Issuers seek clarity as deadline nears on new SEC disclosure amendment

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Issuers are seeking clarity around new bond disclosure regulations outlined in an amendment to the Securities and Exchange Commission's Rule 15c2-12 as the Feb. 27 deadline approaches.

The Council of Development Finance Agencies and PFM hosted a webinar Thursday to shed more light on the requirements.


The SEC in August added two new material events to the list of occurrences that issuers will need to disclose within ten business days of their occurrence. Muni industry participants have been grappling with the question of exactly what new information they will have to provide.

“The big question is how will underwriters perform their new duties?” said Teri Guarnaccia, a partner at law firm Ballard Spahr LLP. “The underwriters themselves are developing approaches and procedures. This is similar to other listed events, in terms of relying on the issuer and obligated person to have procedures in place for their undertaking.”

Event 15 says issuers have to disclose when they incur financial obligations, if material, as well as agreements to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation of the issuer that could affect security holders.

In connection with those financial obligations, Event 16 says issuers have to disclose events that "reflect financial difficulties," such as a default or modification of terms.

The SEC lacks the authority to directly regulate issuers except through the antifraud provisions in the securities laws, so the rule requires underwriters of new issues of $1 million or more to “reasonably determine” that the issuer has entered into a written agreement to provide such disclosures to bondholders.

Guarnaccia added that she doesn’t think there is a “one size fits all” answer, but that she thinks it will lead to additional questions between underwriters, issuers and borrowers about how to comply going forward.

"Having had discussions with underwriters, some are taking it very seriously and see themselves as traffic cops in the middle of this information," said Robert Gamble, a managing director in PFM’s San Francisco office. "They do feel responsible for getting it right.”

The new guidance amends a rule originally established in 1989 that required a preliminary offering statement be “deemed final” and submission of a “complete” final official statement, Guarnaccia said. It was amended in 1994 adding requirements that issuers provide annual financial statements and disclosure on material events, she said.

Leo Karwejna, PFM’s chief compliance officer, said that issuers should be meeting with bond counsel so they can properly assess how the new rules apply.

He recommended putting together a few practical case studies as a good way to talk through the training. Pull out an existing offering statement and go through best case and worst case scenarios with staff and maybe public officials, he said.

“You need to put yourself in the position that you are not just prepared by Feb. 27, but create training that occurs no less than on an annual basis,” he said.

It’s also important to identify who is accountable within the organization to make decisions around what needs to be disclosed, Karwejna said. If it is done by committee, there has to be a person who is designated to put it on the agenda.

“You should identify where there might be issues or problems. You don’t need to put that in the debt policy, but you don’t want to be in the due diligence process when you realize you have a problem,” Karwejna said.

The Municipal Securities Rulemaking Board has also posted training modules in the education center on its EMMA website, said Julia Cooper, finance director for the City of San Jose and an MSRB board member.

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