WASHINGTON — Five states — California, Texas, Florida, New York and Pennsylvania — accounted for 40% of the continuing disclosures filed with the Municipal Securities Rulemaking Board since July 2009, according to a report released Thursday.
The report, the board's first on continuing disclosure, said issuers filed 258,162 continuing disclosure documents in the two-year period between July 2009 and June 2011.
Almost half the submissions, or 46%, were financial and operating disclosures. The remaining 54% were material event notices. Roughly 89% of the material event disclosures stemmed from bond calls and ratings changes.
"I think it's an interesting statistical start," said Frank Hoadley, Wisconsin's capital finance director. With the data now in the hands of investors and issuers, "you've got to begin to tie it together," he said.
Hoadley, a member of the Government Finance Officers Association's debt committee, said he is hoping the MSRB will provide more analysis about issuers' compliance with their continuing disclosure obligations.
The report comes amid heightened interest in and scrutiny of municipal disclosure among market participants and regulators.
The Securities and Exchange Commission has been conducting a muni market review since last year, with a report targeted for release late this year that may recommend legislative or regulatory changes. The SEC also is updating its 1994 interpretive guidance on the continuing disclosure obligations of municipal issuers.
Since July 2009, the MSRB has served as the electronic repository for municipal bond-disclosure documents, through its Electronic Municipal Market Access, or EMMA, website. Issuers generally supply updates to financial or operating information or notices about specific events that may affect their bonds, such as unscheduled draws on debt service reserves.
As for financial or operating information, the report found that issuers filed:
o 47,349 audited financial statements or comprehensive annual financial reports (CAFRs), 40% of all financial disclosures.
o Nearly 3,550 notices of failure to provide annual financial information, which is 3% of all financial disclosures and 1% of the total disclosures.
o Almost 14,700 quarterly or monthly financial disclosures, which is 12% of all financial disclosures and 6% of the total disclosures.
With respect to material events, the report said issuers filed 101,590 bond-call disclosure notices, 73% of all such notices; and 20,978 ratings change notices, 15% of notices.
During the same two-year period, the MSRB received 561 event notices about unscheduled draws on debt-service reserves, 361 notices about non-payment related defaults, and 24 notices about adverse tax opinions or events affecting tax-exempt status. A total of 5,985 material event notices, or 4%, were "other event-based disclosures," the board said.
Under the Tower Amendment, the board and the SEC cannot require issuers to file pre-sale disclosure documents. The amendment, which was added in 1975 to the Securities Exchange Act of 1934, also bars the MSRB from requiring issuers to file post-sale documents.
Under SEC Rule 15c2-12, dealers generally are prohibited from underwriting municipal securities unless an issuer has contractually agreed to disclose annual financial and operating information, as well as material event notices, with the MSRB.
A broker-dealer group hailed the report, saying it reinforced EMMA's usefulness, especially for information on the secondary market.
"It's really a great tool," said William Daly, senior vice president of government relations for Bond Dealers of America. "We look forward to expansion of the functionality."
An issuer group was a bit more measured in its response.
"From everything I'm seeing, EMMA is doing exactly what it's supposed to be doing," said Eric Johansen, city treasurer of Portland, Ore., and the chairman of the Government Finance Officers Association's debt management committee. "GFOA is urging its members to make use of the system."
