Senate eyes October for defense bill, which may include FDTA

BY SourceMedia | MUNICIPAL | 09/21/22 11:47 AM EDT By Caitlin Devitt

The Senate is eyeing October to take up the fiscal 2023 national defense act, a bill the municipal market is watching closely for an amendment that imposes new disclosure requirements on issuers.

Sen. Chuck Schumer said Tuesday the Senate would take up the National Defense Authorization Act after Oct. 3 but before midterm elections. Republicans are pushing to bring the NDAA, which is a must-pass bill, to the floor for a vote as soon as possible. Schumer wants to first pass a continuing resolution to fund the government, which runs out of funding Sept. 30.

The House version of the FY23 NDAA, which passed in July, included as an amendment the Financial Disclosure Transparency Act, which requires municipal issuers to use uniform data standards when reporting financial information. The Municipal Securities Rulemaking Board would oversee and implement the mandate. Issuer groups are lobbying hard against the provision.

It's uncertain yet whether the final Senate legislation will include the amendment. Sen. Jack Reed, D-Rhode Island and chair of the Armed Services Committee, is still calling for amendments to the NDAA, said Emily Brock, lobbyist for the Government Finance Officers Association, which represents issuer officials.

The final Senate version won't be known until all amendments have been filed.

The original bill, S. 4295, was introduced in May by Sen. Mark Warner, D-Va. and Sen. Mike Crapo, R-Idaho.

Once the Senate passes its NDAA, the two chambers will conference to craft a final compromise bill, which will then be voted on again by both bodies before heading to the president's desk.

Muni issuers warn the bill would be costly and would, by imposing uniform standards "mean the potential loss of valuable information contained within current financial reports," as the National League of Cities said in a recent brief that called on cities to urge their senators to keep the provision out of the NDAA.

The National Association of Counties also called for its members to reach out to their senators.

Municipal Market Analytics in a Sept. 19 weekly outlook said the bill "carries a very high probability of passage" and, if enacted, would prompt a significant number of borrowers to opt for the private borrowing market.

"Dealers, particularly those that service smaller and less frequent issuers, should begin to build out their private lending capabilities at once," MMA wrote. "Investors with the ability and willingness to manage private loans should begin to consider altering their prospectus' accordingly."

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

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