Public Charter Schools Borrowing With Tax-Exempt Bonds, Second ...

B. Disclosure Responsibilities
Failure to provide the Annual Report or Special Events Notices in accordance with
and by the time agreed in the Continuing Disclosure Certificate would result in the
school having to disclose such failure in its official statements for the next five years.
Disclosing information that is either inaccurate or incomplete in a way that would be
material to investors, in light of the circumstances under which these disclosures are
made, could lead to investor suits or SEC action for securities fraud under Rule 10b-5.
C. Bond Document Responsibilities
Failure to comply with covenants in the bond documents normally would constitute
a default under the documents and could lead to a declaration of an Event of
Default and consequent remedies, including the involvement of a special thirdparty
consultant guiding a review and reform of the school’s operations or, in some
cases, a declaration that the entire principal amount of bonds become immediately
due and payable. Even without a declaration of Event of Default, bond document
defaults may be required to be disclosed in audited financial statements or to rating
agencies or credit providers. It may also affect the ability to issue additional bonds
under the terms of the bond covenants.
As described above in Chapter 11, “Steps to Issuing the Bonds and the
Finance Team,” professional assistance in complying with the several post-issuance
responsibilities is available through rebate analysts and other compliance monitoring
consultants. Public charter schools that issue tax-exempt bonds should retain such
services in order to ensure compliance over the relevant period of time, as it is likely
the tenure of the staff and board of the charter school who were involved in the
issuance of the bonds will not outlast the tenure of the bonds themselves. Even large
sophisticated CMOs should review the need to retain such services.
34. If the bonds are issued in authorized denominations of $100,000 or more, and are sold to qualified
purchasers by private placement (or may be tendered at par at least as frequently as every nine months),
they are exempt from SEC Rule 15c2-12, which requires the charter school to undertake the obligations
described in this paragraph. However, even when the exemption applies, charter schools will typically take
on such responsibilities anyway in order to satisfy the requirements of bond investors.
35. Direct communications with investors should be undertaken carefully, in order to comply with the basic
concept that no material nonpublic information be provided to any one or small group of investors without
also making such information available to the entire marketplace (e.g., through posting on EMMA).
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