July 22, 2010

Dodd-Frank Signed: Let the Unintended Consequences Begin

Yesterday, President Obama signed the Dodd-Frank Act into law (signed, sealed & delivered). And the first major unintended consequence took place as the coming repeal of Rule 436(g) wreaked havoc on the US debt market (the repeal takes effect today).

Rule 436(g) allows the use of credit ratings from NRSROs without a consent (technically, it provides an exemption from the consent requirement). This repeal could be a disaster for debt, preferred securities and asset-backed offerings. For example, this hurts asset-backed deals since Regulation AB requires disclosure of ratings if the offering is conditioned upon a rating – as all are – and the rating agencies have all said they will not furnish consents for the time being. So this could mean that all ABS deals will need to be done on a Rule 144A basis for now.

Fortunately, the news is less grim outside the ABS space. Late yesterday, ten major firms signed this “White Paper” (sent along by Davis Polk) which sets forth approaches – after consulting the Corp Fin Staff – that they believe are appropriate when using NRSRO ratings in offerings of debt and preferred securities. Under the approaches in the white paper, there should not be significant disruptions in the non-ABS debt and preferred stock markets. More to come on this…

Dodd-Frank: What Does the “Enactment Date” Mean?

Unlike the Sarbanes-Oxley Act, which snuck up on the corporate community in comparison (see my blog on that), numerous firms sent out emails yesterday to note the event. For example, Mayer Brown gives us this meaning of the “enactment date”:

The Act’s “date of enactment” – which is the key date for determining dozens of delayed effective dates and deadlines under the Act – is Wednesday, July 21, 2010. The Act generally takes effect on Thursday, July 22, except that many provisions will not take effect for a year or more and many will require implementing regulations to be issued.

And Weil Gotshal gives us this “big picture”:

Today, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act, making this package of financial regulatory reforms the largest such initiative in scope and depth since the New Deal. The legislation includes 15 major parts with 14 stand-alone statutes and numerous amendments to the current array of banking, securities, derivatives, and consumer finance laws. The legislation will significantly restructure the regulatory framework for the US financial system, with broad and deep implications for the financial services industry where the crisis started; however, its impact will be felt well beyond the financial sector. Aspects of the legislation have the potential to affect all public companies by extending federal regulation of corporate governance. In addition, some of the provisions will affect the US operations of foreign companies as well as global transactions involving US-based businesses, assets, and financial instruments.

We’ve got loads of scorecards, charts and memos in our “Dodd-Frank Act” Practice Area – and adding dozens each day…

Poll Results: What is Dodd-Frank’s Nickname?

The fun is just beginning with this new legislation and I’m already going batty. For example, I’m walking around throwing new colloquialisms such as “What in the Dodd-Frank?” and “Where in the Dodd-Frank do you think you’re going?” Anyways, below are the results from my recent poll about what you thought the acronym for the Dodd-Frank Act should be:

– Drunk Act – 12%
– Donk Act – 17%
– Dork Act – 19%
– Frodd Act – 24%
– Re-Sox – 8%
– DFA – 16%
– Doddy-Frankie Goes to Hollywood Act – 9%
– What me worry? – 11%

My hunch is folks will just call it “Dodd-Frank.” But you never know…

– Broc Romanek