Recent bond market events may require bond issuers and obligated persons to file event notices under SEC Rule 15c2-12.

Recently, Fitch Ratings (Fitch), Moody's Investors Service (Moody's) and Standard & Poor's Ratings Group (S&P) downgraded the credit ratings of certain monoline bond insurance companies. Furthermore, Fitch, Moody's and S&P have also announced that they have placed certain other bond insurers under review for possible downgrade. Based on the public statements of the rating agencies and the bond insurers, other downgrades may occur in the near future.

At the time that Fitch reduced its rating on one of the bond insurance companies, the staff of the Securities and Exchange Commission (SEC) was asked whether that event would require notice by issuers of insured bonds to Nationally Recognized Municipal Information Repositories (NRMSIRs), the Municipal Securities Rulemaking Board (MSRB) and any applicable state information depository (SID) under the provision of SEC Rule 15c2-12 that requires notice of "rating changes." The staff of the SEC informally stated that the press coverage of the downgrade was so widespread that no material event notices needed to be filed at that time. The staff of the SEC later clarified its position to mean that although a filing would not be required with respect to the specific bond insurer, the downgrade of a security insured by such bond insurer could require an event notice filing. In general, if a bond issue insured by an insurance company is downgraded as a result of the insurance company's downgrade, then the issuer of those bonds or the obligated person with respect to those bonds, as appropriate, will need to provide a notice of a material event to the NRMSIRs, the MSRB and any SID if a disclosure undertaking was executed by the issuer or the obligated person at the time the bonds were issued.

Based upon conversations of lawyers at Ballard Spahr Andrews & Ingersoll, LLP (Ballard Spahr) with issuers of municipal securities, obligated persons and other professionals in the municipal securities industry, it appears that individual notices of the downgrades of bond issues may not have been received by many parties. However, rating agencies have published lists of the insured bond issues that have been downgraded. Ballard Spahr believes that the list coupled with the widespread publicity of the downgrades should put the issuers and obligated persons on notice of the downgrade of their respective bonds. Therefore, Ballard Spahr encourages its clients to review their outstanding bond transactions to determine whether such issues are insured by a policy of any insurer that has been downgraded. Ballard Spahr also encourages its clients to contact the rating agencies to determine the status of their bonds or in the alternative, to obtain copies of the lists of the various bond issues that are the subject of a downgrade. If an issuer or an obligated person has any downgraded issues that are the subject of a continuing disclosure undertaking, we recommend that the issuer or obligated person, as appropriate, prepare and submit a notice of material event to the NRMSIRs, the MSRB and any applicable SID in a timely manner as contemplated by Rule 15c2-12 of the SEC.

Given the current market circumstances, issuers or obligated persons that have entered into continuing disclosure undertakings are advised to monitor events impacting their securities.

Ballard Spahr has extensive experience in the preparation of primary and secondary market disclosure and we are well positioned to assist parties with these issues. If you have any questions regarding the foregoing or would like assistance with any of our recommendations, including the preparation of an event notice, please contact any of the public finance lawyers at Ballard Spahr.

Copyright © 2008 by Ballard Spahr LLP.
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