Atlanta - A groundbreaking bill before the South Carolina legislature that would require bond issuers to commit to ongoing secondary market disclosure passed the state's House Representatives yesterday, all but ensuring its ultimate approval.
The House's version of the bill contained only two minor amendments to a Senate bill passed last month.
A spokesman for the state House Ways and Means Committee, where the amendments were added in late April, said the Senate would quickly concur with the House changes. When this happens, he said, the legislation will be sent to Gov. Carrol Campbell for his signature.
The Senate cold passed the bill as early as today, state officials said.
"I don't anticipate any problems at all," state Treasurer Grady Patterson, who helped draft the legislation, said yesterday. "The amendments concerned some little technical things that needed to be there."
Patterson said he has been assured that Campbell will sign the bill when it reaches his desk.
According to Patterson and other state officials, the bill is the first of its kind in the country.
"We are very pleased with the action the legislature has taken and think this bill is a step in the right direction in dealing with the disclosure issue," Patterson said.
As passed by the House, Senate Bill 1182 would require that each tax-exempt bond include "in the issuing indenture, ordinance or resolution a covenant requiring the issuer" to make available information "to a central repository for availability in the secondary market when requested."
At a minimum, this information would include "an annual independent audit within thirty days of the issuer's receipt of the audit" and "event specific information, within thirty days of an event adversely affecting more than 5% of revenue or its tax base," according to the bill.
The House's amended version added to the original Senate bill the words "ordinance or resolution" after "issuing indenture," and the words "or its tax base" after the words "5% of revenue."
The bill applies to bond issues whose indentures are executed after the measure becomes law. The effective date would be the first day of the second month following gubernatorial approval of the legislation.
The proposed South Carolina law comes at a time when regulators, underwriters, and investors are demanding improved disclosure of information from bond issuers.
The Securities and Exchange Commission has proposed a rule change that would bar dealers from underwriting bonds unless the issuer has provided a written pledge of ongoing disclosure to a nationally recognized repository. The disclosure would include annual audited financial statements.
The commission's proposed rules also says that dealers must "review" the information that issuers have pledged to provide before they recommend to their secondary market customers that they buy or sell bonds.
The SEC has also proposed a legal interpretation defining ways that municipal market participants can better meet disclosure requirements under the antifraud provisions of the federal securities law.
Areas singled out in the legal interpretation include disclosure of an issuers's financial condition of the results of operations and cash flows. The SEC says the interpretive release is currently in effect, although the agency is accepting comments on the document until July 15.
The municipal industry has given strong support to an approach to a secondary market disclosure standard that would compel issuers to commit to providing information.
In a joint statement issued Dec. 20, 1993, 12 key industry groups proposed that the SEC bar bond dealers from underwriting the municipal debt of issuers who do not pledge to provide ongoing disclosure. The groups also proposed to investors "any information in their possession" about whether the issuer has committed to provide ongoing information.
In addition, the groups asked that dealers be force to disclose whether a bond is rated, and if so, what that rating is.
