In Finance, what is an Official Statement?

An official statement is a document which discloses important information about a proposed municipal bond offering. Official statements must be issued by law when municipalities intend to offer bonds, and they are available to members of the public as well as prospective investors. People who want to see official statements can usually see them on file at government offices, and many municipalities make these documents available online for convenience.

Several things must be discussed in an official statement. By convention, the document usually includes a definition of the purpose of the bond, so that people understand what the money is being used for. The statement also discloses the amount of the bond, and discusses the financial circumstances which surround the proposed municipal bond. Essentially, the document tells investors how the money will be used and, perhaps more importantly, how it will be repaid.

The issuer of the bond can prepare an official statement or it can commission one from an authorized representative. The document is usually prepared with the assistance of legal counsel who confirm that the disclosure requirements are met and that there are no misstatements or areas of potential confusion in the official statement which could cause conflicts or problems later. The document clearly outlines benefits and risks to investors so that they understand what is involved.

The official statement could be compared to the registration statements which companies must file if they want to make a public offering of stocks and other securities. In both cases, the purpose of the documents is to provide some protection to investors by making the issuer accountable. By demonstrating how funds will be handled and how returns on investment will be generated, the issuer can provide investors with some grounds for confidence.

Just as with a private security offering, public agencies are liable if there is erroneous information on an official statement. Deliberate falsification can be grounds for legal penalties, and accidental omissions or misstatements need to be corrected as soon as they are identified. It is advisable to review official statements carefully to learn more about a municipal bond, how it will work, and how investors in the bond will be handled over time. If the information appears to be thin or unreliable when it comes to things like how the bond will be repaid, it can be a sign that the bond was not well planned and there could be a risk that investors will lose money.