WASHINGTON - The National Association of Bond Lawyers is calling for increased education of issuers on continuing disclosure in the wake of lessons learned from the Municipalities Continuing Disclosure Cooperation initiative.
NABL offered its observations and recommendations to the Securities and Exchange Commission in a letter sent on Monday to the five commissioners, as well as the SEC's office of municipal securities, and enforcement division's municipal securities and public pensions unit.
Allen Robertson, a shareholder at Robinson, Bradshaw & Hinson who was the principal drafter of the letter, said the group wanted to have its own "sort of post-mortem analysis on the initiative and the things" the industry should draw from it.
The SEC's MCDC initiative allows underwriters and issuers to receive lenient settlement terms from the SEC if they voluntarily self-reported any instances during the past five years in which they falsely claimed in official statements that they were in compliance with their self-imposed continuing disclosure agreements.
Educating issuer officials and staff on proper compliance is the "heavy lift" in the effort toward ensuring issuers are conducting effective continuing disclosure, Robertson said. "That fundamentally is the challenge in a lay-person driven system, to figure out how we've helped to educate those folks and make sure they are equipped to carry it all out."
He added that an effective approach would be to have the SEC act as a facilitator for industry participants to come together and make sure working groups for transactions are being "very thoughtful about what operating data they are putting in a final official statement."
Having data that issuers regularly produce and will know how to include on an ongoing basis is important to successful disclosure, Robertson added.
The letter lays out several bullet-pointed considerations to make sure issuers are educated on proper disclosure compliance. In one point specifically directed at the SEC, it asks the commission to provide guidance that if a rating agency provides its ratings on EMMA, an issuer need not file a separate material event notice on the rating change.
NABL recommends the muni industry encourage issuers to use EMMA to sign up for reminders about when their disclosure deadlines are approaching. The working group should analyze more carefully what data should be included in the OS, with the focus on what the issuer can readily update during the life of the bond issue, NABL wrote in the letter.
NABL said issuers also should talk to their auditors to find out whether some or all of their operational data can be included in the footnotes or the information supplementary to their annual audited financials, as well as whether some information can be updated more frequently than annually. The working group could then develop a template that could be used as the offering is closing and the template could be included in the bond transcript.
The letter also suggests that industry groups use continuing disclosure compliance as criteria for rating and awarding issuers, and take steps to make amending existing disclosures easier so issuers can eliminate burdensome or antiquated requirements and streamline their filings.
NABL acknowledged that after MCDC, municipal underwriters "have given additional focus to their due diligence process and procedures regarding disclosure" and that "to the extent that the primary purpose of the MCDC initiative was deterrence," it thinks the purpose has been accomplished.
However, if the SEC were to plan another industry-wide enforcement initiative, NABL said it would recommend the commission put "substantial consideration" into how to reach the "close to 44,000 state and local issuers," as some group members found issuers, particularly infrequent ones, were not aware of the initiative.
NABL would also encourage the SEC "to do a pretty rigorous cost-benefit analysis before launching another initiative," Robertson said.
