The SEC voted unanimously to propose amending its rules to remove credit ratings as one of the conditions for companies seeking to use short-form registration when registering securities for public sale.  This move responds to a Dodd-Frank requirement that federal agencies review how existing regulations rely on credit ratings, and to remove such references from the rules where appropriate.  This is the first in a series of proposals the SEC expects to make with respect to ratings.

"Over-reliance on credit ratings has been one of the factors cited as contributing to the financial crisis.  I look forward to hearing from companies that are currently eligible for short-form registration as to whether there are alternative criteria that would preserve their eligibility."  -- SEC Chairman Mary Schapiro. 

    As Proposed, ...  the SEC would remove the NRSRO investment grade ratings condition from SEC Forms S-3 and F-3 for offerings of non-convertible securities, such as debt securities.  Instead of ratings, the new short-form test for shelf-offering eligibility of companies would be tied to the amount of debt and other non-convertible securities they have sold in the past 3 years.

The SEC’s proposal focuses on the use of credit ratings as a condition of so-called “short-form” eligibility. Companies that are “short-form eligible” also are allowed to register securities “on the shelf.” Shelf registration provides companies considerable flexibility in deciding when to access the public securities markets. 

Companies that are “short-form eligible” also are allowed to register securities “on the shelf.” Shelf registration provides companies considerable flexibility in deciding when to access the public securities markets.

Public comments will be accepted through 3/28/11.   For further details, go to:   [SEC PR 11-41, 2/9]  and [SEC Proposed Rule Release 33-9186, 2/9]