MUNICIPAL BOND POST-ISSUANCE RECOMMENDED POLICIES AND PROCEDURES FOR PURPOSES OF SEC RULE 15c2-12 COMPLIANCE

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1 MUNICIPAL BOND POST-ISSUANCE RECOMMENDED POLICIES AND PROCEDURES FOR PURPOSES OF SEC RULE 15c2-12 COMPLIANCE 2/3/11 Draft Digital Assurance Certification L.L.C. ( DAC ) believes that each issuer or obligated person subject to the disclosure requirements of SEC Rule 15c2-12 (the Rule ) should consider implementing certain policies and procedures in place in order to ensure compliance with the requirements of the Rule and their Disclosure Dissemination Agent Agreement ( DDAA ). The general policies and procedures are intended to assist issuers and obligated persons in considering certain options in establishing these policies and procedures. Your DAC representative will be happy to assist you in developing a disclosure program catered to your needs. DEVELOP FORMAL, WRITTEN POLICIES AND PROCEDURES 1. Identify the individual(s) who will be responsible speaking on behalf of the issuer and establish a protocol such person(s) to approve all external communications. 2. Depending on the issuer s size, consider creating a Disclosure Working Group or team (the ). 3. Develop written policies and procedures addressing: a. Annual Reports (see ANNUAL REPORT REQUIREMENTS below) 1. Identification of inmation required to be submitted per the DDAA, the date(s) of submission of such inmation. b. s (see EVENT NOTICE REQUIREMENTS below) 1. Identification of person(s) responsible monitoring events and, if there is a materiality requirement, determining materiality. c. Voluntary Disclosure (see VOLUNTARY DISCLOSURE REQUIREMENTS below) 1. Identification of potential areas of investor interest and the person(s) responsible monitoring such inmation. d. Providing inmation required to be filed with other entities (e.g., rating agencies, etc.) or more frequently than annually (see THIRD PARTY INFORMATION/QUARTERLY DISCLOSURE REQUIREMENTS ) below). e. Monitoring issuer/obligated person website inmation. f. Coordinating continuing disclosure with primary disclosure. PPAB v1

2 g. Identification of person(s) responsible drafting reviewing annual reports and/or notices. h. Identification of person(s) responsible making filings with DAC. ANNUAL REPORT REQUIREMENTS 1. Audit. Review each DDAA s requirements filing of Audited Financial Statements with DAC. DAC suggests that the following template be maintained each bond issue. This list should include bonds which are exempt from the Rule: Name of Issue/Principal Amount of Issue Final Maturity CUSIP Final Maturity Trustee or Paying Agent by which Annual Report Must Be Filed (or exemption under the Rule) 2. Annual Financial. Review each DDAA s requirements the financial and operating data which must be filed with DAC each obligated person. DAC suggests that the following template be maintained each bond issue subject to the Rule. The financial inmation and operating data listed is commonly found in DDAAs, and is used only as examples: Financial and Operating Data Bonds Which is Required Source of Audit/CAFR All Auditors Budget All Budget Office Current FY Five-Year All Finance Summary Director Update Rate Covenant 2008 Bonds Utilities Compliance General Mgr. Debt All Debt Office Drafting and/or Compiling Reviewing by which Must Be Filed PPAB v1 2

3 EVENT NOTICE REQUIREMENTS 1. For bonds (subject to the Rule) issued on or after December 1, 2010, the following events would need to be filed with DAC within ten (10) business days of their occurrence: Principal and interest payment delinquencies Non-payment related defaults, if material debt service reserves credit enhancements Substitution of credit or liquidity providers, or their failure to perm Adverse tax opinions, the issuance by the IRS of proposed or final determinations of taxability, s of Proposed Issue (IRS Form 5701 TEB) or other material notices of determination with respect to the tax status of the security or other material events affecting the tax status of the security Modifications to rights of security holders, if material Bond calls, if material, and tender offers Defeasances Monitoring of Occurrence of Determining Materiality (if required) ( adverse tax opinions and the issuance by the IRS of proposed or final determinations of taxability) ( tender offers) Drafting PPAB v1 3

4 Release, substitution, or sale of property securing repayment of the securities, if material Rating changes Bankruptcy, insolvency, receivership or similar event of the obligated person The consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material Appointment of a successor or additional trustee or the change of name of a trustee, if material Failure to provide in a timely manner notice to provide required annual financial inmation by the date specified in the DDAA/CDA PPAB v1 4

5 2. For bonds (subject to the Rule) issued prior to December 1, 2010 (and the issuer/obligated person is not also subject to a DDA post November 30, 2010 bonds), the following events, if determined to be material would need to be filed in a timely manner with DAC: Principal and interest payment delinquencies Non-payment related defaults debt service reserves credit enhancements Substitution of credit or liquidity providers, or their failure to perm Adverse tax opinions, or events affecting the taxexempt status of the security Modifications to rights of security holders Bond calls Defeasances Release, substitution, or sale of property securing repayment of the securities Rating changes Failure to provide in a timely manner notice to provide required annual financial inmation by the date specified in the DDAA Monitoring of Occurrence of Determining Materiality (if required) Drafting PPAB v1 5

6 VOLUNTARY DISCLOSURE REQUIREMENTS 1. In addition to preparing Annual Reports and, the may wish to keep investors inmed by providing inmation that is not required to be provided under the DDAA. Examples of such types of inmation are investments, interim financial inmation, capital improvement plans, fund balance policies, etc. 2. Because providing this inmation is voluntary, the must constantly monitor and seek out events which may impact the issuer or obligated person, and then bring these events to the s collective attention so that a determination can be made if the event should be disclosed. 3. For example, if there is a news report that the issuer s largest employer (and taxpayer, utility system rate payer, etc.) is reducing employment, the may want to assess the impact on taxes, utility system rate covenants, etc. 4. Also, if the issuer/obligated person maintains an Investor Relations website, or routinely posts Board agenda packages, including interim financial inmation, capital improvement plans, etc. on its website, the must check and, in some cases, reissue the posted material with an explanatory note (e.g., the interim financial inmation is presented on a cash, as opposed to accrual basis). DAC suggests that the following template be used as a starting point: Source Monitoring Interim Board package Finance Director Financials Pension Report Consultant Finance Director New Industry Changes in GASB Reporting Requirements Development Council GASB Economic Development Office Finance Director was Identified was Reviewed by was Disclosed or Determined not to be Disclosed PPAB v1 6

7 THIRD PARTY INFORMATION/QUARTERLY DISCLOSURE REQUIREMENTS 1. Often, an issuer is required to file interim financial inmation with third parties (e.g., bond insurers, credit enhancers). Because these filing requirements are not addressed by the DDAA, unless notified by an issuer/obligated person that it requires assistance from DAC, DAC will not be in a position to assist with these filings. 2. We suggest that the following template be used: Financial and Operating Data Quarterly Financial Statements Budget Amendments Issuance of Additional Bonds Bond Document Amendments Bonds Which is Source of Required 2008 Bonds Budget Office All All Budget Office Finance Director 2008 Bonds Utilities General Mgr. Drafting and/or Compiling Reviewing by which Must Be Filed COORDINATING CONTINUING WITH PRIMARY DISCLOSURE 1. It is expected that the will be responsible collecting and reviewing inmation set th in official statements prepared in connection with new bond offerings. 2. The Management s Discussion and Analysis from the prior year s audited financial statements should be reviewed by the to ensure that the unaudited inmation which was provided in that portion of the financial statements is updated. PPAB v1 7

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