WASHINGTON — A significant number of municipal issuers are not filing timely or useful secondary market disclosure data, hampering the ability of investors or analysts to make good investment decisions, DPC DATA warned in a study released Thursday.
The study also found that issuers and nonprofit or corporate borrowers are giving themselves longer to file continuing disclosure documents in the disclosure agreements they have with bondholders that are described in bond documents.
"This was our most intensive study to date in terms of tracking issuer-obligor behavior," said Peter Schmitt, chief executive officer of the Fort Lee, N.J.-based disclosure provider.
"The findings indicated that, in any given year, it would be impossible to analyze credit risk or find any warning of default from officially filed disclosure data on significantly more than half the issues studied," Schmitt said. "The disclosures either were not filed or they were filed too late to provide timely and therefore useful information. For people attempting to make good investment decisions or protect themselves from potential default, this is not good news."
The study comes as the Securities and Exchange Commission is conducting an inquiry of the municipal market and how disclosure can be improved and made more comparable to corporate disclosure, while still recognizing differences between the two markets.
DPC DATA was formerly designated as one of several nationally recognized municipal securities information repositories by the SEC until the commission designated the Municipal Securities Rulemaking Board's Electronic Municipal Market Access platform, or EMMA, as the sole repository for such disclosures as of July 1, 2009.
The company looked at 17,000 bond issues sold from 1996 through 2003 for which continuing disclosures were to be filed and then looked at the disclosures the issuers or borrowers filed for fiscal 2005 through fiscal 2009.
It looked at the disclosure filings issuers sent to it until July 1, 2009, and then looked at disclosure filings made to EMMA after that date through 2010.
The study found that during the five-year period that it looked at the disclosures, 56% of issuers or other borrowers did not file annual disclosures for one or more years and 19% did not file annual disclosures for any of those years.
It found that in each of the five years, at least one-third of issuers or borrowers did not file their expected disclosures with the NRMSIRs — or EMMA in late 2009 — and that the lack of compliance with their agreements rose to 40% in 2009 from 36% in 2008.
For 2009, roughly 72% of expected disclosure filings were either not filed at all or were filed past 180 days, DPC DATA said.
The company also looked at issuers' continuing disclosure agreements for bonds issued from 2008 through 2010 and found that issuers are committing to longer periods of time between the close of their fiscal years and the date they agree to file annual and financial and operating information. The average number of days was 214 in 2008 but grew to 228 days in 2010, it said.
"Unfortunately, in the municipal market, the likelihood of finding timely information in the official filings is relatively slim, according to our research," Schmitt said. "For the financial years of 2008 and 2009, fewer than 6% of our sample filed their annual disclosures within 90 days, which is the disclosure standard in the regulated markets."
The study is a follow-up to another disclosure study DPC DATA released in 2008. That study was criticized by some market participants who claimed the data was faulty, but the company contends the data was and is solid.
Members of the Government Finance Officers Association could not be reached for comment on this study.
"The MSRB fully supports and encourages timely, regular disclosure by issuers and obligated persons," said Lynnette Hotchkiss, the board's executive director. "Our EMMA website has made it easy for issuers to communicate directly with investors by making continuing disclosures widely available. The MSRB continues to make changes to EMMA that we think will raise the bar on disclosure. For example, an underwriter will soon be obligated to indicate an issuer's intention to provide continuing disclosures to EMMA, and issuers will soon be able to provide voluntarily on EMMA information about the timing of their annual financial disclosure."
William Daly, senior vice president of government relations for Bond Dealers of America, said: "Improving disclosure is an issue that is being worked on by the SEC, issuers, and investors. The BDA is in favor of improved disclosure because it benefits both issuers and investors. We will continue to help in any way we can to arrive at a workable system that satisfies the needs of everyone in the marketplace."
The Securities Industry and Financial Markets Association declined to comment.
The study is available at
