SEC Releases Proposed Rules to Enhance Disclosure for Asset-Backed Securities

The SEC on October 13 proposed rules relating to reviews of assets included in securitization transactions.

The proposed rules, which the Dodd-Frank Act requires the SEC to implement within 180 days of its enactment in July of this year, are:

• A new proposed Rule 193 under the Securities Act that would apply only to SEC-registered asset-backed securities (“ABS”). The new rule would require that an issuer of a registered ABS “shall perform a review of the pool assets underlying the asset-backed security.”
  • The content of the required review is not specified.
  • The review may be done by either the issuer or a third party, but if a third party is employed to conduct the review, it would be required to consent to being identified as an expert in relation to such report for purposes of liability under the Securities Act.
• A related revision to Regulation AB would impose additional requirements on issuers of registered ABS.
  
  • Issuers would be required to disclose the nature of the review conducted to satisfy new Rule 193 as well as that review’s “findings and conclusions.”
  • Issuers would also be required to disclose how the securitized assets deviate from the disclosed underwriting criteria and “the entity that determined that such assets should be included in the pool, despite not having met the disclosed standards.”
• While proposed Rule 193 is applicable only to registered transactions, a related proposed Rule 15Ga-2 under the Securities Exchange Act would apply also to unregistered transactions. Proposed Rule 15Ga-2 provides that the issuer or underwriter of any ABS must file a form with the SEC which contains “the findings and conclusions of any report of a third party engaged for purposes of performing a review of the pool assets obtained by the issuer or underwriter.”
  
  • The new rule would not itself require that issuers or underwriters engage a third party to review assets, only that they disclose the results if they do so.
  • The proposing release states that the public filings required by proposed Rule 15Ga-2 may be made without jeopardizing reliance on the private offering exemptions and safe harbors under the Securities Act, “provided that the only information made publicly available is that which is required by the proposed rule, and the issuer does not otherwise use Form ABS-15G to offer or sell securities or in a manner that conditions the market for offers or sales of its securities.”
  • Issuers of registered ABS offerings would include this information in their prospectus under the Regulation AB requirement discussed above rather than in a separate form.

The proposed rule is available at http://www.sec.gov/rules/proposed/2010/33-9150.pdf. The proposed rule is subject to a short comment period, with comments required to be received on or before November 15, 2010.