First disclosure of a virus-related pending default filed with MSRB
The Municipal Securities Rulemaking Board reported it has received the first disclosure of a pending bond default due to the coronavirus pandemic.
In a weekly report released Tuesday, one of the hundreds of continuing disclosures provided to the market on an ongoing basis was an April 6 notice of a pending bond default from a conduit borrower in Terre Haute, Indiana.
A Pyrolyx carbon manufacturing plant announced on March 23 that it was temporarily shutting down its facilities in Terre Haute. On April 3, Pyrolyx decided its shutdown would have to continue after Gov. Eric Holcomb of Indiana announced a stay-at-home order until at least April 20. Holcomb also said a public health emergency would remain until at least May 4.
As a result, until at least 60 days after Pyrolyx resumes operations, the plant won’t be able to make its loan payments on the solid waste facility revenue bonds issued by Terre Haute, Pyrolyx wrote in the filing.
“This anticipated delay in making any loan payments could materially adversely affect the payment of the principal of and interest on the bonds, when due,” wrote Thomas Redd, Pyrolyx Indiana manager, in the filing. “Moreover, Pyrolyx cannot predict the effect the COVID-19 pandemic public health emergency, will have on its finances or operations, including, but not limited to, making its loan payments in accordance with the terms of the loan agreement, even if and when its Terre Haute Facility resumes substantial operations.”
That disclosure was among other COVID-19 continuing disclosures ramping up as participants filed 375 more continuing disclosures last week, bringing the total to 1,395.
Under Securities and Exchange Commission Rule 15c2-12, dealers have to ensure that issuers enter into an agreement to provide certain information to the MSRB on an ongoing basis. Among those are events such as rating changes, bankruptcy and unscheduled draws on debt service reserves reflecting financial difficulties.
“We can anticipate a continued increase in COVID-19-related filings as the effects of the pandemic are felt around the country,” the MSRB said.
COVID-19 has affected more than 580,000 people in the U.S. and killed more than 23,000 people, according to media reports. Many states have responded to the pandemic by issuing stay-at-home orders to stop the spread of the disease. Municipalities face revenue losses as they grapple with the virus’ economic impact of reduced consumer spending.
Continuing event-based disclosures increased drastically last week to 651 from 380. Specifically “other” event-based disclosures increased last week to 297 disclosures from 186.
The MSRB has said they were not surprised to see many filing in the “other” category. The MSRB has said if the disclosure doesn’t fit into one of the Rule 15c2-12 categories, then the EMMA system is flexible to let participants decide where they want to file.
Rating change disclosures due to COVID-19 almost doubled last week to 300 from 159 disclosures.
Texas, California and Florida are still at the top of the list in primary market and continuing disclosures. Texas has had 214 total COVID-19 related disclosures, followed by California with 183 and Florida with 103.
As of April 12, the primary market has 312 COVID-19-related disclosures, compared with 194 total since Jan. 1 to April 5.