As continuing disclosure dissemination agent for hundreds of municipal securities issuers, Ehlers diligently monitors for changes to disclosure reporting obligations on behalf of our clients. On August 20, 2018, the Securities and Exchange Commission (SEC) announced amendments to Rule 15c2-12 of the Securities Exchange Act (the “Rule”) to include two additional reportable events, increasing the number of required event notices to 16. The two additional reportable events are as follows:
- 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,
- 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.
In its press release, the SEC noted that the scope of material “financial obligations” that must be addressed within Continuing Disclosure Agreements (CDAs) and event filings include (i) debt obligations; (ii) derivative instruments related to existing or planned debt obligations; or (iii) guarantees of (i) or (ii).
The following is a brief overview of the amendments:
- “Debt Obligations” include material bank loans
- “Debt Obligations” also include material leases “that operate as a vehicle to borrow money”
The effective date for compliance with the aforementioned amendments to the Rule is February 27, 2019. Language that adheres to the amended requirements must be included in CDAs for municipal obligations issued on and after that date.
Issuers subject to a CDA are required to give notice of all reportable events within 10 business days of occurrence. For example, if an issuer enters into a loan with a local bank (or other source of private capital) with an effective issue date of March 1, 2019, the required event notice will need to be filed no later than March 15, 2019. If the event notice were to be filed after that date, it would need to be accompanied by a failure to file notice. Failures to comply with CDAs need to be disclosed in the issuers official statements for five years after such failure.
Issuers that have engaged Ehlers as dissemination agent and incur indebtedness subject to the reportable event requirements will need to notify Ehlers to allow for sufficient time to post notification to the Electronic Municipal Market Access (EMMA) system. In the spirit of the disclosure requirements and market transparency, we recommend clients contact us with respect to any additional private placement indebtedness. Our disclosure experts can confer with you on whether to post notification of a reportable event to EMMA.
As the February date approaches and as we implement the changes to the Rule we will keep you informed with information on best practices and how Ehlers can best ensure compliance with your continuing disclosure obligations.
As always, please feel free to reach out to Sara Beecher (262.796.6172) or Annie Mallon (262.796.6188) with any questions or to seek further guidance on your specific disclosure obligations.