SEC Adopts Rule Eliminating Use of Credit Ratings as Eligibility Criteria for S-3

The SEC unanimously adopted new rules to conform to Dodd-Frank's mandate to reduce reliance on credit ratings as eligibility criteria for companies seeking to use “short form” registration (S-3 and F-3) when registering securities for public sale.  Companies currently qualify to use these forms if they are registering an offering of non-convertible securities, such as debt securities, that have received an investment grade rating by at least one nationally recognized statistical rating organization (NRSRO).

The new rules eliminate the credit ratings criteria and replace it with four new tests, one of which must be satisfied for an issuer to use Form S-3 or Form F-3. In order to ease transition for companies, the rules include a temporary, three-year grandfather provision.