Regulators on Thursday said companies selling securities backed by loans would have six months of breathing room to comply with new regulations that could have made selling such deals difficult.
The move by the Securities and Exchange Commission follows the refusal of credit rating agencies to allow ratings on new securities backed by auto loans and other consumer credits to be used in documents needed to sell bonds in the public markets.
Meredith Cross, director of the division of corporation finance at the SEC, said in a statement that the regulator would issue a “no action” letter allowing issuers to omit credit ratings from registration statements filed under Regulation AB.
“Although there are currently few issuers in the registered asset-backed securities market [ABS], we understand from some issuers that they cannot currently obtain credit rating agency consent to include the credit ratings in these Reg AB filings,” she said.
“This action will provide …a transition period in order to implement changes to comply with the new statutory requirement while still conducting registered ABS offerings.”
The new rules will only have an impact on the public markets. Some bankers said issuers were preparing to switch deals and sell them in the private markets instead. The private markets require less disclosure.
Already, the private ABS markets have provided a greater proportion of new funds than they used to. According to Barclays Capital, just over half the $56bn of new ABS deals this year were sold through private rather than public deals.
In 2007, for example, only 14 per cent of the $232bn of new ABS deals were sold privately.
Rating agencies are concerned about the impact of new liability standards, which were signed into law this week as part of the Dodd-Frank financial reform bill. “While we will continue to publish credit ratings, given the potential legal consequences, we cannot consent to the inclusion of ratings in prospectuses and registration statements without further study,” Moody’s Investors Service has said.
This creates a problem because the SEC requires ratings to be published in publicly sold deals.
The Dodd-Frank bill could lead to sweeping changes of both the securitisation and credit rating industries, with many rules to be written during the next 12 months after huge losses in mortgage-backed deals.
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