Bangkok--30 Apr--Moody's
Moody's Investors Service is analyzing and developing mechanisms to implement a recent amendment to Rule 17g-5 ("Amended Rule") for credit rating agencies that are registered with the
U.S. Securities and Exchange Commission as Nationally Recognized Statistical Rating Organizations ("NRSROs") and hired by issuers, sponsors or arrangers (collectively, "Arrangers") to assign credit
ratings to structured finance products. Moody's previously commented on the implementation of this rule on March 25th, 2010.
The Amended Rule will prohibit an NRSRO from issuing or maintaining a credit rating on certain structured finance products unless:
1) On a password-protected website, the Arranger makes the information that it provides to one NRSRO available to any other NRSRO that wishes to rate the structured finance product; and
2) On a password-protected website, the NRSRO discloses to other NRSROs certain information about the structured finance products it was hired to rate.
Non-U.S. Transactions and Credit Ratings
Moody's interprets the Amended Rule as applying to all credit ratings assigned to structured finance products by an NRSRO or any of the credit rating affiliates it identifies on its Form NRSRO, regardless of where the rating is produced or where the Arranger, transaction or investors are located. Moody's is considering how it might operate in light of this global application of the Amended Rule and intends to update the market on this matter in May.
Moody's Approach to Rating New Transactions Prior to June 2, 2010 Compliance with the Amended Rule is required beginning on June 2, 2010. Moody's intends to comply with the Amended Rule with respect to new structured finance transactions where the rating process is initiated on
or after June 2.
1)What Moody's Does Not Consider to Be a "New" Structured Finance Product or Transaction
Moody's does not consider any structured finance product or transaction that, as of today, already has a Moody's credit rating assigned to it to be a new structured finance product or transaction. We are assessing whether the rolling or continuous issuance of obligations on or after June 2 from programs (such as asset-backed commercial paper programs) that already have a Moody's credit rating constitute new structured finance products or transactions subject to the Amended Rule and expect
to update the market on this matter as soon as possible.
2)When Would Moody's Consider the Rating Process to Have Been Initiated before June 2?
For the purposes of Moody's compliance with the Amended Rule, Moody's believes that the rating process for a structured finance product is initiated when the Arranger or its agent asks Moody's to begin analyzing a transaction for which it has provided sufficient, written information for that analytical process to begin, and Moody's agrees to conduct that analysis.
For structured finance transactions submitted by May 28, including transactions submitted before this press release was published, Moody's intends to communicate in writing (by email or letter) to the Arranger or its agent our view as to whether, for purposes of Moody's obligations under the Amended Rule, we believe the rating process was initiated before June 2. For structured finance transactions that Moody's already is analyzing, the Arranger or its agent should contact Moody's if they have not received such a written communication by May 15. For structured finance transactions where Moody's receives the information after May 28, we will consider the rating process to have been initiated on or after June 2 and, consequently, Moody's intends to apply the Amended Rule to the transaction.
For the purposes of Moody's compliance with the Amended Rule, examples of "specific information sufficient for the analytical process to begin" would include, e.g.:
A written description of specific collateral characteristics to be analyzed, and/or
A written term sheet or email that contains transaction terms to be analyzed.
Moody's would not consider the following to be sufficient for the analytical process to begin:
A discussion of our methodological approach,
A discussion about whether Moody's has the resources and time to rate a transaction of the type being considered,
An oral description of collateral or transaction terms, and/or
A discussion or correspondence about rating fees.
It should be noted that Moody's analytical personnel involved in the rating process (including managers) are not permitted to engage in, or be privy to, any fee discussions. Such individuals should not be included in any fee-related correspondence or other communications.
For purposes of Moody's compliance with the Amended Rule, Moody's reserves the right to determine in light of new information, which may come to our attention before or after June 2, that the rating process has not been initiated prior to June 2.
Securities and Instruments Covered by the Amended Rule Moody's continues to assess matters such as which types of securities and money market instruments meet the definition of structured finance
product. Our current view is that covered bonds generally would not constitute structured finance products within the meaning of the Amended Rule. Moody's expects to update the market in May on which securities and instruments we believe meet the definition of structured finance product in the Amended Rule.
Further Updates to the Market Planned
Moody's continues to engage in a dialogue with market participants in order to achieve an appropriate and effective implementation of the Amended Rule. We expect to update the market in May on procedures we expect to introduce to implement the Amended Rule. Queries and comments
can be sent to
[email protected].
Market participants who wish to learn more about the rule can read the SEC's adopting release, which is available on its website at http://www.sec.gov/rules/final/2009/34-61050.pdf .
New York Thomas J. Lemmon
AVP-Communications Strategist
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
London
Daniel Piels
Vice President
Communications
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454