SEC Adopts Enhanced Offering and Disclosure Rules for Registered ABS | Practical Law

SEC Adopts Enhanced Offering and Disclosure Rules for Registered ABS | Practical Law

On August 27, 2014, the SEC adopted more stringent registration and disclosure rules for registered asset backed securities (ABS) transactions. Compliance with these measures, referred to as Regulation AB II or "Reg AB II," is required for eligibility to use the SEC shelf-registration process, which is how most registered ABS are issued in the US.

SEC Adopts Enhanced Offering and Disclosure Rules for Registered ABS

Practical Law Legal Update 7-579-4987 (Approx. 4 pages)

SEC Adopts Enhanced Offering and Disclosure Rules for Registered ABS

by Practical Law Finance
Published on 28 Aug 2014 • USA (National/Federal)
On August 27, 2014, the SEC adopted more stringent registration and disclosure rules for registered asset backed securities (ABS) transactions. Compliance with these measures, referred to as Regulation AB II or "Reg AB II," is required for eligibility to use the SEC shelf-registration process, which is how most registered ABS are issued in the US.
On August 27, 2014, the SEC adopted final rules revising the disclosure, reporting and offering process for asset backed securities (ABS) issued in registered transactions. These measures, referred to as Regulation AB II (or Reg AB II), aim to provide investors with a greater degree of transparency into the securitized asset pools that collateralize registered ABS. Compliance with these rules is required for eligibility to use SEC short-form shelf-registration on Form S-3, which is how most registered ABS are issued in the US.
The SEC, however, declined to extend these reforms to private, unregistered ABS transactions, as was contemplated under the original Reg AB II proposal. Most ABS in the US, including all US CLOs, are issued in unregistered private placements under Rule 144A. The SEC did indicate in the rules, however, that the analogous Reg AB II proposals remain outstanding with respect to unregistered ABS.
The reforms aim to enhance transparency in registered ABS transactions, better protect investors in registered ABS and make it easier for investors to perform their own due diligence by:
  • Requiring certain asset classes to provide asset-level information in a standardized, tagged data format.
  • Providing investors with additional time to consider transaction-specific information.
  • Removing the investment grade rating requirement for ABS shelf-registration eligibility.
  • Amending ABS prospectus disclosure requirements.
  • Revising Regulation AB to include:
    • standardization of certain static pool disclosure;
    • revisions to the definition of "asset backed securities" in Regulation AB;
    • specific disclosure that must be provided on an aggregate basis relating to the type and amount of securitized assets in the transaction's collateral pool that do not meet the underwriting criteria described in the prospectus; and
    • changes to disclosure Forms 10-D, 10-K and 8-K.
These rules have been in the works since April 2010 but obstacles arose to providing investors with more data about the securitized assets while balancing privacy concerns about sensitive loan data (see Legal Update, SEC Delays Reg AB II, Proposes Modified ABS Asset-level Disclosure).
The revised rules become effective on November 24, 2014, and issuers must comply with the new rules (including the use of the new disclosure forms) other the than asset-level disclosure requirements, no later than one year after that date. Registered offerings of ABS backed by residential and commercial mortgages (RMBS and CMBS, respectively), auto loans, auto leases and debt securities (including resecuritizations such as CDOs) must comply with the new asset-level disclosure requirements no later than two years after November 24, 2014.
The SEC also issued a press release and summary of the rules.