Less than 2.5% of municipalities have filed coronavirus-related continuing disclosures

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Only about 2.5% of municipalities have filed coronavirus-related continuing disclosures due to uncertainty of how the pandemic will unfold.

State and local governments have increasingly filed COVID-19-related disclosures to the market, but only 931 issuers out of roughly 40,000 have filed over 1,500 material event and continuing disclosures since the pandemic began, said Gregg Bienstock, CEO and co-founder at Diver by Lumesis — a municipal market software and data company. Continuing disclosures are provided to the market on an ongoing basis.

Uncertainty about how COVID-19 will affect municipalities could explain the still-small percentage of disclosures, said Gregg Bienstock, CEO and co-founder at Diver by Lumesis.

“What we’ve seen is as of yesterday, exclusive of new issues, we’ve seen about 1,500 individual filings and that’s been across 931 unique issuers,” Bienstock said. “So when you think about the order of magnitude of the market, that’s a fraction, so a lot more to come, clearly, from our perspective.”

Uncertainty about how COVID-19 will affect municipalities could be the reason behind a small percentage of disclosures, Bienstock said.

“So I don’t think you can fault an issuer at this point if they don’t have a handle on what may happen,” Bienstock said.

The Securities and Exchange Commission released a statement in early May detailing the kinds of COVID-19-related disclosures municipalities should be making. Bienstock said that statement encouraged issuers to make filings even if they are not certain about the information they are disclosing.

“While you’re seeing these filings being done, one could argue, is there more to be said?” Bienstock said.

As of the week ending on June 1, event-based disclosures have increased by almost 100 disclosures to 1,635, according to a Municipal Securities Rulemaking Board weekly disclosure report posted Tuesday morning.

Total COVID-19 related disclosures increased to 7,219 from 6,385 over the past week, despite a shortened holiday week. Those disclosures include primary market and all continuing disclosures, including annual financial reports.

Mark Kim, MSRB chief operating officer, said the small percentage of continuing disclosures and material event disclosures overall was a counterpoint to the increased disclosures.

“That’s a good observation and a counterpoint to the number of disclosures that we’ve been seeing and how those disclosures have been increasing week over week,” Kim said.

Primary disclosures, however, are a different story compared to continuing disclosures.

BondLink, a municipal finance technology company, found that every new issue includes COVID-19-related disclosures.

“One hundred percent of the new issue documents are including COVID-related disclosures,” said Colin MacNaught, CEO and co-founder of BondLink.

“Every POS (preliminary official statement) we’re seeing is definitely speaking to the risks driven by COVID and COVID’s impact to the economy,” MacNaught said. “Every issuer is mentioning that.”

As of June 1, there have been 2,178 COVID-19-related primary market disclosures, according to the MSRB's report.

Kim said the MSRB has not run their own analysis on the percentage of primary market disclosures, but said it was something the MSRB could look into.

“It’s an issuer’s responsibility to provide disclosures to the market and it’s really up to issuers and their bond counsel and disclosure counsel to determine what disclosures are appropriate,” Kim said.

Interim financials are valuable to investors and they need that information now, MacNaught said. He applauded the SEC’s May statement on encouraging more disclosures.

“If an investor sees that an issuer is sharing more real-time financial information, they are going to have confidence that they can own that asset and they can invest in that city or in that bond,” MacNaught said.

Disclosures for event 15 under SEC Rule 15c2-12 increased over the past week to 191 from 175.

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.

“Issuers continue to file Event 15 notices, which indicate material financial obligations like a bank loan or a direct placement,” Kim said.

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