Not-for-profit hospitals and health systems that finance construction, technology and other capital projects with tax-exempt, or municipal, bonds face expanded disclosure of financial and operating information, starting Dec. 1. The Securities and Exchange Commission voted unanimously to tighten and expand disclosure rules for tax-exempt borrowers.
Tighter disclosure rules for municipal borrowers
“The size of the municipal market reflects its significance to our economy,” said SEC Chairman Mary Schapiro at the meeting. She noted the market had $2.8 trillion in outstanding debt last year. “Despite the fact that the municipal securities market is now so immense, investors in this market don't have access to the same level, quality or timeliness of information as those who invest in public companies.” Schapiro said she believes the commission's limited regulatory authority over the municipal market should be expanded.
Under the new rules, borrowers no longer have discretion over disclosure of certain information, including: failure to pay principal and interest; unscheduled payment from debt service reserves reflecting financial difficulty; unscheduled payments by parties backing bonds or their failure to perform; and defeasances and rating changes.
Borrowers must also now notify investors of tender offers, bankruptcy, insolvency or receivership; mergers, consolidations, acquisitions and the sale of all or substantially all assets of the obligated person or their termination, if material; and appointment of successor or additional trustee or change in name of trustee, if material.
The SEC also gave borrowers a deadline to disclose the information: no more than 10 businesses days after an event occurs. Borrowers that issue variable-rate demand bonds are no longer exempt from disclosure.
And borrowers must also notify investors of risks to tax-exempt status.
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