Before the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”),1 the duty of most issuers of publicly registered asset-backed securities (“ABS”) to file periodic reports under Section 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), was automatically suspended after the year in which the ABS were issued, so long as there were fewer than 300 record holders of the ABS at the beginning of the following year. Section 942(a) of the Dodd-Frank Act eliminated this automatic suspension and empowered the Securities and Exchange Commission (the “Commission”) to issue rules addressing the suspension or termination of ABS issuers’ duty to file periodic reports.
The Commission has proposed rules (the “Proposing Release”)2 that would require most ABS issuers to continue to file periodic reports for the life of the securities. The proposed rules would suspend the duty to file periodic reports under the Exchange Act only when no registered ABS of the relevant class are held by non-affiliates of the ABS depositor.
The staff of the Commission’s Division of Corporation Finance (the “Staff”) has also issued a no-action letter (the “No-Action Letter”)3 effectively grandfathering the reporting suspension for most issuers of ABS issued before 2010. In the No-Action Letter, the Staff confirms that, if certain conditions are satisfied, the Staff will not recommend enforcement action against an ABS issuer that does not file periodic reports, so long as its reporting obligation was suspended before the Dodd-Frank Act was enacted.
Proposed Rules Provide for Limited Suspension of ABS Issuers’ Duty to File Exchange Act Reports
Section 15(d) of the Exchange Act generally requires every issuer with a registration statement that has become effective under the Securities Act of 1933, as amended (the “Securities Act”), to file periodic reports under the Exchange Act. For ABS issuers, these reports consist of Distribution Reports on Form 10-D for each distribution period for the registered ABS, Annual Reports on Form 10-K, and Current Reports on Form 8-K. Before enactment of the Dodd-Frank Act, these obligations (like those of issuers of other types of securities) were automatically suspended for any fiscal year after the year in which the registration statement became effective (or, for offerings of ABS registered in a takedown from a shelf registration statement, the fiscal year after the takedown),4 if the securities of each relevant class were held of record by fewer than 300 persons. Most ABS issuers (other than master trusts) were able to take advantage of this suspension, as they ordinarily have fewer than 300 record holders of a class of securities. Section 942(a) of the Dodd-Frank Act specifically excluded issuers of ABS from those entitled to rely on the provisions of Section 15(d) that suspend periodic reporting obligations under the Exchange Act, and authorized the Commission to adopt rules prescribing the ability of ABS issuers to suspend or terminate periodic reporting .5
In its recent proposed comprehensive revisions to Regulation AB (the “2010 ABS Proposing Release”),6 the Commission proposed to condition ABS shelf eligibility on an undertaking to continue to file Exchange Act reports so long as non-affiliates of the depositor held any of the registered securities, signaling its view that it was important to “provide investors and the markets with transparency regarding . . . the ongoing performance of the securities and servicer . . . .”7 In the Proposing Release, the Commission reiterates the importance to investors of post-issuance reporting in ABS transactions,8 noting that the burden of preparing ongoing Exchange Act reports exceeds the benefit to investors when the only holders of the ABS are affiliated with the depositor.9
Therefore, the Commission has proposed to amend Rule 15d-22(b) under the Exchange Act to provide that an ABS issuer’s reporting obligation for any class of publicly registered ABS is suspended for any fiscal year, other than the fiscal year in which the relevant Securities Act registration statement became effective (or, for ABS issued in a takedown from a shelf registration statement, any fiscal year other than the year of the takedown),10 if at the beginning of that fiscal year there are no longer any securities of that class held by non-affiliates of the depositor.11
In the Proposing Release, the Commission requests comment on whether an ABS issuer should be permitted to suspend its reporting obligation even if there are a limited number of non-affiliates of the depositor holding the ABS in question, whether another standard (such as a certain percentage of pool assets remaining) would be more appropriate, or whether suspension should be based on the passage of a specified period of time since the date of the registered ABS offering.12
Comments on the proposed rules are due to the Commission by February 7, 2011.
No-Action Letter Grandfathers Reporting Suspension of Most ABS Issued Before 2010
Absent further relief, the enactment of Section 942(a) of the Dodd Frank Act (together with the rules proposed in the Proposing Release) would re-impose Exchange Act reporting obligations on every issuer that offered and sold ABS in a registered public transaction and had those obligations subsequently suspended under Section 15(d) of the Exchange Act, no matter how long ago the offering or suspension of reporting, if any of the ABS are still outstanding and held by non-affiliates of the depositor.
In the No-Action Letter, the Staff acknowledges industry concerns that historically, “the transaction documents for [ABS] issuers have not contained provisions necessary to support an ongoing Exchange Act reporting obligation, or provided the funds to cover the costs of taking steps to recommence such a reporting obligation.” Therefore, the Staff undertakes not to recommend enforcement action against an ABS issuer that continues to determine its Exchange Act reporting obligation based on Section 15(d) of the Exchange Act as it existed immediately before the enactment of the Dodd-Frank Act, so long as three conditions are satisfied.
First, the ABS issuer’s reporting obligations must already have been suspended by Section 15(d) of the Exchange Act before enactment of the Dodd-Frank Act. Where applicable, Section 15(d) suspends reporting obligations for any fiscal year after the year in which the securities were issued, as of the first day of that fiscal year, and ABS issuers generally operate on a calendar-based fiscal year. Therefore, the reporting obligations of ABS issuers that issued securities prior to July 21, 2010, generally were not yet suspended as of the date that the Dodd-Frank Act was enacted. This means that the relief afforded by the No-Action Letter generally will apply only to ABS issued in 2009 or before.
Second, the ABS issuer must “[continue] to comply with its requirements under the related transaction agreements to make ongoing information regarding the ABS and the related pool assets available to security holders, directly or through the trustee, in the manner and to the extent required under the transaction agreements.” Under Securities Act Rule 191, the ABS issuer generally is the depositor, acting in that capacity for the issuing entity. However, in the transaction documents for most ABS, ongoing information requirements are imposed directly on the issuing entity, rather than on the depositor. Ordinarily, the issuing entity is a trust with an independent trustee. Depositors will need to ensure that the trustee of the issuing trust, the trust administrator or other applicable party complies with its ongoing information requirements. Because compliance with these obligations is a condition of the relief provided by the No-Action Letter, the failure to comply could lead to enforcement action against the depositor (in its capacity as ABS issuer) for failure to file ongoing Exchange Act reports.
Third, the ABS issuer must retain “the information” (presumably, the information required to be made available to holders of its ABS as described above) for at least five years after the ABS are no longer outstanding, and upon request, furnish a copy of any such information to the Commission or the Staff. Depositors will need to set up procedures for retaining this information in an organized fashion for the required period and for responding to Commission requests, or will need to contract with the trustee of the issuing trust (or other applicable party) to perform these tasks on its behalf. Again, because compliance with this requirement is a condition of the relief provided by the No-Action Letter, the failure to comply could lead to enforcement action against the depositor for failure to file ongoing Exchange Act reports.
For assistance, please contact any of the following lawyers:
John Arnholz, Partner, Structured Transactions
Reed D. Auerbach, Practice Group Leader, Structured Transactions
Michael P. Braun, Partner, Structured Transactions
Robert J. Gross, Partner, Structured Transactions
Laurence B. Isaacson, Partner, Structured Transactions
Jeffrey R. Johnson, Partner, Structured Transactions
Matthew P. Joseph, Partner, Structured Transactions
Steve Levitan, Partner, Structured Transactions
Edmond Seferi, Partner, Structured Transactions
Charles A. Sweet, Partner, Corporate, M&A and Securities
Roger P. Joseph, Practice Group Leader, Investment Management; Co-chair, Financial Services Area
Edwin E. Smith, Partner, Financial Restructuring, Co-chair, Financial Services Area
The Dodd-Frank Act, which was signed into law on July 21, 2010, is available at
. Our summary of the Dodd-Frank Act is available at /Media.aspx?MediaID=10963
Suspension of the Duty to File Reports for Classes of Asset-Backed Securities Under Section 15(d) of the Securities Exchange Act of 1934, SEC Release No. 34-63652 (Jan. 6, 2011), available at http://sec.gov/rules/proposed/2011/34-63652.pdf
American Securitization Forum, SEC No-Action Letter (Jan. 6, 2011), available at http://www.sec.gov/divisions/corpfin/cf-noaction/2011/asf010611-15d.htm
Exchange Act Rule 15d-22(b).
Some industry participants had been of the view that Rule 15d-22(b), as it continues to exist unless and until the rules proposed by the Proposing Release are adopted, would independently continue to suspend the reporting obligation of ABS issuers despite the enactment of Section 942(a) of the Dodd-Frank Act and the amendment of Section 15(d) of the Exchange Act. In the Proposing Release, the Commission indicates its view that Rule 15d-22(b) merely clarifies that the starting and suspension dates for Exchange Act reporting as to shelf-registered ABS are determined separately for each shelf takedown, and “should not be read. . .to provide an independent basis for suspending the reporting obligation of Exchange Act Section 15(d).” Proposing Release, at n. 16.
Asset Backed Securities, SEC Release Nos. 33–9117, 34–61858, 75 Fed. Reg. 23328, 23347 (May 3, 2010), available at http://sec.gov/rules/proposed/2010/33-9117fr.pdf
. Our summary of these proposed rules is available at /Media.aspx?MediaID=10665
. The Commission states in the Proposing Release that it will no longer pursue this proposal in light of the enactment of Section 942(a) of the Dodd-Frank Act. Proposing Release, at p. 8.
., at p. 9.
The Commission also has proposed to amend Rule 15-22(a) to more generally codify the current rule that the starting and suspension dates for reporting for ABS issued in a takedown from a shelf registration statement will continue to be determined separately for each takedown. Id
., at p. 12.
., at p. 9.
., at pp. 10-11.