WASHINGTON -- The SEC may relax a controversial part of the agency's proposed disclosure rule that would require bond banks and other pools to give investors ongoing disclosure about the pools' largest participants.
Securities and Exchange Commission member Richard Roberts disclosed the possible move during a presentation at the annual regional meeting of the Northeast State Treasurers group in Maine on Tuesday.
Roberts was referring to a controversial provision in a rule published for comment by the SEC on March 17 that is designed to improve primary and secondary market disclosure in the municipal market.
The provision would require financial and operating information on "significant obligors" of an issuer of municipal securities to be providedin two key places. Information would have to be supplied in final official statements and in annual audited financial statements.
The provision, which has drawn opposition from many of the hundreds of those commenting on the SEC's proposed rule. defines a significant obligor as one that is the source of 20% or more of the cash flow servicing the obligation on the bonds.
"My impression is that the staff is seriously considering broadening the definition to loosen it up." Roberts said in response to a question from the audience. "The objection is that it is not clear who would or would not be a significant obligor. Too many parties would be considered."
Roberts said that his impression is that the revisions being considered "would respond to a number of suggestions that have appeared in comment letters."
"Nothing is drafted yet," he said. "I don't think the staff has made up their minds precisely." Roberts said he is likely to support an amendment to the significant obligor provision.
The Maine Municipal Bond Bank warned in a July 21 comment letter that the rule would "substantially impede the ability of agencies to achieve their statutorily created public purpose."
Bob O. Lenna, executive director of the bond bank, wrote in the 13 page letter: "The proposed 20% standard does not recognize the fact that many states provide specific guarantees of debt payment through such mechanisms as statutorily created moral obligation reserve funds where the state will step in to make payments if the issuer has depleted its available funds to make such payments."
The Council of Infrastructure Financial Authorities warned in May that the provision could impose "crippling administrative and financial burdens on the state financing authorities which constitute CIFA's membership ."
The SEC should require issuers to provide secondary market disclosure for obligors with 20% or more of repayment obligations only if the issuing authority has decided that the information would be "material," the council said.
In addition, those borrowing less than $5 million should be exempt from the rule even though they may exceed 20% of the issuance, the council said.
Ten market groups told the SEC in a joint comment letter Aug. 11 that the "significant obligor" provisions should be dropped from the rule and replaced with language that emphasizes "the importance of disclosing material information about the source or sources of payments of the bonds."
If some form of the significant obligor concept must be retained, it should apply only to financings by pools and similar entities, the market groups said. And like the infrastructure council, the coalition said a "materiality" standard should be used to decide whether disclosure about a significant obligor should be made.
