The Securities and Exchange Commission (the “Commission”) has adopted final rules (the “Adopting Release”)1 that will require most issuers of asset-backed securities (“ABS”) to continue to file periodic reports under Section 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)‚ for the life of the securities. The duty to file periodic reports under the Exchange Act will be suspended as to a class of ABS only when no registered ABS of that class are held by non-affiliates of the ABS depositor. The final rules differ from the rules that originally were proposed2 primarily in that suspension of the duty to file is tested at the beginning of each semi-annual fiscal period, rather than annually.
The staff of the Commission’s Division of Corporation Finance has not changed its position that, if certain conditions are satisfied, the staff will not recommend enforcement action against an ABS issuer that does not file periodic reports if its reporting obligation was suspended before the Dodd-Frank Act was enacted on July 21, 2010.3 This no-action position effectively grandfathers the existing reporting suspension for most issuers of ABS that were issued before 2010.4
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 Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”),5 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 takedown6)‚ 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 removed the statutory exemption for issuers of ABS, and authorized the Commission to prescribe by rule the ability of ABS issuers to suspend or terminate periodic reporting under the Exchange Act.
In its originally proposed comprehensive revisions to Regulation AB, 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 for the securities and the servicer. . . .”7 In the Adopting Release, the Commission reiterates the importance to investors of post-issuance reporting in ABS transactions, noting that the burden of preparing ongoing Exchange Act reports exceeds the benefit to investors only when all holders of the ABS are affiliated with the depositor.8
Therefore, the Commission has amended 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 as to any semi-annual fiscal period, other than a period in 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, in which the takedown occurred),9 if at the beginning of that fiscal period there are no securities of that class that were sold in the registered transaction held by non-affiliates of the depositor and if a certification on Form 15 has been filed. Further, when there are no ABS of a class sold in a registered transaction still outstanding, the issuer’s reporting obligations with respect to that class will be suspended immediately upon filing a certification on Form 15, if the issuer has filed all required reports for the shorter of its most recent three fiscal years (and the portion of the current year preceding the filing of its Form 15) or the period since the issuer became required to report. In either case, the filing of Form 15 will be a prerequisite to the suspension of any reporting requirements.10
As originally proposed, this rule would have provided for suspension of the duty to file to be tested annually, rather than semi-annually. According to the Commission, “[t]he increased frequency of the required assessment seeks to alleviate concerns regarding reporting and information gaps that could occur with annual assessments by making it harder to evade the reporting requirements as well as [to] reduce costs imposed by requiring reporting for the remainder of the year when the ABS are held solely by affiliates of the depositor.”11
The provision permitting the immediate suspension of the duty to file periodic reports upon filing a Form 15 when there are no ABS of a class that were sold in a registered transaction was added to the final rule in response to comments requesting the Commission to clarify that an ABS issuer could immediately cease reporting whenever none of its registered ABS remained outstanding.
The final amended rule includes two explanatory notes that were not a part of the original proposal. The first note clarifies that securities held of record by a broker, dealer, bank or nominee for the accounts of customers are considered held by the separate accounts for which they are held, so if an investment bank holds ABS that were issued by an affiliate for the benefit of non-affiliated investors, the issuer of those ABS cannot suspend reporting. The second note explains that an ABS issuer may not suspend reporting if its securities are acquired and resold by affiliates as part of a plan or scheme to evade the reporting requirements of the Exchange Act.
Amended Rule 15d-22(b) will become effective 30 days after its publication in the Federal Register.
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
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Jeffrey R. Johnson, Partner, Structured Transactions
Matthew P. Joseph, Partner, Structured Transactions
Steve Levitan, Partner, Structured Transactions
Edmond Seferi, Partner, Structured Transactions
Vincent Sum, 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