Senate Bill Report — SB 6131, Repealing Debenture Company Laws (January 16, 2020)

Summary

A Senate Bill Report on SB 6131, as of January 16, 2020, from the Senate Committee on Financial Institutions, Economic Development & Trade. The bill concerns repealing the debenture company laws from the securities act of Washington, and the sponsors listed are Senators Mullet, Hobbs, Short, Wilson, L. and Das. The background states that Washington has not had a debenture company in operation since 2005, and the summary of the bill says Washington debentures statutes are repealed. The staff summary of public testimony records testimony in support from the Department of Financial Institutions, stating that the statutes have been an impediment to churches and social impact investors.

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Full text

                             SENATE BILL REPORT
                                   SB 6131

                                      As of January 16, 2020

Title: An act relating to repealing the debenture company laws from the securities act of
    Washington.

Brief Description:      Repealing the debenture company laws from the securities act of
   Washington.

Sponsors: Senators Mullet, Hobbs, Short, Wilson, L. and Das; by request of Department of
   Financial Institutions.

Brief History:
   Committee Activity: Financial Institutions, Economic Development & Trade: 1/16/20.

                                      Brief Summary of Bill
          Ÿ Repeals the state's debenture statutes.


SENATE  COMMITTEE                  ON      FINANCIAL          INSTITUTIONS,           ECONOMIC
DEVELOPMENT & TRADE

    Staff: Clint McCarthy (786-7319)

    Background: Debentures. A debenture is a type of debt instrument unsecured by collateral.
    Since debentures have no collateral backing, debentures must rely on the creditworthiness
    and reputation of the issuer for support. Similar to most bonds, debentures may pay coupon
    payments. In Washington State, at least 50 percent of debenture securities must have
    maturity dates of two years or more.

    Debenture Companies and the Jumpstart Our Business Startups Act of 2012. Debenture
    companies are required in the state of Washington to maintain a net worth of at least
    $200,000 for securities up to $1 million, and must maintain a net worth of 10 percent of the
    outstanding securities for securities between $1 million and $100 million. One half of the net
    worth must be held in cash or comparably liquid assets. Every debenture company must
    report annually on financial and business conditions of the issuer.



––––––––––––––––––––––
    This analysis was prepared by non-partisan legislative staff for the use of legislative
    members in their deliberations. This analysis is not a part of the legislation nor does it
    constitute a statement of legislative intent.

Senate Bill Report                              -1-                                          SB 6131
    In 2012, Congress passed the Jumpstart Our Business Startups (JOBS) Act. The legislation
    loosened regulations instituted by the Securities and Exchange Commission on small
    businesses, and created new exemptions form federal securities registration requirements that
    sidestep state debenture statutes. Washington has not had a debenture company in operation
    since 2005.

    Not-For-Profit Companies. Not-for-profit companies are exempt from registering securities.
    The security must be offered or sold to persons who, prior to their solicitation, were members
    of, contributors to, or listed as participants in, the organization. Not-for-profit organizations
    using unsecured debt to fund social impact investments or church projects are still subject to
    the debenture company laws with respect to liquidity and net worth for fundraising in
    Washington.

    Summary of Bill: Washington debentures statutes are repealed.

    Appropriation: None.

    Fiscal Note: Requested on January 9, 2020.

    Creates Committee/Commission/Task Force that includes Legislative members: No.

    Effective Date: Ninety days after adjournment of session in which bill is passed.

    Staff Summary of Public Testimony: PRO: The Department of Financial Institutions
    (DFI) tends to work with industry over a period of time to get a bill that has the approval of a
    broad group of stakeholders. This is an example of that approach. DFI was approached by a
    constituent where a bank was having a hard time moving forward on lending money to a
    church because it fell within the debenture statutes. Unrealistic capital requirements for
    churches and social impact investors is an unintended consequence of these statutes. The bill
    simply repeals 20 provisions that were added in the 1970’s and 1980’s to regulate some
    failures that are no longer possible. These statutes have been an impediment to churches and
    social impact investors. DFI believes that they have regulatory statutes necessary to oversee
    non collateralized investments in the future.

    Persons Testifying: PRO: Senator Mark Mullet, Prime Sponsor; Drew Bouton, Department
    of Financial Institutions; Bill Beatty, Department of Financial Institutions; Faith Anderson,
    Department of Financial Institutions.

    Persons Signed In To Testify But Not Testifying: No one.




Senate Bill Report                              -2-                                          SB 6131


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