On May 26, 2010, the Securities Exchange Commission adopted
amendments (“Amendments”) to Rule 15c2-12, promulgated
under the Securities Exchange Act of 1934 (“Rule”), that
affect brokers, dealers and municipal securities dealers
(“Participating Underwriters”), issuers of municipal
bonds, and borrowers of municipal bond proceeds (“Obligated
Persons”). Rule 15c2-12 generally requires Participating
Underwriters to reasonably determine, prior to purchasing municipal
bonds, that an issuer or Obligated Person is contractually
obligated to provide annual reports, including financial
information, and notices of the occurrence of certain events
(“Listed Events”) with a nationally recognized municipal
securities repository. Currently, the only nationally recognized
municipal securities repository is the Electronic Municipal Market
Access System, which is maintained by the Municipal Securities
Rulemaking Board.

The Amendments: (i) expanded disclosure obligations under the
Rule by (a) adding additional “Listed Events”, and (b)
eliminating the exemption for variable rate demand obligations from
continuing disclosure requirements; (ii) provided that the
occurrence of certain Listed Events, including certain new Listed
Events, would no longer be subject to a materiality determination
before triggering a requirement to provide notice; and (iii)
established a strict ten-day time frame for submitting required
event notices. The SEC also provided interpretive guidance to
Participating Underwriters with respect to certain of their
obligations under the Rule. The Amendments became effective on
December 1, 2010 and apply to municipal securities issued on or
after December 1, 2010 in a principal amount equal to or greater
than $1,000,000 and to any remarketing that would be considered a
primary offering under the Amendments.

Expanded Disclosure Obligations

• Tender Offers;
• Bankruptcy, insolvency, receivership or a similar event;
• Merger, Consolidation, Acquisition, and sale of all or
  substantially all assets; and
• Appointment of a successor or additional trustee, or a change
  of name of a trustee.

In addition, the Amendments expanded the “adverse tax
opinions or events” Listed Event to include “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”. This
amendment was designed to, among other things, “focus the
disclosure on information relevant to investors, whether the
municipal security is taxable or tax-exempt”.

Primary Offerings of Variable Rate Demand Obligations Are
Now Subject to Continuing Disclosure Requirements. The
Amendments also eliminated the exemption from continuing disclosure
requirements for ­primary offerings of variable rate demand
obligations (including remarketings that are primary offerings)
that occur after December 1, 2010. The Amendments included a
“limited grandfather provision” for remarketings of
variable rate demand securities that were outstanding in the form
of demand securities on November 31, 2010 and that continuously
have remained outstanding in the form of demand securities.

Elimination of Materiality Determination for Certain
Events

Prior to the Amendments, the occurrence of a Listed Event only
needed to be disclosed if a determination was made that the
occurrence of such event was “material.” The Amendments
now require that the occurrence of the ­following Listed Events
must be disclosed without regard to whether the issuer or Obligated
Person determines the event to be material: (i) principal and
interest payment delinquencies; (ii) unscheduled draws on debt
service reserves reflecting financial difficulties; (iii)
unscheduled draws on credit enhancements reflecting financial
difficulties; (iv) substitution of credit or liquidity providers or
their failure to reform; (v) defeasances; (vi) rating changes;
(vii) adverse tax opinions, the issuance by the Internal Revenue
Service of proposed or final determinations of taxability or
Notices of Proposed Issue (IRS Form 5701-TEB); (viii) tender
offers; and (ix) bankruptcy, insolvency, receivership or similar
event of an issuer or Obligated Person. The other Listed Events
(namely: non-payment related defaults, other material events
affecting the tax status of a security, modifications to rights of
security holders, bond calls, release, and substitution or sale of
property securing repayment of the securities and appointment of a
successor or additional trustee or the change of a name of a
trustee) need only be disclosed upon a determination that the
occurrence of such event is material. 

Event Notices Must be Filed within Ten Days of the Occurrence
of the Event

Prior to the Amendments, Rule 15c2-12 only required that Listed
Events be disclosed in “a timely manner”. The Amendments
now require that Listed Events be disclosed “in a timely
manner not in excess of ten business days after the occurrence
of the event” (emphasis added).

Interpretive Guidance to Underwriters of Municipal
Securities

The SEC affirmed previous guidance that, under the Rule, it is
doubtful that an underwriter could form a reasonable basis for
relying on the accuracy or completeness of an issuer’s or
obligated person’s ongoing disclosure representations if such
issuer or obligated person has, on multiple occasions during the
previous five years, failed to provide on a timely basis continuing
disclosure documents, event notices and failure to file notices as
required in a continuing disclosure undertaking for a prior
offering. Under such circumstances, it is the SEC’s view that
it would be very difficult for an underwriter to make a reasonable
determination that the issuer or Obligated Person would provide
such information under a continuing disclosure undertaking in
connection with a subsequent offering. The SEC also noted that an
underwriter should affirmatively inquire as to an issuer’s or
Obligated Person’s filing history and that reasonable belief
should be based on the underwriter’s independent judgment, and
not solely on representations or certifications of the issuer or
Obligated Person.

This alert summarizes the latest amendments to Rule 15c2-12 that
went into effect on December 1, 2010. The Public Finance Attorneys
at Blank Rome LLP are available to discuss the Rule and the
Amendments with you in more detail.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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