BRADENTON, Fla. - Municipal bond issuers in Louisiana will be required by state law to comply with continuing disclosure agreements, beginning Aug. 1.
Gov. Bobby Jindal signed Senate Bill 384 into law Thursday, requiring municipal securities issuers in Louisiana to comply with the Securities and Exchange Commission's Rule 15c2-12, and maintain a list of securities, continuing disclosure agreements, and current ratings.
The measure also requires auditors to make sure issuers are fulfilling recordkeeping duties, and to review sample filings on EMMA to determine if they are complying with disclosure agreements.
The bill passed both chambers of the Legislature unanimously.
The new law has sparked interest from others, according to bill sponsor Sen. Eric LaFleur, who is also a bond attorney and a partner at Mahtook & LaFleur in Lafayette, La.
"I received several emails expressing agreement and appreciation for the legislation," he said Tuesday. "I suspect that other states will be adopting similar legislation in the upcoming years."
LaFleur said he was prompted to file the bill after conducting due diligence for his small issuer clients, and finding that some were not complying with SEC disclosure rules.
The lack of compliance isn't on purpose, but some small issuers in particular don't have the staff or sophisticated bond programs to keep track of required disclosures, he said.
Auditors can help rectify the problem for a nominal cost.
Since political subdivisions in most states are subject to annual audits by state law, he said "it only makes sense" for auditors to check for continuing disclosure compliance.
"Compliance is not optional, it is required, and there are potential costly consequences if an issuer doesn't comply," LaFleur said. "Luckily, compliance is fairly easy."
LaFleur said he believes the audit procedure will push entities elsewhere "to adopt a 'best practices' policy so that compliance will become part of the norm."
"For those political subdivisions with limited staff or who may over look it for whatever reason, well, the audit report will serve as a friendly reminder," he said.
Though it's unclear if similar laws exist in other states, Mitchell Savader, founder and chief credit officer at Savader Asset Advisors, said he believes it is a "great idea."
"There are a number of issuers who don't live up to their continuing disclosure agreements, and that creates problems for us," he said in a recent interview.
Savader, whose firm deals with many small issuers on behalf of investors needing credit analysis, said another problem is that disclosure agreements don't have a mechanism to insure compliance, and the market is not efficient enough to penalize an issuer by requiring higher interest rates.