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SEC Adopts Amendments to Rule 15c2-12
by Timothy A. Stratton

October 2, 2018 - After much anticipation by the bond community, the Securities and Exchange Commission (the "SEC"), on August 20, 2018 issued Release No. 34-83885 adopting certain amendments to Rule 15c2-12. These important amendments, while relatively short in text, have potentially significant ramifications for bond issuers that should not be ignored.

These new amendments will add two additional reportable events to the existing list of continuing disclosure items which must be reported to the market on the Municipal Securities Rulemaking Board's reporting website which is known as EMMA.

According to Release No. 34-83885, Rule 15c2-12, as amended, will now include among the reportable events the following new items:
      (a) 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; and

      (b) Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of the financial obligation of the issuer or obligated person, any of which reflect financial difficulties.
In order to give clarity to the new reportable events, the amendments also add a definition of "Financial Obligation" to Rule 15c2-12. According to Release No. 34-83885, 'Financial Obligation" means:
      "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) guarantee of (i) or (ii). The term financial obligation shall not include municipal securities as to which a final official statement has been provided to the Municipal Securities Rulemaking Board consistent with Rule 15c2-12".
These new amendments may present challenges to issuers who are required to report under Rule 15c2-12. Most significantly, the determination of whether a financial obligation is material is left to the reporting entity.

This determination can have serious consequences to the issuer if it fails to report a financial obligation that the SEC later deems to be material to the market. It is entirely possible that viewed in isolation, a particular financial obligation may be deemed to be immaterial, but when viewed together with all of the other financial obligations of an issuer, may indeed be a material item that needs to be reported.

For more information, or if you have questions, please contact one of Gust Rosenfeld's Public Finance attorneys:

James T. Giel | 602.257.7495 | jgiel@gustlaw.com
Fred H. Rosenfeld| 602.257.7413 | rosenfeld@gustlaw.com
Zach Sakas | 602.257.7439 | zsakas@gustlaw.com
Timothy A. Stratton | 602.257.7465 | tstratton@gustlaw.com
Dustin S. Cammack | 602.257.7977 | dcammack@gustlaw.com
Shelby M. Exposito |602.257.7498 | smexposito@gustlaw.com

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