WASHINGTON -- Goldman, Sachs & Co. can remarket $70 million of variable-rate demand bonds without complying with the agency's disclosure rule, the staff of the Securities and Exchange Commission said last week.
Robert Colby, SEC general counsel for market regulation, said Goldman can remarket the 1985 Regents of the University of Minnesota bonds without having to obtain and review a copy of a near-final official statement -- as required by Rule 15c2-12 -- as long as it markets the securities in minimal $100,000 lots.
The original sale was in $5,000 denominations. This would disqualify the bonds from exemption from the rule because the bigger denominations help the SEC ensure that the bonds will be sold to sophisticated investors, rather than to the retail market.
Mr. Colby made the statement in a July 23 letter to Goldman Vice President David Bloom, who had written July 15 seeking an exemption.
The rule exempts deals made to a limited number of sophisticated investors or deals with short maturities as long as they are in denominations of $100,000 or more.
Goldman's exemption is the first granted by the SEC since it ruled in March that remarketings must comply with rule 15c2-12 unless they qualify for one of the exemptions built into the rule or a separate exemption is obtained.
The agency had announced that position in a letter to Los Angeles bond counsel Pillsbury, Madison & Sutro in which it rejected the firm's argument that the disclosure rule applies in only narrow circumstances to remarketings.
In the March letter, however, Mr. Colby noted that the staff will make an exemption available for a remarketing issued in denominations under $100,000 as long as the remarketing agent agrees to sell bonds in not less than $100,000 lots.
Mr. Colby noted that Goldman said that the 1985 bonds are rarely traded in the secondary market and that a secondary market is unlikely to develop since the bonds will be remarketed for only six months.
Stanley Keller, chairman of the National Association of Bond Lawyers' committee on securities law and disclosure, said it was "gratifying" that the SEC is providing relief from the technical requirements of the rule under these circumstances. But the partner with Palmer & Dodge in Boston said the question remains whether firms can rely on this letter for similar deals or whether they have to seek exemptions on a case-by-case basis.
Goldman's Mr. Bloom was unavailable for comment Friday.
The letter to Goldman is the fourth exemptive letter the SEC has issued under 15c2-12, its first-ever municipal disclosure rule, enacted Jan. 1, 1990.
The SEC staff issued its first interpretation of 15c2-12 in April 1990 in a controversial letter to Robert Ferdon, an attorney with Mudge Rose Guthrie Alexander & Ferdon in New York.
The SEC letter said an underwriter must review disclosure information before distributing a peliminary official statement or soliciting investors. It also said participants in Mr. Ferdon's deal could conduct the review without knowing the name of the credit enhancer or the maturities to be insured if the information was not known at the time.
The letter was issued as an individual exemption for Mr. Ferdon's deal, but Mr. Colby said earlier this year that anyone facing similar circumstances can rely on the letter's guidance.
Mr. Colby said that despite delays, the agency still plans to issue a follow-up to the Ferdon letter that offers new guidance on what information can be omitted from preliminary official statements under Rule 15c2-12. The agency had hoped to issue a letter earlier this year.
New information was requested last summer by industry groups who said the industry is anxious for broader input from the agency on the subject.
While underwriters may win an exemption from the requirement under 15c2-12 to obtain and review a near-final official statement, they are still required under an SEC legal interpretation to have a "reasonable basis" for recommending any municipal securities.