Guide to providing relevant COVID-19 disclosures to investors: A senior living finance update

This publication was produced by
Norton Rose Fulbright and
Piper Sandler & Co.

Executive summary

Due to the extraordinary nature of the impact of COVID-19 on senior living providers, investors in public debt are looking for insight into how individual senior living borrowers are coping with the pandemic. Recently, the US SEC Chairman issued a public statement that emphasizes the importance of providing voluntary disclosure to investors in light of the pandemic. Accordingly, senior living providers with outstanding public debt should consider providing bond investors with voluntary disclosures on the impact of COVID-19 on their operations and financial position. This communication provides an overview of possible approaches for voluntary communications with investors related to COVID-19’s impact on borrowers.

Required and voluntary disclosures

Securities and Exchange Commission (SEC) Rule 15c2-12 requires borrowers to provide annual public disclosure of certain financial information and operating data, and prompt disclosure of key events to the Municipal Securities Rulemaking Board (MSRB) through the MSRB’s Electronic Municipal Market Access (EMMA) website. Posting of voluntary notices (beyond required event notices) on EMMA is also permitted when borrowers/obligated persons determine it is appropriate. Whether required or voluntary, documents posted on EMMA are subject to the antifraud provisions of federal securities laws, so they may not misstate or misleadingly omit a material fact. Consequently, borrowers are typically cautious about voluntary disclosures that include forward-looking statements due to the potential application of federal antifraud rules to such disclosures, and the general concern that the accuracy of forward-looking statements may be second guessed by regulators or plaintiffs’ lawyers after the fact. (An overview of the Rule is available on the MSRB’s website).

Recent SEC statement on the importance of COVID-19 disclosure

Borrowers should consult with legal counsel before providing COVID-19 disclosure

On May 4, the Chairman of the SEC and the Director of the Office of Municipal Securities issued a public statement titled “The Importance of Disclosure for our Municipal Markets” (the Municipal Public Statement) that encouraged municipal market issuers and borrowers to consider providing voluntary disclosure regarding the current and reasonably anticipated future impacts of COVID-19 on financial and operating conditions. Providing some comfort regarding the SEC officials’ view on forward-looking statements in light of the COVID-19 pandemic, the Municipal Public Statement noted “[the SEC officials] would not expect good faith attempts to provide appropriately framed current and/or forward-looking information to be second guessed by the SEC.” However, the Municipal Public Statement noted that certain “safe harbors” for forward-looking statements that are available to registered corporate issuers are not available to municipal issuers and borrowers, and municipal issuers and borrowers must instead rely on protections developed through judicial rulings. The Municipal Public Statement was clear that borrowers should be cautious and consider consulting their legal counsel prior to providing any forward-looking statements to investors. 

The Municipal Public Statement provided examples of the information that the SEC officials believed are important to provide to investors relating to COVID-19, as described in the chart below and expanded on for topics relevant to senior living borrowers.

(The Municipal Public Statement is available at sec.gov/news/public-statement/statement-clayton-olsen)

Potential topics to include in voluntary disclosure

Impact of COVID-19 on operations

• Discuss status of cases among residents and staff and steps taken to protect communities
• Discuss communication with residents and families
• Describe impact on occupancy, re-sales and construction
• Detail state and local shutdown and any actions specific to senior living
• Describe availability of PPE and outlook for supply looking forward

Impact of COVID-19 on financial condition and liquidity

• Provide costs incurred during COVID-19 response and steps taken to mitigate costs
• Provide current days cash on hand and general outlook of cash position
• Provide overview of investment performance due to market volatility  
• Detail line(s) of credit amount(s) and terms, if applicable
• Discuss other sources of liquidity

Extraordinary revenue and aid sources

• Detail CARES Act funds received or reasonably expected to be received
• Describe Medicare Accelerated Payments Program amount received and terms, if applicable
• Describe other governmental grants and stimulus funding received
• Describe increased Medicare or Medicaid funding, if applicable

Public reports regarding COVID-19

• The Municipal Public Statement suggests providing greater access to reports prepared by a borrower for governance or other purposes as a source of current COVID-19 information
• These public reports could be previously prepared press releases or public presentations which would assist investors in understanding the current situation and the response of the borrower to the pandemic

No future obligations for voluntary fillings

Any voluntary disclosure provided by a senior living borrower should be clear that the disclosure is provided only as of a certain date and that the disclosure does not obligate the borrower to provide future voluntary filings. Forward-looking statements, if included, should be made in good faith, based on reasonable assumptions, and accompanied by a brief description of substantial risks that could prevent forecasted results from being realized, including risks disclosed in related offering documents. While municipal issuers and borrowers do not have the benefit of statutory safe-harbors available to corporate issuers for forward-looking statements, the case law “bespeaks caution” doctrine is to a similar effect.

Potential communication methods

Below are some ways that borrowers may consider communicating with investors:

• Provide written, voluntary disclosure via EMMA at any time.
• Provide written, voluntary disclosure via EMMA as part of the borrower’s normal annual or quarterly disclosure (e.g. for borrowers with required filings due in the near term). Since annual or quarterly disclosure made now is likely to be stale, it should note the impact of COVID-19 and that historical conditions and results therefore may not be indicative of future prospects.
• Provide a recorded investor call with a link posted to EMMA.
• Provide a live investor call (with details posted to EMMA) that allows investors to ask questions of management.

One option that may be attractive to many borrowers that do not have scheduled reports in the near future is to provide an initial “off-cycle” voluntary disclosure submission and then include voluntary updates with the borrower’s normal continuing disclosure filings, as warranted.

Conclusion

The last few months have been unique and difficult for senior living borrowers. As the crisis related to the COVID-19 pandemic continues, bond investors will place a high value on additional disclosures from borrowers with regards to the impact of COVID-19 in order to make informed investment and trading decisions. Borrowers can generate goodwill with investors during these uncertain times and into the future by providing transparency through voluntary COVID-19 disclosures. Any disclosure strategy should be discussed with legal and capital markets professionals to ensure compliance with securities laws and that the most appropriate information is provided to the investor community.

Piper Sandler & Co. Team

Rick Lohr
Piper Sandler & Co.
Head Of Senior Living
Houston
T: 281 907-4918
E: richard.lohr@psc.com

Jeff Fivecoat
Piper Sandler & Co.
Managing Director
Columbus
T: 614 889-8401
E: jeffrey.fivecoat@psc.com

Amy Hayman
Piper Sandler & Co.
Managing Director
Chicago
T: 312 267-5058
E: amy.hayman@psc.com

Romy McCarthy
Piper Sandler & Co.
Managing Director
Milwaukee
T: 414 847-6373
E: romy.mccarthy@psc.com

Marc Silver
Piper Sandler & Co.
Managing Director
Albany
T: 518 242-7818
E: marc.silver@psc.com

Matt Weaver
Piper Sandler & Co.
Managing Director
Jacksonville
T: 904 381-9844
E: matthew.weaver@psc.com

Brad Wirt
Piper Sandler & Co.
Managing Director
Minneapolis
T: 612 303-6704
E: bradley.wirt@psc.com

Jeremy Gerber
Piper Sandler & Co.
Senior Vice President
Philadelphia
T: 215 446-9320
E: jeremy.gerber@psc.com

Ogieva Guobadia
Piper Sandler & Co.
Senior Vice President
Houston
T: 281 907-4917
E: ogieva.guobadia@psc.com

Jenny Wade
Piper Sandler & Co.
Senior Vice President
Minneapolis
T: 612 303-6261
E: jennifer.wade@psc.com

Matt Wunderlich
Piper Sandler & Co.
Associate
Minneapolis
T: 612 303-6427
E: matthew.wunderlich@psc.com

Kaltrina Smelaj
Piper Sandler & Co.
Analyst
Minneapolis
T: 612 303-6974
E: kaltrina.smelaj@psc.com