On May 26, 2010, the SEC approved certain amendments to Rule 15c2-12 (i)
expanding the scope of the rule to cover variable rate demand obligations; (ii)
augmenting certain reportable events (defined below), and adding new categories
of reportable events; and (iii) providing a definitive timeline for disclosing
reportable events. These changes will expand the continuing disclosure
obligations of issuers and other obligated persons with respect to municipal
Under Rule 15c2-12, an underwriter may not purchase securities covered by the
rule unless it has reasonably determined that an obligated person (i.e., an
issuer and/or conduit borrower) with respect to such securities has undertaken
to report both certain annual financial information relating to such obligated
person (annual financial information) and the occurrence of certain important
enumerated events relating to the security and/or the obligated person
The amendments to Rule 15c2-12 (1) expand the scope of the rule to cover
variable rate demand obligations; (2) add categories of reportable events; (3)
eliminate the materiality qualifier for certain reportable events; (4) augment
reportable events relating to the tax status of the securities; and (5) provide
a definitive timeline for disclosing reportable events. The foregoing amendments
to Rule 15c2-12 are scheduled to become effective December 1, 2010. These
amendments will affect only "primary offerings" (as defined in the rule) of
municipal securities occurring on or after December 1, 2010.
(1) Expand the Scope of the Rule to Cover Variable Rate Demand
- Currently, the continuing disclosure
requirements of Rule 15c2-12 generally do not apply to municipal securities
known as variable rate demand obligations (VRDOs). A VRDO is (a) a debt
security, the interest rate on which is reset periodically, typically weekly
or daily; (b) generally issued in denominations of $100,000 or more; and (c)
generally subject to tender for purchase or redemption at the option of the
holder at least as frequently as every nine months.
- The amendments to Rule 15c2-12 will eliminate
the specific VRDO exemption from the rule, requiring obligated persons with
respect to VRDOs to report annual financial information and reportable
events in accordance with the rule.
(2) Add Categories of Reportable Events
- The amendments to Rule 15c2-12 will add the
following categories of reportable events to the rule: (a) tender offers;
(b) bankruptcy, insolvency, receivership or similar event with respect to an
obligated person; (c) any merger, consolidation or acquisition involving an
obligated person or the sale of all or substantially all of the assets of an
obligated person, other than in the ordinary course of business, the entry
into a definitive agreement to undertake such an action or the termination
of a definitive agreement relating to such actions, if material; and (d)
appointment of a successor or additional trustee or the change in name of a
trustee, if material.
(3) Eliminate Materiality Qualifier for Certain Reportable Events
- Currently under Rule 15c2-12, an event is a
reportable event only to the extent it (a) is listed as such in the rule and
(b) is material.
- As amended, Rule 15c2-12 will provide that the
following existing events are reportable events, regardless of whether or
not they are material: (a) principal and interest payment delinquencies;
(b) unscheduled draws on debt service reserves reflecting financial
difficulties; (c) unscheduled payments by entities providing credit or
liquidity support for the securities (i.e. a bond insurer or a bank
providing a letter of credit or a standby bond purchase agreement) or a
substitution of such entities; (d) defeasance of the securities; and (e)
changes in the rating of the security.
(4) Augment Tax-Related Reportable Events
- Currently under Rule 15c2-12, an obligated
person is required to disclose any material adverse tax opinions or events
affecting the tax-exempt status of the security.
- The amendments to Rule 15c2-12 modify this
category of reportable event, such that the issuance by the IRS of proposed
or final determinations of taxability and Notices of Proposed Issue (IRS
Form 5701 – TEB) are reportable events, whether or not they are material.
Other notices and determinations with respect to the tax status of the
security and other events affecting the tax status of the security also are
reportable events, but only to the extent they are material.
(5) Provide a Definitive Timeline for Reporting Events
- Rule 15c2-12 currently requires the reporting of
a reportable event "in a timely manner."
- The amendments to Rule 15c2-12 establish a clear
and definitive reporting deadline, requiring that each reportable event be
disclosed in accordance with the rule in a timely manner not later than
10 business days after the occurrence of the reportable event. NOTE:
The deadline is the 10th business day following the date of the
occurrence of the reportable event, not the 10th business day
following date on which the obligated person becomes aware of the
occurrence of the reportable event.
If you have any questions regarding the amendments or continuing disclosure
under Rule 15c2-12, in general, please contact one of the authors, or visit
Public Finance practice.