Bond lawyers should report an issuer’s failure to comply with its continuing disclosure agreement, no matter how late, because doing so no longer carries a stigma and does not hurt the issuer’s ability to sell the bonds,” panel members said at the National Association of Bond Lawyers Tax and Securities Law Institute here.
Under the Securities and Exchange Commission’s Rule 15c2-12 on disclosure, a dealer cannot underwrite bonds unless it is reasonably assured that the issuer has contractually agreed to disclose financial and operating information annually as well as material event notices when such events occur.
In these continuing disclosure agreements, which issuers typically include in official statements and indentures, the issuer give a date by which it will make the annual financial disclosures, such as 120 days after the end of the fiscal year.
Issuers must file event notices disclosing any failures to meet their deadlines for annual financial disclosures.
Orrick, Herrington & Sutcliffe’s Robert Feyer told NABL members that it is best to quickly file a remedial notice on the Municipal Securities Rulemaking Board’s EMMA system as soon as any continuing disclosure noncompliance is detected, no matter how minor or how late. That helps avoid any debate over whether or not it was a “material” failure, he said.
Although some issuers resist admitting a less than perfect compliance record, even large and sophisticated issuers are finding plenty of reportable failures.
“We think the best thing to do is just file it,” he said. “We don’t think there’s a stigma in doing this anymore. It seems to have no impact on the ability to market the bonds.”
MSRB executive director Lynnette Kelly added that the EMMA system is becoming increasingly sophisticated and is used by a much wider variety of people than was envisioned, including public advocates and investigative journalists.
Kelly said the MSRB remains in talks to get Moody’s Investors Service to agree to provide real-time rating updates on EMMA, as Fitch Ratings and Standard and Poor’s already do. Kelly said that although the public finance group at Moody’s seems willing to go along, higher-ups are resistant. She called on lawyers to help “cajole” Moody’s.
“Help us if you can,” she said.