DBRS Comments on U.S. Financial Reform Legislation

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) has been passed by the U.S. Congress and will soon be signed into law. Among other things, this legislation provides for additional transparency and accountability for credit rating agencies registered as nationally recognized statistical rating organizations (NRSROs). DBRS fully supports these goals. In fact, in response to the financial crisis, DBRS has already implemented a variety of measures over the past two years to enhance the integrity of its operations, its analytic independence and the transparency of its ratings process. DBRS will further modify its policies, procedures and methodologies in the coming year, as the U.S. Securities and Exchange Commission (SEC) adopts rules implementing the Dodd-Frank Act.

However, certain provisions of the new legislation applicable to credit rating agencies take effect immediately and deserve special attention.

Among these is Section 939G of the Dodd-Frank Act, which repeals Rule 436(g) under the Securities Act of 1933 (the Securities Act) without any further action on the SEC’s part. Under this rule, which applied to U.S. public offerings registered under the Securities Act, NRSRO credit ratings were not deemed to be part of a registration statement prepared or certified by an "expert." As such, an NRSRO's consent was not required prior to including that entity's credit ratings in a registration statement. With the repeal of Rule 436(g), NRSRO consent to the inclusion of credit ratings in registration statements now must be obtained in accordance with Section 7 of the Securities Act, and consenting NRSROs will potentially be exposed to "expert" liability under Section 11 of that Act.

In view of the unprecedented treatment of credit ratings resulting from the repeal of Rule 436(g), DBRS is not willing to consent to the inclusion of its ratings in registration statements or prospectuses at this time. Of course, DBRS will continue to make its credit ratings and research available to the public through its normal distribution channels.

Issuers should consult their legal counsel regarding the effect of the repeal of Rule 436(g) on their future securities offerings.