July 23, 2010

Dodd-Frank: Corp Fin Adds Six CDIs (& Withdraws One Too)

Yesterday, Corp Fin added six new ’33 Act CDIs to address the repeal of Rule 436(g) situation that I blogged about yesterday. The new CDIs essentially apply to the corporate debt market and are consistent with the white paper released by ten major firms yesterday, as they address the circumstances where rating agency consents are – and are not – required (ie. required for registration statements and prospectuses; not required for free writing and in certain MD&A liquidity discussions).

The new CDIs are:

198.08 (grandfathered debt registration statements)

In addition, now-former CDI 255.13 was withdrawn, as it provided that an investor may include the estimated fair market value of their principal residence as an asset for purposes of Rule 501(a)(5). The withdrawal was necessary to be consistent with Section 413(a) of Dodd-Frank.

Dodd-Frank: Corp Fin’s No-Action Relief for the Asset-Backed Market

Early yesterday, Corp Fin Director Meredith Cross issued this statement regarding relief for the asset-backed market:

The SEC has been reviewing the interaction between the requirements for registered asset-backed securities offerings provided in “Regulation AB” and the requirement that issuers now obtain credit rating agency’s experts consent for use in filings, as is the case with other ‘experts.’

Within the next day, the Division of Corporation Finance expects to issue a ‘no action’ letter allowing issuers for a period of 6 months to omit credit ratings from registration statements filed under Regulation AB. Although there are currently few issuers in the registered asset-backed securities market, we understand from some issuers that they cannot currently obtain credit rating agency consent to include the credit ratings in these ‘Reg AB’ filings. This action will provide issuers, rating agencies and other market participants with a transition period in order to implement changes to comply with the new statutory requirement while still conducting registered ABS offerings.

As is more fully explained in interpretations issued by the Division of Corporation Finance today, the current rules for corporate debt issuances differ in this respect – and we believe that the corporate debt market has not been, and should not under current rules be, meaningfully affected by the statutory change.

Corp Fin did better than the “next day” and issued the no-action relief yesterday to Ford Motor Credit Company. By the terms of this no-action letter, “the Division will not recommend enforcement action to the Commission if an asset-backed issuer as defined in Item 1101 of Regulation AB omits the ratings disclosure required by Item 1103(a)(9) and 1120 of Regulation AB from a prospectus that is part of a registration statement relating to an offering of asset-backed securities.” The Staff’s position expires for offerings commencing with an initial bona fide offer on or after January 24, 2011.

Photo: Devastation After the 3.6 Earthquake in DC

If you haven’t heard, I awoke last Thursday at 5 am, experiencing the first earthquake in my life – here in DC! Below is a scene of the damage caused in the area that has been making the rounds; warning, it is pretty graphic:


– Broc Romanek