On September 29, 2010, the SEC revised Regulation FD to remove the exception that made disclosures to rating agencies for the purpose of determining or monitoring ratings not subject to Regulation FD. The rule change was specifically required by the Dodd-Frank Wall Street Reform and Consumer Protection Act and became effective on October 4, 2010.
Although such change may appear to restrict a rating agency's traditional access to corporate non-public information as part of the rating process, the practical impact is likely to be limited. Regulation FD prohibits selective disclosure by a corporation to broker-dealers, investment advisers and associated persons, certain investment managers and associated persons, investment companies, and stockholders of the corporation. A rating agency should not fall within any of these categories. Further, in its adopting release, the SEC specifically notes that the rule change does not impact the other exceptions found in Regulation FD, which include communications made to any person who expressly agrees to maintain the information in confidence. Given that many engagement letters that corporations enter into with rating agencies contain confidentiality provisions, discussions with rating agencies that include non-public information should continue to be exempt from the obligations of Regulation FD.
We recommend that corporations review their rating agency engagement letters to confirm that the confidentiality provisions cover relevant communications and that the rating agency has an express duty to maintain disclosed information in confidence. If there is any ambiguity, or the engagement letter does not contain such provisions, the corporation should enter into an amended engagement letter or a separate confidentiality agreement with the rating agency to ensure such communications continue to remain exempt from the obligations of Regulation FD.