SEC Approves Proposed Changes to Rule 15c2-12
Public Finance Alert

by Faith L. Pettis . July 21, 2009

The Securities and Exchange Commission ("SEC") voted unanimously on July 15, 2009 to propose amendments to Rule 15c2-12 (the "Rule"). The SEC will accept comments on the proposed requirements for 45 days after the amendments are published in the Federal Register.

The amendments are the first expansion of issuer disclosure obligations since promulgation of the Rule in 1994.  As proposed, the amendments would expand the reporting required by issuers on certain listed events relating to their outstanding bonds, apply the Rule to variable rate demand obligations and improve disclosure regarding tax risk. 

Currently, the Rule requires an issuer to disclose on an ongoing basis the occurrence of eleven events, if deemed to be material.  The proposed amendments will (1) eliminate the materiality threshold for six of the eleven events, (2) add four events, (3) expand the reporting for tax events to include a broader list of items, and (4) require that notice be provided within ten business days after the occurrence of the event.

The materiality standard will be eliminated for the following events:

1. failure to pay principal and interest;
2. unscheduled payments out of debt service reserves reflecting financial difficulties;
3. unscheduled payments by parties backing the bonds, reflecting financial difficulties;
4. a change in the identity of parties backing the bonds or their failure to perform;
5. defeasances, including situations where the issuer has provided for future payment of all obligations under a bond; and
6. rating changes.

In addition, the proposed amendments would add four additional events to an issuer’s ongoing disclosure obligations:

1. tender offers;
2. bankruptcy, insolvency, receivership or similar proceeding;
3. mergers, consolidations, acquisitions, the sale of all or substantially all of the assets of the obligated person or their termination; and
4. appointment of a successor or additional trustee or the change of the name of a trustee, if material.

The proposed amendments would expand the reporting of tax events relating to the bonds to include a broader list of items, including, for instance, proposed or final determinations of taxability from the Internal Revenue Service. The proposed amendments would also change the current standard for disclosure of material events from "in a timely manner" to require notice within ten business days of the occurrence of the event.

In addition, the SEC is proposing to apply the disclosure requirements under the Rule to variable rate demand obligations which were previously excluded from its application. 

Effective July 1, 2009, issuers also must use EMMA, the Municipal Securities Rulemaking Board’s web-based reporting system, to submit annual financial information and the material event notices required by the Rule.  (See E-Alert posted on February 5, 2009 http://www.klgates.com/newsstand/Detail.aspx?publication=5270)  All these changes mean that the laws governing disclosure for municipal bonds are changing rapidly.  Issuers should be aware that their historical practices will need to change.

Contacts:
Faith L. Pettis, +1.206.370.7596,

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This publication/newsletter is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.