The Municipal Securities Rulemaking Board (MSRB) published Notice 2012-18 on April 3, 2012, encouraging municipal issuers and obligated persons to post information on its Internet portal EMMA regarding private bank loan obligations and/or other non-publicly offered securities. According to the notice, the MSRB “believes that the availability of timely information about bank loan financings is important for market transparency and promoting a fair and efficient market.” The publication of the notice follows several months of discussion among market participants at various conferences about the significant increase in the use of private loan financing by large issuers and private non-profit borrowers such as healthcare institutions as a substitute for publicly offered municipal bonds (including conduit bonds). Investors in the issuer’s outstanding bonds were used to being alerted to the issuance of new bonds through the posting of an official statement or other offering document, which is not typically used for private financing transactions.
The MSRB acknowledges that private bank loan financings are generally not subject to the public disclosure requirements under federal securities laws (including MSRB rules and SEC Rule 15c2-12) because the loans either are not “securities” or, if determined to be securities, would qualify for an exemption or, with respect to MSRB rules, there is no broker-dealer or placement agent involvement. Although additional indebtedness would likely be noted in the financial statements, which, if the issuer is otherwise subject to continuing disclosure requirements, would be posted on EMMA in due course after the end of the fiscal year, the MSRB is encouraging municipal issuers and obligated persons to disclose the terms of new bank loans in advance of the audit filing. Additionally, the MSRB is encouraging issuers to post the entire loan document or a summary of the significant terms of the financing using conventions described in the notice in order to facilitate retrieval by interested persons. Since the EMMA portal does not yet have a special category for the submission of bank loan disclosures, the MSRB suggests issuers submit bank loan financing information under the category of “Financial/Operating Data – Investment/Debt/Financial Policy” and indicate in the “consisting of” text field that the information includes “bank loan” disclosures. The MSRB also points out that an issuer can make a voluntary event filing to alert the holders of its outstanding debt that the bank loan documents are being filed.
If an issuer or obligated person chooses to submit information regarding non-publicly offered debt on EMMA, they should consider including precautionary language to dispel any expectation in the market of any continuing obligation to update the information once filed. The MSRB has suggested there may be improvements made to EMMA in the future to better accommodate voluntary disclosure filings regarding additional debt and/or lease transactions. However, the notice provides guidance to using EMMA for voluntary disclosure purposes in advance of those improvements.