NAST Webinar SEC Proposed Amendments to Rule 15c2-12 May 5, 2017 Joel Oswald and Rebecca Konst

Proposed Amendments to Rule 15c2-12 SEC proposed rule amends Rule 15c2-12, which requires broker dealers to reasonably determine that the issuers provides timely notice of certain events   Comments due May 15, 2017 Proposed amendments add two new events to list of event notices: “Incurrence of a financial obligation of the obligated person, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation… any of which affect security holders, if material.” “default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a financial obligation… any of which reflect financial difficulties.”

Rationale for Proposed Amendments to Rule Reason for the Proposed amendments to Rule 15c2-12 Market participants do not always have timely access to the audited financial statements of issuers so are not always fully informed Market participant, FINRA, MSRB efforts to encourage issuers and obligated persons to voluntarily disclose information about obligations not in the current list of events Limited voluntary disclosures

Comment Letters on Proposed Amendments Select comment letters submitted thus far: MSRB - supports proposal National Association of Bond Lawyers (NABL) – concern about burdens of complying Texas Higher Education Coordinating Board – more specific disclosure

Questions?

New Issue Price Regulations Effective June 7, 2017 State Debt Management Network May 5, 2017

Agenda History of Issue Price Summary of Issue Price Rules Effective June 7, 2017 Highlight State-Level Issuer Points of Interest Resources Webinar Goal – Awareness to new Issue Price rules ; Encourage all issuers to start discussions with their bond counsel, tax counsel, financial advisor, and other finance team members about how the new Issue Price rules will be addressed and complied with.

History of Issue Price Issue Price utilized for many aspects of public finance/tax-exempt financing; arb yield, advance refunding escrow yield, proceeds, other Current regulations include reasonable expectations Issue price of each maturity of bonds that is publicly offered is generally the first price at which a substantial amount (defined as 10%) is reasonably expected to be sold to the public. Issue price certifications – On the Sale Date, the Underwriters reasonably expected that all the Bonds would be first sold to the Public at initial offering prices equal to the prices (shown on the attached schedule). Issue price certifications – At least ten percent (10%) of the principal amount of each stated interest rate and maturity of the Bonds has been first sold to the Public at initial offering prices not greater than the prices shown on the attached schedule….. the actual sales (or lack of sales) of the Bonds maturing __________________ at prices that are different than the prices shown (on the attached schedule) are due to market conditions, and are consistent with the reasonable expectations, as adjusted for market conditions, of the Underwriters as of the Sale Date regarding sales of those Bonds.

History of Issue Price Treasury and IRS proposed Issue Price rules in 2013 Issue price based on actual sales and proposed raising the “substantial” standard from 10% to 25%. Raised concern that issuers would need to track secondary trades; concern of all that 25% standard is difficult to meet. Treasury and IRS proposed revised Issue Price rules in June 2015 Issue price based on price at which the first 10% of the bonds actually sold to the public. Alternative required underwriter certification and documentation of market changes leading to any higher issue price. Raised concerns with underwriters.

Issue Price Effective June 7 New Issue Price rules effective for all bonds SOLD on or after June 7, 2017 The new Issue Price rules are different than prior regulations and include new exceptions. In short, Issue Price is that at which a substantial amount (at least 10%) of each maturity is actually sold to the public. Clarified definitions of Public and Underwriter. https://www.gpo.gov/fdsys/pkg/FR-2016-12-09/pdf/2016- 29486.pdf

Issue Price Effective June 7- Major Exceptions to 10% Competitive Sales Issue Price for competitive sales can be based on the initial offering price of the winning bid. Notice of Sale widely available Equal opportunity to bid Must receive bids from at least three (3) underwriters Bid from a “bank” could count for this total Award sale to the bidder with highest price (lowest cost of funds) Hold The Price While the Issue Price rules include this exception, all Issuers MUST BE AWARE that this exception will likely result in higher cost of funds. Issue Price may be determined based on initial offering price on the sale date if EACH underwriter agrees in writing to hold the price of a maturity at a price no higher than the initial offering price for up to five (5) business days after sale date.

Implementation Considerations Documentation under development; standard forms prepared by SIFMA, NABL and others. Documents and process evolving and changes likely as all parties implement the new Issue Price rules Negotiated Sales Agreement Among Underwriters Bond Purchase Agreement Issue Price Certification Competitive Sales Notice of Sale – SIFMA Alternatives (4) Market participant awareness. Consider the June 7, 2017 effective date of the new Issue Price rules when scheduling new bond sales

State-Level Issuer Points of Interest Encourage all issuers to start discussions with their bond counsel, tax counsel, financial advisor, and other finance team members about how the new Issue Price rules will be addressed and complied with State laws vary on competitive sale requirements. While the focus may be on the details of the competitive sale exception, the new Issue Price rules/General Rule applies to ALL bond issues Bank Loans Expertise, staffing, and contracts should provide state-level issuers with options to comply with new Issue Price rules If 10% standard is not met on sale date, requirement for underwriter to promptly report the prices that bonds are sold to the public; determine Issue Price after closing.

State-Level Issuers Points of Interest Require single point of contact with underwriters (book-running manager or winning bidder) Market risk of “Hold The Price” option will be passed along to issuers Structures vary by states; concern that competitive sale exception may be a challenge for smaller issuers to meet Issuer compliance with their 15c2-12 undertaking?

Resources New Issue Price Rules https://www.gpo.gov/fdsys/pkg/FR-2016-12-09/pdf/2016-29486.pdf SIFMA Proposed Riders/Alternatives http://www.sifma.org/issuepricedocs/ NABL Proposed Issue Price Certificates https://www.nabl.org/ https://www.nabl.org/DesktopModules/Bring2mind/DMX/Download.as px?portalid=0&EntryId=1097 David R. Erdman, Director State of Wisconsin Capital Finance Office david.erdman@wisconsin.gov (608) 267-0374