Mastering the Official Statement

The Official Statement is one of the most valuable sources of information available for investors in municipal bonds. Published when a new issue municipal bond offering comes to market, the document contains a useful summary of the issuer and copies of its most recent financial statements. The Official Statement also provides a detailed description of the specific bond(s) to be issued and a discussion on planned uses of the funds expected to be raised.

The Official Statement is a required document in any municipal new issue; you may see the Preliminary Official Statement in the days leading up to the offering’s sale date. The two documents are essentially the same with the caveat that the Preliminary Official Statement could be subject to revisions, or may indicate that the underwriters are still in the process of gathering certain information such as credit ratings.

While no two Official Statements cover the same topics in exactly the same order, nine key components may be present. Understanding these components can help you use the Official Statement as you evaluate the risks with the potential rewards of a municipal offering.

How should you read an Official Statement?

While reading an Official Statement involves no set pattern, understanding its typical structure and likely topics covered can help make it less daunting and allow you to more easily find specific information.

  1. The Summary. Most Official Statements contain a summary section in the first page or two—usually found just before the Table of Contents. Here you'll find some of the most basic information about the offering, such as the size of the deal and a list of all the brokers involved the underwriting syndicate.
  2. The Table of Contents. The Table of Contents can help highlight areas you might like to study more deeply. For example, several sections will be devoted to details about the bonds being issued, such as their maturities, structure, and likely credit ratings. Other sections may be devoted to the issuer—its existing debt levels, the economics of the region, or sources of revenue—things that could have a direct or indirect impact on the viability of the issuer's ability to service the new debt.
  3. The Bonds/Notes. This section describes the issue and how it is structured, when the notes will mature and pay their coupons. For example, there may be several different "series" or different maturities. There may be a high and low coupon of the same maturity date—meaning certain bonds may exhibit large premiums at issue, or there may be taxable and tax-exempt offerings. You may also find here clear disclosure of call risk under the subtitle of "Optional Redemptions." Sift through what might be several pages of dense information and you should be able to find which bonds of the offering are subject to mandatory tenders or redemptions and from what point in time.
  4. Purpose & Use. This typically short section is an advisable check to get one layer below the title of the issue. Use it to determine why the municipality is issuing these bonds: Are the bonds being issued for refunding older debt or is the issue net new debt? Is the purpose described as providing support to various social services or are funds being put towards infrastructure projects that might in turn reflect expectations for future economic and taxpayer growth in the region?
  5. Sources of Payment & Security. As with the "Purpose" section, the "Sources and Security" section(s) covers information vital for individuals making an investment in a likely long-term instrument such as a municipal bond: Is the issue being backed by the "full faith and credit" of the issuer? If not, does the issuer explain what type of backing the bonds will receive? Assuming that security is not coming from an outside entity or "obligor," the big question here is determining the degree to which "security" of payment will be derived from a reliable stream of future revenues. In the case of general obligation debt or debt funded from general taxation, can you determine in what priority tax receipts will go towards servicing the debt being issued? For revenue bonds, you can usually read about the annual revenues of the issuing entity and how those revenues have changed over time. How durable are they expected to be, and are any special reserve funds set aside in the event of a revenue shortfall?
  6. Ratings. One of the oft-cited benefits of investing in new issue municipal bonds is that they come to market with a recently updated set of financials, and are also typically issued with a refreshed set of credit ratings from one or more of the major ratings agencies. Note that in the case of the Preliminary Official Statement of a large negotiated offering, the issuer and associated syndicate may not receive the credit rating until the actual day of sale. Sometimes the Preliminary Official Statement may try to mitigate this by informing readers of the ratings of existing debt of the issuer as guidance, but no guarantee, to the investor that the new debt will come out with similar ratings.
  7. Tax Exemption. While this may have been mentioned briefly in the overall introduction of the notes, this section makes it easy for the investor to quickly unearth a lot of information. It will spell out the qualification of the note for exemption of federal, state, local, and city taxes, as well as the Alternative Minimum Taxes. Understanding this section is vital since it will help you calculate the estimated Taxable Equivalent Yields of the bonds when they are priced, based upon their own specific tax situation.
  8. Risk Factors. When risks are presented in a separate, dedicated section, there is a chance that some of them will seem obvious or boilerplate, but, if present, readers could approach this section as a way of seeing if they can find any new or unexpected risks. Ask whether the risks listed here match your understanding of the bonds and the issuer covered in other sections?
  9. Independent Financial Assessments and Legal Opinions. These sections may be somewhat lengthy or off-putting if you do not have legal or accounting training. At the most basic level, you should look at the headline revenue and expense trends and compare them with the trend of the issuer’s indebtedness found in the balance sheet. Check to see if any red flags are noted in the legal opinion and that the auditors certify that the financial statements contained in the Official Statement represent a fair and accurate reflection of the issuer's financial condition.

Accessing Official Statements on

1. On the Municipal Bond New Issue Offerings page, select the "Official Statement" link under the "Document (PDF)" column, to the left of each new issue offering. The Preliminary Official Statement will open in a separate window. Note: Many of the documents will open with a linked Table of Contents (see screenshot).

2. For secondary municipal bonds, Fidelity provides easy access to the MSRB's extensive library of historical Official Statements. Simply select the bond description in search results, then on the bond details page, find the EMMA field and select "YES" (see screenshot). The Security Details page for the bond's CUSIP on the MSRB's EMMA website will open in a new window, providing access to the Official Statement and any continuing disclosure published subsequently.

Note that the Official Statement is published at a point in time, when the bond was originally issued. Therefore, when you are researching secondary municipal bonds be sure to use it in conjunction with continuing disclosure - information available in bond details under Material Events on