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SEC Rule 15c2-12 Amendments Require Disclosure of Additional Events

On August 15, 2018, the Securities and Exchange Commission (SEC) finalized and adopted amendments to Rule 15c2-12 of the Securities Exchange Act of 1934 (Rule 15c2-12), which proscribes certain notice requirements pertaining to obligations of state and local governmental bodies that have issued bonds or other instruments that are subject to Rule 15c2-12. These amendments expand from 14 to 16 those events (so-called “listed events”) that an issuer or obligated person (“obligor”) must report on the Municipal Securities Rule Making Board’s (MSRB’s) Electronic Municipal Market Access (EMMA) website. The additional events are:

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

As described in 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 Rule 15c2-12.

The SEC adopted Rule 15c2-12 in the 1980s to regulate and improve the market for securities issued by state and local governmental bodies. Rule 15c2-12 directly regulates bond underwriters, who indirectly regulate the obligor of the securities to make continuing disclosure. Until now, Rule 15c2-12 did not directly or indirectly require obligors to make disclosures concerning direct purchases or bank loans. The amendments target direct purchases and loans by banks and financial institutions, which have been widely used financing vehicles since 2010 and have skirted Rule 15c2-12 because banks and financial institutions are not regulated by Rule 15c2-12.

The final Rule 15c2-12 amendments adopted this month are narrower in several respects than the amendments to the rule that were proposed by the SEC in 2017. For example, in addition to the filing of event notices with respect to “financial obligations” as described above, the proposed amendments would have required disclosure regarding leases and other “monetary obligations” resulting from judicial, administrative, or arbitration proceedings. The proposed amendments also would have required event notices to be filed with respect to financial obligations’ “reflecting financial difficulties” such as defaults, events of acceleration, termination events, and modifications of transaction terms.

Notably, the SEC’s Rule 15c2-12 release does not address other streamlining measures that have been proposed by municipal market groups including the National Association of Bond Lawyers and the Securities Industry and Financial Markets Association.  Among those proposals is one that would revise Rule 15c2-12 so that event notices would not be required with respect to ratings changes on municipal securities if and to the extent that the EMMA website operated by the MSRB posts such changes. Bond issuers and borrowers should monitor additional changes to Rule 15c2-12 to address these streamlining proposals.

The amendments take effect 180 days after publication in the Federal Register. New continuing disclosure undertakings will need to include the new “listed events” and might need to be announced on EMMA, if an obligor so determines. Obligors with existing continuing disclosure undertakings are not required to report the new listed events thereunder and are not obligated to amend such existing undertakings to include the new listed events, though obligors may choose to do so.

For any questions, please contact Kris A. Moussette, Antonio D. MartiniMargaret D. Farrell, David S. Hirsch, Thomas S. Marrion, the Hinckley Allen Attorney with whom you regularly work, or one of our Public Finance and Securities attorneys.

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