Friday, January 30, 2015

MSRB Again Calls for Better Debt Disclosure by Bond Issuers

[This story previously appeared in Securities Regulation Daily.]

By John Filar Atwood

The Municipal Securities Rulemaking Board (MSRB) has issued another call to municipal bond issuers to make more information about their bank loans and other undisclosed debt available to the public. The MSRB first urged state and local governments back in 2012 to provide more information about their bank loans through the Electronic Municipal Market Access (EMMA) system, but fewer than 100 bank loan documents have been submitted since the initial request.

Unaware of impact. The MSRB said that it is concerned that investors are often unaware of the potential impact of bank loans and other debt-like obligations on the seniority status of existing bondholders and the credit or liquidity profile of an issuer. In a press release, MSRB executive director Lynette Kelly said that the MSRB is worried that as issuers increasingly turn to bank loans to finance infrastructure projects, current disclosure requirements may not provide a full picture of an issuer’s indebtedness.

The MSRB’s advisory emphasizes the importance of bank loan disclosure for the transparency and efficiency of the municipal securities market. It also provides best practices to support voluntary disclosure of bank loan information through EMMA. In the advisory, the MSRB provides examples of steps issuers and their financial professionals can take to ensure investors have a full understanding of the terms of a bank loan and its implications for existing debt.

Partner with SEC. The advisory comes on the heels of the MSRB’s request earlier this month that the SEC consider requiring bank loan disclosure as part of an extensive review of the federal municipal market disclosure regime established by 1934 Act Rule 15c2-12. As discussed in a January 21 Securities Regulation Daily story, the MSRB expressed its willingness to partner with the SEC to conduct a re-examination of Rule 15c2-12, and to consider possible changes to reflect current market practices.