Changes impacting debt issues for government entities

Are you, as well as other key personnel, aware of the new amendments? In February 2019, the Securities and Exchange Commission (SEC) amendments to Rule 15c2-12 went into effect for those entities that issue bond debt. This requirement is on new bond obligations being issued now and, in the future, and not a requirement for those issues that are currently outstanding. The purpose of the amendment is to provide timely financial information to bond holders. Organizations should review their existing debt management, post-issuance compliance and continuing disclosure policies to insure compliance with the new rules.

The new amendments require issuers of bond obligations subject to SEC Rule 15c2-12 to commit to additional continuing disclosures. The additional disclosures include disclosing to the market via the Municipal Securities Rulemaking Board’s electronic municipal market access website (EMMA) any new material financial obligation and when certain events occur with respect to outstanding or new financial obligations that reflect financial difficulties. These disclosures must be reported within 10 business days of occurrence or event. Financial obligations are defined as debt-like or obligations that are debt related products which include bank loans, capital leases or other types of financial-type obligations that operate as vehicles to borrow money. It is necessary for multiple individuals within your organization to be aware of this compliance requirement and have the proper processes in place to trigger this notification within the 10-day period of the event.

It is critical that organizations be aware of this compliance because noncompliance could result in delays in future financings. Underwrites of bond issues also must have a reasonable basis to believe that an organization has processes and key personnel in place to comply with the continuing disclosure before underwriting a new transaction. The Government Finance Officers Association’s website provides “best practice” information regarding debt management policy, post issuance policy and procedures, post issuance compliance checklist and understanding your continuing disclosure responsibilities. Your organization should take advantage of this guidance to update your policies to ensure future compliance.

For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.