© Copyright 2014 by K&L Gates LLP. All rights reserved.

Municipalities Continuing Disclosure Initiative and Electronic Municipal Market Access

THE DEVIL IS IN THE DETAILS!

klgates.com 2

BACKGROUND

Securities Exchange Commission (SEC) generally (historically) regulated the issuance of corporate (not public) securities

In the 1990s, embarked on a new venture The “municipal market” What prompted this?

klgates.com 3

RULE 15C-2(12)

1994 – circa Applies to the underwriter of municipal bonds With some exceptions, underwriter must receive

a “deemed final” official statement Includes all “material” information about the issuer No “material” omissions No “material” misstatements

klgates.com 4

CONTINUING DISCLOSURE UNDERTAKING

Undertaking by the governmental issuer An annual requirement Extends for the life of the bond issue

The undertaking includes required filings Annual financial statements – audited (when

available) Updated financial and operating data that was

included in the official statement

Timing – 7-9 months of fiscal year end

klgates.com 5

CONTINUING DISCLOSURE UNDERTAKING

Material Events Listed items

Failure to comply with covenantsRedemption or defeasance of Bonds

Rating Changes – Up or Down

Time to File

Promptly

Now – within 10 business days

klgates.com 6

1995-2010 – COMPLIANCE

Sketchy Until 2009, filings were to be made with 4 national

repositories Data not publicly available

2009 – SEC/MSRB created Electronic Municipalities Marketplace Access (“EMMA”) Official central repository No more private repositories

klgates.com 7

2010 - 2014

SEC made a number of pronouncements Really “concerned” about the municipal

marketplace What about those “undertakings”?

klgates.com 8

MUNICIPALITIES CONTINUING DISCLOSURE COOPERATION INITIATIVE (MCDC)

When an issuer sells bonds to the public, it prepares a prospectus or official statement describing the bonds and the issuer and include a description of the annual financial information, including certain listed events, to be filed for subsequent investors to access after the initial offering of the bonds.

The Securities and Exchange Commission (SEC) has been concerned that issuer compliance with these continuing disclosure obligations is deficient.

klgates.com 9

MCDC focuses attention on what issuers have said in their official statements about their past compliance with continuing disclosure obligations.

MCDC gives underwriters and issuers the “opportunity” to report if they find “material misstatements” about compliance with their continuing disclosure obligations in any official statement released in the past five years.

Underwriters had to report any transactions under the MCDC by September 10, 2014.

Issuers have until December 1, 2014, to report to the SEC under the MCDC.

klgates.com 10

If an issuer files a report with the SEC, it agrees to various terms for settlement if the SEC concludes that there was a “material misstatement” in the issuer’s official statement.

The SEC’s offered terms for settlement include no financial penalties for issuers, but there are consequences to consider.

Issuers must determine whether they should self-report-- and are advised to discuss with counsel whether and how to report and consider potential outcomes.

klgates.com 11

HOW TO AVOID MCDC!

Electronic Municipalities Market Access “EMMA”

EMMA is the SEC’s official repository for all information related to municipal bonds. It’s open to the public at: http://emma.msrb.org

klgates.com 12

klgates.com 13

LINKS TO MSRB/EMMA

(Video) Tutorial on Submitting Primary Market Disclosures for a New Issue: http://www.msrb.org/msrb1/Training-Tutorials.asp?section=1&video=0

MSRB Podcast for State & Local Governments:  Providing Disclosure Information to Investors: http://www.msrb.org/EducationCenter/library/podcasts.aspx

http://www.msrb.org/EducationCenter/Issuers/Disclosing.aspx

klgates.com 14

klgates.com 15