WASHINGTON -- The American Bankers Association yesterday released the final draft of its secondary-market disclosure guidelines for bond trustees, which urges bankers to send market-sensitive information to private repositories now that the future of a central information repository is unclear.
"In light of the recent delay in obtaining Securities and Exchange Commission approval of the Municipal Securities Rulemaking Board's proposed system for secondary-market disclosure, the guidelines recommend use of the private information vendors until a national repository is operational," said Terry McRoberts, chairman of the committee and executive vice president of Security Pacific State Trust Co., in the introduction to the 17-page set of voluntary standards.
Earlier drafts of the guidelines urged trustees to send disclosures to the board's central repository.
The SEC last month deferred action on the MSRB's proposed Continuing Disclosure Information/Electronic Submission system until the board develops a facility that can accept information both electronically and on paper. The MSRB had proposed that information be accepted only electronically.
The MSRB staff is expected to recommend to the full board whether it should propose a new version of a CDI/ES system -- a step that would be months away if the MSRB chooses to take it -- at its next board meeting July 31 through Aug. 2 in Jackson Hole, Wyo.
The bankers panel is mailing the draft to 500 corporate trustees nationwide who have until Aug. 15 to file what are expected to be final comments on the standards. The committee plans to release the final guidelines to the market in September.
The final draft now circulating includes a handful of changes to the introduction of the standards, but leaves the body of the guidelines largely intact. Those guidelines, which were introduced in two parts in November 1990 and February 1991, call on trustees and issuers to include provisions in indenture agreements spelling out exactly what continuing disclosures trustees may release to the market. They also urge issuers to write side agreements to indentures for billions of dollars of outstanding municipal bonds that also spell out what information trustees can disclose to the market.
In making the latest changes, the committee responded to comments made by the 160 trustees who attended the panel's corporate trust workshop in Reston, Va., June 10.
For instance, the final draft attempts to alleviate trustees' fears that sensitive information about a troubled issue might reach the market before it reaches bondholders. As an example, if a trustee sends information electronically to a repository but sends the same information at the same time to bondholders using the mail, trustees fear the market will learn about the critical event first.
But committee officials say bondholders will get the information at the same time as the rest of the market via their brokers, who likely will receive it on computer screens.
"The providing of notice to bondholders of a public held issue has the effect of making public the information in the notice," say the guidelines. "Accordingly, it is appropriate for trustees to provide notice to a repository simultaneously with providing any notice of the bondholders."
In another change, the guidelines warn that trust indentures can be drafted in a way that an event of default is triggered if parties to the deal fail to meet the secondary-market disclosures. To avoid ambiguity, says the committee, indentures should state clearly one way or the other whether failure to meet the provisions triggers a default.
The draft guidelines come in the wake of a U.S. Supreme Court ruling last month that is expected to place new pressure on bond trustees to step up disclosure about shaky deals before they go under. The court ruled June 20 that securities fraud cases, including those involving municipal bonds, must be filed within one year after the fraud is discovered and no later than three years after the fraud took place. Until that ruling, investors had been guided by state laws, many of which give them six years to file suits after discovering possible fraud.