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good afternoon and welcome to today's disclosure training webinar we're excited that you're able to join us today and we think you'll find this training session both informative and useful as you begin to navigate your disclosure obligations to shine a light on the importance of the topic we're going to discuss today is recently as last week Rebecca Olsen who's the head of the FCC's Office municipal securities told industry participants that timeliness of disclosure is a major focus of the SEC and that the SEC will continue to create initiatives to increase disclosure compliance it's clear that the SDS focus on quality and timely disclosure did not end with the NPDC initiative and training like you receive today will help you prepare to operate in this new regulatory environment before we dive into the training program I have a couple of housekeeping items that I wanted to cover with the group first and maybe most importantly for those of you having to listen through us for an hour we have some information on how you can claim your CLE and CTE credit for participating in this training program following the conclusion of this webinar you're going to receive a follow-up email that has a copy of our presentation it will include a process for receiving a certificate of attendance so be on the lookout for that email and click on the link that is included in that email for your certificate of attendance second we have some time built in for questions and answers at the end of this presentation the webinar platform has a question feature box and the upper right hand side of your screen if you type in a question or be visible to us and at the end of the presentation we'll answer those questions that were submitted during the course of the presentation and if we don't have time to get to your question we'll reach out to you after the presentation is finished if you have issuers specific questions that you want to ask we would ask that you please feel free to reach out to your bracelet attorney following the presentation to deal with those issues specific information with those administrative matters out of the way let me introduce today's panel my name is Jonathan frell's and joining me on the panel today are Paul Meiko and Edie Viera I'm a public finance partner in Bridgeville Houston office and in that capacity is the pleasure to work with a number of you that are on this phone call I represent a broad section of issuers is bond Council and disclosure council and also service underwriters Council I previously served as Deputy Attorney General and chief of the public finance position at the office of the Attorney General Paul Makos with us today is a partner in our Washington DC office he's a former senior official of the United States Securities and Exchange Commission and there he served as the first head of the FCC's office of municipal securities today Paul provides clients including issuers municipal advisors and broker dealers with a comprehensive perspective on enforcement regulatory and compliance matters before the SEC the Department of Justice FINRA the MSRP and State's Attorney General our final panelist today is Ed Fierro as senior counsel in our Houston office and Ed previously served as senior counsel the FCC's office of municipal securities as an internal counsel and its internal counsel from major banking firm while if the SEC ed was responsible for coordinating the FCC's municipal securities activities in administrating rules pertaining to the municipal securities market Edie services disclosure counsel and underwriters counsel and assist underwriters municipal advisors with their compliance activities as I mentioned at the beginning of the program the Securities and Exchange Commission remains focused on disclosure in the municipal securities market it has recently adopted amendments rule 15c to 12 that are going to have significant impact on issuers and underwriters and your compliance with continuing disclosure obligations the SEC is focused on disclosure makes it critical that you understand your role and responsibilities under the federal securities laws and the disclosure training such as this is a can be a critical component of your compliance efforts as for our objective today we have to provide you with an overview of federal securities laws in order to give you background on your obligations we're going to discuss some recent SEC enforcement actions and highlight some important takeaways for you we're going to discuss the recent amendments to rule 15c 212 and talk about how you can begin to prepare for the implementation of the rule and finally we're going to discuss some disclosure best practices with that I'm going to turn the conversations over to Ed Fierro for a brief overview of the federal securities laws great Thank You Jonathan good afternoon everyone I just start by first discussing the anti-fraud provisions federal securities laws enacted broad exemptions for municipal securities except for the inactive provision anti-fraud provisions it's important that you have a fundamental understanding of anti-fraud provisions because enforcement of the provisions the primary means the SEC regulates issue Asian and our fraud provisions are designed to ensure that parties buying and selling securities have access to information necessary to make an informed investment decision the provisions are contained in Section 17 a of the Securities Act and section 10 B of the Exchange Act and rule 10 B 5 promulgated thereunder generally the anti-fraud provisions prohibit any person from making an untrue statement of material fact or omitting any material fact necessary to make statements made in light of the circumstances under which they were made not misleading in connection with the offer purchase or sale of any security a crucial element here is determining what a what is a material fact which we'll discuss in the next slide it's also important to understand that any person including issuers and issuer officials we found in violation of anti-pop provisions by mere negligence under Section 17 a for example a negative negligent failure of an issuer to be informed about the issuer's financial condition may be sufficient behind section 17 a violation it's also important to understand that the SEC doesn't have to prove that an alleged violation of the anti-fraud provisions resulted in any bond default loss of value or financial harm to any investors so what is a material fact though the a font provision is only prohibits Miss statements and omissions of material facts but this concept is not specifically defined by any SEC rule and the SEC hasn't provided any interpretive guidance on the tear-out materiality the concept has largely been developed through Supreme Court and SEC enforcement actions and enforcement actions the SEC has generally stated that a fact would be material if there is a substantial likelihood that his disclosure would be considered significant by a reasonable investor the SEC interpretation does isn't very helpful because doesn't provide any insight into what significant means or who might be a reasonable investment a Supreme Court has held that if a material that if that in fact is material if there's a substantial likelihood that the fact would have been viewed by the reasonable investor as having significant or the total mix of information made available this is important because it shed lights into the provides clarity as to the courts interpretation and clarifies that the totality of the facts and circumstances is an important consideration when analyzing disclosure issues so in many cases materiality ends up being decided only in hindsight which puts a great deal pressure on parties to a transaction to make an appropriate decision when citing on a disclosure issues SEC enforcement actions provide us the best insight into what the SEC considers to be material so it's important that you or your counsel have an understanding of past recent enforcement actions hold provide an overview of reinforcement actions later on in our presentation now I'm moving on to secondary liability the SEC has increased its focus on municipal issuer officials condition of primary liability of the issuer under the anti-fraud provisions the SEC has successfully received claims of secondary liability for example the SEC has pursued claims to control personal liability and aiding and abetting liability control person liability under Section 20 a of Exchange Act liability for individuals involved with the securities offering even if they don't have knowledge of the contents of disclosure documents for example in the island park case the SEC alleged that the former mayor was liable as a controlling person simply based on his authority and control to these municipalities now aiding and abetting liability in a federal securities laws there's a liability for knowingly or recklessly is fisting with a violation by another person or entity or example and the Oyster Bay Enforcement case the SEC alleges the city's former town supervisor was liable for aiding and abetting based on its conduct at the town it's important understand here that the SEC is increasingly holding issuer officials accountable where they engage in violations of federal securities laws I'll now turn it over to Paul continue this discussion by now you must be wondering when do these anti-fraud provisions apply to me well they apply when your issuer in a document or you either in a statement that you make or in writing that you make make statements about the issuers finances or financial conditions that are reasonably expected to reach investors and the trading markets practically speaking this means these laws apply to you when you're providing information to the rating agencies when you're meeting with the rating agencies the presentations you prevent to provide them the statements you make during those meetings are all subject to the anti-fraud provisions when you preparing a new post a preliminary official statement a final official statement and any supplement you're speaking to the market and the anti-fraud provisions apply in those instances similarly when you're filing continuing disclosure either annually or on event notices when something happens you file something with Atma whatever you file with EMA is a statement to the market and the anti-fraud provisions apply to that most importantly it's to be is being conscious that statements that are made publicly and press interviews speeches website postings public appearances about the financial condition of the issuer all subject to the anti-fraud provisions so careful thought before such statements is very appropriate inadequate disclosure practices can lead to some fairly negative outcomes an investigation by the SCC itself may not find fault on your behalf but it's certainly a very expensive process to undergo in terms of producing documents testifying under oath preparing to testify and hiring attorneys to help you with all of that even if there's a no outcome that finds that you did anything wrong the event can occur the SEC question can come up not right away but it may be up to five years later is a five year statute of limitations so underscoring all of this is the importance that disclosure procedures are like an insurance policy the SEC must prove at least negligent conduct that occurred if you behave in the way a reasonably person reasonable person would in management of their affairs you've acted in a manner that is not negligence negligence is something when you act contrary to the way a reasonable prudent person would so if you procedures in place you follow them like an insurance policy to protect you against an SEC enforcement action thanks fall if we as we look at this I think there's one really important takeaway that we want you to all have no matter the fact that when we work on transactions there are numerous parties at the table reviewing disclosure documents the security flaw and the security flaws apply to both issuers and underwriters alike it's important for issuers to remember that they remain primarily responsible for the accuracy of their disclosure documents while your underwriters and consultants can offer important insights in the materiality certain above certain events and the presentation of information inside of your documents you as issuers ultimately own the disclosure documents so when we think of disclosure a lot of focus goes into the primary market disclosures that we make in connection with preliminary official statements and official statements however is Paul alluded to and that alluded to earlier issuers speak of the market and a number of ways in addition to primary market disclosure issuers speak in the market through their continuing disclosure this often includes your annual updates the tables and audited financial statements as well as event notices under your CDA s the recent conclusion of the mc/dc initiative being on the mind of many market participants and the impending amendments that rule 15c to 12 will make continuing disclosure continue to grow in importance it will also grow as an area of focus for underwriters working on your transactions another way issuers speak of the market is through a will call anytime disclosures anytime disclosures include those public statements that Paul mentioned that are reasonably expected to reach the investment community any time disclosures typically become an interest of the SEC when there's been a failure to address an issue through primary market disclosure or continuing disclosure and investors are driven to look for information elsewhere number of us have worked on transactions and a lot of focus goes into the primary offering disclosure is working groups we spend a considerable amount of time on the diligence process working on and debating the contents the preliminary official statement and the official statement much of this review is to help you as an issuer reach the conclusion that offering documents meet your obligations under the anti-fraud rules in addition under the securities laws underwriter must also be able to form a reasonable basis on which they can recommend securities for purchase and reaching that conclusion underwriters rely in part on representations and certifications that are made by issuers both in the bond purchase agreement and in closing certificates those documents will almost always include a certification the effect of the official statement does not contain an untrue statement of material fact or a myth state of material facts required to be stated therein necessary to make the statements there and the light of the circumstances under which they were made not misleading well that's a mouthful and difficult to to read those representations and the certifications must not be made lightly it's those certifications that form the basis for potential liability under the federal securities laws Edie why don't you tell us a little bit more about continuing disclosure great thanks so the legal basis for continuing for the de toutes continuing disclosure obligation is rule 15c 212 in 1994 to improve disclosure practices in the secondary market the SEC adopted amendments to rule 52 to 12 that require the underwriter of an issue of new securities to obtain a commitment from the issuer to provide certain continuing disclosure and this is an important point because the obligation is on the underwriter this commitment typically takes the form of a continuing disclosure agreement executed by the issuer at closing and this PDA generally requires issuers to provide three types of ongoing disclosure an annual report and an audit if when available which means which must be provided by a specific date notices certain events within ten business days of the currents and notice of failure to file an annual information on time since that continuing disclosures are intended to be read by existing or future bond holders in the secondary market they're subject to the anti our provisions so before publicly posting continued disclosure information issuers should always be careful to review the disclosures to ensure that there are no materially false or misleading statements issuers should also carefully review the section of the CDA describing the contents of the annual report description of non-audit information to be to be provided should be specific if possible it also it is important to be consistent if annual requirements not vary from one issue to the next unless necessary with respect to timing most issuers agree to provide the annual report for student fiscal year within six to nine months but it's important to note there is no specific timing requirement in rule 15c 212 an issuer should create a deadline that's based on their particular facts and circumstances so how do you violate a continuing disclosure agreement or what many call a CDA you violate a continued discourage agreement if you do not comply with the promises you made to bondholders for example if you do not file the annual financial information by the date you promised you violate the CDA similarly you don't file a failure to file notice or any event notices you violate the CDA careful attention should be given to the promises made in the CDA issuer should consider identifying all outstanding continuing closed disclosure obligations especially with respect to Ana reports important as issuers look to the terms of the CDA not to rule 50 to 212 when identifying their obligations while issuers can engage third parties to assist with their continuing disclosure obligations Jonathas mentioned the ultimate responsibility is that of the issuer as is and as you all know has generally been increased attention to continue to score compliance by underwriters investors and the SEC so what happens if you finally see da if you violate the CDA your breach you breach your contract with bondholders and this is important you do not violate federal securities laws for not complying with the terms of your CVA now if you return to the municipal securities market within the next five years you must disclose the breach of the C 80 CDA in every official statement over the next five years but provided that that breach was material if you fail to disclose material breach of the CA an official statement and at that point you violate anti-fraud provisions remember issuers are not subject to SEC regulation except for the enforcement of anti-trans now will briefly discuss anytime disclosure as Paul mentions when an issuer provides information as reasonably expected to reach investors and the trading market such information is subject to the anti proper list such when issuer releases information regarding its finances disclosures should be carefully evaluated as sure that is not materially false or misleading for example such statements can be made by the issuer on its website writers radiating seeds as Paul mentioned or made by public officials and speeches to be clear there's no securities law that prohibits an issuer from speaking to the market but the statements made to the market must not be materially false and misleading so care should be taken by issuers to not make public statements and they provide only a partial story or distort investors perceptions of the issuers financial condition I said with that background of securities laws and the way esters communicate with the market in mind let's turn to the SEC s increased focus on the municipal securities market all municipal markets in the midst of a period of pre active enforcement activity what can you tell us about the SEC enforcement actions and what it means for our issuers well in recent years the SEC has broad enforcement actions for inadequate disclosure about pension funding shortfalls misleading or incomplete disclosure about an issuer's financial condition the failure to disclose the use of unusual accounting actions failure to disclose shortcomings and risky economic development projects they order to disclose other financial or legal risks and of course everyone's favorite NCDC the failure to comply with continuing disclosure obligations and not properly disclose that failure in offering documents there's been little change in the SEC s focus in the sense the change in administration at least as far as focus on issuers and issuer officials is concerned while McD's MCD sees in the past municipal issuers and their officials are still very much in the spotlight the change of the administration both the Department of Justice and the SEC leadership emphasize their focus on individuals as being responsible for securities fraud in order to protect yourself from potential liability as we've indicated before exclusion policies and procedures are the best way to go about it issuers without disclosure policies and procedures or who have poor policies and procedures or great ones but don't follow them are much more likely to have a disclosure problem this becomes of even greater importance when you take into consideration the to new event notices that the SEC has adopted to rule 15c 212 and which become effective and that is they must be used starting February 27 2019 they're very complicated and they require a lot of preparation by issuers the SEC said that in the adopting release in several places in fact they've given an extended time to comply so issuers can begin to prepare to comply with those how to prepare well the SEC basically stated in the adopting release they expect you to modify your policies and procedures to comply with the new rule requirements if you don't have procedures this is probably a good time to get the SEC has had a number of noteworthy enforcement actions that we've talked about in our client alerts and everything mentioned here on the slide has been described in a client alert that's been sent to you at some point or another or is available on our website but let me talk a little bit about them first the FEC continues to work together with the Department of Justice and vice versa on a number of actions within the last two years the town of Ramapo New York involved a town the town supervisor a local development corporation the head of that Local Development Corporation the town attorney behind that was an effort to build a local baseball stadium the town had gone to the voters and the voters voted down a bond issue and so the town figured out that it working with its Local Development Corporation the Local Development Corporation could issue the bonds in the town would guarantee them this happened to be a nice workaround around the voter approval requirement however the financial positive picture wasn't working out as well as the town anticipated and the town started moving various funds into its general account to mask the deteriorating condition of the general fund all resulting from various transfers back and forth with the Local Development Corporation in order to support the baseball stadium and the SEC and the Department of Justice filed charges against that the Department of Justice went to trial against the town supervisor and after trial he was Charlie was convicted of 22 criminal accounts he's been sentenced to approximately three years in prison he's appealing that sentence in the meantime the SEC also entered a default judgment against him and other parties at the town and at the local Development Corporation entered into finally consent orders settling with the SEC Town of Oyster Bay is a little different story initially a Department of Justice investigation into corruption alleged corruption within the town involving a local restaurateur developer who the town decided to guarantee certain obligations and engagements that the developer had that turned out to be debt that needed to be disclosed or not debt technically but nonetheless an obligation that affected the town's financial obligations of reporting and the SEC came in and charged securities fraud for misleading financial information simultaneously with that SEC charge the Department of Justice chose to amend its criminal complaint and added to its 16 counts of securities fraud it spreads across not just from a direct issuers but also the conduit issuers as well there's ongoing litigation in Rhode Island involving the knot of the Rhode Island commerce corporation they were charged and consented out but there's still litigation involving the placement agent in federal court the other parties have basically consented to do that greater when Oishi was a region of Western the state of Washington local authority borrowed to develop a hockey rink again an economic development problem project that just didn't quite pan out as as anticipated and certain disclosures were not made including in this case a projection that indicated the likelihood of failure Westland Water District one of the largest water districts in California also ultimately settling with the SEC involved the movement of funds on the balance sheet in order to make the various ratios look better and avoid triggering a technical default by having one of the ratios drop below a covenant to threshold most significantly in recent time the city of Miami went to trial with the SEC in the late 1990s early 2000 the SEC brought fraud charges against the city Miami the first time around that was litigated in an administrative proceeding appealed up to the SEC from the administrative law judge the city's lost it was under a cease and desist order to to avoid future violations of the securities laws but a few years ago in the financial crisis 20 2008-2009 the city moved some funds from capital funds into the general fund in this instance the effect was to avoid triggering a violation of a debt policy the SEC brought charges again against the city the city chose not to settle but went to trial it lost a trial the SEC also brought charges against the city budget director in the after the jury came back with guilty verdicts against all involved the SEC sought a penalty of $450,000 against the budget director the city itself had felt had paid a fine of a million dollars but the budget director who made a modest relatively modest salary the SEC in its in its brief to the judge basically argued that he was no different than a corporate criminal and wanted maximum penalties imposed against him the the judge wouldn't go along with that reduce the penalties to about fifteen thousand dollars but in her order made an advisory to issuer officials everywhere noting that fuschia future of municipal employees will likely be very cautious when advising their employers on the transfer of funds between account and that continues to be a focal point of SEC investigations including ones that are underway right now thanks Paul I think one of the real big takeaways from that is what you just focused on at the end and that is that the SEC is focusing on issuer officials in connection with these enforcement actions that they're taking and so that's something we all need to be aware of that this is something that's now focusing on the individual activities of those who are participating in offerings have control over an offering and also are signing certificates in connection with those offerings so let's talk about a couple of takeaways from that and how you may help avoid getting in the crosshairs of the SEC and how to best protect yourself as Paul mentioned and we'll mention again and again in the course of this program policies and procedures that are reasonably designed to result in accurate timely and complete public disclosures are critical and will become more so in connection with the recent amendments 15 C to 12 you as an issuer should also think about identifying those persons in your organization that are involved in disclosure process and making sure that they know what their obligations are you should consider evaluating your public disclosures including financial information and audits and other statements prior to their public dissemination and you should assure through activities like the training you're just you're receiving today that responsible individuals understand what their obligations are under the federal security slaw with that we'd like to transition into a discussion on today's one of the main topics we want to discuss there which is the rule 15c 212 amendments that have just been adopted these amendments mark a real sea change in the FCC's approach under 15 C 212 the SEC reported they were concerned about perceived gap and the information that was available to the market due to a lack of publicly available information regarding products such as bank loans direct purchases and the SEC has now significantly expanded the universe of disclosures that will be required by entities that enter into continuing disclosure agreements after February 27th 2019 that extend well beyond the footprint of the official statement which was previously what we looked at in terms of what your disclosure obligations were we're lucky today to have at the arrow with us to talk about this these amendments while at the SEC edie worked on the initial draft the amendment and he's really well placed to describe those amendments to us today yeah great thank you so if we look at the current adopted rule let me step back so as Jonathan mentioned these were these rules came into effect based on private you know it's concern that the msrb had with respect to private placements and bank loans and that kind of evolved into the SEC looking at the rulemaking record of rule 15 to 212 and identifying other obligations that might be of concern and in particular in 2010 when the SEC opened up the rule then a lot of the investment funds had made strong arguments for broader disclosure so the SEC took these comments from o10 looked at 94 the whole rulemaking record and they came out with a proposing release that was quite broad and municipal market participants had a negative reaction to and what I think the I think he was trying to get at in the proposed amendments was really focusing on obligations that impacted the creditworthiness liquidity or impairing bond holders rights and if you read the adopting lease which I encourage you to do I mean it is something that contains a wealth of guidance as well as the proposing release which the SEC actually refers back to proposing lis release when talking about guarantees so if you need clarification there you can always refer back but a good read through the at least the first hundred pages which would be a great idea for anyone because I think and I think Johnson and Paul would agree with me it provides a wealth of information we will of course help all of you wade through that so that you don't have to read the full 100 a hundred pages of that of the adopting release yeah so the current rule and we got that on the screen item 1516 I was 15 there's really two parts to it the first concurrence of a financial obligation and I think that really addresses the SEC is concerned with the obligations that were impacting the creditworthiness or the quiddity the second part of it is or agreements of covenants events of default well that is really focused on a pairing bond hold of rights and I think the concern from the SEC was well there investors out there that currently hold bonds and an issuer may go out and get a bank loan that has acceleration provisions or priority rights or something that well may not be material from a let's say principal amount basis it certainly could be material from a impairment perspective so to is with two of those clauses offering together the SCC side came up with a sufficient perhaps sufficient parameters to protect investors and it's so worth noting that while the first component you identified is the operative word is in current in other words that's something new the second element is not something new or in other words the there's a financial obligation already in place but there's a change made to it and that change whether it's in covenants events the default new remedies or modification of remedies changing priority rights or other similar terms that have an effect on securities holders if it's material that too is something that requires an event notice under this new event so so T'Pol and EDD when you look at those two prongs of 15 that that's an important point for our issuers that are that are on the phone today they need to be aware both as they enter into agreements under the new rule they're going to need to be aware of financial obligations that they incur enter into but they're also going to need to be aware of the financial obligations that they currently have that are outstanding and whether they trigger any of the covenants event of default remedies priority rights etc under that well that bleeds into 16 if you if you have an event that creates that suppose that creates a notice requirement under 16 in 15 you will become aware of those prior obligations in the process of modifying them by agreeing to the covenants or modifications to them requiring a notice under 15 but you're right if the focus is not just on those that you might be changing but all that you have outstanding under 16 because under 16 you're required to report a default event of acceleration termination event modification of terms or so on the moment you sign that continuing disclosure agreement and if you don't know where you don't have an adequate inventory or listing of your various obligations that are covered you may not be in a position to comply with that rule yeah that fix it in a great point Paul you know when the SEC was developing this rule these rule amendments I think there is a well lift step back in 2010 and in 94 the offense relate to these securities being offered I think that was an easy it was an easy kind of identifying point for issuers to say well that there's a rating change with respect to here's being offered I'll go in and provide that there's a feed and bond call and go doesn't go down the list what you're seeing here is an expansion of what you call the footprint I don't know if you want to kind of dive into that and kind of explain how these events go well beyond with respect to the Securities being offered but actually go to the obligation provision very simply in 1994 when the SEC was adding the continuing disclosure requirement the municipal market the issuers the underwriters the lawyers all were very concerned that the SEC would go into the very complex world of corporate disclosure and similar requirements in the municipal area where they only had any fraud authority and the ability to interpret and complained have compliance by issuers the agreement was reached by with the SEC the SEC said that it would the requirements apply to the footprint of the disclosure made by the or the official statement and that's why if you look at the rule each of the events the whole list of event notices is preceded by the phrase in the context with effect to the securities offered so the focus point of the rule when you read it is with respect to the bond that you're offering in that offering document and if any of these events occur with respect to those bonds that's the way it is today however on February 27th that's going to change because when these rules when these two events are added to the continuing disclosure agreements the scope that issuers have to consider goes beyond the individual offering document in the bonds that are being sold to any financial obligation that's in place that if that's incurred if it's material it has to be reported or a default event acceleration or termination of any financial obligation if it reflects financial difficulties so you're moot you're really looking at your entire balance sheet as opposed to previously looking just at the bonds that you that you're selling so Paul I think that's a good Segway on let's talk a little bit about what financial obligation actually means yeah well that's a let me just say when the SEC was crafting the initial definition it was intended to be quite broad and you know because the SEC narrow the scope but you know not really if you were to look at the exposing and adoption proposing and adoption at least you know there was a a narrowing of the definition by excluding leases but the SEC kind of worked that back in which we discuss that a little later but from the rule itself so the term lease was taken out as well as monetary obligations related to arbitration and litigation proceedings other than that they did also narrow derivative instruments because before is broadly drafted and now it's in connection with a whiff or pledges of security and also guarantee was kind of narrowed but like I said before the proposing release the interpretive guidance is applicable in the FCC states that so I don't really see them narrowing what they originally thought there I think so bottom line Johnathan I think there is a narrowing but not as not as much as a lot of market participants wanted and the the so-called narrowing is only really on the surface and compared to the proposing release the actuality emerges when you read the adopting release but not the rule text for example what is a debt obligation that's explained in the adopting release if you look at what was proposed it mentioned the lease obligations before looking at this you think of great I don't have to worry about whether it's a capital lease an operating lease or any of that particularly since Gadsby's taking all of that way but it's still there it's just not in the rule it's in the adopting release explaining what a debt obligation is a lease that is entered into for borrowed money is a debt obligation and is something that when incurred if it's material triggers a report under 15 other similar definitions run through the adopting release that aren't the real in the rule at all and if you're continuing disclosure agreement merely tracks the rule you're continuing disclosure agreement isn't going to necessarily pick that up now you and your colleagues may understand that at this time but will your successors understand it well the person sitting in your chair 5:7 you're issuing 20-year bonds 15 years from now understand that that obligation includes the lease and one way of assuring that they understand that is to have disclosure procedures that inform them of that another is to consider making a continuing disclosure agreement as as a practice going forward after the 27th of February incorporating the terms are having the meaning used in the adopting release these are the types of things that we may be employing in the new realm of disclosure that comes after February 27 yeah and Paul I want to follow up on that a little bit I think it's important to say that this is an area that's continuing to develop under the law right now and in the approach that issuers take will ultimately depend on what market participants ultimately decide is the appropriate way to address the adopting release as it relates to these rules and where the adopting release definitions should come into play and so I think we're going to see that play out over the next couple of months as we as we move towards the towards the deadline the other thing I think was important to point out to the group on this call is that the definition of debt obligation as described in the adopting release is broader than what we think of as debt under state law and so we're going to make me to take a hard look at what that debt obligation definition means and how it will impact you it will likely pick up on some leases that you have it will likely pick up on perhaps even some energy performance savings contracts that have a borrowing component to them and there are certain contractual obligations that it could potentially pick up on as well all of these are things that you're going to need to pay attention to and start kind of inventory what you have as an issuer that could potentially fall in those buckets as you're as you're moving forward Paul other than other than that I know we're going to have a much more extensive discussion on 15 C to 12 both with our issuer and underwriter clients in January once the SEC and some other market participants have had some conferences where they discussed some of these issues and we've started to get some finer points on this but but right now for our issuers is there anything else practically that they should be undertaking as they prepare for these prepare for these rules well Jonathan I think the most important thing to do is to begin preparing to modify your disclosure practices and procedures to cover for this the SEC again specifically anticipates issuers will be doing that and gave them additional time to comply with the rule in order to if you don't have disclosure policies and procedures now is a time to give careful consideration to putting them in place and putting them in place in a way that helps you comply with these these new rules that will you'll have to live with next year yeah and I would add Jonathan that I think inventory in your current existing obligations and just recognizing this is going to be a steep change for the market and you should be prepared and you know I know we got our show coming up with in January to help out our clients so I think all this can be helped absolutely and we will continue to be in touch with all of you on on some best practices and pass forward on this as we approach the compliance date as kind of moving beyond that discussion we want to talk about some of the some of the clearer best practices that we see emerging first really important for you each of you is issuers to begin establishing your internal approach to disclosure I think a key point of that is for you to have a disclosure team that is going to be involved both with your offering documents and dealing with other disclosure activities one of the major hurdles to quality disclosure that you hear talked about is people working in silos and not talking with one another if you've identified those who are critical to this process and that may that may be different in every single organization because you're all structured differently but if you identify those people you talk to them about what the obligations of the issuer are and how you can work together in order to achieve appropriate appropriate disclosure having those lines of communication open can really result in much higher quality disclosure as you're see on the screen right there that is one example of a group of people who could potentially be involved in a disclosure team the CFO budget and accounting staff your general counsel etc if you create a culture that recognizes the importance of your disclosure obligation and encourage that enter internal discussion and collaboration you you have the ability to find issues before they become significant disclosure problems and I think a lot of times it just helps to understand really how your organization is working across those lines again if you have a clear point person for those disclosure issues then you know who to go talk to when they come up a major turtle so actually addressing disclosure can be not knowing who to talk to and who is ultimately responsible for making sure that the bond counselor disclosure counsel whoever's working with you knows about issues that are coming up having those clear protocols and process can be incredibly important also involving people and departments from which information is included into disclosure documents and in your audit is important I know a number of you on this phone phone call are very very aware of that and do an outstanding job at involving other people a prime example of this is when you have issues related to litigation or is involving your general counsel and taking a look at the disclosure that's in the document on that you may also have some things where the public works department may have information where it's important to review but involving those folks is very very important and again make sure that you've reviewed those documents prior to public dissemination and ultimately as we've hopefully repeated ad nauseam today so that you so that you can you can see the importance that the SEC places on this they've constantly stated that adopting and implementing comprehensive disclosure policies and procedures is the best practice and we hope you'll we hope you'll see as as 15-2 new amendments 15 c 212 come into place that this is especially important in light of the amendments 15 c 212 and what your ongoing responsibilities are going to be with respect to monitoring debt obligations that fall outside of the debt that you issue through a primary offering so Paul we've talked a lot about the comprehensive disclosure policies and procedures you briefly tell us what does actually look like one of the most [Music] sorrowful or sad things to hear as a defense lawyer preparing an issuer for testimony at the SEC is well I thought my staff would tell me I counted on them and asking well is there a process or procedure where they knew they had to tell you well no I just thought they would that doesn't get you very far quite obviously so the procedures should basically be simple efficient structure to your organization clearly identify who's responsible for what clearly state the process by which the disclosure is drafted and reviewed provide checks and balances so there's adequate supervision and reasonable distribution of responsibilities to avoid placing too much power and information with just one person you what basically want to provide an ongoing process as well so provide annual training on disclosure obligations and the SEC continually requires in its enforcement actions along with adoption of disclosure procedures use of a disclosure counsel so that is a very quick summary of the core principles remember this is really an insurance policy that if effectively used and protect you against an SEC action based on negligence great thanks Paul and and with that we will turn to some of the questions and answers that we questions that we received to hopefully provide you with good answers as we bring the presentation to a close today I think one that really stood out to me ed and Paul is a question that was that was phrased if all of our debt is backed by interest in sinking fund taxes and all of our leases are paid out of the maintenance and operations taxes or revenues do we need to disclose those does the security or security make a difference in connection with these new amendments 215 C 212 this is a disclosure it always makes a difference it depends upon the nature of the security being offered if it's limited to an express source that can't be affected in any way by extraneous activity or activity elsewhere then while they may be included in the continuing disclosure agreement you may find that a quick glance that they have no practical effect however if your circumstances change they may come into play and it's worth monitoring that or keeping that in the back of your mind should your current credit structure change so Sir Paul under that under the debt obligation definition it there is the potential that is that if it's something even though it's secured by a different source that it could end up being material for purposes of say the number 15 definition potentially the that's why is it the materiality qualifiers there if it has go take it an Effie you really have to really have to review the obligation itself and see whether it has any material impact yeah great well I think we've addressed most of the other other questions that were that were received during the during the course of the presentation you all were way ahead of us on a lot of it so those were great questions that were were there as we bring this to a close to make sure that we stay within our time limit today I first wanted to thank you for being here we also wanted to let you know that we are going to do a spotlight on Public Finance 15 C to 12 focused a Lunch and Learn in our offices it's going to be done in Houston on Tuesday January 8th Dallas on Wednesday January 9th San Antonio on Thursday January 10th and Austin on Friday January 11th that presentation will be focused 100% on the amendments to rule 15c 212 and focus on what underwriters and issuers will be doing in order to comply with those changes as we reach the compliance date on February 27th so we hope you will join us there hear more about the developments that happen from GFO a msrb and SEC as this moves forward and again we very much value your participation in this today and we look forward to talking with you if you have any further questions please do reach out to your Bracewell attorney with whom you work thank you very much for being here