The SEC, intending to provide for greater accountability and enhanced quality around asset-backed securities (ABS), has revised and reproposed for public comment certain rules relating to requirements for issuers seeking to use the expedited shelf registration process for ABS. The SEC initially proposed rules in April 2010 to significantly revise the disclosure, reporting and offering process for ABS. In light of the subsequent passage of the Dodd-Frank Act, which addressed a number of the provisions in the SEC’s initial proposal and comments received from the public, the SEC has updated its 2010 proposals.
Shelf Eligibility Transaction Requirements
Under current rules, an ABS offering is eligible for expedited shelf registration if the securities receive an investment-grade rating by a credit rating agency and the other eligibility requirements are satisfied. The SEC, consistent with the mandate under the Dodd-Frank Act to remove references to credit ratings in order to reduce investors’ reliance on such ratings, is now proposing to replace the investment-grade credit rating requirement for shelf registration eligibility of ABS offerings with the following new requirements (all of which must be satisfied):
- A certification filed at the time of each offering off of a shelf registration statement, or takedown, by the chief executive officer or executive officer in charge of securitization concerning the disclosure contained in the prospectus and the design of the securitization.
- Provisions in the underlying transaction documents requiring: (i) the appointment of a credit risk manager to review assets upon the occurrence of certain trigger events; (ii) repurchase request dispute resolution; and (iii) that the issuer provide a notice in a public filing when an investor asks to communicate with other investors.
- An annual evaluation of compliance with the registrant requirements.
The SEC’s reproposal would also affect the deadlines for filing of exhibits by ABS issuers. Under the reproposed shelf registration rules, ABS issuers would be required to file substantially final copies of the underlying transaction documents, including all schedules, on the date that the preliminary prospectus is required to be filed. In its initial proposal in April 2010, the SEC proposed new disclosure rules that would require ABS issuers to file a preliminary prospectus for each takedown at least five business days prior to the first sale of securities in the offering. In its reproposed rules, the SEC indicated that it has not yet decided whether to retain the five business day waiting period.
The SEC is also requesting further comment on its April 2010 proposal of new disclosure rules that would require ABS issuers to provide specific data for each loan in the asset pool at the time of securitization and also on an ongoing basis. Such loan data would include terms and underwriting of the loan, the borrower’s credit information and/or characteristics of the security for the loan.
Comments on the reproposed rules are due within 60 days after publication in the Federal Register.