placed with commercial or investment banks, Fitch said.

Many have a similar structure to variable-rate bonds, where the issuer must remarket or repurchase the debt at a certain time or face higher interest costs or a faster repayment schedule.

These risks may have “a negative impact on the credit profile of an issuer and possibly cause a rating downgrade if issuers must refinance or repay bonds in an accelerated timeframe,” Fitch Ratings said.

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