With its newly adopted disclosure rules, the Securities and Exchange Commission is trying to lift the curtains behind which troubled bond issuers sometimes hide.
Healthcare industry groups agree that annual updates of financial and operating status will help bond buyers make informed purchasing decisions.
In fact, rating agencies and bond issuers already require much of the same information called for in the long-awaited SEC rules, which were issued this month and apply to new offerings in 1995.
But bond buyers complain that some hospitals haven't provided much information at all. "If we don't get timely information, we just don't even think about buying those hospitals," said Ashton Patton, a bond trader at Scudder, Stevens & Clark in Boston. The SEC's rules are expected to help fill the information gap.
"I think this is very good as an outcome for the healthcare industry," said Patty Hlavinka, administrator of policy and government relations for the Healthcare Financial Management Association.
The final rules address finance officers' concerns about the cost of compliance by stating that bond issuers may not be charged. And instead of audited financial statements, the SEC requires financial and operating information that mirrors the type of information provided in the final official statement, the document that describes the initial bond offering.
The regulations bar brokers and dealers of municipal securities from underwriting bonds unless an issuer agrees to provide ongoing updates of important financial and operating information. Essentially, after an initial bond sale, the issuer will be required to provide annual financial statements and disclose any "material events" that may affect its fiscal or operational status.
The rules apply to bonds sold as of July 1, 1995. Annual financial statements will be required for fiscal years ended after Jan. 1, 1996. Small issuers, with less than $10,000 in bonds outstanding, are exempted from the rules.
The SEC's threat of action roused industry leaders to write their own guidelines for providing financial and operating disclosures after an initial bond sale.
The HFMA's "Statement No. 18," published in May, suggests the types of data that should be provided, such as audited financial statements and an analysis of financial and operating information. A healthcare bond financing task force representing healthcare finance officers, bond issuing authorities and investment banking firms adopted the HFMA's guidelines this summer (Aug. 15, p. 45).
The SEC leaves the format of disclosures up to "market practice." A footnote refers to the HFMA's guidelines.