BRADENTON, Fla. — The Palm Beach County School Board in Florida will consider participating in the Securities and Exchange Commission's self-reporting disclosure initiative after learning that two underwriting firms reported issues with three of the district's bond deals.
The board on Tuesday will also be asked to hire Nabors, Giblin & Nickerson PA to become the district's first disclosure counsel to ensure full compliance with disclosure requirements. In the past, the district relied on underwriters' counsel to write offering statements, including disclosures.
District officials said a review to determine if the school system should self-report under the Municipalities Continuing Disclosure Cooperation initiative turned up a number of issues, including failure to file audits with the Municipal Securities Rulemaking Board's EMMA disclosure website between 2009 and 2011, failure to file two defeasance notices, and an interruption in filing notices about bond insurer downgrades due to changes in policy by the SEC.
"That's the big oops that we have," treasurer Leanne Evans told the district's finance committee on Friday.
While the district does not believe the problems are material, she said it is not clear how the SEC will view them. The committee agreed with her recommendation that the district take advantage of the SEC's initiative and its potentially favorable settlement terms.
The SEC program allows issuers and underwriters to report instances during the last five years in which they sold or underwrote bonds with offering documents that were not truthful about the history of the issuer's continuing disclosure compliance. The program offers lenient settlement terms to entities that self-report rather than allowing SEC investigators to find misconduct.
In an interview after the meeting Friday, Evans said that she sent letters to all the district's underwriters asking if they planned to report the district as part of their participation in the MCDC program.
Bank of America Merrill Lynch and Morgan Stanley replied that they would report three of the district's bond issues for misstatements.
"They told me the reason they reported was because we did not file on EMMA," said Evans.
The fact that the underwriters reported the district was a factor in the decision to recommend that the district enter MCDC, along with problems the district uncovered during its own review, she said.
The problems have been disclosed in offering statements since 2012.
Even though issuers have been required to post market filings with EMMA since 2009, Evans said she never received a notice explaining the change, which occurred when the district was absent from the bond market in 2009 and 2010.
While Palm Beach schools did continue to post its filings with Nationally Recognized Municipal Securities Information Repositories, the district's internal auditors as well as the Florida Auditor General asked for receipts proving when and where filings were posted, but didn't question if they were filed with the proper repository, Evans said as an example of how the error occurred.
In addition to not being active in the bond market for a short period, Evans also said district budget cuts during those lean times eliminated some of sources of information for market news, including cancellation of the district's subscription to The Bond Buyer.
In addition to complying with requirements of the MCDC in a potential settlement, Evans said her office is establishing a subscription service to quarterly conference calls with school districts in Broward, Miami-Dade and Orange counties "to share information."
Palm Beach district officials will also recommend modifying debt policies to make disclosure improvements in the near future.
Palm Beach County was the 11th-largest school district in the country, according to the 2013 comprehensive annual financial report. The district had 165,000 students in its schools, while another 11,900 students attended charter schools.
The district relies on certificates of participation as its primary form of financing, and had $1.9 billion in outstanding COPs at the end of fiscal 2013. The debt is rated Aa3 by Moody's Investors Service, and AA-minus by both Fitch Ratings and Standard & Poor's.
