On December 8, 2016, the IRS issued new regulations which redefine the “issue price” of tax-exempt bonds for the purpose of arbitrage regulations. These new regulations became effective June 7, 2017.
Under the prior regulations, the issue price of publicly offered bonds was the price at which substantial amounts (10%) of the bonds were reasonably expected to be sold, and the issue price of privately placed bonds was the actual price at which the bonds were sold. For both publicly offered and privately placed offerings, the prior regulations effectively enabled issuers to determine the issue price on the sale date of the bonds.
The new regulations generally provide that the issue price of bonds of a particular maturity is equal to the first price at which at least 10 percent of those bonds are sold to the public.
For privately placed bonds, the issue price of the bonds is the price paid by the buyer.
For bonds bought by an underwriter in a competitive sale and then sold by the underwriter, the issue price, with certain qualifications, is the reasonably expected offering price as of the sale date.
For bonds neither privately placed nor sold to underwriters in a competitive sale, the issue price is the price at which 10% of the bonds are actually sold to the public. However, if 10% of the bonds were not actually sold to the public, then the initial offering price to the public on the sale date is the issue price, so long as the underwriter provides all the certifications and agreements required by the “hold-the-offering price” rules.
To assist issuers in complying with the new issue price regulations, the Securities Industry and Financial Markets Association (SIFMA) and the National Association of Bond Lawyers (NABL) have released final versions of their model issue price documents.