The GASB has issued GASB No. 91 Conduit Debt Obligations
to provide a single method of reporting conduit debt obligations by issuers and eliminate the diversity in practice associated with the commitments, arrangements and related disclosures. The standard clarifies the existing definition of conduit debt obligations, establishes that the conduit debt obligation is not a liability of the issuer, establishes standards for accounting for additional and voluntary commitments and other arrangements, and improves required disclosure considerations.
A conduit obligation must include three parties (an issuer, a third-party obligor, and a debt holder/debt trustee) and have the following characteristics:
- The issuer and third-party obligor are not within the same financial reporting entity.
- The debt obligation is not a parity bond of the issuer, nor is it cross-collateralized with other debt of the issuer.
- The third-party or an agent of the third-party received the proceeds of the issuance, rather than the issuer.
- The third-party is primarily obligated for payment of all debt service payments.
All conduit debt obligations involve some limited commitment by the issuer; however, the issuer may extend additional and voluntary commitments to support the debt service, if the third party is unable to do so. The issuer does not recognize the liability of the conduit debt; however, the issuer should evaluate if a liability should be recognized related to their additional commitments or voluntary commitments based upon the recognition criteria outlined in GASB No. 91 as long as the debt is outstanding and at least annually. An issuer who made only limited commitments should evaluate these same recognition criteria when an event has occurred that makes the issuer reevaluate the limited commitment.
GASB No. 91 also discusses conduit debt obligation transactions that are often characterized as leases. In those arrangements, capital assets are constructed or acquired with the proceeds of a conduit debt obligation and the related capital assets are used by the third-party. The issuer should not report the arrangement as a lease, nor should a receivable or debt obligation be recognized. GASB No. 91 provides guidance based upon the specifics of the arrangement centered on the point in time that the title passes.
GASB No. 91 requires issuers to disclose general information about their conduit debt obligations organized by type of commitment. These disclosures should include the aggregate outstanding principal and related descriptions. If an issuer recognized liabilities related to supporting the debt service related to commitments, the issuer should disclose the amount recognized and how the liabilities changed during the reporting period.
The requirements of GASB No. 91 are effective for reporting periods beginning after December 15, 2020. Earlier application is encouraged.
The full text of GASB No. 91 is available here.
Readers should not act upon information presented without individual professional consultation.