GASB 91 Update: Conduit Debt Obligations

Introduction

The Governmental Accounting Standards Board (GASB) issued GASB Statement No. 91 in May 2019. This standard will provide a single method of reporting conduit debt obligations by issuers and eliminate diversity in practice.

Objectives

The following are the objectives of GASB 91:

●To better meet the information needs of financial statement users by enhancing the comparability and consistency of conduit debt obligation reporting and reporting of related transactions and other events by issuers.

●To improve the relevance, reliability, and understandability of information about conduit debt obligations, related transactions, and other events.

Key Takeaways/Changes

A conduit debt obligation has all of the following characteristics:

●There are at least three parties involved: an issuer, third-party obligor, and debt holder or debt trustee.
●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 obligor ultimately receives the proceeds from the debt issuance.
●The third-party obligor is primarily obligated for all debt service payments.

Generally, conduit debt obligations involve the issuer making a limited commitment, meaning the issuer assumes no responsibility for debt service payments. However, the issuer can extend an additional commitment or a voluntary commitment of its own resources.

Under an additional commitment, the issuer agrees to support debt service payments only in the event the third-party obligor is, or will be, unable to do so.

Under a voluntary commitment, the issuer, on a voluntary basis, decides to make a debt service payment or request an appreciation for a debt service payment in the event that the third-party obligor is, or will be, unable to do so.

An issuer should not recognize a conduit debt obligation as a liability for a limited commitment. An issuer should recognize a liability associated with an additional or voluntary commitment if qualitative factors indicate that it is more likely than not (per GASB, this means a likelihood of more than 50%) that the issuer will support debt service payments for a conduit debt obligation.

When Is GASB 91 Effective?

The requirements of this Statement become effective for reporting periods beginning after December 15, 2020. Earlier implementation is encouraged. The requirements should be applied retroactively.

What Should Be Done Now?

If your reporting entity has conduit debt obligations, ensure that liabilities are being recorded (or not recorded) as appropriate, based on the level of commitment. Review the Statement to ensure that all required disclosures are included in the notes to the financial statements. Please note this summary is not meant to substitute for reading the Statement in its entirety.