First virus-related disclosure of borrowers unable to make payments

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The Municipal Securities Rulemaking Board reported it received its first disclosure of obligors unable to make principal and interest payments on existing bond issues related to the pandemic.

In a weekly report released by the MSRB, the regulator said a conduit issuer for two rehabilitation and nursing facilities in Massachusetts was the first to file a coronavirus-related disclosure under principal/interest payment delinquency — an event-based disclosure.

Brian Anthony, the MSRB's director of data strategy and management, expects more disclosures in the coming months.

On April 15, the Massachusetts Development Finance Agency’s trustee disclosed that interest due on bonds for the Lafayette Rehabilitation and Skilled Nursing Facility Inc. and Fairhaven Healthcare Center had not been paid.

UMB Bank filed the disclosure as trustee for holders of the finance agency’s health care facility revenue bonds. The agency loaned proceeds of the bonds to those rehabilitation and nursing facilities in Marblehead and Lowell, Massachusetts.

The $994,503 interest due on its 2007 bonds as well as $91,118 due on its 2010 bonds were scheduled to be paid on April 15. The facilities entered into a forbearance agreement where they have to operate within an approved budget, among other requirements and UMB noted that the disclosure is not a default since payments were deferred and not forgiven.

The agreement also means the facilities will have to retain an investment banker to prepare a teaser for sale and a prepared list of potential buyers, scheduled tours among others.

“Due to the novel Covid19 pandemic, the trustee anticipates that some of the milestones will slip and be deferred for a period of time,” UMB wrote. “For example, tours of the facilities cannot be scheduled at this time, and even a teaser could be inaccurate, in light of the speed at which the Covid-19 pandemic has evolved.”

The facilities have retained RBC Capital Markets in that function and were advised that the sale of the facilities would not be advisable currently because of the virus.

Other COVID-19 related disclosures continued to increase last week. Continuing virus related disclosures increased to 1,774 up from 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.

Disclosures filed under event-based disclosures grew with an increase in notifications of an incurrence or agreement to 38 from 24, more rating changes to 356 from 300 and an additional filing under unscheduled draw on reserves.

Both unscheduled draws on reserves are from the Highlands County Health Facilities Authority in Florida. The first was filed on April 2, and an update on April 15.

In the filing, the authority said it was necessary to request funds from three of its reserve accounts to satisfy debt obligations.

"As more states and municipalities experience fiscal distress due to the near-total shut down of their economies, we would expect to see an increase in the number of material event notices for reserve fund drawdowns and missed bond payments like we saw in our disclosure report these past several weeks," the MSRB said.

Continuing COVID-19 related disclosures filed under annual financial and operating data grew to 177 from 125. Quarterly/monthly financial information filings related to COVID-19 also increased to 109 from 56.

The MSRB recently asked the Securities and Exchange Commission to delay several deadlines to implement amended rules and interpretive guidance and more time to finish professional qualification and supervisory requirements.

The SEC formally opened a request for comment for those changes on Monday.

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