ALERT Securities and Exchange Commission Adopts Amendments to Rule 15c2-12 Affecting Continuing Disclosure Related to Government Obligations

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The Securities and Exchange Commission (the “SEC”) has adopted amendments to Rule 15c2-12 (the “Rule”). Under the Rule, when an issuer or obligor of certain, publicly-traded government debt obligations sells such obligations, it has a legal responsibility to disclose certain financial information to the bondholders on a periodic basis. This keeps bondholders knowledgeable of the overall health of their investment.

The SEC previously required issuers to notify the Municipal Securities Rulemaking Board (the “MSRB”) if any of 14 events occurred that the SEC thought could influence bondholders’ decision-making in regards to their investment.

As of February 27, 2019, the SEC has added two additional “events” which, following their occurrence, require issuers or obligors to file notice of such occurrence with the MSRB.

The two additional events are as follows:

  • 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 a Financial Obligation of the obligated person, any of which reflect financial difficulties.

The two events are dependent upon, among other things, the interpretation of the term “Financial Obligation.” The definition of “Financial Obligation" is:

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 shall not include municipal securities as to which a final official statement has been provided to the MSRB consistent with this rule.

The primary intent behind these amendments is to provide timely notice to holders of publicly-traded obligations about new, privately-placed debt that an issuer or obligor is taking on. This is information that might not otherwise be available to such holders until an issuer’s audited financial statements are disclosed, which could be months after the event.

Issuers must comply with these amendments starting February 27, 2019. Such language should be included in all continuing disclosure documents for municipal bonds issued on or after this date. These amendments do not necessarily apply to bonds issued prior to February 27, 2019.

Our group is knowledgeable about and experienced with the continuing disclosure changes as a result of these amendments to the Rule.

Please feel free to contact our Public Finance Practice Group if you have any further questions regarding this change in continuing disclosure obligations.