In 2019, the Governmental Accounting Standards Board (GASB) issued guidance to provide a single method of reporting conduit debt obligations by issuers. The new standard, GASB Statement 91, Conduit Debt Obligations (the Statement), clarifies the definition of a conduit debt obligation; establishes that a conduit debt obligation is not a liability of the issuer; establishes standards for accounting and financial reporting of commitments extended by issuers, and improves required note disclosures.
Conduit Debt Obligation
The Statement defines a conduit debt obligation as a debt instrument with the following attributes:
- At least three parties: 1) an issuer, 2) a third-party obligor, and 3) a debt holder or trustee.
- The issuer and the third-party obligor are not within the same financial reporting entity.
- The debt is neither a parity bond, nor cross-collateralized with other debt of the issuer.
- The third-party obligor, not the issuer, ultimately receives the proceeds from the debt issuance.
- The third-party obligor, not the issuer, is primarily obligated for the payment of all amounts associated with the debt obligation (debt service payments).
Other Accounting Issues
All conduit debt obligations involve the issuer making a limited commitment. However, an issuer should not recognize a conduit debt obligation as a liability. Additional commitments or voluntary commitments to support debt service may be issued. In that case, an issuer should recognize a liability associated with an additional commitment if certain recognition criteria are met. These types of commitments should be evaluated annually.
Arrangements—often characterized as leases—may be associated with conduit debt obligations. In those arrangements, capital assets are acquired with the proceeds of a conduit debt obligation and used by third-party obligors in the course of their activities. Payments from third-party obligors are intended to cover and coincide with debt service payments. During those arrangements, issuers retain the titles to the capital assets, which may or may not pass to the obligors at the end of the arrangements. Issuers should not report those arrangements as leases; recognition of the underlying capital asset by the issuer is dependent on the terms of the agreement.
The Statement requires disclosure of information about their conduit debt obligations and any liabilities related to supporting the debt service.
Effective Date and Transition
The requirements are effective for reporting periods beginning after December 15, 2020.
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