Public Finance Update - June 2010

On May 26, 2010, the Securities and Exchange Commission (“SEC”) approved certain amendments (the “Amendments”) to Rule 15c2-12, promulgated under the Securities Exchange Act of 1934, as amended.  With certain exceptions, Rule 15c2-12 requires underwriters to receive, review, and disseminate official statements prepared by the issuers of primary municipal securities offerings, and prohibits underwriters from purchasing or selling municipal securities unless they have first reasonably determined that the issuer will provide certain annual information and notice of the occurrence of specific material events related to those securities.  The Amendments, which will become effective December 1, 2010, expand the disclosure obligations imposed by Rule 15c2-12.  The following is a list of some of the notable changes created by the Amendments:

• Eliminates the requirement for a determination of materiality for certain notice events, including:  (i) failure to pay principal and interest; (ii) unscheduled payments from debt service reserves reflecting financial difficulties; (iii) unscheduled draws on credit enhancements for the bonds reflecting financial difficulties; (iv) a substitution of credit or liquidity providers or their failure to perform; (v) defeasances, including situations in which the issuer has provided for future payment of all obligations under a bond; and (vi) rating changes.
• Increases the number of notice events to include: (i) tender offers; (ii) bankruptcy, insolvency, receivership, or similar proceeding; (iii) mergers, consolidations, acquisitions, or the sale of all or substantially all of the assets of the obligated person (or the entry into or termination of agreements relating thereto), if material; and (iv) appointment of a successor or additional trustee or the change of the name of a trustee, if material.
• Makes disclosure obligations applicable to variable rate demand obligations.
• Requires disclosure of events that may adversely affect tax status of the applicable securities, including proposed and final decisions of the IRS regarding tax status.
• Adds requirement that the disclosure of specified events be filed not more than 10 business days after the applicable event (rather than solely “in a timely manner”).

The text of the SEC’s notice regarding the Amendments is available here.

In the article “Court Upholds California’s Redevelopment Payment Shift,” which appeared in the May 26, 2010 edition of our Public Finance Update, it was originally stated that the California Court of Appeal had affirmed a Sacramento Superior Court decision upholding the constitutionality of AB 26 4x, which requires a shift of $2.05 billion of redevelopment funds from redevelopment agencies to county Supplemental Revenue Augmentation Funds.  In fact, the Court of Appeal denied a request by the California Redevelopment Association (“CRA”) to issue a stay with respect to the shift of redevelopment funds, but did not yet rule on the merits of the appeal itself.

For more information about the case, please visit the CRA website here.