SEC releases Temporary Exemptive Order related to direct placements

After months of discussion and comment, the U.S. Securities and Exchange Commission (SEC) issued a Temporary Exemptive Order on June 16, 2020, that allows municipal advisors to provide services, which have historically been limited to broker-dealers, under certain circumstances and for a limited time. Municipal advisors have been, and continue to be, allowed to assist issuers with negotiating terms of direct placement and bank loan transactions. The temporary order allows for additional assistance by permitting solicitation under very specific guidelines.

Municipal advisors may solicit banks, wholly-owned subsidiaries of banks or credit unions. The transaction cannot exceed $20 million and must be sold and closed by Dec. 31, 2020. There are also a number of requirements specific to this type of transaction needed to document the usage of the temporary order for a specific transaction. None of the requirements are burdensome; they just provide documentation and clarity to all the parties involved.

The municipal advisor must disclose the following to the purchaser/qualified provider:

1. The municipal advisor represents solely the interests of the issuer with respect to the bonds and does not represent the interests of the qualified provider;
2. The municipal advisor has not conducted any due diligence on behalf of the submitting qualified provider;
3. Neither the municipal advisor nor the issuer have engaged a broker-dealer to act as a placement agent with respect to this transaction; and
4. Acknowledge that the qualified providers may choose to engage the services of a broker-dealer to represent their interests at their own cost and expense

Following this disclosure by the municipal advisor, the qualified provider must provide written acknowledgement of the above terms.

The qualified provider also has a responsibility to provide a certificate that represents the following:

1. The qualified provider is (a) a bank as defined in Section 3(a)(6) of the Exchange Act of 1934; (b) a wholly-owned subsidiary of a bank engaged in commercial lending and financing activities, such as an equipment lease financing corporation; or (c) a federally or state chartered credit union;
2. The qualified provider is capable of independently evaluating the investment risks of the transaction;
3. The qualified provider is not purchasing the bonds with a view to distributing them; and
4. The qualified provider will not transfer any portion of the bonds within one year of their issuance date, except to another purchaser that also meets the definition of qualified provider

A final unique disclosure is required to provide information to the SEC, including:

1. The name of the issuer
2. Date of the transaction
3. Principal amount
4. The name of the qualified provider
5. The Committee on Uniform Securities Identification Procedures (CUSIP), if applicable

For more information on this topic, or to learn how Baker Tilly Municipal Advisors can help determine whether this temporary order may be an option for a project in your community, school, library or utility, contact Brian Colton.   

Baker Tilly Municipal Advisors, LLC is a registered municipal advisor and controlled subsidiary of Baker Tilly Advisory Group, LP. Baker Tilly Advisory Group, LP and Baker Tilly US, LLP, trading as Baker Tilly, operate under an alternative practice structure and are members of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. Baker Tilly US, LLP is a licensed CPA firm and provides assurance services to its clients. Baker Tilly Advisory Group, LP and its subsidiary entities provide tax and consulting services to their clients and are not licensed CPA firms. ©2024 Baker Tilly Municipal Advisors, LLC