This release is one of several that the SEC is issuing to implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act related to asset-backed securities, or ABS. Section 942(a) of the Dodd-Frank Act eliminated the automatic suspension of the duty to file under Section 15(d) of the Exchange Act for ABS issuers and granted the SEC the authority to issue rules providing for the suspension or termination of such duty.
The SEC is proposing in new Exchange Act Rule 15d-22(b) to permit suspension of the reporting obligations for a given class of ABS pursuant to Exchange Act Section 15(d) for any fiscal year, other than the fiscal year within which the registration statement became effective, if, at the beginning of the fiscal year, there are no longer ABS of the class that were sold in a registered transaction held by non-affiliates of the depositor. As revised by the Dodd-Frank Act, Exchange Act Section 15(d) no longer provides for the automatic suspension of the duty to file periodic and other reports for issuers of a class of ABS. Without action by the SEC, ABS issuers that have filed a registration statement that has become effective pursuant to the Securities Act or that have conducted a takedown off of a shelf registration statement as described above, would be obligated to continue to file such reports for the life of the security.
In light of the statutory changes to Exchange Act Section 15(d), the SEC is proposing to update Exchange Act Rule 15d-22 to indicate when annual and other reports need to be filed and when starting and suspension dates are determined with respect to a takedown. The SEC is also proposing to amend Exchange Act Rule 12h-3(b)(1) to add the language “, other than any class of asset-backed securities,” to conform the rule to the language of amended Exchange Act Section 15(d) and to add a clarifying note.
A suspension from reporting under Exchange Act Section 15(d) is applicable under the statute only for a year and needs to be reconsidered each subsequent year. Consequently, once an issuer has registered an offering under the Securities Act it needs to consider at the beginning of each fiscal year whether it has a reporting obligation under Exchange Act Section 15(d). This is the case even if an issuer has previously been eligible to suspend reporting under Exchange Act Section 15(d). As a result, the revision to Exchange Act Section 15(d) results in a “springing” Section 15(d) reporting obligation for ABS issuers on the first day of their next fiscal year since, by its terms, Section 15(d) as amended, does not provide for the suspension of reporting for ABS, unless the SEC exercises its authority to provide for a suspension or termination of such reporting. The SEC noted that unlike corporate issuers that can generate new revenue and actively manage their assets and business, ABS issuers by definition are a discrete pool of self-liquidating assets. One commentator has noted, among other things, that historically the transaction documents have not contained provisions necessary to support an ongoing reporting obligation, or provide for the funds to cover the costs of taking steps to recommence reporting. While the transaction documents may not provide for recommencing reporting, the SEC noted that most transaction documents require ABS issuers to provide periodic distribution reports to the trustee or security holders in order to provide information for investors for the life of the securitization. Taking into account all of these factors, the staff of the Division of Corporation Finance has issued a no-action letter applicable to all ABS issuers whose reporting obligations had been suspended prior to the date of enactment of the Dodd-Frank Act that states that, provided the issuer continues complying with requirements under the transaction agreements to make ongoing information regarding the ABS and the related pool assets available to security holders in the manner and to the extent required under those transaction agreements, the Division would not recommend enforcement action if the issuer continues to determine its reporting requirements based on the standards set forth in Section 15(d) of the Exchange Act immediately prior to enactment of the Dodd-Frank Act. The letter also requires as an additional condition to the no-action position that the issuer retain the information for at least five years after the ABS are no longer outstanding and provide copies of such information to the SEC or its staff upon request.
Check dodd-frank.com frequently for updates on the Dodd-Frank Act and other important securities law matters.