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Utility Districts Paying Too Much in Bond Fees?

The Tennessean reports that some Tennessee utility districts representing thousands of water and gas ratepayers, mostly in rural parts of the state, may be paying more than necessary because of the way their bond deals are being structured.
The landscape of Tennessee’s lucrative utility district bond market was significantly altered in 2009 when a nonprofit organization created to educate and advocate for rural utility districts began offering them financial advice with the bulk of the multimillion-dollar business going to a single underwriting firm.
The politically powerful and influential Tennessee Association of Utility Districts, which has 180 member utility districts, has earned $519,323 in fees through its affiliates since it began selling financial advice on bond issues, though neither of its employees has a background in investment banking.
With a TAUD affiliate as the adviser, almost all of the underwriting work has gone to Nashville-based Wiley Brothers, who quickly elbowed past larger competitors to dominate bond deals for rural utilities in Tennessee.
Regulators and municipal finance experts say the types of noncompetitive deals being done tend to come with higher interest rates and fees. And each of the 33 deals involving the TAUD did not follow normal industry practices in disclosures to investors.
…The Tennessean reviewed all 33 bond issuances in which the TAUD subsidiary or an earlier affiliate acted as financial adviser over the last three years and found that in each case, the utility districts sold their bonds at negotiated sales, instead of competitive sales. Competitive sales involve getting bids from multiple underwriting firms and awarding the work to the firm that offers the lowest interest rate. The SEC says competitive sales bring lower interest rates, which means the utility district needs to raise less revenue from ratepayers’ water bills to pay back the bonds.
Additionally, the newspaper reviewed official statements filed with the U.S. Securities and Exchange Commission and found that the legally required documents meant to provide investors with details of the bond issue did not disclose that a TAUD organization was paid out of bond proceeds.