On August 20, 2018, the U.S. Securities and Exchange Commission (“SEC”) adopted amendments to Rule 15c2-12 of the Securities Exchange Act (“Rule 15c2-12”) which requires brokers, dealers, and municipal securities dealers that are acting as underwriters in primary offerings of municipal securities to reasonably determine that the issuer or obligated person has agreed to provide to the Municipal Securities Rulemaking Board with timely notice of certain events. Under the recent amendment (i) two new events have been added to the event notices list included under Rule 15c2-12 and (ii) a new definition for what constitutes a financial obligation has been provided in connection with the new event notices.
The adopted amendments are as follows:
(15) Incurrence of a financial obligation of the issuer or obligated person, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation of the issuer or obligated person, any of which affect security holders, if material; and
(16) Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of the financial obligation of the issuer or obligated person, any of which reflect financial difficulties.
The amendments also define the term “financial obligation” to mean a (i) debt obligation; (ii) derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation; or (iii) guarantee of (i) or (ii). The term financial obligation does not include municipal securities as to which a final official statement has been provided to the Municipal Securities Rulemaking Board consistent with Rule 15c2-12. The full text of the amendment can be found here.
The compliance date for the amendments is 180 days after the amendments are published in the Federal Register, which date is currently unknown; continuing disclosure agreements entered into prior to such date will not be required to reflect the amendments to the Rule.
MS&H AND THE SEC
According to the SEC, these amendments have been adopted to enhance transparency in the municipal securities market and to address the need for timely disclosure. The amendments create a timeframe for disclosures (10 days) although there have been concerns from market participants that this limited time frame may burden issuers and obligated persons. Concerns were also raised with respect to what qualifies as a material event that must be disclosed. The SEC responded that the materiality determination still requires a facts and circumstances driven analysis as previously required under Rule 15c2-12 and did not believe it was necessary to provide additional guidance at this time.
It is important that our clients understand the impact that these amendments may have on their current and future obligations and that they are aware of how the additional events (described above) to be included in new continuing disclosure agreements may require additional disclosures in the future for obligations issued prior to when these amendments are to take effect. We encourage our clients to be vigilant in complying with disclosure requirements, and to contact us if you have any question or concern.
McKennon Shelton & Henn LLP continues to stay at the forefront of the evolving municipal market. Our firm keeps an eye on the constantly changing regulatory environment in order to offer the most up-to-date strategies and planning to our clients that maximizes their flexibility and protection in today’s regulatory environment. We provide our clients with the knowledge and tools necessary to navigate regulations related to municipal disclosures. Our talented and experienced team is available to assist you with your official statements, disclosures, indentures, resolutions and ordinances including the delicate process of amending provisions to the same as needed.