United States: Summary Of SEC Release No. 34-83885 (2018 Amendment To SEC Rule 15c2-12)

Last Updated: November 19 2018
Article by Butler Snow LLP

The Amendments

The 2018 amendments to Rule 15c2-12 (the "Rule") make the following additions to the continuing disclosure requirements applying to most publicly-held municipal securities:

  1. Amending the list of Event Notices to require disclosures, within 10 business days, of the following:

    1. Incurrence of a financial obligation of the issuer or obligated person, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation of the issuer or obligated person, any of which affect security holders, if material. 17 CFR 240.15c2-12(b)(5)(i)(C)(15).
    2. Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a financial obligation of the issuer or obligated person, any of which reflect financial difficulties. 17 CFR 240.15c2-12(b)(5)(i)(C)(16).
  2. Defining the term "financial obligation" to mean a (i) debt obligation; (ii) derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation; or (iii) a guarantee of (i) or (ii). The term financial obligation does not include municipal securities as to which a final official statement has been otherwise provided to the Municipal Securities Rulemaking Board under the Rule.

The 2018 amendments to the Rule will become effective in February, 2019, meaning that underwriters will require new paragraphs (15) and (16) of the Rule to be included in issuers' and obligated persons' continuing disclosure undertakings entered into after that date.

Background/Rationale for the Amendments

In July 2012, the Securities and Exchange Commission (the "Commission" or "SEC") issued a Report on the Municipal Securities Market which highlighted, among other things, market participants' concerns that issuers and obligated persons were not properly disclosing the existence or the terms of their bank loans.

In 2016, the Municipal Securities Rulemaking Board (the "MSRB") enhanced its Electronic Municipal Marketplace Access System ("EMMA") to allow submitters of continuing disclosure to identify "Bank Loan/Alternative Financing Filings" as the type of filing. However, in a letter to the SEC in October 2017, the MSRB stated its concern that most issuers and obligated persons were not voluntarily reporting their bank loans, given that only about 1,100 bank loan documents had been posted to the EMMA website.

Although GASB requires certain information related to debt to be disclosed in notes to financial statements, such disclosure may not provide information about the particular covenants, events of default, remedies, priority rights, or the like in sufficient detail for market participants to make informed investment decisions.

Recent changes to federal tax laws have triggered provisions commonly found in direct placements relating to the rate at which a direct placement will bear interest. In the Commission's view, these tax-related provisions are illustrative of the types of terms to which issuers and obligated persons agree when incurring financial obligations, but which were not previously required to be disclosed even though they could adversely affect existing bondholders.

Although in some cases existing bond documents prohibit the granting of superior lien rights to other holders of the issuer's or obligated person's debt, there is no set standard of what provisions are included in bond documents. Thus, bank loan covenants and events of default can be different from or set at higher levels than those applicable to outstanding bonds, thereby enabling the bank to assert remedies prior to other bondholders. This may effectively prioritize repayment of the bank loan and thereby adversely affect existing bondholders.

Scope of Notice of Debt Incurrence [15c2-12(b)(5)(i)(C)(15)]

A disclosure regarding the incurrence of debt (if material) should include a description of all material terms of the financial obligation, such as the date of incurrence, principal amount, maturity and amortization, interest rate (if fixed) or method of computation (if variable), and any default rates. Depending on the facts and circumstances, issuers and obligated persons may also decide to submit full transaction documents, term sheets, continuing covenant agreements or financial covenant reports to EMMA. Any such related materials, if submitted as an alternative to a description of the material terms of the financial obligation, should include all the material terms of the financial obligation. Provided the necessary disclosures are made, such documents may be redacted to avoid disclosure of confidential information such account numbers and personally identifiable information.

Scope of Disclosure of Defaults, Terminations and Modifications [15c2-12(b)(5)(i)(C)(15]

A default, event of acceleration, termination, modification of terms or other similar event under the terms of a financial obligation that occurs on or after the effective date of the Rule amendments must be disclosed regardless of whether such obligation was incurred before or after the effective date. However, no such event must be disclosed unless it "reflects financial difficulties." This "financial difficulties" qualifier is included to help target the disclosure of information relevant to investors in making an assessment of the current financial condition of the issuer or obligated person.

The Commission believes that there are defaults that may reflect financial difficulties even if they do not qualify as "events of defaults" under transaction documents. Typically, if a monetary default occurs, or a non-payment related default is not cured within a specified period, such default becomes an "event of default" and the trustee or counterparty to the financial obligation may exercise legally available rights and remedies for enforcement, including an event of acceleration. Under the amended Rule, a default must be disclosed even if it is subject to an unexpired cure period, so long as the default "reflects financial difficulties" of the issuer or obligated person.

The Rule also requires disclosure of "other similar events" under the terms of a financial obligation of the issuer or obligated person reflecting financial difficulties. The Commission states that, in order to be subject to disclosure, such other events must necessarily share similar characteristics with one of the preceding listed events (e.g., a default, event of acceleration, termination event, or modification of terms).

Materiality Qualifier

The Commission believes that including a materiality qualifier in the amendments is appropriate as it provides a framework for issuers and obligated persons to assess their disclosure obligations in the context of the specific facts and circumstances.

What constitutes materiality can vary by entity based on the size of the overall balance sheet, the size of existing obligations, or the size of the overall bond portfolio. Regardless of size, it is possible that a financial obligation payable from one source of revenues might not be material to security holders of municipal securities payable from a separate or distinct source of revenues.

Declining to adopt any specific guidance, the Commission indicates that materiality determinations should be based on whether the information would be important as part of the total mix of information made available to a reasonable investor.

Timing of Disclosure

The Commission believes that 10 business days is a reasonable period of time for compliance with the new Event Notice requirements. Issuers and obligated persons should be able to begin the process of assessing, in advance of any debt incurrence, whether the new obligation should be disclosed under new paragraph (15) of the Rule.

If an issuer or obligated person enters into an agreement providing for a draw-down bond, or an agreement that contains material terms or covenants that may become effective upon the occurrence of certain events, the issuer or obligated person generally should provide notice at the time the agreement is executed, instead of each time a draw is made or a covenant is triggered. That having been said, the triggering of a covenant that results in a default, acceleration, termination event, or modification reflecting financial difficulties, must be independently disclosed upon its occurrence under new paragraph (16) of the Rule.

Definition of Debt Obligation

The term "debt obligation" is intended to include the short-term and long-term loans or debt securities of an issuer or obligated person that will be repaid over time, regardless of the length their repayment period. In the context of the Rule, the Commission is not limiting the term "debt obligation" to debt as it may be defined for state law purposes, but instead is applying the term more broadly to circumstances under with an issuer or obligated person has borrowed money. Based on the circumstances, a lease arrangement may be reportable as a "debt obligation" to the extent entered into as a vehicle to borrow money. The types of leases that could be debt obligations include, but are not limited to, lease-revenue transactions and certificates of participation transactions. Examples of leases that are typically not vehicles to borrow money include, but are not limited to, commercial office building leases, airline and concessionaire leases at airport facilities, and copy machine leases.

Definition of Derivative Instrument

The term "derivative instrument" includes any swap, security-based swap, futures contract, forward contract, option, any combination of the foregoing, or any similar instrument to which an issuer or obligated person is a counterparty, provided that such instruments are related to an existing or "planned" debt obligation. To determine whether a derivative instrument is covered by the amended Rule, it is reasonable to distinguish derivative instruments designed to hedge against the risks of a related debt obligation (i.e., debt-related derivatives) from derivative instruments designed to mitigate investment risk.

A debt obligation is considered "planned" at the time the issuer or obligated person incurs the related derivative instrument if, based on the facts and circumstances, a reasonable person would find it likely or probable that the issuer or obligated person expected to incur the related yet-to-be-incurred debt obligation at a future date. For example, in a forward starting interest rate swap transaction, an issuer or obligated person typically incurs the forward starting interest rate swap in advance of the incurrence of a debt obligation. A forward starting interest rate swap must be disclosed within 10 business days of its incurrence because the issuer's or obligated person's contingent obligation to make payments, post collateral, and the like begins at the point of incurrence of the swap, not when the planned debt obligation is incurred.

Definition of Guaranty

The term "guarantee" includes any contingent financial obligation of the issuer or obligated person to secure any person's debt obligation or derivative instrument (each as defined above). The Rule only covers guarantees that relate to debt, debt-like, or debt-related obligations. A guarantee provided for the benefit of a third party, or a self-liquidity facility or other contingent arrangement, would be a guarantee under the Rule amendments.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions