Washington, D.C., July 26, 2011 – The Securities and Exchange Commission today voted unanimously to adopt new rules in light of the Dodd-Frank Wall Street Reform and Consumer Protection Act to remove credit ratings as eligibility criteria for companies seeking to use "short form" registration when registering securities for public sale.
Forms S-3 and F-3 are the "short forms" used by eligible issuers to register securities offerings under the Securities Act. Companies that qualify for these short forms can offer securities "off the shelf" or on an expedited basis.
Companies currently qualify to use these forms if they are registering an offering of non-convertible securities, such as debt securities, that have received an investment grade rating by at least one nationally recognized statistical rating organization (NRSRO).
The new rules eliminate the credit ratings criteria and replace it with four new tests, one of which must be satisfied for an issuer to use Form S-3 or Form F-3. In order to ease transition for companies, the rules include a temporary, three-year grandfather provision.
"This action is part of our effort to reduce reliance on credit ratings, as the Dodd-Frank Act requires all financial regulators to do," said SEC Chairman Mary L. Schapiro. "The new rules provide an appropriate and workable alternative to credit ratings for determining whether an issuer should be able to use short form registration and have access to the shelf offering process."
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Under the federal securities laws, a company offering securities must register the offer and sale of those securities with the SEC unless the sale is otherwise exempt.
The SEC´s rules generally allow a non-asset-backed security issuer to use "short-form" registration if that company meets two categories of criteria.
If a company qualifies for short-form registration, it is allowed to rely on its quarterly, annual and other reports filed with the SEC to provide historical and future information about itself, rather than repeating the information in the prospectus or amending the prospectus as future reports are filed. The prospectus disclosure in these offerings describes the particular securities being offered and focuses on other offering-specific information. The ability to "incorporate by reference" historic and future SEC reports for the company information can provide significant cost and time savings for companies. The short-form registration forms include Form S-3 for domestic companies and Form F-3 for foreign private issuers.
Companies that are "short-form eligible" also are allowed to register securities "on the shelf." This means that the companies can file registrations for future offerings and can do one or multiple offerings from the single registration in the future without needing any new SEC staff clearance.
This shelf registration provides companies with flexibility to issue the securities when they choose. Often times, companies use this process when they are planning to offer securities on multiple occasions. Companies that are not short-form and shelf eligible are required to file a new registration for each public securities offering and have the SEC staff take action before completing the offering.
The new rules remove the condition for an NRSRO investment grade rating that is included in current short forms, Form S-3 and Form F-3, which are used by eligible issuers to register offerings of non-convertible securities under the Securities Act.
Instead of the ratings criteria, the final rules allow for the use of Form S-3 or Form F-3 if the issuer satisfies one of the following four tests:
The final rules also 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 amendments if it would have been eligible to register the securities offerings under the old provision.
The final rules also rescind Form F-9, which is the form certain Canadian registrants use to register non-convertible investment grade debt.
Additionally, the final rules revise Form 40-F, the annual report form used by certain Canadian registrants, to ease the transition for issuers who previously filed registration statements on Form F-9.
There are other rules and forms that relied on similar criteria to the investment grade criteria in Form S-3 and Form F-3. The final rules revise the following rules and forms to refer to the new criteria in Form S-3 and Form F-3:
Securities Act Rule 134(a)(17) permits the disclosure of security ratings issued or expected to be issued by NRSROs in certain communications deemed not to be a prospectus or free writing prospectus, such as "tombstone ads" or press releases announcing offerings. The amendments remove this safe harbor. Instead, the determination of whether such information constitutes a prospectus will be made in light of all circumstances of the communication.
The new rules take effect 30 days after publication in the Federal Register, except the rescission of Form F-9 and amendments to remove references to Form F-9 in other rules and forms will be effective Dec. 31, 2012.