When to Report Significant Events for Continuing Disclosure

Submitted by: Michael Givler, Principal

This is the first of two articles discussing Continuing Disclosure for outstanding bonds.

The Securities and Exchange Commission (SEC) Rule 15c2-12 (Rule) requires annual updating of the financial information and operating data provided in the Official Statement at the time of a bond sale. Bonds are continually traded in the secondary market over the life of issue and, therefore, updated annual information helps secondary market investors make informed investment decisions.

The Rule makes an exception for bond issues less than $1 million where no continuing disclosure is required. There are other exceptions for small issuers, and it is important to check with your bond counsel or financial advisor to determine if they apply.

The Rule requires issuers of any bond over $1 million to notify the market in a timely manner if any of 11 defined significant material events occur. Some of these material events simply report changes to the bonds while others inform investors of signs of potential financial difficulties for the issuer. The defined significant material events include:

• Bond calls and defeasances (bonds are refunded or repaid prior to maturity)
  
• A change in the bond rating - a bond rating can improve or be downgraded throughout the life of the issue based upon the financial standing and circumstances surrounding the issuer and security for the bonds
  
• Late payment of principal and interest or a default on the bonds
  
• Making an unscheduled draw on a debt service reserve fund
  
• Anything that alters the tax-exempt status of the bonds
  
• A substantial change to the security of the bonds or anything else that modifies the rights of the bond holders
  
• Draws on credit enhancements, substitution of credit or liquidity providers, or the release, substitution or sale of property securing repayment of the bonds