municipal disclosure post issuance compliance ... - gfoa-ct

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


Official Statement


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


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)


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

http://www.emma.msrb.org/

Annual Filings (continued)


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


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


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


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)


Contact Information


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.

mailto:[email protected]

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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mailto:[email protected]

PIPER JAFFRAY |

DisclosurePiper Jaffray is providing the information contained herein for discussion purposes only in anticipation of being engaged to serve as

underwriter or placement agent on a future transaction and not as a financial advisor or municipal advisor. In providing the information

contained herein, Piper Jaffray is not recommending an action to you and the information provided herein is not intended to be and

should not be construed as a “recommendation” or “advice” within the meaning of Section 15B of the Securities Exchange Act of 1934.

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

under any state law to you with respect to the information and material contained in this communication. As an underwriter or

placement agent, Piper Jaffray’s primary role is to purchase or arrange for the placement of securities with a view to distribution in an

arm’s-length commercial transaction, is acting for its own interests and has financial and other interests that differ from your interests.

You should discuss any information and material contained in this communication with any and all internal or external advisors and

experts that you deem appropriate before acting on this information or material.

The information contained herein may include hypothetical interest rates or interest rate savings for a potential refunding. Interest rates

used herein take into consideration conditions in today’s market and other factual information such as credit rating, geographic location

and market sector. Interest rates described herein should not be viewed as rates that Piper Jaffray expects to achieve for you should

we be selected to act as your underwriter or placement agent. Information about interest rates and terms for SLGs is based on current

publically available information and treasury or agency rates for open-market escrows are based on current market interest rates for

these types of credits and should not be seen as costs or rates that Piper Jaffray could achieve for you should we be selected to act as

your underwriter or placement agent. More particularized information and analysis may be provided after you have engaged Piper

Jaffray as an underwriter or placement agent or under certain other exceptions as describe in the Section 15B of the Exchange Act.

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