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SEC Proposal: Event Notices for Private Placements and Bank Loans

On March 1, 2017, the SEC proposed amendments to Rule 15c2-12 that would expand the list of events requiring event notices to be posted to EMMA. The proposed additional events would include the incurrence of “financial obligations” (including private placements of municipal securities and bank loans) and events relating to such financial obligations that reflect financial difficulties.

The first proposed event would require an event notice to be posted within 10 business days after the incurrence of a material financial obligation, or agreement to certain covenants, events of default, remedies, priority rights or other similar terms, if material, that affects security holders. A “financial obligation” is broadly defined to include debt obligations, operating and capital leases, derivative instruments, guarantees or monetary obligations imposed by judicial, administrative or arbitration proceedings; however, the term does not include municipal securities for which an official statement has been provided to the Municipal Securities Rulemaking Board under Rule 15c2-12. The SEC noted that the materiality of a financial obligation may depend on, among other factors, the amount of the financial obligation, a change in the obligated person’s debt service coverage ratio or other financial metrics caused by the incurrence of the financial obligation, or agreement to certain terms or covenants, including the relative priority structure of the financial obligation and agreeing to an event of acceleration with no cure period.

The second proposed event would require an event notice to be posted within 10 business days after a default, event of acceleration, termination event, modification of terms, or other similar event under the terms of a financial obligation, any of which reflect financial difficulties. Some examples provided by the SEC of events reflecting financial difficulties include failing to comply with a covenant to replenish a debt service reserve fund, modifying a debt service coverage ratio covenant, and agreeing to different priority rights to avoid default.

The proposed amendments are subject to a 60-day comment period, beginning after publication in the Federal Register. If the amendments are approved, the SEC anticipates an effective date three months following the adoption of the final form of the amendments.

The SEC’s press release describing the proposed amendment, which contains a link to the full proposing release, is available here.

Posted: Mar 9, 2017

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