The Securities and Exchange Commission (SEC) has indefinitely extended its no-action letter allowing ABS issuers to sell these transactions without the inclusion of credit ratings in registration statements beyond January, 24, 2011.
The American Securitization Forum's (ASF) Executive Director Tom Deutsch issued the following statement in response to the SEC's decision today: “We applaud the SEC's action today to indefinitely extend their no-action letter to allow securitization issuers to omit credit ratings from their registration statements. Without this extension, the entire public securitization market would have closed in late January."
With the implementation of the Dodd Frank Act progressing, Deutsch added that the ASF is looking forward to working with the SEC to craft a permanent solution to the challenges that the enforcement of Rule 436(G)'s repeal has created for the public ABS markets.
SEC's July Action
Back in July, the SEC gave securitization issuers six months to omit credit ratings from ABS registration statements filed under Regulation AB.
This move came a day after President Obama signed the Dodd-Frank Act. The bill repealed the version of Section 436(G) of the Securities Act of 1933 that protected rating agencies from liability for their ratings, which are considered opinions rather than expert advice.
The repeal made rating agencies vunerable to unprecedented liability for the quality of their ratings on ABS transactions, Barclays Capital analysts said in a research note. With difficulty assessing the liability, Moody’s Investors Service, Standard & Poor’s, Fitch Ratings and DBRS pulled back from the new-issue securitization market at that time.
To close an ABS transaction, it must have a rating from one or more nationally recognized statistical rating organizations (NRSROs). When ratings are mandated, Barclays analysts explained that the SEC regulations require the ratings to be disclosed and released by the agency in the public offering documents. The failure to disclose this information could be considered a material omission and would potentially subject the issuer and underwriter to further liability.
Today's SEC Action
Back in July, the withdrawal of the rating firms from the new-issue market caused Ford Motor Credit
Co.'s ABS called Ford Credit Auto Owner Trust 2010-B to be temporarily pulled from the securitization market, although it still priced later that month.
Today the SEC reportedly issued a letter to the auto company advising Ford about its no-action letter's extension.
According to published reports, the SEC said that the extension was made to allow enough time to complete the regulatory actions required by the Dodd-Frank Act. It will also facilitate, the SEC said, its consideration of whether the Act's final regulatory actions should affect its disclosure requirements pertaining to the credit ratings for ABS, while allowing registered ABS deals to push through without interruption.
The letter noted, according to reports, that the SEC understands that the rating agencies remain unwilling to provide their consent at this time. The SEC understands that without an extension of its no-action position, ABS transactions cannot be conducted on a registered basis, reports said.
The SEC noted the current uncertainty in the ABS market and said it decided to extend this relief, according to published reports.