Public Charter Schools Borrowing With Tax-Exempt Bonds, Second ...

chapter nine
Market Disclosure
The capital markets obey the fundamental economic rule of supply/demand.
Thus, one consideration in undertaking borrowing with tax-exempt bonds is the
determination as to whether bonds will be offered for sale to the public capital
markets (a “public offering”) or instead privately offered to one or a select few
investors (a “private placement”). Invariably, the broader a market for a public
charter school’s bonds, the lower the cost of funds (or interest rates) the school will
be able to obtain. Thus, a public offering, if possible, is almost always expected
to be more favorable than a private placement. In either case, the school must
provide initial and ongoing information to investors about itself and its bonds.
This chapter describes various aspects of public offering versus private placement
of tax-exempt bonds.
A. Publicly Offered Bonds
The offering and sale of securities is regulated by federal laws codified primarily in
the Securities Act of 1933 (the “Securities Act”) and the Securities Exchange Act of
1934 (the “Exchange Act”). Public charter school bonds constitute “securities” for
purposes of the Securities Act and the Exchange Act. For most corporate securities,
a public offering must be preceded by filing a registration statement with the SEC
pursuant to the Securities Act, and the corporation is required to make periodic
reports to the SEC pursuant to the Exchange Act. Municipal securities, moreover,
including those of most public charter schools, are exempt from the registration
requirements of the Securities Act and from the reporting requirements of the
Exchange Act. However, the offering and sale of public charter school bonds is not
exempt from the anti-fraud provisions of the Securities Act or the Exchange Act.
In addition, the SEC’s rules governing underwriters of municipal bonds effectively
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