Keep Calm and Disclose: New Continuing Disclosure Requirements

Effective February 27, 2019, SEC Rule 15c2-12 imposed new continuing
disclosure requirements on bond issuers, including schools. A school will only
need to comply with the new requirements when:

• it issues new bonds after February 26, 2019; and
• in conjunction with issuing the bonds, it enters into a
  continuing disclosure agreement, which is generally required for all bond
  issues of $1 million or more.

Consequently,
unless your school has a new bond issue on the horizon, your continuing
disclosure responsibilities remain the same, even after February 26. Those responsibilities
include:

• annually filing the school’s audit and certain financial
  and operating data with the Municipal Securities Rulemaking Board’s Electronic
  Municipal Market Access System (EMMA); and
• filing notices with EMMA within 10 business days after
  certain material events, including a payment default, adverse tax notice, bond
  call, or rating change.

For schools issuing bonds after February 26, 2019, the new continuing
disclosure requirements add two additional material events that must be monitored
and reported to EMMA:

• incurring or entering into a new material financial
  obligation, or an agreement to covenants, events of default, remedies, priority
  rights, or other similar terms of a financial obligation; and
• a default, event of acceleration, termination,
  modification of terms, or a similar event concerning a financial obligation
  that reflects the school’s financial difficulties.

In plain English,
a financial obligation is generally any kind of debt or financing arrangement,
including:

• state aid notes,
• tax anticipation notes,
• installment purchase agreements,
• lease-purchase agreements,
• land contracts,
• lines of credit, and
• bonds that do not involve the school entering into a
  continuing disclosure agreement (i.e., a bond issue of less than $1 million).

Once subject to the new continuing disclosure requirements, any time a
school enters into a new financing arrangement, a school

official or the
school’s disclosure agent (typically a financial advisor) likely will need to
file an EMMA ma­terial event notice within 10 business days. Such a school also
may need to file a material event notice with EMMA if it experiences “financial
difficulties” and, due to those financial difficulties, there is a default,
acceler­ation, termination, modification of terms, or similar event related to
a financial obligation.

For a school issuing bonds after February 26, 2019, the new continuing
disclosure requirements may sub­stantially increase its material event filings.
Accord­ingly, it is critical that your school designate an official who will be
responsible for continuing disclosure fil­ings or who will coordinate with the
school’s disclosure agent. For schools planning a future bond issue, the school
official responsible for continuing disclosure should create an inventory of
all outstanding financial obligations and update that inventory immediately af­ter the school enters
into a new financing arrangement. The updated inventory should be the school
official’s cue to make sure that a material event notice is filed with EMMA.

If your school uses a
disclosure agent and that agent is not involved in a financing transaction
handled by Thrun Law Firm, we will inform the disclosure agent about the new
financing shortly before the transaction closes. We believe this process will
assist our clients in complying with the new disclosure requirements.