April 16, 2020
Municipal Bond Disclosure: Disclosing COVID-19 Impacts
State and municipal bond issues must carefully navigate their disclosure obligations in light of the COVID-19 pandemic.
State and local governments are bearing significant costs responding to the COVID-19 public health emergency. Meanwhile, state and local government revenues have been affected by the sudden halt in business activity mandated by the public health emergency. Sales and excise taxes have been particularly hard hit. In Washington State, strict limitations on annual property tax increases have, over the past decades, led to reliance on the sales and excise tax revenues that are hardest hit.
As state and municipal bond issuers navigate this time of increased community need, budget pressure and uncertainty, issuers should be mindful of how best to communicate with bond investors while complying with the federal securities laws that apply when “speaking to the market.” A broadly-worded SEC Staff Legal Bulletin released on February 9, 2020, cautioned that any statement that may reasonably be expected to reach investors may be subject to the antifraud requirements, highlighting the need for care in any communications.
Some communications are required even in this time of uncertainty – for example, if one of the required Rule 15c2-12 notice events occurs, such as a ratings change, an unscheduled draw on a debt service reserve or credit enhancement, or incurrence of a new material financial obligation. Further voluntary disclosures may be helpful. The following provides considerations in filing required and voluntary disclosures.