On May 4, 2020, U.S. Securities and Exchange Commission (“SEC”) Chairman Jay Clayton (“Chairman”) and SEC Director of the Office of Municipal Securities Rebecca Olsen (“Director”) recommending that municipal securities issuers and obligors (each of these, herein, “issuer(s)”) provide robust, timely, and accurate disclosures regarding the impact of and uncertainties caused by the COVID-19 health crisis. This statement issued on April 8 by the Chairman and the Director of the Division of Corporation Finance William Hinman concerning disclosures by public companies in light of COVID-19. Both statements urge current and, to the extent feasible, forward-looking disclosure, as outlined in the corporate issuer disclosure statement.
Most issuers in the municipal market file only (i) annual financial disclosure reports and (ii) notices of listed events listed under SEC Rule 15c2-12. The impacts of COVID-19 would generally not fall within the scope of the Rule 15c2-12 notice events, absent a severe impact such as an issuer’s rating downgrade or a missed debt service payment. In the municipal disclosure statement, the SEC urges issuers to make supplemental “voluntary, unaudited and non-routine disclosures regarding [their] current financial status and operating conditions,” and the SEC encourages issuers to make available to investors “as much information about their current financial and operating condition as is reasonably practicable.” The SEC stresses the “need for timely financial information” and observes that, due to the unpredictable nature of the pandemic and its effects on current market conditions, the practice of providing historical financial information in an annual filing may not adequately enable investors to assess an issuer’s current and projected financial state in order to make an informed investment decision.
Recognizing the higher risk of liability that might result from issuers’ enhanced required and/or voluntary disclosures, the SEC notes that such disclosures may be accompanied by “meaningful cautionary language—including, for example: (1) a description of relevant facts or assumptions affecting the reasonableness of reliance on and the materiality of the information provided, (2) a description of how certain important information may be incomplete or unknown, and (3) the process or methodology (audited vs. unaudited) used by the municipal issuer to produce the information—[which] will not only improve the quality of the disclosure but also will reduce legal and other risks.” According to the statement, the Chairman and the Director “would not expect good faith attempts to provide appropriately framed current and/or forward-looking information to be second guessed by the SEC.”
To date, issuers have filed several thousand disclosures concerning the effects of COVID-19 on the Electronic Municipal Market Access (“EMMA”) system operated by the Municipal Securities Rulemaking Board (“MSRB”), which serves as the official source for municipal securities disclosures and related market data. Following the municipal disclosure statement, we expect that issuers planning to bring bond issues to market, or that are filing annual or quarterly reports, or that are filing Rule 15c2-12 event notices, will disclose the impact of COVID-19 on their financial and operating condition in the same offering documents or required filings. Issuers who do not anticipate issuing bonds or making required disclosures in the near future should consider (i) providing voluntary disclosure on the current and reasonably anticipated future impact of COVID-19 on their financial condition and operating results, and (ii) the risks associated with providing such voluntary disclosure.
On May 22, 2020, the SEC announced that its conference entitled “Spotlight on Transparency: A Discussion of Secondary Market Municipal Securities Disclosure Practices” has been rescheduled for June 16, 2020. The conference is open to the public via live webcast from 1 p.m. to 4 p.m. ET at www.sec.gov, and will be archived on the Office of Municipal Securities webpage for later viewing. The conference will bring together a variety of municipal securities market participants, including issuers and investors, to discuss the state of secondary market disclosure in the municipal securities market, including COVID-19-related disclosure.