The SEC voted unanimously to adopt new rules (the “New Rules”) that eliminate credit ratings as eligibility criteria for issuers seeking to avail themselves of “short form” registration for offerings of non-convertible securities other than common equity. The New Rules respond to Section 939A of the Dodd‑Frank Act, which requires that each Federal agency, including the SEC, review the use of credit ratings in its regulations and upon that basis, remove from its regulations “any reference to or requirement of reliance on credit ratings and to substitute in such regulations such standard of credit-worthiness as each respective agency shall determine as appropriate for such regulations.”
For offerings of non-convertible securities other than common equity, the New Rules eliminate the current credit ratings eligibility criteria for Forms S-3 and F-3 and implement four new tests based respectively on (a) amount of recent issuance other than common equity, (b) amount of outstanding non-convertible securities, (c) well‑known seasoned issuer status generally and (d) well-known seasoned issuer status in the REIT context; only one of these tests must be met for the issuer to be able to use the applicable short form (provided other applicable conditions are met). The New Rules include a temporary grandfather provision that allows an issuer to use Form S-3 or Form F-3 for a period of three years from the effective date of the New Rules if it would have been eligible to do so prior to the effective date.
The New Rules also rescind Form F-9 (used by certain Canadian registrants to register non‑convertible investment grade debt) and revise Form 40-F (an annual report form used by certain Canadian registrants) to ease the transition for issuers who previously filed registration statements on Form F-9. The New Rules revise other rules and forms that currently rely on criteria similar to the investment grade criteria in Form S-3 and Form F-3 so that they refer to the new criteria in the New Rules. The New Rules remove the safe harbor in Rule 134(a)(17) under the Securities Act of 1933 (the “1933 Act”) that allows the disclosure of security ratings issued or expected to be issued by NRSROs in certain communications, such as “tombstone ads” or press releases announcing offerings, without those communications being deemed a prospectus or free writing prospectus; instead, the determination of whether such information constitutes a prospectus for 1933 Act purposes will be made in light of all the circumstances of the communication.
The New Rules take effect 30 days after their publication in the Federal Register, except for the rescission of Form F-9 and amendments to remove references to Form F-9 in other rules and forms, which will be effective Dec. 31, 2012.
For further information on the application of the New Rules in the REIT context, please see the July 27, 2011 Goodwin Procter REIT Alert.