Asset-Backed Securities Disclosure and Regulation: SEC Adopts Revisions to Regulation AB and Other Rules Governing the Offering Process, Disclosure and Reporting for Asset-Backed Securities

Sullivan & Cromwell LLP - September 16, 2014
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On August 27, 2014, the Securities and Exchange Commission adopted significant revisions to Regulation AB and other rules relating to the disclosure, reporting and offering process for asset-backed securities (“ABS”).  The rules adopted reflect substantial changes to many of the rules originally proposed by the Commission in April 2010 and re-proposed in July 2011 in response to provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) that directed the Commission and other federal agencies to issue or prescribe several ABS-related rules.  Earlier this year, the Commission reopened the comment period on the 2010 ABS Proposal and 2011 ABS Re-Proposal to solicit comments on an approach to disseminating asset-level data outlined in a memorandum prepared by the Division of Corporation Finance intended to address privacy concerns by requiring disclosure on a website that is not part of EDGAR.

The Commission intends for the final rules “to provide investors with timely and sufficient information, reduce the likelihood of undue reliance on credit ratings, and provide mechanisms to help enforce the representations and warranties made about the underlying assets.”  The rules impose new requirements for asset-level disclosures for residential and commercial mortgage-backed securities, auto loan and lease securitizations and securitizations of debt securities, as well as resecuritizations of ABS that include these asset types.  The final rules revise the eligibility criteria for shelf registration of ABS, make a number of changes to the shelf offering process and prospectus delivery requirements applicable to ABS, and revise the periodic and current reporting requirements applicable to ABS.

The Commission did not adopt several rules proposed in the 2010 ABS Proposal or 2011 ABS Re-Proposal, including:
 

  • a requirement that issuers provide the same disclosure for Rule 144A offerings as required for registered offerings;
  • asset-level or grouped-account disclosures for other classes of securitized assets;
  • filing of a waterfall computer program;
  • filing of substantially final transaction documents by the date the preliminary prospectus is required to be filed;
  • exempting ABS issuers from current requirements that the depositor’s principal accounting officer or controller sign the registration statement and instead requiring an executive officer in charge of the securitization to sign; and
  • revising when pool disclosure must be updated on Form 8-K.
     
According to the Adopting Release, these proposals remain outstanding. 

Since the Commission has adopted extensive asset-level disclosure requirements for registered offerings of several major asset classes without requiring that issuers provide the same disclosure for Rule 144A offerings, the considerable burden placed on issuers may create an incentive to conduct more offerings pursuant to that exemption from registration.

The asset-level disclosure requirements, including those applicable to distribution reports on Form 10-D and annual reports by ABS issuers on Form 10-K, will apply beginning two years after the effective date of the rules, which will be 60 days following their publication in the Federal Register.  All other new requirements will apply beginning one year after the effective date of the rules.