January 2000

Health Care E-lert - Financial Disclosure to Bond Analysts, 1/20/00

2 min

Health care providers with outstanding public bond issues need to adopt safe practices for financial disclosures to bond analysts and bond investors. Selective disclosure of material nonpublic information about a provider's financial condition to favored investors or analysts could spur lawsuits by other bond investors put at a disadvantage.

Although the tax-exempt bond market used by non-profit health care providers is not directly regulated by the Securities and Exchange Commission, the SEC's guidelines for the markets it does regulate help in formulating sound disclosure policies. On December 20, 1999, the SEC released a proposed "Regulation FD (Fair Disclosure)." Regulation FD is designed to reduce the problems caused by selective disclosure of material nonpublic information. The proposed rule would require market participants to disclose information in a "public" fashion whenever any material disclosure is made. For example, quarterly earnings would have to be disclosed by press release or by a commission filing, rather than by selective release to analysts, investors or others who call and ask for information.

Best practices for non-profit health care providers with outstanding bonds would be to route all material disclosures through a single officer, usually the chief financial officer. Anytime the provider discloses material non-public information to any other person outside the provider, the provider should simultaneously issue a press release containing the information through an appropriate financial news or wire service, and/or make an appropriate filing with the appropriate bond information repository.

When material developments arise at a provider, the chief financial officer should consider whether a duty to disclose arises under bond or other loan documents, and how and when to make the disclosure. Advice of counsel may be needed to determine materiality, whether the proposed disclosure is ripe and complete, and contractual obligations with respect to continuing disclosure typically contained in bond documents. Advice of counsel may also be useful in fielding questions from analysts who monitor the provider's outstanding bonds. Default situations and bond ratings downgrade situations call for special caution.

For further information, please contact: Peter Parvis at 410.244.7614 or by e-mail.