Use of Credit Ratings in SEC Rules and Forms: SEC Proposes to Remove References to Credit Ratings in a Number of Rules and Forms

Sullivan & Cromwell LLP - February 18, 2011

Section 939A of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) requires each federal agency to modify its regulations to replace references to credit ratings with alternative standards of credit-worthiness. To implement this requirement, the SEC has proposed the first of several intended sets of amendments to its rules and forms.

These proposals focus on eligibility requirements for the use of short-form registration statements in conducting offerings of non-convertible debt and preferred stock, including shelf offerings. The provision that currently permits the use of Form S-3 or F-3 for offerings of investment grade securities would be modified to instead require the issuer to have issued at least $1 billion in registered non-convertible securities (other than common equity) in primary offerings for cash during the prior three years. This test, which is similar to an SEC proposal released in 2008, would align this eligibility requirement for short-form registration with one of the prongs of the definition of “well known seasoned issuer” (“WKSI”). The proposals would similarly modify provisions of certain SEC rules and forms that incorporate this Form S-3 or F-3 eligibility criterion, including provisions that permit incorporation by reference in Forms S 4 and F-4 and Schedule 14A, and rules that provide safe harbors for research and certain other communications during the offering process. The proposals would also eliminate Form F-9, which is available for investment grade offerings by certain Canadian issuers. The proposals do not address eligibility requirements for offerings of asset-backed securities. Comments are due on the proposed amendments by March 28, 2011.