READ THE FINE PRINT: BOND RATING COMPANIES SEEKING INDEMNIFICATION FROM CITIES
Texas cities should be cautious when considering agreements with bond rating companies. According to the International Municipal Lawyers Association, at least one bond rating company has inserted language into a standard contract that would force a city that issues bonds to indemnify the company against any losses. That type of language would be problematic for Texas cities, because there is some doubt as to whether a city may legally agree to a blanket indemnity clause that is not supported by an appropriation.
This development only reinforces the notion that cites should work closely with local counsel prior to entering into any agreement with a bond rating company.