WASHINGTON – The National Association of Bond Lawyers on Friday released revisions to the model letter of underwriters’ counsel it originally issued in 1999.
The revisions, which a group of up to 39 members worked on for several years, take into account changes in muni market practices that have occurred during the past 18 years. The group also obtained input from many industry and market groups, including the American Bar Association’s working group on legal opinions.
“I think these practices have been pretty prevalent within the industry for a while and we’re just memorializing them in this letter,” said Carol McCoog, a partner at Hawkins Delafield & Wood in Portland. Ore. who was principal drafter of the model letter.
Underwriters’ counsel represent underwriters in offerings of municipal bonds. They may draft the bond purchase agreements between underwriters and issuers. They also may draft or review official statements and disclosure documents.
They render a legal opinion to underwriters addressing certain legal matters in primary market transactions upon which the underwriters can rely.
One of the revisions in the model letter is that it now includes an opinion that underwriters have been requesting on whether a continuing disclosure undertaking meets the requirements of paragraph (b)(5) of the Securities and Exchange Commission’s Rule 15c2-12 on disclosure.
That is the main requirement of the rule that says a firm shall not underwrite municipal bonds unless it has reasonably determined that the issuer and/or borrower has contractually agreed to provide annual financial and operating information and material event notices within 10 business days of when such events occur.
McCoog said that this language was added because underwriters have become subject to much more scrutiny regarding their compliance with all of their due diligence responsibilities under 15c2-12, including continuing disclosure.
She said the increased scrutiny pre-dated the SEC’s Municipalities Continuing Disclosure Cooperation initiative, under which underwriters and issuers were treated more leniently if they voluntarily reported any instances over the last five years in which issuers falsely said they were in compliance with their continuing disclosure agreements.
Another revision is that the model letter now includes what NABL calls “negative assurance language” concerning the preliminary official statement. This is where the counsel tells the underwriter that it has not become aware of anything that would lead it to conclude that the POS contains any material misstatements or omissions that could serve as the basis for securities fraud charges.
The original model letter covered the final official statement, but some underwriters have been requesting opinions on the POS as well, McCoog said. NABL says it is not recommending this opinion on the POS be provided, but is rather only including model language should the opinion be requested by an underwriter.