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Continuing Disclosure in the Age of Coronavirus


COVID-19 stands to significantly impact the finances of municipal issuers, and the SEC says investors need to know about it.

By Lou Ann Heath
Director, Continuing Disclosure
Public Finance

Coronavirus stay-at-home orders effectively slowed the economy to a crawl. While many states are in the process of reopening in hopes of jumpstarting their economy, a nearly three-month economic freeze has undoubtedly affected municipal issuers across all sectors.

Given the ongoing fiscal uncertainty among municipal issuers, Securities and Exchange Commission (SEC) Chair Jay Clayton and Director of the Office of Municipal Securities Rebecca Olsen issued a public statement in early May encouraging municipal issuers voluntarily file “as much information about their current financial and operating condition as is reasonably practicable.”

Why is the SEC Requesting Voluntary Disclosures?
The SEC chair’s public statement seeks to promote and enhance the information available to investors. Most continuing disclosure agreements require only an annual financial filing plus an audit, typically within six months following their fiscal year end. However, in the current environment, historical financial information is not as useful to investors—they need specific and current information to make informed investment decisions.

What Should Issuers Disclose?
Figuring out whether your entity should file—and, if so, what to file—largely depends on your specific circumstances. A good rule of thumb is to consider whether a reasonable investor would think that information related to changes in your financial and operating status would significantly alter the total mix of information. If so, those facts would be considered material and should likely be disclosed.

The SEC chair encourages issuers to file as much current issuer- and security-specific information as possible—whether in a voluntary public statement, a primary offering document, or a contractually required continuing disclosure filing. Recommended disclosures include information on:

  • The impact of COVID-19 on operations and financial condition
  • Sources of liquidity
  • The availability of federal, state, and local aid
  • Reports prepared for other governmental purposes

On May, 22, 2020, the SEC announced it will be holding a virtual conference to provide issuers with guidance on its public statement. The conference, “Spotlight on Transparency: A Discussion of Secondary Market Municipal Securities Disclosure Practices,” will take place on June 16, 2020, from 1 to 4 p.m., ET

Disclosure Considerations for Issuers
If you plan to file a voluntary disclosure, you should include the facts regarding the financial impact COVID-19 has had on your entity, and the steps you’re taking to address them. With voluntary disclosure, the purpose is not to answer all the questions that may come up, but to communicate only what you know.

You should also confirm that your entity is making debt service payments on time—this is a key consideration among investors who plan to buy and sell your bonds. You may also want to consider including trends or statements about what is/isn’t being impacted, current revenue/expenditure budget cuts, and information on 2021 budget planning.

Voluntary Disclosure Liabilities
The SEC chair recognizes the liability involved with filing voluntary disclosures. However, he argues that the benefits of voluntary filings largely outweigh these risks. In any case, your entity should review voluntary disclosure with your legal counsel and advisors. Additionally, you should accompany voluntary disclosure with meaningful cautionary language in the form of an appropriate legal disclaimer regarding assumptions and projections used.

Unlike corporate issuers, municipal issuers don’t have the benefit of safe harbors for forward-looking statements. In this case, voluntary disclosure may be informed by the bespeaks-caution doctrine, which was developed by the federal courts of appeals and limits the liability of an issuer’s forward-looking statements as long as they’re tempered by meaningful cautionary language.

No Relief from Reporting
To be clear, the SEC is not relieving municipal issuers from their existing filing requirements under SEC Rule 15c2-12. Moreover, they don’t have the authority to provide relief if there is a violation of the continuing disclosure agreement—including failure to timely file annual financial information due to COVID-19.

As your entity begins to realize the full financial impact of the pandemic, you should keep on top of any reportable material events that may occur. For example, some issuers are pursuing alternative financing methods like bank loans or private placements to pay operating costs in the short term. Depending on the issuer, this could qualify as one of the 16 material events listed in the SEC’s Rule 15c2-12, in which case an issuer would need to file a notice within 10 business days.

Promoting Informed Investment Decisions
In a time of heightened economic uncertainty, the operating status and financial condition of municipal issuers can change rapidly, affecting investors and municipal market participants in equal measure. The SEC chair’s public statement encouraging issuers to file voluntary disclosures seeks to provide these parties with as much information as possible so they may make informed decisions.

For a more detailed breakdown of this public statement, read our commentary, “Municipal Disclosure Practices for COVID-19—Trends and Considerations.” If you have any questions about voluntary disclosure or SEC Rule 15c2-12, contact HilltopSecurities' Continuing Disclosure department today by calling (214) 953-4169 or emailing

The paper/commentary was prepared by HilltopSecurities (HTS). It is intended for informational purposes only and does not constitute legal or investment advice, nor is it an offer or a solicitation of an offer to buy or sell any investment or other specific product. Information provided in this paper was obtained from sources that are believed to be reliable; however, it is not guaranteed to be correct, complete, or current, and is not intended to imply or establish standards of care applicable to any attorney or advisor in any particular circumstances. The statements within constitute the views of HTS as of the date of the document and may differ from the views of other divisions/departments of affiliate Hilltop Securities Inc. In addition, the views are subject to change without notice. This paper represents historical information only and is not an indication of future performance. This material has not been prepared in accordance with the guidelines or requirements to promote investment research—it is not a research report and is not intended as such.

Hilltop Securities Inc. is a registered broker-dealer, registered investment adviser, and municipal advisor firm that does not provide tax or legal advice. HTS is a wholly owned subsidiary of Hilltop Holdings, Inc. (NYSE: HTH) located at 1201 Elm Street, Suite 3500, Dallas, Texas 75270, (214) 859-1800, 833-4HILLTOP.

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