SEC Approves MSRB Rule Changes on Bondholder Consents

WASHINGTON — The Securities and Exchange Commission has approved amendments to a Municipal Securities Rulemaking Board rule that would prohibit underwriters or remarketing agents from authorizing changes to bond documents except in limited circumstances.

Typically changes to bond documents to modify outdated provisions or for other reasons can be made if all or a certain percentage of bondholders permits the revisions to be made.

However, issuers often do not know the identities of their bondholders and it can be costly or time-consuming to determine who they are. To mitigate these burdens, issuers frequently ask underwriters, as temporary owners of the bonds during the initial offering process, to consent to changes in the documents.

But the MSRB worried that dealers would consent to changes even if they adversely affected the interests of the bondholders.

As a result, the board proposed amendments to its Rule G-11 on primary offering practices that would prohibit dealer consents except under limited circumstances, such as if the bond documents contain provisions that permit such consents that are disclosed to bond buyers or if dealers obtain consent from bondholders.

Dealers also could provide consent for securities they own, not while serving as underwriters, and for securities surrendered to them as remarketing agents as a result of mandatory tenders.

The MSRB filed the proposal with the SEC on Sept. 19. The SEC approved the revisions to G-11 on Dec. 5, after saying they were consistent with provisions of the Securities Exchange Act of 1934. The commission also said it had not received any public comments on the rule changes.

The changes are to take affect within 60 days of the SEC’s approval.

For reprint and licensing requests for this article, click here.
Law and regulation
MORE FROM BOND BUYER