On July 26, 2011, the SEC adopted new rules in response to Section 939A of the Dodd-Frank Wall Street Consumer Reform and Protection Act (the “Dodd-Frank Act”). The new rules remove credit ratings as eligibility criteria for companies seeking to use “short form” registration (Form S-3 or F-3) when registering an offering of non-convertible securities for public sale. Chairman Mary Schapiro stated that the SEC’s “...action is part of [the SEC’s] effort to reduce reliance on credit ratings, as the Dodd-Frank Act requires all financial regulators to do.”
The SEC’s rules generally allow a non-asset-backed security issuer to use short-form registration if the company has been subject to the SEC’s reporting requirements and filing its periodic reports in a timely manner for at least one year or if the company meets one of the alternate transaction requirements. One provision in the alternate transaction requirements category allows an issuer to use short-form registration for an offering of non-convertible securities if the securities are rated investment grade by at least one credit rating agency that is a nationally recognized statistical rating organization (NRSRO).
The new rules replace the investment grade criteria with four alternative criteria that will allow an issuer to use Form S-3 or F-3 if they:
- have issued at least $1 billion in non-convertible securities other than common equity, in primary offerings for cash, not exchange, registered under the Securities Act, over the prior three years
- have outstanding at least $750 million of non-convertible securities other than common equity, issued in primary offerings for cash, not exchange, registered under the Securities Act
- are a wholly-owned subsidiary of a well-known seasoned issuer as defined under the Securities Act
- are a majority-owned operating partnership of a real estate investment trust that qualifies as a well-known seasoned issuer
The new rules will take effect 30 days after they are published in the Federal Register, but the new rules include a temporary grandfather provision that allows an issuer to use Form S-3 or F-3 for a period of three years from the effective date of the new rules if the issuer would have been eligible to register the securities offering under the old provision.