6.3.2 Contents of the Official Statement
The OS can assume that recipients have general knowledge, but unlike a private placement memorandum or term sheet provided to a purchaser actively engaged in the transaction, it must be complete in the sense that the investor should not be expected to conduct any investigation beyond reading the document and any publicly available materials incorporated by reference. The specific content varies, of course, based on the type of securities offered, but OSs generally follow a simple, basic format. The OS cover identifies information such as the amount, maturities, interest rates, and payment information for the securities being offered and a brief description of their source of repayment, their tax status, the expected delivery date, and ratings.
The body of the OS generally consists principally of the following:
- A brief overview of the purpose of the financing
- A more detailed description of the terms of the securities (especially any mandatory or optional tender or redemption provisions and, if the securities are variable rate securities, the manner in which interest rates are determined)
- A detailed description of security (pledges of revenues, tax receipts or assets, including limitations, reserve funds, and any credit enhancements and their providers)
- The sources and uses of funds for the financing
- The tax treatment of interest paid on the securities
- The terms of the underwriting
- Published ratings of the securities
- The presence or absence of litigation
- A summary of the issuer’s undertaking to provide continuing disclosure
The body of the OS also, of course, describes the issuer and its financial condition, especially the financial and operating data relevant to the payment of the securities and any parity, senior, or subordinate obligations of the issuer. If the issuer’s obligation is limited to a particular source, such as the revenues of a utility enterprise or the proceeds of a special tax, the discussion will focus on information related to that source.
The body of the OS may also include a separate “risk factors” section. These are more common with enterprise or revenue obligations than with tax supported general obligations. This section can be used to highlight special risks unique to the securities or the industry, or to disclose risks for which a description cannot easily be worked into the general discussion. Because a “risk factors” section cannot address all risks and even described risks cannot be fully comprehended apart from context, an investor must read the entire OS for a full understanding of the risks associated with the offered security.
The OS generally includes, as appendices, various items that, while part of the OS, would interfere with the flow if included in the body of the OS. Typical appendices include the following:
- The issuer’s audited financial statements
- Expert consultant reports or feasibility studies, if any, in whole or in summary form
- Information of only indirect importance, such as general demographic and economic information
- Summaries of legal documents (to the extent they are not described in the body of the OS)
- A form of the continuing disclosure undertaking (CDU), specifying the form in which the issuer will make future disclosure in complying with its continuing disclosure obligation
- A description of The Depository Trust Company’s book entry procedures
- The form of the opinion to be delivered by bond counsel
The information in an OS should be primarily historical, verifiable information. Projections of future receipts, operating revenues, expenses, or debt service are, however, often important and are included particularly for revenue obligations. In such cases, it is essential to clearly identify the information as projected. The OS should state clearly the assumptions on which the projections are based, that forward looking statements are about the future and are based on assumptions and qualified, and that the achievement of expected results is subject to uncertainties, including the occurrence (or nonoccurrence) of future events. Likewise, although it is preferable that the historical financial information included be audited data, unaudited financial data is often included.