WASHINGTON – The Government Finance Officers Association's executive board recently approved two updated disclosure best practice documents designed to help issuers meet their bond-related disclosure requirements while considering the possibilities of website-based and voluntary disclosures.
The board also approved a new best practice on using credit rating agencies for bond financings.
The updates mirror other recent market recommendations on disclosure by encouraging issuers to clearly understand the responsibilities they took on in their continuing disclosure agreements, which are usually included in bond offering documents.
Issuers should work with their bond counsel, municipal advisor, and underwriter to make sure the information and events required to be disclosed are properly filed on EMMA and in line with the Securities and Exchange Commission's Rule 15c2-12 on municipal securities disclosure, GFOA said.
The group also told issuers to develop procedures that: identify information that is obligated to be submitted in an annual filing; disclose the dates on which filings are to be made; list the required reporting events as stated by the SEC and CDA; ensure the accuracy and timeliness of reported information; and identify the person who is designated to be responsible for making the filings.
It urged caution for issuers opting to indicate on EMMA that they will make their annual financial information filing within 120 or 150 days of the end of the year, saying they must meet those deadlines once they agree to them.
"The GFOA supports use of required timing commitments within a government's CDA that are reasonable to achieve, which in many cases may be longer than the 120 or 150 days," GFOA said.
The best practice document also recommends voluntary disclosure of information on direct placements, loans, and other credit arrangements with private lenders or commercial banks. Any voluntary disclosures, which GFOA said could enable investors to make judgments about volatility and risk exposure, should come after consultation with internal and external counsel because the legal and regulatory implications from voluntary postings, such as communication with the IRS, remain uncertain.
"Issuers should consult with bond counsel and their municipal advisor to determine the best strategy to support the market benefits of additional communication without harming the issuer's ability to meet regulatory expectations," GFOA said.
The disclosure recommendations follow the first two rounds of sanctions under the SEC's Municipalities Continuing Disclosure Cooperation Initiative. MCDC allows underwriters and issuers to receive lenient settlement terms from the SEC if they voluntarily self-reported any instances during the past five years in which the issuers falsely claimed in official statements that they were in compliance with their self-imposed continuing disclosure agreements and the underwriters were negligent in failing to discover the misstatements. So far, the SEC has only sanctioned underwriters. The initiative has contributed to highlighting "the importance of maintaining a reliable system to adequately manage continuing disclosure," GFOA said.
The group also gives advice in a separate document for issuers that choose to also post their disclosed information on their own websites. It recommends issuers have a formal process for reviewing and approving the information they would be posting, make clear that any outdated reports are for historical reference, and ensure all information on the site is secure from manipulation by unauthorized persons.
GFOA said issuers should also: make sure all posted documents are identical to those distributed in hard copies, involve other departments and professionals as needed, and; avoid social media communication about any information not included in a centralized investor area of the website.
A third best practice document addresses issuers that want to use credit rating agencies for bond financings. It recommends those issuers consider the following factors when evaluating the need for a credit rating: cost of the rating; administrative burden; information required; size of issuance; frequency of issuance; and method of sale. Issuers pursuing a credit rating are encouraged to also consider the rating methodologies, the possible need for multiple ratings, and the question of whether, or under what conditions, to give agencies access to non-public information.
The group also warned issuers that serious repercussions can come from ending a relationship with a rating agency. GFOA said ending such relationships is still rare, but made clear for any issuers considering it that they are better off in the long term if they proactively manage their dealings with the credit agencies.
