Many cities, counties, school districts and other obligated persons (“Obligors”) have recently or are about to file their annual financial information and operating data on EMMA to comply with their existing continuing disclosure undertakings. A pressing question for everyone, given the current COVID‑19 pandemic, is whether and to what extent Obligors should provide COVID-19 related disclosures.
There is no duty to discuss COVID-19 related concerns or actions outside of an Obligor’s contractual continuing disclosure undertakings, and general voluntary filings simply noting COVID-19 uncertainty or common actions such as shelter-in-place orders are discouraged. However, the recent staff legal bulletin from the SEC’s Office of Municipal Securities reminding obligors of the application of antifraud provisions to any public statements that obligors make to the market suggests that Obligors who are preparing their annual or quarterly filings now should consider whether any of the data required by their continuing disclosure undertaking (typically reported on a retrospective basis for the past year or past quarter) may be materially affected by current COVID-19 conditions and need further discussion in light of COVID-19 related facts. For example, many cities and counties report on their top taxpayers each calendar year. Significant reliance on one or more taxpayers, and the potential loss of such taxpayers, could be material information to an investor. Obligors who have already filed their annual reports and/or audited financial reports should consider whether subsequent specific public facts made in public statements (e.g., on an Obligor’s public website or by public officials) should be filed on EMMA as a voluntary filing. At a minimum, Obligors need to be mindful that when making public statements, they are subject to antifraud scrutiny, which prohibits the making of an untrue statement of a material fact or omitting to state a material fact necessary to make the statements made, in light of the circumstances made, not misleading. Circumstances related to or triggered by the pandemic are evolving daily and each Obligor’s specific disclosure questions should be discussed with bond counsel or disclosure counsel.
The MSRB has begun publishing a weekly summary of COVID-19 related disclosures on EMMA (accessible here), providing a place to look at examples of COVID-19 related disclosure language in primary market and continuing disclosure filings.
Current circumstances are a reminder to Obligors to review the Rule 15c2-12 material events that are included in every continuing disclosure undertaking; these 16 named events include, for example: (i) late payments of principal or interest on any bonds subject to a continuing disclosure undertaking; (ii) changes to an obligor’s rating, (iii) unscheduled draws on debt service reserves reflecting financial difficulties, and (iv) the incurrence of a financial obligation, if material (e.g., a bank placement) and if the Obligor has executed a continuing disclosure undertaking on a public bond since early 2019. Any material event must be reported on EMMA within 10 business days of the event.