WASHINGTON — Issuers will be able to make the new disclosures required under the Securities and Exchange Commission's revised Rule 15c2-12 on EMMA starting on the revised rule's Feb. 27, 2019, compliance date.
The Municipal Securities Rulemaking Board made that announcement Tuesday, confirming that EMMA will be prepared to facilitate the disclosure of two new event notices in addition to the existing continuing disclosure obligations under 15c2-12.
The SEC announced in August that it was amending the rule to effectively require issuers to disclose the incurrence of bank loans as well as other types of debt that could potentially impair bondholders. It also will effectively require issuers to disclose negative developments associated with that debt.
The SEC lacks the authority to directly regulate issuers except through the antifraud provisions in the securities laws, so the rule requires underwriters of new issues of $1 million or more to “reasonably determine” that the issuer has entered into a written agreement to provide such disclosures to bondholders.
“An effective municipal securities market is enhanced by robust and complete disclosure by municipal bond issuers,” said MSRB President and CEO Lynnette Kelly. “We are committed to supporting the issuer community and its ability to comply with ongoing disclosure requirements.”
The new disclosure requirements will apply if a municipality issues a bond on or after Feb. 27, 2019, for which it enters into a new continuing disclosure agreement.
The addition of the new disclosures received a warm welcome from many analysts who had long complained of the opaque municipal bank loan sector, which attracted issuers because banks were able to offer money at competitive interest rates without the costs and regulatory requirements involved in a public offering of securities. The MSRB provided issuers with the means to voluntarily disclose such information, and some did, but the new 15c2-12 will require it.
But some securities lawyers have warned that compliance with the new requirements will require significant analysis of issuers’ obligations and may lead to “over disclosure” at the request of underwriters who do not wish to rely on issuers’ own determinations of what financial obligations are “material” to investors and therefore captured under the rule.
The Supreme Court has interpreted materiality to mean information that a reasonable investor would likely consider important when making an investment decision. Some market participants want all debt to be disclosed without regard to materiality.
Market groups welcomed the MSRB’s announcement of EMMA’s readiness.
“Upgrading the EMMA platform to accept new issuer disclosures will help ensure that the implementation of the rule is as smooth as possible,” said Leslie Norwood, a managing director, associate general counsel, and co-head of munis at the Securities Industry and Financial Markets Association.
Bill Oliver, the media and industry liaison at the National Federation of Municipal Analysts, also welcomed the news and recommended that issuers follow NFMA’s June 2015 best practice guidelines for bank loan disclosure.
Representatives of the MSRB, along with the SEC, National Association of Bond Lawyers and Government Finance Officers Association will be hosting a free webinar about the 15c2-12 changes on Jan. 17.
