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On August 20, 2018 the SEC approved amendments to Rule 15c2-12 of the Securities Exchange Act to add two additional disclosure events to written continuing disclosure undertakings required to be obtained by underwriters in primary securities offerings. A copy of the final rule approving the amendments can be accessed here.

The SEC originally proposed the amendments in March 2017. Read our previous commentary on the amendments here. The new event disclosures that will be added to the Rule remain the same as was originally proposed:

  1. 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 issuer or obligated person, any of which affect security holders, if material; and
  2. 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.

The original proposed version of the amendments would have defined a “financial obligation” to mean a: (i) debt obligation, (ii) lease, (iii) guarantee, (iv) derivative instrument, or (v) monetary obligation resulting from a judicial, administrative or arbitration proceeding. A “financial obligation” would not include municipal securities as to which a final official statement has been provided to the MSRB.

The proposed amendments generated substantial comments from the municipal bond community. In response to those comments, the SEC softened the reach of the amendments by removing from the definition monetary obligations resulting from judicial, administrative or arbitration proceedings. The revised definition also limits the scope of covered guarantees, derivative instruments, and leases.

As revised, “financial obligation” now 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 exclusion for municipal securities as to which a final official statement has been provided to the MSRB remains in place. And, while the separate, broad category for “leases” was removed, the SEC has changed its interpretation of “debt obligation” to include any lease which operates as a vehicle to borrow money.

The compliance date for the new event disclosures is 180 days after publication in the Federal Register. For bonds sold after the compliance date, underwriters will have to ensure that the new event disclosures are included in the continuing disclosure agreement entered into with the issuer or obligated person with respect to the bonds.

When Congress passed the Tax Cuts and Jobs Act (TCJA) late last year, a much-heralded provision of TCJA was the reduction in the federal corporate income tax rate, from 35% to 21%. However, that reduction has had unforeseen consequences for the municipal bond industry. The reduction in the tax rate is expected to result in efforts by banks to increase the interest rates charged by banks for current outstanding loans to municipalities and 501(c)(3) tax-exempt organizations. Whether a bank may increase the interest rate on a loan will depend on the language of the loan documents. Even if the loan documents permit the bank to unilaterally increase the interest rate, some banks may be hesitant to do so, as the request is may be received poorly, potentially jeopardizing the bank’s ongoing relationship with the borrower. Continue Reading Continuing Disclosure in the Municipal Bond Market: Importance of Compliance

As we prepare to say goodbye to 2017 and welcome a new year, we thought we’d take a moment and revisit some of our favorite stories from the last twelve months that we’ve followed on the McNees Public Sector Blog.

To all our readers – thanks for visiting! And may you all have a happy and prosperous new year!

– Tim Horstmann

It has traditionally been a fairly common practice in the municipal bond arena for issuers to either select or have significant input into the selection of underwriter’s counsel in connection with the issuance of municipal bonds. On July 27, 2017, the Municipal Securities Rulemaking Board (MSRB) issued a strong warning to the industry against continuation of these practices by publication of Notice 2017-14. Continue Reading MSRB Issues Warning Guidance On Issuer Involvement In Selection of Underwriter’s Counsel

On June 7, 2017, new IRS regulations that change the way state and local governments issue tax-exempt bonds went into effect. The new rules change the way municipal issuers determine the issue price of tax-exempt bonds they issue, and amend existing IRS regulations under section 148 of the Internal Revenue Code. The new rules have produced immediate changes to many common documents used by municipal issuers and their advisors in municipal bond transactions.

Continue Reading New IRS Regulations Change the Game for Municipal Bond Issuers

Following his inauguration on January 20th, President Trump issued several Executive Orders, one of which was issued on January 25, 2017 and titled, “Enhancing Public Safety in the Interior of the United States” (referred to herein as the “Order”). Among other things, this Order punishes so-called “sanctuary jurisdictions” by stripping them of federal grants. As justification for this punitive measure, the Order states that “sanctuary jurisdictions … willfully violate Federal law in an attempt to shield aliens from removal…. These jurisdictions have caused immeasurable harm to the American people and to the very fabric of our Republic.”

In the months since the Order, many state and local entities have parsed the Order to determine whether they would be considered a “sanctuary jurisdiction,” what funding may be in jeopardy, and whether they can modify their policies to limit or eliminate application of the Order. In the midst of these uncertainties, many municipalities also have been faced with the issue of how to address the potential consequences of “sanctuary jurisdiction” status in their public offering documents when they are considering issuing municipal bonds for sale to the investor public.

Continue Reading Sanctuary Jurisdictions and Municipal Bond Disclosure

The National Association of Bond Lawyers (NABL) and the Securities Industry and Financial Markets Association (SIFMA) recently released model issue price documents in connection with the soon-to-be effective Treasury Regulations on establishing the issue price of a tax-exempt bond issue. NABL’s model documents can be accessed here; SIFMA’s documents can be accessed here.

These model documents have been issued in response to the finalized Treasury Regulations on issue price, published by the Department of the Treasury on December 9, 2016.  The final regulations – which become effective on June 7, 2017 – retain the existing rule that in general, the issue price of a series of bonds is the first price at which a substantial amount (10%) of the bonds is sold to the public. The regulations add two special rules, however, which may be selected by the issuer in connection with the determination of the issue price: a special rule for competitive sales, and a special rule where the underwriter or underwriters agree to “hold the price” on the initial sale of the bonds to a price that is not higher than the initial offering price.

The model documents published by SIFMA and NABL provide a uniform solution for underwriters and issuers to ensure compliance with the final regulations, in particular in determining which of the three rules for determining issue price apply, and ensuring that the requirements for application of the rule are met. It is expected that both SIFMA and NABL will finalize these forms in the coming weeks after receipt of any comments from the public. Professionals working in the public finance industry should carefully review the forms now to get familiar with their requirements in advance of the effective date for the final regulations.




At its meeting on March 1, 2017, the United States Securities and Exchange Commission (SEC) voted to formally propose and publish for comment amendments to Rule 15c2-12 to add two additional disclosure events to written continuing disclosure undertakings required to be obtained by underwriters in primary securities offerings.

Continue Reading SEC Proposes Amendments to Rule 15c2-12 to Address Bank Loan Disclosure Concerns

Who has not heard of the Bridgegate scandal?  The George Washington Bridge spanning the Hudson River between New Jersey and New York City is the busiest motor vehicle bridge in the world.  Two of three toll lanes for a street entrance from Fort Lee, NJ to the George Washington Bridge were closed for five days in September 2013.  This resulted in huge backups in Fort Lee.  As one of the individuals convicted in the incident emailed, “Time for some traffic problems in Fort Lee.”

Continue Reading Bond Issue Disclosure: When Politics and the Law Intersect

Following its announcement in August that it had entered into settlements with over seventy municipal issuers in connection with the Municipalities Continuing Disclosure Cooperation (MCDC) initiative, there was speculation as to whether additional settlements would be announced, or if this first round of settlements represented all of the enforcement actions against municipal issuers that would come from MCDC.

It now appears that the SEC has elected to formally close the book on the MCDC Initiative. LeeAnn Gaunt, the chief of the SEC enforcement division’s public finance abuse unit, recently indicated that the SEC would not bring any additional settlements under MCDC. However, Gaunt also issued a warning: the SEC had begun looking at those underwriters and issuers that chose not to participate in the initiative despite committing violations.

From The Bond Buyer:

“We currently do not expect to recommend enforcement action against any additional parties under the initiative,” [Gaunt] said. “We now think it is appropriate to turn our attention to issuers and underwriters and obligors that didn’t participate.”

The unit’s enforcement lawyers view the underwriters and issuers who may have committed violations but did not self-report as part of MCDC as a high risk for future violations, Gaunt said, adding, “That is a group of particular interest to us and we intend to devote significant resources to identifying violations by those parties.”

Which underwriters and issuers could the SEC go after next? Obvious low-hanging fruit would be those underwriters and issuers that chose not to participate despite their counterpart doing so.

There is also the question of how aggressive the SEC will be in going after individual government officials that participated in violations. After prevailing in a securities fraud case against the City of Miami and its budget director, the SEC saw its request for a fine of $450,000 reduced to only $15,000 by the Judge presiding in the case. While actions against individuals will likely continue, the Judge’s decision on the fine to be imposed may be of sufficient chastening effect for the SEC to reserve enforcement actions against individuals for only particularly egregious behavior.