15450 So. Outer Forty Rd.
Suite 230
Chesterfield, MO 63017
(636) 519-0700
(636) 519-0792 Fax
info@mohefa.org
MHEFA
Association
Memberships
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- PHASE V: FOLLOW UP
- A. Disclosure
The result of SEC Rule 15c2-12(b)(5) is that for tax-exempt financings after July 3, 1995, borrowing institutions have been required to make certain annual and periodic reports. The Rule technically applies only to underwriters during the initial issuance of bonds. Yet, the underwriter avoids violating the Rule by getting the borrowing institution to undertake in a continuing disclosure agreement ongoing disclosure at the times and in the manner contemplated by the Rule.
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A continuing disclosure agreement is a contract between the borrowing entity and the bondholders (a) to make timely disclosure of the occurrence of any of eleven listed events, if material, and (b) to provide an annual report by a specified date each year, which contains certain designated information. If the borrower fails to provide the information it can, at a minimum, give bondholders the right to bring a lawsuit to force proper compliance. Bondholders might also try to bring damage claims asserting that they would not have bought, sold or held the bonds had the borrowing institution properly given continuing disclosure notices. The amount of damages might be measured by any change in value of the bonds after the disclosure was due.
The Rule contemplates, and continuing disclosure agreements typically undertake to provide, only disclosure of particular, relatively discrete categories of information. Yet, another SEC Rule (i.e. SEC Rule 10b-5), is applicable to nearly all disclosures to the securities market and it requires that all such disclosures be accurate and not omit any material information necessary to make the information included not misleading. Accordingly, it may often be necessary to include in annual reports information beyond what is specified in the continuing disclosure agreement. To do so, however, will make ongoing disclosure not the mechanical process most borrowers expected, but a procedure involving many judgment calls, some based on legal concepts of materiality, and with possible exposure to securities law claims. In some cases, decreases in market price for bonds could result in bondholder claims that they have been damaged by alleged deficiencies in the ongoing disclosure. Given the foregoing considerations, it might be a good idea for legal counsel to be consulted in connection with annual reports and material event notices. (top)
Missouri Health and Educational Facilities Authority
15450 South Outer Forty Rd., Suite 230, Chesterfield, MO 63017
(636) 519-0700 (636) 519-0792 Fax
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