Rule proposal adds to list of required disclosures for muni bond issuers

The SEC on March 1, 2017, issued Release No. 34-80130, Proposed Amendments to Exchange Act Rule 15c2-12, to expand the list of disclosures that municipal bond issuers must make to regulators and investors.

Comments on the proposal are due 60 days following its publication in the Federal Register, which normally takes place a few weeks after the SEC posts a release to its website.

Release No. 34-80130 proposes to amend Rule 15c2-12 of the Securities Exchange Act of 1934, which lists 14 events, such as bankruptcy or a ratings change, that an underwriter must require be disclosed by government issuers to the Municipal Securities Rulemaking Board (MSRB). Both new event notices relate to new debt taken on by a government, an effort to ensure municipal securities holders are informed about subsequent financing issues that could affect the value of their securities.

“The commission believes the proposed amendments would facilitate investors’ and other market participants’ access to important information in a timely manner and help to enhance transparency in the municipal securities market and improve investor protection,” the SEC said in Release No. 34-80130.

One proposed item would require a government to give notice of events that reflect financial troubles, including a default or modification of terms, related to a bank loan or other financial obligation. The other proposed item would require an issuer to disclose a new financial obligation affecting security holders, or the agreement to new terms of a financial obligation, such as covenants, remedies or priority rights.

The MSRB backed the changes.

Acting SEC Chairman Michael Piwowar cited state and local governments’ increasing reliance on alternative sources of financing in place of municipal securities offerings. The governments may have to provide detailed financial information to lenders before they can secure a loan. Bondholders, however, may not have access to timely information on those financings, creating an information imbalance between them and the new lenders.

Piwowar said the proposal “seeks to equip investors making investment decisions and market participants undertaking credit analyses with continuing disclosures to better assess a municipal issuer’s overall indebtedness and creditworthiness.”

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