Peck Shaffer

SEC Amendments to Rule 15c2-12

6/11/2010

The Securities and Exchange Commission recently approved amendments to the disclosure laws that apply to municipal securities.  Rule 15c2-12 requires that brokers, dealers, and municipal securities dealers acting as underwriters must ensure that certain primary and continuing disclosures are made in connection with a primary offering of municipal securities.  The primary disclosure provisions of the Rule were not amended, but changes were made to the continuing disclosure provisions and certain exemptions.  These changes will apply to primary offerings that occur on or after December 1, 2010.

The amendments to the Rule were adopted in SEC Rel. No. 34-62184.  A summary of the amendments to Rule 15c2-12 is included below.

The following existing notification events must now be reported in all instances regardless of materiality (they formerly were subject to a materiality determination):

• Principal and interest payment delinquencies
• Unscheduled draws on debt service reserves reflecting financial difficulties
• Unscheduled draws on credit enhancement reflecting financial difficulties
• Substitution of credit or liquidity providers, or their failure to perform
• Adverse tax opinions
• Defeasances
• Ratings changes

The following new events have been added to the list of existing events that are to be reported:

• The issuance by the IRS of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the securities
• Tender offers (without regard to materiality)
• Bankruptcy, insolvency, receivership or similar event of the obligated person (without regard to materiality)
• The consummation of a merger, consolidation, or acquisition, or certain asset sales, involving the 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 any such actions, other than pursuant to its terms (if material)
• Appointment of a successor or additional trustee or the change of name of a trustee (if material)

Variable Rate Demand Obligations ("VRDOs") that may be tendered at least as frequently as every nine months are no longer exempted from the continuing disclosure provision of the Rule, although new primary offerings of these VRDOs will continue to be exempted from the primary offering provisions of the Rule.  The amended Rule requires that any primary offering disclosure provided for these VRDOs must be updated annually, and that the occurrence of events listed above with respect to such VRDOs must be reported.  These  new provisions will also be triggered for existing VRDOs if they are remarketed in a manner that meets the Rule's definition of a "primary offering" (any initial offering of municipal securities and certain remarketings that involve a change in denomination or in the period during which the subject securities may be tendered).

Notice of material events must now be provided in both a timely manner and not more than 10 business days after the occurrence of the event (formerly the notice was only required to be provided in "a timely manner").

For a chart summarizing the current and proposed notice requirements, please click here.