SEC Requires Disclosure of Bank Loans and Privately Placed Debt by Most Issuers of Tax-Exempt Bonds

By Duncan BurkeDavid Lucas and John Swendseid

On August 15, 2018, the Securities and Exchange Commission adopted amendments to Rule 15c2-12 promulgated under the Securities Exchange Act of 1934 (the “Rule”). The Rule, among other things, 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 (“MSRB”) timely notice of certain events listed in the Rule.

The amendments to the Rule add two new events to the list:

  • Incurrence of a financial obligation of the obligated person, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation of the 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 obligated person, any of which reflect financial difficulties.

Under the amendments, the term “financial obligation” means 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 MSRB consistent with the Rule.

The new amendments serve to require disclosure of most bank loans and privately placed debt by requiring the filing of an event notice with the MSRB ten days after the incurrence of the bank loan or privately placed debt. In addition, an event notice must be filed within ten days after the occurrence of a default, event of acceleration, termination event, or modification of terms of any such bank loan or debt.

The compliance date for the amendments is 180 days after they are published in the Federal Register, which has not yet occurred.

The full text of the Securities and Exchange Commission’s release relating to the amendments to the Rule, which includes the full text of the amendments to the Rule, is available here.

If you have any questions regarding the above information, please contact any member of our Public Finance Group.