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Municipal Disclosure
Post Issuance Compliance
GFOA of CT
Winter 2017 Quarterly Meeting
February 23, 2017
Presented by:
Michael Andreana
Pullman & Comley, LLC
Bill Lindsay
IBIC LLC
Mark Piscatelli
Piper Jaffray & Co.
A Quick History Lesson
Prior to 1975, municipal securities largely exempted from the rules
and regulations of the Securities Act of 1933 and the Exchange Act
of 1934
Securities Act amended in 1975 to require registration of municipal
securities dealer and the establishment of the Municipal Securities
Rulemaking Board
Rule 15c2-12 originally adopted in 1989 requiring underwriters to
be diligent in reviewing official statement and providing copies of
the official statement to investors
Rule was amended in 1995 to establish specific continuing
disclosure requirements, including that issuer enter into a
continuing disclosure agreement and provide post-issuance
information to the market (market transparency)
© 2017 Pullman & Comley LLC1
A Quick History Lesson (continued)
Disclosure obligations include the filing of annual audited financial statements, annual operating data and the reporting of certain “material events”
Rule required that, prior to purchasing or selling bonds, an underwriter must determine that the issuer will provide the required ongoing disclosure
Rule also required that official statement include a description of any material non-compliance with continuing disclosure obligations in the prior 5 years
Originally required information was filed with 4 principal NRMSIRSand then a “central post office.” Repositories were not user friendly
EMMA was created in 2009 by MSRB to streamline and simplify filing obligations
© 2017 Pullman & Comley LLC2
Official Statement
© 2017 Pullman & Comley LLC3
Commentary to 1995 amendments made it specifically clear that
issuers are primarily responsible for their disclosure documents
and issuers are subject to the SEC anti-fraud laws
Issuers have an “affirmative obligation” to know the contents of
their official statement, including financial statements
– San Diego (2008)
– Miami (2013)
– West Clark Community Schools (2013)
Hiring professionals to prepare official statement does not
discharge issuer’s disclosure obligations
Secondary Market Disclosure
4 Prepared by IBIC LLC
What needs to be filed?
Annual filings
Event notices
Voluntary filings
Issuers need to be familiar with the requirements
of their Continuing Disclosure Agreements
Annual Filings
5 Prepared by IBIC LLC
Audited financial statements
Financial information and operating data
Specific information listed in CDA typically includes:
Tax base data
Tax collection data
Indebtedness and debt ratios
Pension data
Can be filed as part of financial statements (CAFR),
as a supplemental document or cross-referenced to
another document (OS)
Annual Filings (continued)
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Where do you file?
MSRB’s Electronic Municipal Market Access
(EMMA) website www.emma.msrb.org
Electronic word-searchable portable document
files
Through EMMA you can:
Create and store groups of CUSIPs
Schedule email reminders to keep track of due dates
Annual Filings (continued)
7 Prepared by IBIC LLC
Timing
8 months after the close of fiscal year (end of February)
If deadline is missed, then a notice of “failure to file” must be filed on EMMA
Provisionally completed information
If audited information is not available in time to meet the deadline, unaudited information can be submitted with a notice to the effect that audited financial statements will be submitted when completed (June 23, 1995 NABL letter)
Event Notices
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Notices of the following events must be published within 10 business days of occurrence:
Principal and interest payment
delinquencies
Non-payment related defaults, if
material
Unscheduled draws on debt service
reserves reflecting financial difficulties
Unscheduled draws on credit
enhancements reflecting financial
difficulties
Substitution of credit or liquidity
providers, or their failure to perform
Adverse tax opinions or events affecting
the tax-exempt status of the security
Modifications to rights of security holders, if material
Bond calls, if material, and tender offers
Defeasances
Release, substitution or sale of property securing repayment of the securities, if material
Rating changes
Bankruptcy, insolvency or receivership
Merger, acquisition or sale of all issuer assets, if material
Appointment of successor trustee, if material
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Voluntary Filings
Examples of voluntary disclosure information: Quarterly/monthly financial information
Change in fiscal year/timing of annual disclosure
Accounting standard (GAAP-GASB/FASB)
Change in accounting standard
Interim/additional financial information/operating data
Budget
Investment/debt/financial policy
Material provided to rating agency or credit/liquidity provider
Consultant reports
Other financial/operating data
Bank loan and alternative financing disclosures
Prepared by IBIC LLC10
Avoiding Continuing Disclosure Pitfalls
Cross-check data included in statistical section with your CDA requirements
Issuers should maintain an independent list of outstanding CUSIP numbers Be sure to associate all 6-digit base CUSIPs
Be careful to update CUSIP groups after a new issue
Be careful of “Check all” option
Be sure to associate escrowed securities until their call date
Watch for split CUSIPs!!
Be aware of bond insurer rating changes, especially if insurer is rated higher than issuer’s underlying rating
PIPER JAFFRAY |
Continuing Disclosure – Pre MCDC Initiative
• Pre MCDC, underwriter review of issuer compliance was often less than
complete
o Acknowledgement from issuer (or bond counsel/financial advisor)
that all Event Notices have been disclosed
o Issuer compliance acceptable as long as it met the “spirit” of the
regulation (subject to interpretation)
o Primarily interested in payment defaults, changes in credit
enhancement, rating changes
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PIPER JAFFRAY |
MCDC Initiative – Underwriter Impact
• In March 2014, SEC announced that it will recommend “favorable” settlements to
underwriters (and issuers) that self-report the failure to disclose material
violations of past continuing disclosure undertakings
• Underwriters that self-report will agree to:
o Pay a civil penalty not to exceed $500,000
o Retain independent consultant to review underwriter’s underwriting due
diligence processes and procedures
o Identify prior undisclosed issuer noncompliance on behalf of the firm’s
underwriting clients
– Enormous undertaking, consuming thousands of hours
– Review actually involved a ten year “look back”
– Threatened to damage relationships between interested parties
(issuers/financial advisors/bond counsel)
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PIPER JAFFRAY |
Continuing Disclosure – Post MCDC Initiative
• Underwriters have put in place strict continuing disclosure review
policies and procedures
• SEC has been silent on “materiality”, forcing underwriters to review per
the “letter of the law”
• Even smallest of unreported details must be discussed and/or disclosed
• Different underwriters have different interpretations of continuing
disclosure requirements
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PIPER JAFFRAY |
Piper Jaffray’s Continuing Disclosure Process
• Collect official statements associated with all bond issues that were
outstanding over the past five years
• Review related continuing disclosure agreements, note any
inconsistencies
• Verify that all appropriate disclosures have been timely filed
• For annual financial information that has not been timely filed, file
information and a “Failure to File” notice
• Ensure any instances of filing failures within the previous 5 years are
described in the official statement
• Review can take between 1 hour to 10+ hours
• Review can involve public finance, legal, compliance, bond counsel,
underwriter’s counsel, financial advisor, accountant
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PIPER JAFFRAY |
Examples of Common Continuing Disclosure Violations
• Failure to file ALL operating data (most common)
• Failure to file unaudited financials (along with a notice as to when the
audit is expected to be released) if audit is unavailable
• Failure to file bond calls and bond defeasances (bond defeasance
notices are especially important to the SEC as they were referenced in
the issuer settlements)
• Failure to file rating changes
• Failure to file changes in bond insurer ratings (if higher than entity’s
underlying rating)
• Failure to file a Notice Event until after 10 business day window
• Failure to file a “Failure to File” notice (required for annual financial
information but not for Event Notices)
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Continuing Disclosure Today-what have we learned?
Critical that statements regarding continuing disclosure
compliance are accurate
– Underwriters are performing thorough continuing disclosure due
diligence prior to each negotiated and competitive issue
Issuers need to read Official Statement and Continuing Disclosure
Agreement
Make sure CDA operating data is included in CAFR or a
supplemental filing
© 2017 Pullman & Comley LLC16
Continuing Disclosure Today(continued)
Implement and follow written policies and procedures for primary and secondary disclosure obligations
– Establish process for review of official statement
– Confirm 5-year history of continuing disclosure compliance
– Calendar/tickler system for continuing disclosure obligations
– Consider hiring third-party dissemination agent
Confirm that CAFR and any supplemental filing includes all annual report information required by CDA
Know the 14 “reportable events”
Understand how EMMA works and how to make EMMA filings
Consider educational training for staff (use bond counsel, disclosure counsel and financial advisors)
© 2017 Pullman & Comley LLC17
Contact Information
© 2017 Pullman & Comley LLC18
Michael Andreana
850 Main Street
Bridgeport, CT 06601
Ph. 203.330.2235
Email – [email protected]
These slides are intended for educational and informational purposes only. Readers are advised
to seek appropriate professional consultation before acting on any matters in this update. These
slides may be considered attorney advertising. Prior results do not guarantee a similar outcome.
Prepared by IBIC LLC19
Contact Information
Bill LindsayIBIC LLC
129 Samson Rock Drive, Suite AMadison, Connecticut 06443
Phone: 203-245-9603Email: [email protected]
Website: www.ibicllc.com
PIPER JAFFRAY |
Contact Information
Mark S. Piscatelli, Managing Director
Piper Jaffray & Co.
140 Glastonbury Boulevard
2nd Floor – Suite 10
Glastonbury, Connecticut 06033
Telephone: (860) 633-1585
Email: [email protected]
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PIPER JAFFRAY |
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Piper Jaffray is not acting as an advisor to you and does not owe a fiduciary duty pursuant to Section 15B of the Exchange Act or
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