Muni market wrestles with COVID-19 disclosure

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Regulatory relief may not be in sight for issuers as they grapple with how to deal with late filings because of the pandemic.

Ahmed Abonamah, deputy director of the Securities and Exchange Commission’s Office of Municipal Securities discussed his views on disclosure and COVID-19 during a Thursday webinar hosted by the Municipal Securities Rulemaking Board.

Participants asked if the SEC would provide regulatory relief for late financial filings because of the difficulty to access materials since many people have begun working remotely. Abonamah noted that disclosures issuers make pursuant to their continuing disclosure agreements are governed by contractual obligations between the issuer and investors.

“So as a result and as a result of the exemptive authority that the Commission has under Rule 15c2-12, there really is no room because of the contractual nature of these obligations to give relief directly to issuers,” Abonamah said.

Ahmed Abonamah, deputy director of the SEC’s Office of Municipal Securities, said every issuer does not have to make a COVID-19 filing and said just the mere fact that an event like the virus is occurring does not trigger disclosure.

The SEC does not have direct authority over issuers because of the Tower Amendment. Named after former Texas Sen. John Tower, it prevents the SEC or MSRB from requiring issuers to file documents with regulators prior to selling bonds.

However, issuers are still subject to fraud liability if their bond offering documents falsely claim that they are in material compliance with their CDAs if they are not.

Though the webinar was scheduled to discuss continuing disclosure, many participants had questions and concerns related to COVID-19 disclosure.

COVID-19 has now affected over 10,000 people and killed 150 in the U.S. The virus that causes it is a member of the coronavirus family.

Many Americans are working from home so as to stop the spread of the virus, leaving some muni market participants questioning if they have to disclose if they close their physical location even though they do decide to work remotely.

Abonamah said it would depend on the issuer’s continuing disclosure agreement.

“Presuming that the CDA looks like the customary document which simply enumerates the events listed in Rule 15c2-12, then it doesn’t seem from the question that the mere closure of the physical office would dictate that an event notice would need to be filed at the MSRB,” Abonamah said.

The closure of that public building or the consequences that come from the closure would need to trigger one of the 16 events in Rule 15c2-12, provided that they are in the CDA, he added.

Rule 15c2-12 requires dealers, when underwriting certain types of municipal securities, to ensure that municipalities issuing bonds enter into an agreement to provide information to the MSRB.

As for late annual filings due to COVID-19, Abonamah said the issuer, per the terms of Rule 15c2-12, would need to make a filing with the MSRB to give notice of its failure to timely make the annual filing. If the issuer determines the late filing is material, then when they would need to disclose that failure when they reenter the primary market.

Participants also had questions about categorizing COVID-19 on the MSRB’s EMMA site.

“If for whatever reason the COVID-related impact implicates one of the enumerated event disclosures in Rule 15c2-12, then it seems that it would be appropriate to put the notice in the appropriate event notice category,” Abonamah said.

If issuers decide to voluntarily disclose, the MSRB provides flexibility in its EMMA system for submitters to select one or more voluntary categories, said David Hodapp, MSRB assistant general counsel.

“Submitters might consider selecting the interim additional financial information or operating data category for the disclosure,” Hodapp said during the webinar. “This relates to the financial operating impact of COVID, would be particularly relevant if an issuer determines that there will be a specific impact on its revenues supporting the payment of bonds.”

Also during the webinar, a participant asked if every issuer should make a COVID-19 filing.

Abonamah said no, that just the mere fact that an event like the virus is occurring does not trigger any of the Rule 15c2-12 events that would require disclosure.

Seven state and local government organizations requested Friday that the Trump administration formally pause all open comment periods for rulemaking and other non-rulemaking notices.

Nearly 700 open comment periods are scheduled to close in the next 30 days and the number increases to more than 1,000 over the next 90 days, according to the joint request.

The National Governors Association, National Conference of State Legislatures, Council of State Governments, National League of Cities, U.S. Conference of Mayors, National Association of Counties and International City/County Management Association made the request.

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