March 1, 2017 / 7:05 PM / 7 months ago

U.S. SEC takes aim at municipal bank loan disclosure

WASHINGTON, March 1 (Reuters) - The U.S. Securities and Exchange Commission agreed on Wednesday to move forward with proposals requiring the disclosure of bank loans and other private financial deals entered into by municipal bond market issuers.

Borrowing by states, cities, schools and others through bank loans and private placements have raised concerns that problems with that debt could affect the prices of the issuers’ publicly sold bonds.

The amount of commercial bank loans to state and local governments has more than doubled since the financial crisis, increasing from $66.5 billion at the end of 2010 to $153 billion by the end of 2015, according to the SEC.

The federal market regulator said the plan would add the undertaking of these borrowings to the list of material events that should be disclosed.

In addition, any related actions - such as defaults or loan term modifications that would indicate financial difficulties on the part of the muni issuer - would be subject to disclosure.

Municipal brokers, dealers and underwriters would be required to ensure that issuers disclose this information to the Municipal Securities Rulemaking Board within 10 business days of its occurrence.

Currently, such disclosure by issuers is voluntary.

The SEC said it will seek public comment on the proposal before taking its final action.

The National Federation of Municipal Analysts in August urged the SEC and Congress to improve muni market disclosure citing bank loans.

The group noted that “failure to publicly disclose bank loans to all market participants can lead to unexpected rating changes that negatively impact bond pricing.” (Reporting by Sarah N. Lynch, writing by Karen Pierog; editing by Daniel Bases, G Crosse)

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