Using your Web site to enhance bond market disclosure: the proliferation of government Web sites offers a powerful tool for communicating disclosure information to the municipal bond market.(government uses the Internet)

The Internet has fundamentally changed the way information is communicated and the way business is conducted. Governments have embraced technology in the quest to operate more efficiently and effectively and to better serve their constituents. Governments use their Web sites in a variety of ways to communicate with and serve the public. The purpose of this article is to describe how governments, as issuers of tax-exempt bonds, can use their Web sites to disseminate disclosure information to the capital markets.

Investors, analysts, and regulatory agencies have all applauded the use of government Web sites for the purpose of disclosure. The Securities and Exchange Commission has embraced Internet disclosure for its ability to promote transparency, liquidity, and efficiency in the capital markets. The Government Finance Officers Association recently adopted a new recommended practice encouraging its members to use their Web sites for disclosure purposes. (1) The Internet, in general, and issuers' Web sites, in particular, provide powerful tools for communicating with and disclosing information to credit analysts, investors, underwriters, and other municipal market participants.

Some issuers already have disclosure Web sites up and running, and are effectively using them to communicate financial information to investors and other stakeholders. These governments are using their Web sites to provide electronic access to preliminary official statements, final official statements, audited financial statements, and other documents related to the sale of municipal securities. The Internet also can be used to disseminate continuing disclosure filings and other important financial information, and some governments are using their Web sites in addition to, or in lieu of, traditional press releases. As such, government Web sites can be an integral part of an effective investor relations program, augmenting other means of communication with the municipal market. (2)

The Benefits of Web-Based Disclosure

One of an issuer's most important objectives in connection with issuing debt is to borrow at the lowest possible interest rates. There are a multitude of factors that have a bearing on the interest rates issuers pay on their bonds. Many of these variables are beyond the issuer's control, such as prevailing market rates, the supply of municipal bonds, and investor appetite for fixed-income products. However, the accessibility of information about a particular credit or bond issue is one variable that issuers can control and that may impact interest rates. Investors have confirmed time and time again that good disclosure, especially in a troubled sector, increases their appetite for an issuer's bonds. Although it is difficult to quantify and prove, investors also indicate that good disclosure increases the price they are willing to pay for bonds and, therefore, decreases the interest rates on those bonds.

Trust and confidence are intangibles that still play an important role in the credit markets. Web site disclosure can enhance an issuer's reputation in the capital markets. An investor's perception of an issuer, even based on subjective factors, can affect an investor's buy-sell decision. If investors believe the issuer will provide accurate, complete, and timely disclosure information, they will be more likely to buy the issuer's bonds. Investors are also less likely to sell bonds of an issuer experiencing financial difficulties if they believe the issuer will provide necessary disclosure on a timely basis. Conversely, when investors believe an issuer is not providing information necessary to evaluate creditworthiness, they will be less likely to buy that issuer's bonds and more likely to sell sooner in a deteriorating credit scenario. This dynamic suggests that it is good business practice to provide more disclosure information than what is legally required.

In today's market environment, many issuers want to have more frequent contact with market participants because of the needs of specific industry sectors (e.g., healthcare) or issuer-specific developments such as budget deficits or catastrophic events. The Internet provides an easy way for issuers to provide disclosure information more frequently and to revise such information when circumstances change or further developments occur. The consistent and ready availability of complete and timely disclosure information can enhance the secondary market liquidity of an issuer's bonds, making them more attractive to investors.