The Role and Function of Bond Counsel

One of the principal roles played by bond lawyers is to serve as bond counsel on municipal bond issues. The lawyer who serves as bond counsel, acting for his or her firm, renders a legal opinion as to the validity of the bonds under applicable laws, the federal and state income tax status of the interest on the bonds and, in certain cases, other matters.

Bond counsel drafts many of the documents utilized in the bond issue and is heavily involved in the structuring and closing of the financing. In some cases, bond counsel may have drafted state legislation or state constitutional amendments authorizing the issuance of the bonds or participated in judicial bond validation proceedings with respect to the bonds.

In order for municipal bonds to be valid and enforceable, they must comply with applicable law. If the interest income on municipal bonds is to be excludeble from the gross income of the holders for federal income tax purposes (i.e. "tax-exempt"), the use of the proceeds of the bonds and any property financed with those proceeds are subject to various restrictions imposed by the federal tax law.

Thus, bond counsel must have a thorough knowledge of the state laws relating to the bonds and, if the interest income on the bonds is intended to be federally tax-exempt, bond counsel must have a thorough knowledge of the highly technical provisions of federal tax law that are applicable to municipal bonds.

Other areas of the law that are frequently involved in bond financing transactions include: federal and state securities laws, the federal bankruptcy law and state laws relating to rights of creditors, laws relating to state and local taxation, real estate, trusts, contracts, commercial transactions, investments and banking.

Other Roles Played by Bond Lawyers

In many bond financings, in addition to the firm that serves as bond counsel, one or more bond lawyers, generally from other firms, will serve on the "finance team" in such capacities as: disclosure counsel, underwriter's counsel, special tax counsel, trustee's counsel, issuer's counsel, conduit borrower's counsel (in the case of conduit "private activity bonds") or counsel to the provider of a credit facility or hedge facility.

In municipal lease financings, including those involving "certificates of participation," a bond lawyer who plays a role similar to that of bond counsel on bond issues, may be designated as "special counsel," rather than as "bond counsel."

 

A bond attorney can also assist with issuing bonds for various utility companies.