A PLAIN-ENGLISH GUIDE
SEC Rule 15c2-12: The promise you made to investors is ongoing
When your organization sold bonds in the municipal bond market, it made a promise to the investors who bought the bonds to provide regular information updates. Here is what that promise means.
The rule
Rule 15c2-12 is a Securities and Exchange Commission rule that prohibits underwriters from selling most municipal bonds unless the borrower (the “obligated person”) has promised, in writing, to keep disclosing financial and operating information to the market for the life of the bonds. That written promise is your Continuing Disclosure Agreement (CDA), signed at closing.
Filings go to EMMA, the Electronic Municipal Market Access system run by the Municipal Securities Rulemaking Board, where they are public and permanent. Investors, rating agencies, and the underwriter of your next bond issue all read them.
Many borrowers appoint a dissemination agent, a firm engaged to track the deadlines, make the filings, and keep the records. That is Arcata’s role.
Why it matters
A missed filing triggers a public failure-to-file notice on EMMA, and your next official statement must describe any instance in the past five years where you failed to comply, in all material respects, with your undertakings. Compliance failures can mean harder questions from underwriters, more expensive borrowing, and a market that trusts your organization less.
The quiet risk: selective disclosure
Borrowers talk to investors through calls, emails, and site visits. The risk is answering one investor’s question with material information the rest of the market hasn’t seen. The federal securities laws’ antifraud provisions apply to those communications, and selective disclosure invites exactly the scrutiny no borrower wants.
The discipline is simple: material information goes to EMMA first, where every investor sees it at the same time, and conversations stay consistent with the public record. That is why an organized disclosure process and an investor relations function belong together — one public channel, one set of answers.
What borrowers typically file
Annual report
Audited financial statements plus the operating data your CDA specifies (enrollment, occupancy, payor mix, covenant calculations), due a set number of days after fiscal year end.
Quarterly reports
Many conduit borrower CDAs also require unaudited quarterly financials and operating updates, a schedule of four more deadlines a year.
Budgets
Many CDAs call for the adopted budget and any amendments shortly after board approval: a filing that shows the market you plan as carefully as you report.
Updated operating information
Enrollment, occupancy, utilization, payor mix, refreshed between annual reports where the CDA requires, so the market reads current numbers rather than stale ones.
Covenant compliance certificates
Routine officer’s certificates showing coverage and liquidity calculated to the CDA’s formula, delivered to the trustee and, in many financings, filed to EMMA.
Voluntary updates & investor materials
Filings you choose to make: investor call notices and presentations, project milestones, and the good news the market should have.
The sixteen listed events
The rule also lists sixteen categories of events that must be reported within ten business days if they occur. Most are rare (many borrowers go years without filing one), and several, like refinancing an issue or a rating change, are routine corporate finance. The reason they belong on a managed calendar is the ten-day clock: it only runs smoothly when the process already exists.
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
Substitution of credit or liquidity providers, or their failure to perform
Adverse tax opinions or IRS determinations affecting the tax status of the bonds
Modifications to the rights of bondholders, if material
Bond calls, if material, and tender offers
Defeasances
Release, substitution, or sale of property securing the bonds, if material
Rating changes
Bankruptcy, insolvency, receivership, or a similar event
Merger, consolidation, acquisition, or sale of substantially all assets, if material
Appointment of a successor or additional trustee, or trustee name change, if material
Incurrence of a financial obligation, or agreement to terms affecting security holders, if material
Default or similar event under a financial obligation reflecting financial difficulties
FREE RESOURCE
Model Continuing Disclosure Agreement for charter schools
A drafting resource reflecting what we’ve learned reading disclosure agreements for a living: workable delivery mechanics, the full listed-event set, and terms that don’t set borrowers up to fail. Drafted for charter school financings but adaptable to any conduit borrower. For discussion purposes only; have bond counsel review and conform it to your financing before use.
Find out what your CDA actually requires.
Send us your Official Statement and we’ll map your obligations before you commit to anything.
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