RESTON, Va. -- An American Bankers Association committee yesterday said it will release a final draft of guidelines for secondary-market disclosure by bond trustees for comment by the end of June and warned trustees that pressure soon will mount for them to use the standards.
"Will there be pressure to disclose information now that we have the guidelines? Hell, yes," said Terry McRoberts, chairman of the association's corporate trust committee, noting that the market's appetite for the information is increasing.
But he said that, based on discussions he has had with issuers recently, the response to the market's push for more disclosure will be mixed. "Some issuers and trustees are embracing the changes in a very progressive manner, while others are still resisting them."
Mr. McRoberts, who is executive vice president for Security Pacific State Trust Company in Los Angeles, was speaking at a conference of the corporate trust committee in Reston, Va.
Committee members yesterday circulated a revision of the guidelines -- the third since their introduction a year ago -- and are asking for comment by the end of July. Final guidelines are scheduled to hit the streets by Sept. 1, they said.
Yesterday's draft includes only technical changes to a major overhaul of the guidelines released in two parts in November and February. Those guidelines urged issuers to build provisions in bond indentures that specifically authorize trustees to automatically release such sensitive information as bond calls and draws on reserve funds.
For outstanding issues, the guidelines urge trustees and issuers to work out a side agreement to the indenture authorizing the trustee to release certain information not spelled out in the indenture.
The agreement is important because it would enable trustees to report information for billions of dollars of outstanding municipal bond issues.
Under the guidelines, if a trustee disagrees with an issuer about whether an event should or should not be reported to the market, the trustee would use its own discretion about releasing the information.
"Do as your conscience tells you," said Jeffrey Powell, vice president of the First National Bank of Chicago, who is a principal drafter of the guidelines and sat on the panel yesterday. "I know this is a scary concept," he added.
Yesterday's draft says a central repository to receive information is "essential" for secondary-market disclosure. But it also says another option is reporting information to private information vendors or rating agencies.
The statement is a response to last Thursday's surprise decision by the Securities and Exchange Commission to defer action on the Municipal Securities Rulemaking Board's proposed electronic repository for secondary-market information, which had the strong backing of trustees.
The SEC said it would not act on the board's proposed Continuing Disclosure Information/Electronic Submission system until the system was designed to take in continuing disclosure information on paper. The current proposal calls only for electronic submission, which issuers and trustees warned is unworkable.
"We will advise the use of one or more of the NRMSIRs until such time as the MSRB launches a system that operates to our satisfaction," Mr. McRoberts said, referring to nationally recognized municipal securities information repositories designated by the SEC.
"We're still confident" that the MSRB will submit a proposal that will be approved by the SEC, he said.
"It was a Scud," said Mr. Powell, referring to the MSRB proposal before the commission last week. "It was big news to us as trustees [that it was deferred]. We were counting on it," even though it called only for electronic submission, he said.
He acknowledged that many trustees want the option of submitting information on paper to CDI/ES. "I don't want to be inputting on a computer somebody else's financials," he said.
The guidelines drew lively questioning from workshop participants. Many were concerned whether they could satisfy their duty to inform bondholders of significant events by using a repository, which would transmit the data simultaneously to the market. They worried that they could be held liable by bondholders, particularly retail buyers, who contend they should be informed first.
But Mr. Powell said trustees will satisfy their duties to bondholders by using the repository. In supplying the information to the repository, trustees are informing the market, and bondholders are part of the market, panelists said.