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Disclosure Awareness in the Age of COVID-19

With voluntary disclosure filings, late filing notices and notices of ratings changes increasing steadily in recent days, and additional disclosure filings expected in the near term, issuers and conduit borrowers—such as 501(c)(3) corporations—should be mindful of the impact that the COVID-19 pandemic, and particularly any actions taken in response thereto, may have on their continuing disclosure obligations under Rule 15c2-12 (the “Rule”) of the Securities Exchange Act of 1934 (the “Exchange Act”).

As a means of ensuring that bondholders are equipped to make fully informed investment decisions, the Rule sets forth certain ongoing disclosure requirements for issuers and conduit borrowers.  Specifically, the Rule requires the underwriter in a primary offering of municipal bonds to determine that the issuer of the bonds or the obligated person (i.e., a conduit borrower) whose financial or operating data is presented in the final official statement for the offering (each being an “Obligated Party”), has undertaken, through a continuing disclosure agreement, to provide certain ongoing secondary market disclosures to the Municipal Securities Rulemaking Board (the “MSRB”) through its  Electronic Municipal Market Access (“EMMA”) filing system.  The Rule requires the Obligated Party to disclose the following: (i) annual financial information and audited financial statements by a date set forth in the disclosure agreement, as well as notice of any late filings; and (ii) notice of the occurrence of sixteen specific events within ten business days of their occurrence.[1]

As Obligated Parties take steps to address the COVID-19 pandemic, they should be mindful of the possibility of having to make event filings pursuant to the Rule, particularly if their actions might: (i) result in a brief delay in making a debt service payment or a non-payment related default (Events #1 and 2); (ii) require a drawing on reserves or credit facilities (Events #3 and 4); (iii) impact the ratings of their bonds (Event #11); or (iv) result in the incurrence of, amendment to, or default on a financial obligation (Events #15 and 16).

Although myriad actions may trigger an event disclosure under the Rule, of particular relevance given the current state of affairs are Events #15 and #16.  Events #15 and 16 were added to the Rule for all bond transactions sold in the primary market on or after February 27, 2019; therefore, disclosure regarding these two events would apply to Obligated Parties that sold bonds in the primary market on or after February 27, 2019, and entered into a continuing disclosure agreement in connection with such bond issue.

Event #15 requires the Obligated Party to disclose the details of: (i) the incurrence of material financial obligations, including loans, lease-purchase financings, lines of credit, direct purchase transactions, derivative instruments or guarantees, and (ii) material amendments to financial obligations (regardless of when they were incurred) which are determined to affect bondholders.  For example, an Obligated Party that either obtains a line of credit to meet payroll needs or negotiates with its lender to forbear payments under, or otherwise modify the terms of, an existing debt obligation may be required to make an Event #15 filing.  Likewise, Event #16, which requires an Obligated Party disclose the details of defaults, modifications of terms or similar events in respect of financial obligations (regardless of when they were incurred) which reflect financial difficulties, may become relevant under similar circumstances, where an Obligated Party seeks to obtain more favorable debt terms in response to evolving market conditions.

Aside from the required disclosure obligations under the Rule, Obligated Parties may choose to make voluntary disclosures to the MSRB regarding COVID-19.  Obligated Parties should exercise caution, however, and always consult with their bond or disclosure counsel, before choosing to make a voluntary disclosure.  Although voluntary disclosures are not prohibited, the Rule only requires filings in respect of annual financial information and the occurrence of the sixteen listed events.  In the context of COVID-19, the pandemic is still in its early stages and long-term effects remain uncertain.  Thus, it is important to remember that the release of information to the public which is reasonably expected to reach investors and trading markets, including required or voluntary disclosure filings, is subject to the antifraud rules of the federal securities laws (i.e., Section 10(b) of the Exchange Act, SEC Rule 10b-5 and Section 17(a) of the Securities Act of 1933).  Under the antifraud rules, Obligated Persons must ensure that investors are provided with the information they need to make informed investment decisions, and face potential liability for false, misleading or incomplete statements or omissions.  Therefore, Obligated Parties should consider whether the information presented in a voluntary filing relative to COVID-19 could be viewed as materially inaccurate or misleading to investors in light of evolving facts or circumstances.  In any event, if an Obligated Party decides to proceed with a voluntary disclosure filing, then the filing should be centered on specific facts that are known to and are affecting the Obligated Party at that time.  It is unnecessary to provide general information related to COVID-19 which is already readily available to investors.

Obligated Parties should also be mindful of the information available on their websites, press releases and public statements that may be issued and responses by their officials regarding COVID-19, each of which could be considered a communication reasonably expected to reach the investing public.  As such, the information presented should be viewed against the same standard discussed above for voluntary disclosures, and any questions regarding what information to include or not to include should be discussed with bond or disclosure counsel.

Even in the midst of the COVID-19 pandemic, with offices closed and personnel working remotely, Obligated Parties are not excused from making their required disclosures.  Obligated Parties should take this time to review their existing continuing disclosure agreements and reacquaint themselves with the filing requirements.  In particular, they should confirm whether they may have agreed to provide additional or more detailed disclosure beyond the requirements of the Rule in any continuing disclosure agreement.  Also, Obligated Parties should review their internal disclosure policies and procedures in light of COVID-19 to ensure that they are able to meet their continuing disclosure responsibilities, including identifying and disclosing the occurrence of any one of the sixteen events within the 10 business day window.

In an effort to assist market participants, policymakers and the general public, the MSRB has begun publishing a weekly summary of COVID-19-related disclosures submitted to the EMMA system by Obligated Parties.  The weekly summary can be found at:

If you have any questions, or are otherwise concerned about disclosure obligations or filings, please contact Neal Pandozzi at

[1] The sixteen event notices required by the Rule are as follows:


(1) Principal and interest payment delinquencies;

(2) Non-payment related defaults, if material;

(3) Unscheduled draws on debt service reserves reflecting financial difficulties;

(4) Unscheduled draws on credit enhancements reflecting financial difficulties;

(5) Substitution of credit or liquidity providers, or their failure to perform;

(6) Adverse tax opinions, the issuance by the Internal Revenue Service 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 security, or other material events affecting the tax status of the security;

(7) Modifications to rights of security holders, if material;

(8) Bond calls, if material, and tender offers;

(9) Defeasances;

(10) Release, substitution, or sale of property securing repayment of the securities, if material;

(11) Rating changes;

(12) Bankruptcy, insolvency, receivership or similar event of the obligated person;

(13) The consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of 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;

(14) Appointment of a successor or additional trustee or the change of name of a trustee, if material;

(15) Incurrence of a financial obligation of the obligated person, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation of the obligated person, any of which affect security holders, if material; and

(16) Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a financial obligation of the obligated person, any of which reflect financial difficulties.

About The Author

Neal R. Pandozzi

Neal Pandozzi is Co-Chair of the firm’s Public Finance group.  Neal has over two decades of experience in New England public… Read More

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