The Municipal Securities Rulemaking Board issued a notice yesterday to remind broker-dealers serving as remarketing agents for issuers changing interest rate modes on their auction-rate securities that, depending on the nature of the conversion, they may have to file with the board a new official statement and a related form under its Rule G-36 on official statements.
The three-page notice comes as some issuers are seeking to convert all or a portion of their outstanding auction-rate securities either to another form of adjustable-rate debt or fixed-rate bonds, the board noted.
In many instances, issuers conduct such a conversion through a refunding of the outstanding debt with a new issue of municipal securities. Alternatively, the bond documents may permit the issuer to convert the interest rate mode in conjunction with a tender of the securities by the current holders and a subsequent remarketing of the securities in the new mode, the MSRB said.
But a dealer serving as a remarketing agent in connection with the conversion must review, among other things, whether the remarketing of the converted securities is considered a "primary offering" for the purposes of the Securities and Exchange Commission's Rule 15c2-12 on disclosure and the MSRB's Rule G-36, which essentially adopts the same definition of the term as 15c2-12.
Under both rules, a "primary offering" encompasses any remarketing that includes: a change in the denomination of the securities from $100,000 or more to less than $100,000; or a change in the period during which such securities may be tendered to an issuer or its agent for redemption or purchase from a period of nine months or less to a period of more than nine months.
Yesterday's notice warned that these two examples of remarketings are only "illustrative and are not the exclusive circumstances in which a remarketing would be considered a primary offering."
With few exceptions, under Rule G-36, an underwriter in a primary offering of munis that is subject to 15c2-12 must send to the board the final official statement within one business day of receipt from the issuers, but no later than 10 business days after the sale date.
An underwriter in a primary offering of munis that is not subject to the requirements of 15c2-12 is nevertheless required to send to the MSRB the final official statement if such a document is prepared, and must send it to the board the later of one business day after the closing or one business day after receipt of the final OS from the issuer. Some examples of primary offerings that are exempt from 15c2-12 but still subject to G-36 include offerings with a principal amount of less than $1 million and primary offerings sold in denominations of $100,000 or more with a maturity dates of nine months or less.