We have reviewed prior SEC guidance on the municipal advisor rules, from a view point of structuring a business to avoid a municipal advisory role, here and here.  The SEC has now issued additional FAQs, including on the engineering exclusion.

According to the new FAQs, the SEC staff believes an engineer could rely on the engineering exclusion when providing advice on the engineering aspects of a new project that will be financed, in whole or in part, by an issuance of municipal securities; provided that such advice does not include advice with respect to structure, timing, terms, or other similar matters concerning such issuance of municipal securities. For example, an engineer could provide a municipal entity or obligated person with advice on:

  •  a new project’s specifications,
  • overall cost,
  • a projected construction schedule,
  • anticipated funding requirements, and
  • a projected in-service date.

The municipal entity, obligated person, or other financing transaction participant, in turn, could use such information to structure the related issuance of municipal securities, including determining the length of any capitalized interest period and the amount of capitalized interest to be financed from bond proceeds. The staff believes, however, that an engineer providing advice on how to structure the related issuance of municipal securities, including the length of any capitalized interest period and the amount of capitalized interest to be financed, would constitute municipal advisory activities outside the scope of the engineering exclusion.

Similarly, as part of providing advice on the engineering aspects of a new project, the staff believes an engineer could provide a municipal entity or obligated person with projected gross revenues that are derived from the physical connections to the project (e.g., water and sewer system), as well as projected operating and maintenance expenses and net revenues for such project. The municipal entity, obligated person, or other financing transaction participant, in turn, could use such information to structure the timing and terms of debt service payments on the related issuance of municipal securities and, based on such debt service structure and projected net revenues, provide a projected debt service coverage table for inclusion in the offering document for the issuance of municipal securities. The staff believes, however, that an engineer providing advice on how to structure the related issuance of municipal securities, including the timing and terms of debt service payments, would constitute municipal advisory activities outside the scope of the engineering exclusion.