S&P Receives Wells Notice Tied to 2011 CMBS

The U.S. Securities and Exchange Commission sent McGraw Hill, the parent company of Standard & Poor’s, a notice that it may seek enforcement action with respect to the ratings of six commercial mortgage backed securities transactions issued in 2011.

The SEC sent the so-called “Wells Notice” on July 22, McGraw Hill said in a press release on Wednesday.  

“S&P has been co-operating with the commission in this matter and intends to continue to do so,” McGraw Hill said in the press release. It said the Wells notice related to the six securities “and public disclosure made by S&P regarding those ratings thereafter.”

The notice did not indicate which deals are in question. Howver, S&P issued a statement on July 27, 2011 saying that it would suspend ratings to CMBS deals because of the discovery of potentially conflicting methods to calculate debt service coverage ratios (DSCRs). The ratings agency said that it would review its ratings criteris that would result in multiple technical changes to its conduit/fusion CMBS ratings criteria. 

The Wells Notice is neither a formal allegation nor a finding of wrongdoing.  It allows S&P the opportunity to provide its perspective and to address the issues raised by the SEC before any decision is made on whether to authorize the commencement of an enforcement proceeding. 

However if the SEC finds S&P liable, it may seek remedies that include “a cease-and-desist order, disgorgement, pre-judgment interest, civil money penalties, and remedial sanctions such as revocation or suspension of S&P's NRSRO registration.”