WASHINGTON May 15 Standard & Poor's Ratings
Services is pressing U.S. state and local governments to
disclose information about loans they take out from banks, which
are frequently hidden from public view, saying it will not be
able to assign credit scores without the information.
"We require that we are notified and supplied with all
relevant documentation related to any private debt, including
bank loan financing, that you enter into, regardless of whether
the private debt is being rated by Standard & Poor's," it said
in letters mailed to all of the municipal issuers it rates last
"If you enter into such an agreement, and we are not
informed in a timely manner and supplied with the documentation,
we may, suspend or withdraw your rating in accordance with our
published procedures," it continued in a copy of the letter
given to Reuters on Thursday.
In recent years, municipal bond issuers have turned more to
direct financing agreements with banks, saying the loans can be
cheaper than borrowing in the $3.7 trillion municipal bond
The public is often in the dark about the details of the
borrowing, with investors and regulators sometimes having to
wait for annual statements to learn loans even exist. Issuers do
not have to provide offering documents when they take out the
loans, and they do not have to tell traders in the secondary
market about them.
For more than two years the Municipal Securities Rulemaking
Board has tried to combat the dearth of public information about
bank loans, but the self-regulatory organization for the market
has little authority over the agreements.
S&P estimates that the total amount borrowed from bank years
each year is equivalent to 20 percent of debt sold in the
municipal bond market.
In a fact sheet released in March S&P said that "because
alternative financings may contain events of default or
covenants that, in our view, favor the lender over existing
bondholders, such financings expose the obligor to potentially
detrimental credit factors."
The agency also expressed concerns about "cross-default
provisions" that could accelerate repayment of the loans and
transferring the loans to other banks or lenders.
In the fact sheet, the agency said it will make two requests
for documentation without penalty, but a third request would
result in placing the borrower on CreditWatch. After that, an
issuer has 15 days to provide the information or have its rating
(Reporting by Lisa Lambert; Editing by Bernard Orr)