Considerations Regarding Voluntary Secondary Market Disclosure About Bank Loans
SIFMA, as part of the Bank Loan Disclosure Task Force*, releases this white paper regarding voluntary secondary market disclosure about bank loans.
The increasing use by state and local government issuers and conduit borrowers of private bank loans since 2009 has led holders of publicly offered municipal securities and their representatives and the Municipal Securities Rulemaking Board (MSRB) to encourage issuers and borrowers to voluntarily post information about bank loans to the MSRB’s Electronic Municipal Market Access website.
Municipal market industry groups joined together to assist issuers, borrowers and their financial advisors and legal counsel in determining whether to disclose the incurrence of a bank loan on a voluntary basis and the extent of any such disclosure.
The Task Force was comprised of representatives from the American Bankers Association, the Bond Dealers of America, the Government Finance Officers Association, the Investment Company Institute, the National Association of Bond Lawyers, the National Association of Health and Educational Facilities Finance Authorities, the National Association of
Independent Public Finance Advisors, the National Federation of Municipal Analysts and SIFMA.
Excerpt
Executive Summary
Since 2009, state and local governmental issuers and conduit borrowers (collectively, “issuers”) have increasingly used private bank loans (“bank loans”) as an alternative to publicly offered municipal securities (collectively, “bonds”).
Because incurrence of additional debt, including bank loans, is not one of the material events for which disclosure is required under Rule 15c2-12, holders of an issuer’s outstanding bonds may not become aware of a bank loan or its impact on the issuer’s creditworthiness until the issuer’s next financial audit is released or new bonds are sold. Facts relating to incurrence of a bank loan may be important to bondholders for a number of reasons, such as:
• The bank loan may increase the issuer’s debt outstanding;
• The covenants and events of default for the bank loan may be different than those for the bonds, potentially allowing the bank to assert remedies before the outstanding bondholders;
• Certain assets previously available to secure bonds may be pledged to the bank as security for the bank loan; and
• The bank loan may be structured with a balloon payment at the end of its term and create refinancing risks that may impact the issuer’s ability to pay outstanding bonds.
As a result, bondholders and their representatives began encouraging issuers to voluntarily post information about bank loans to the Electronic Municipal Market Access (“EMMA”) website maintained by the Municipal Securities Rulemaking Board (the “MSRB”). In April 2012, the MSRB published MSRB Notice 2012-18, in which it encouraged issuers to voluntarily post information about bank loans to EMMA.
These calls for voluntary disclosure about bank loans led to the formation of the Bank Loan Disclosure Task Force in March 2012. The Bank Loan Disclosure Task Force has prepared this document (“Considerations”) to assist issuers and their financial advisors and legal counsel in determining whether to disclose the incurrence of a bank loan on a voluntary basis and the extent of any such disclosure.