Continuing Disclosure Undertakings,
EMMA and IRS Questionnaire
Thursday, August 5, 2010
Scott W. Ruby
Sarah C. Smith
Gust Rosenfeld, PLC
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S.E.C. Rule 15c-12
 The Rule - S.E.C. Rule 15c2-12
 Current Rule effective until November 30,
2010
 Revisions effective December 1, 2010
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Rule 15c2-12 - History
 Before offering municipal securities for
purchase, underwriters must ensure that
issuers have undertaken into a written
agreement to provide continuing disclosure
information on an annual periodic basis.
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Requirement of the Rule for Primary Offerings
 Issuer has primary responsibility for content of all primary
offering documents and continuing disclosure materials,
but only as necessary to avoid materially inaccurate or
misleading statements.
 Certification of issuer that preliminary offering statement
is complete, i.e., contains all material information except
information related to pricing.
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Requirement of the Rule for Primary Offerings (cont.)
 Underwriters must undertake a professional review, and in
negotiated sales, some investigation to form a reasonable
basis that primary offering document is both accurate and
complete.
 Final official statement must be provided within certain
time limits and updated until the end of the underwriting
period (usually not less than 25 days after closing).
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Requirements of the Rule for Continuing
Disclosure
 Issuer or obligated person must have undertaken, in a
written agreement, to provide certain required
information.
 Written agreement or continuing disclosure contract shall
identify each person for whom annual financial
information and notice of material events will be provided.
 The continuing disclosure information is required to be
electronically filed with the Municipal Securities
Rulemaking Board's Electronic Municipal Market Access
("EMMA") system.
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Scope of Information Required by Continuing
Disclosure
 The issuer or obligated person is required to
provide annual financial information similar to the
financial and operating data that is presented in
the final official statement.
 If not submitted as part of the annual financial
information, the issuer or obligated person must
also provide audited financial statements.
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List of Event Filings until November 30, 2010
 Until November 30, 2010, the issuer must agree to provide
notice of any of the following events with respect to the
securities being offered:
(1)
(2)
(3)
(4)
(5)
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principal and interest payment delinquencies;
non-payment related defaults;
unscheduled draws on debt service reserves reflecting
financial difficulties;
unscheduled draws on credit enhancements reflecting
financial difficulties;
substitution of credit or liquidity providers, or their failure
to perform;
List of Event Filings until November 30, 2010
(cont.)
(6)
adverse tax opinions or events effecting the tax-exempt
status of the security;
(7)
modification to rights of security holders;
(8)
bond calls;
(9)
defeasances;
(10) release, substitution, or sale of property securing
repayment of the securities; and
(11) rating changes.
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List of Event Filings beginning December 1,
2010
 Beginning December 1, 2010, the issuer must
agree to provide notice of any of the following
events with respect to the securities being
offered in a timely manner not in excess of ten
business days after the occurrence of the event:
(1)
(2)
(3)
(4)
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principal and interest payment delinquencies;
non-payment related defaults, if material;
unscheduled draws on debt service reserves
reflecting financial difficulties;
unscheduled draws on credit enhancements
reflecting financial difficulties;
List of Event Filings beginning December 1,
2010 (cont.)
(5) substitution of credit or liquidity providers, or
their failure to perform;
(6) 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 securities, or other
events affecting the tax status of the security;
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List of Event Filings beginning December 1,
2010 (cont.)
(7) modifications to rights of security holders, if
material;
(8) bond calls, if material, and tender offers;
(9) defeasances;
(10) release, substitution, or sale of property
securing repayment of the securities, if
material;
(11) rating changes;
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List of Event Filings beginning December 1,
2010 (cont.)
(12)
bankruptcy, insolvency, receivership or similar event of the obligated
person;
Note to paragraph (b)(5)(i)(C)(12): For the purposes of the event identified
in subparagraph (b)(5)(i)(C)(12), the event is considered to occur
when any of the following occur: the appointment of a receiver, fiscal
agent or similar officer for an obligated person in a proceeding under
the U.S. Bankruptcy Code or in any other proceeding under state or
federal law in which a court or governmental authority has assumed
jurisdiction over substantially all of the assets or business of the
obligated person, or if such jurisdiction has been assumed by leaving
the existing governing body and officials or officers in possession but
subject to the supervision and orders of a court or governmental
authority, or the entry of an order confirming a plan or reorganization,
arrangement or liquidation by a court or governmental authority
having supervision or jurisdiction over substantially all of the assets or
business of the obligated person;
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List of Event Filings beginning December 1,
2010 (cont.)
(13) the consummation of a merger, consolidation, or
acquisition involving an obligated person or the
sale of all or substantially all of the assets of the
obligated person, other than in the ordinary
course of business, the entry into a definitive
agreement to undertake such an action or the
termination of a definitive agreement relating to
any such actions, other than pursuant to its
terms, if material; and
(14) appointment of a successor or additional trustee
or the change of name of a trustee, if material.
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Annual Financial Information
 In addition, the issuer must agree to
provide in a timely matter notice of a
failure to provide annual financial
information. Failure to timely file
continuing disclosure information must be
disclosed in every subsequent offering
document for a period of five (5) years.
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Exemptions
 All exemptions under the Rule apply to
continuing disclosure covenants. The
exemptions include:
(1) a primary offering of securities in an
aggregate principal amount of less than
$1,000,000;
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Exemptions (cont.)
(2) securities in authorized denomination of
$100,000 or more which satisfy any of the
following:
(a) are sold to no more than 35 knowledgeable
and experienced investors not purchasing with
a view to distribute;
(b) have a maturity of nine months or less; or
(c) may be tendered at the option of the holder
at least every nine months.
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Exemptions (cont.)
 The Rule provides for an exemption from the
annual continuing disclosure undertakings for
offerings of small issuers where:
(1) at the time of issue no obligated person or the
issuer will be an obligated person or issuer of
more than $10,000,000 of outstanding
municipal securities, including the current
offering and offerings under $1,000,000.
However, the issuer or obligated person must
undertake to provide continuing disclosure of
the eleven specified material events.
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 HOW TO USE EMMA
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 EMMA AND IRS QUESTIONNAIRE
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 EMMA TRADE ACTIVITY
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Information Found on EMMA:
 -
Issuer
 -
Issue name
 -
CUSIP number(s)
 -
Continuing Disclosure Information
 - Official Statement
 -
Trading information
 - Initial offering price (Per MSRB, may not be
the same as issue price under federal tax law)
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Definitions – Issue price and De minimus
premium
 Issue price means the first price at which a substantial
amount of the bonds is sold to the public. The issue price of
bonds for which a bona fide public offering is made is
determined as of the sale date based on reasonable
expectations regarding the initial public offering price.
 De minimus premium means
 (a) ¼ of 1 percent of the stated redemption price at
maturity, multiplied by
 (b) the number of complete years from the bond’s issue date
to its maturity date or optional redemption date.
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IRS Questionnaire 14127
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IRS QUESTIONNAIRE 14127
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IRS QUESTIONNAIRE 14127
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IRS QUESTIONNAIRE 14127
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IRS QUESTIONNAIRE 14127
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IRS Questionnaire 14127 & EMMA
 Specifically written for issuers of Build
America Bonds (Direct Pay). However, it is
possible that the IRS will send issuers of
New CREBs and other types of bonds that
the U.S. government is providing a federal
subsidy a similar IRS Questionnaire in the
future.
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IRS Questionnaire 14127 & EMMA
 Ask issuer about specifics of transaction
including information about issue price of
municipal securities and trading
information from sale date (date of
obligation/bond purchase agreement with
underwriter) and closing date.
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IRS Questionnaire 14127 and EMMA
 Are the records of trading activity for your
bonds available on EMMA?
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IRS Questionnaire 14127 & EMMA
 If sold through a negotiated sale, did any
“customers” buy any portion of any issue at a
price greater than the initial offering price prior
to the delivery of the bonds on the date of issue?
 If yes, did the underwriter explain why some
customers were willing to buy the bonds at a
price in excess of the stated initial offering price?
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IRS Questionnaire 14127 & EMMA
 A “customer” is defined in MSRB
definitional Rule D-8 as “any person other
than a broker, dealer or municipal
securities dealer acting in its capacity as
such or an issuer in transactions involving
the sale by the issuer of a new issue of its
securities.”
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IRS Questionnaire 14127 & EMMA
 The IRS has not given any guidance as to
what the issuer can or cannot do if this
scenario arises. See IRS Notice 2010-35.
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IRS Questionnaire 14127 & EMMA
 Written procedures – not required, but a
good idea.
 We recommend maintaining records for
the life of the bonds plus 3 years
 Designate a Bond Compliance Official
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IRS Questionnaire 14127 & EMMA
IRS Questionnaire asks about these types of written
procedures:
 De minimis premium compliance
 Expenditures of bond proceeds
 Timely
 Available project proceeds
 Arbitrage yield
 Cost of issuance (can’t exceed 2% of sale proceeds)
 Filing IRS forms timely
 Violations of federal tax requirements
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