Analysts are calling for targeted emergency event disclosures from state and local governments, which they say are needed following the COVID-19 pandemic.
In a
“The pandemic accelerated a whole host of sets of circumstances that were already in play,” said Anne Ross, NFMA chair. “We’ve always been constructive about and interested in robust disclosure — we’ve always encouraged appropriate disclosure on those points, it all just coalesced.”
The white paper is intended to cover primary market offering statements as well as voluntary secondary market disclosures.
NFMA recommends disclosing amended budgets as a result of COVID-19, material declines in the use of government buildings, ridership declines in transit and cost-cutting efforts, such as employee layoffs, among others.
“While helping to preserve needed liquidity and cash flow for municipal issuers, employee furloughs can put the delivery of critical government services at risk, pose health and safety risks to residents/businesses, and create litigation and insurance coverage risks,” NFMA said. “For that reason, the NFMA believes disclosure of material employee furloughs or lay-offs is an appropriate emergency event disclosure.”
The NFMA emphasized that its list is not exhaustive.
It recommended issuers file through the Municipal Securities Rulemaking Board’s EMMA site, adding it is the best way to quickly communicate with market participants.
NFMA noted the current Securities and Exchange Commission Rule 15c2-12 rule does not encompass COVID-19 disclosures, so issuers would need to use EMMA’s voluntary disclosure function. SEC Rule 15c2-12 requires dealers, when underwriting municipal securities, to ensure that state or local governments issuing bonds enter into an agreed to provide certain information to the MSRB on an ongoing basis. That information includes rating changes, bankruptcy and adverse tax opinions among others.
Ross wouldn’t comment on whether the SEC may add more disclosures to the rule.
Ross said voluntary disclosures have not been as voluminous as analysts hoped for.
“I applaud the issuers that got out in front of this and provided voluntary statements,” Ross said. “We saw certainly a fair amount of that activity in March and April of last year, but they also made it clear that they weren’t signed on to provide continual updates and some did not and others did.”
NFMA is looking for focused disclosure, not necessarily more disclosure, Ross said. Often, issuers have disclosures, but they are not made available to all market participants, Ross added.
Issuers will ultimately benefit from NFMA’s disclosure recommendations, the group said, through maintaining investor interest and attracting new investors for their municipal offerings.
“The buyer market is evolving, new players are participating,” Ross said. “This is some of the information that they’re used to seeing in other markets and it’s also information that is critical to an appropriate credit assessment.”
NFMA’s paper includes not only debt management, but also overall financial requirements, said David Erdman, capital finance director for the state of Wisconsin.
“What they’re proposing is more than what a debt manager would do,” Erdman said. He added that the Disclosure Industry Working group — created in 2019 and encompasses NFMA as well as bond lawyers, municipal advisors and issuers — will work to provide feedback and improve municipal disclosure.
The NFMA’s paper is timely, Erdman said, and he would have liked to see the guidance be more general, adding that not all municipalities are the same. Overall, he called the paper a “good step.”
As for SEC Rule 15c2-12, Erdman hopes the rule is not expanded.
“At this point, I don’t see the need for expanding 15c2-12 to something specific as COVID or ESG based," Erdman said. “If something happened there that is material, it’s going to be addressed by the event that’s currently in the rule.”
Comments on the NFMA white paper are due April 30.
