Most issuers not making coronavirus disclosures on outstanding debt

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Just 40% of all distinct CUSIPs that have traded so far in 2020 have a COVID-19 related disclosure attached to them, leading some to wonder why all issuers aren’t disclosing COVID-19 risks.

That number came Monday from Municipal Securities Rulemaking Board CEO Mark Kim, who conveyed it to the Securities and Exchange Commission’s Fixed Income Market Structure Advisory Committee. The figure prompted surprise from some market participants, many of whom said it ought to be much higher.

“Many issuers are doing a very good job of keeping their constituents and bondholders informed,” said Gregg Bienstock, CEO and co-founder of Lumesis, a municipal market software and data company. “Given that COVID seems to affect every municipality and every sector, one could make the argument that there should be even more disclosure. But it’s a balance of disclosure for the sake of putting something out there versus something substantive.”

The SEC released a statement in early May that dispelled much concern for state and government officials. The SEC encouraged voluntary disclosure during the COVID-19 pandemic saying that good faith attempts would not be second-guessed and that disclosure should be made with meaningful cautionary language.

Issuers took it to mean that they could lay out assumptions of what could happen, then they would be protected by providing that information and not setting themselves up for legal liability.

That statement did cause COVID-19 disclosures in the secondary and primary market to skyrocket that month to up to 1,200 disclosures from close to 900.

This past week, COVID-19 disclosures increased again to close to 1,200 for the week ending Oct. 4. Continuing disclosures increased to 788 filings from 458 the week prior.

However, Lisa Washburn, industry and media liaison at the National Federation of Municipal Analysts, cautioned that not all filings that say a keyword related to the pandemic are truly COVID-19 disclosures. For example, a rating agency report that mentions COVID-19 would not count, she said.

If issuers were to voluntarily file COVID-19 disclosures, then that figure of 40% should be higher, said Lisa Washburn, industry and media liaison at the National Federation of Municipal Analysts.

In the secondary market, Washburn has noticed a number of issuers that have COVID-19 disclosures, but she said there is still a gap in the number of issuers that have debt outstanding versus those that have made a filing about the impact of the pandemic on financial or operational performance.

“If an issuer is coming to market now, you have a much better likelihood that they’re going to disclosure meaningful information in their official statement, but in terms of the secondary market we are still far away from knowing how the majority of borrowers are faring,” Washburn said.

If issuers were to voluntarily disclose information related to COVID-19, that figure of 40% should be higher, Washburn said.

“We’re lucky in that it is the first time I’ve seen issuers voluntarily and in large numbers disclose meaningful, financial and operational data that’s based on an event that’s happening for which there is great uncertainty,” Washburn said. “We’ve come a long way, but the gap is still significant, in my opinion, between the number of issuers filing that we’d like to see and the number that is actually doing so in the secondary market.”

Issuers are deciding not to disclose because they may not see it as material, Washburn said.

“Given the abruptness of the pandemic and the depth of the impact that it had on our economy because of the shutdown and on issuers’ revenues — the reason it’s not affecting you or that you’re managing through it with minimal impact is also very valuable information,” Washburn said.

Continuing disclosure agreements require a disclosure of material events, said Marion Gee, president of the Government Finance Officers Association.

“Although COVID has impacted many government entities, some may have assessed the impact that it's had or will have in the future and determined that it's not material,” Gee said.

GFOA recently published a disclosure principles document with other stakeholders on COVID-19 disclosure. The working group emphasized that COVID-19 may give urgency to providing information to the markets, but governments should give disclosures context and discuss those with their internal and external financing teams such as bond counsel.

Dee Wisor, attorney at Bulter Snow law firm, said he hasn’t seen an offering in the primary market that did not have COVID-19 disclosure in it.

“The primary market may closer to 100% or certainly close to 90% at least in what I see,” Wisor said.

There are issuers who want to do voluntary disclosure and there are others that may not have the time or resources to do so and don’t plan to be in the market any time soon, Wisor said.

“They’ve got bigger fish to fry in trying to balance budgets and facing the economic consequences of the pandemic,” Wisor said.

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