NFMA urges issuers to be proactive on emergency disclosure

The National Federation of Municipal Analysts has completed work on a white paper calling for targeted emergency event disclosures from state and local governments.

The document, dated June but announced earlier this month by NFMA, is the final draft of a paper first floated in March. While the paper focuses on COVID-19 disclosure, NFMA has said it’s intended to act as a template for future events such as large-scale tropical storms, wildfires and other climate-related damage.

NFMA, which represents analysts at rating agencies as well as mutual funds, broker-dealers, financial advisory firms, and other businesses, said in the white paper that the existing disclosure regime doesn’t go far enough to inform investors during emergency situations.

“Unfortunately, the current SEC Rule 15c2-12 continuing disclosure requirements and typical indenture/loan/lease reporting requirements do not address comprehensive COVID-19 or other emergency event disclosures, except when the impacts contribute to a reportable covenant breach,” NFMA wrote.

“Consequently, municipal issuers will need to utilize the voluntary reporting function of the EMMA system to best inform municipal investors, rating agencies, regulators, and the public on COVID-19 matters, and proactively file material COVID19 disclosure documents on EMMA.”

The paper “represents a ‘snapshot’ of disclosure elements needed by investors to assess the condition of investment holdings during and after an emergency event, but like all NFMA white papers and recommended best practices in disclosure, this white paper is subject to update and revision as circumstances change,” said Anne Ross, NFMA chair.

The final product is extremely similar to the earlier draft, but includes some additional NFMA guidance. NFMA recommends issuers disclose amended budgets as a result of COVID-19, material declines in the use of government buildings, ridership declines in transit and cost-cutting efforts, such as employee layoffs, among others.

Issuers have historically pushed back against calls for them to go above and beyond their contractual disclosure obligations, with some issuer officials noting in the past that frequent interim disclosures are not realistic for most issuers.

The Government Finance Officers Association’s guidance on COVID disclosure has stressed that all disclosures should be factual and that voluntary disclosures “are a helpful way to keep investors apprised of the government’s fiscal conditions.”

NFMA’s bottom line message in the white paper is that issuers should be proactive in informing the market about both good and bad changes in their circumstances.

“Municipal issuers should highlight positive events and positive changes in circumstances related to emergency events and not just dwell solely on negative disclosures,” the group said in the white paper. “Such proactive disclosures will help build and retain investor confidence in a municipal issuer’s bonds.”

The NFMA has written recommended best practices and white papers on about 30 different sectors and topics in the municipal bond market, and last month sought feedback on an RBP for toll road bond disclosure.