GFOA members urge issuers to disclose coronavirus impacts

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Members of the Government Finance Officers Association are encouraging municipalities to disclose to investors financial woes caused by the coronavirus pandemic, noting it could help them when they go to market.

During a Thursday GFOA webinar to discuss disclosure during the COVID-19 pandemic, David Erdman, Wisconsin’s public finance director, said the pandemic could be issuers’ moment to demonstrate good disclosure. GFOA's annual conference was planned to be in New Orleans this year, but was done virtually due to the pandemic.

“The Securities and Exchange Commission has been pretty consistent over the last few years about talking about the quality of municipal disclosure, timely municipal disclosure,” Erdman said.

“How issuers handle providing some disclosure about COVID-19 will go a long way to show the SEC that the issuer and the municipal finance community can provide good financial disclosure,” Erdman added.

The SEC has frequently called on issuers to provide more timely information, even if not strictly required to do so under their continuing disclosure agreements. The SEC has no explicit authority to mandate the content of disclosure by municipal issuers.

GFOA’s disclosure working group is set to release a two-page document soon to address good disclosure practices during the pandemic. That group composed of industry professionals was created in July.

Since the beginning of the pandemic, COVID-19-related disclosures have steadily increased week over week to a total of over 7,000 filings, though it is still a relatively small percentage overall of all issuers filing continuing disclosure documents.

Current disclosure practices just don’t keep pace with disclosures needed during the pandemic, Erdman said.

Communication with investors could mean a lower cost of capital, said David Erdman, Wisconsin’s public finance director.

“The required disclosures that we’re required to make just don’t keep up with the materiality of what’s happening in today’s world — COVID-19 definitely shows that,” Erdman said. “Also voluntary disclosure is a good way to look at disclosure as a new way of how disclosure can be provided to the investor community. Historical information is good, but obviously what we’ve seen with COVID-19, historical information is not as important or relevant as current information that’s available.”

The Securities and Exchange Commission released a statement in early May detailing the kinds of COVID-19-related disclosures municipalities should be making, which has encouraged more filings.

GFOA panelists also discussed a separate document released by the SEC this past year. In February, SEC staff released a bulletin that was meant to clarify the SEC’s stance on how anti-fraud laws apply to issuers’ public disclosure documents.

Leslie Norwood, the Securities Industry and Financial Markets Association’s head of municipals said the bulletin drove home SEC’s thinking on voluntary disclosures.

The SEC was concerned that there would be a paralysis of disclosure, said Dan Deaton, partner at Nixon Peabody.

“I think that the SEC is very concerned that there will be a paralysis of disclosure," Deaton said. "The uncertainty that is gripping the nation with respect to this unprecedented event may cause a paralysis of disclosure and will keep information from investors making trading decisions and also will not allow the market as a whole to absorb the changes in valuations in bonds that are happening as a result of the impact of COVID-19.”

Voluntary disclosure during the pandemic can be helpful to issuers overall, panelists said on Thursday. Investors would prefer communication with issuers rather than radio silence, panelists said.

“Communication with investors is a great way in order to promote lower cost of capital,” Erdman said. “It may take a little bit of effort in order to do some voluntary disclosure right now, and you may say I don’t have time. But taking those extra steps now to have that communication, do that voluntary disclosure, could mean a better interest rate with future borrowing.”

At the end of the day, it’s up to the issuer to decide when and how to disclose. Disclosure counsel and municipal advisors can be conservative or flexible when it comes to disclosing information, said Giedre Ball, debt manager at the Metropolitan Washington Airports Authority.

“You as an issuer, in the end, after weighing their advice, decide what to disclose,” Ball said. “You are the ones managing investor relations, transparency levels and your reputation.”

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