It’s a new world for credit rating agencies.
Fitch Ratings has sent out a notice, and rating agencies are phoning issuers, to get the word out about some key changes that will be impacting the markets.
The changes come about with the Dodd-Frank Act that is expected to be signed into law in the U.S. this week.
“Immediately after the Dodd-Frank Bill is signed into law an issuer will need to obtain Fitch’s written consent to include a Fitch credit rating in a Securities Act registration statement and any related prospectuses,” the rating agency warns.
“Fitch will be potentially exposed to ‘expert’ liability under section 11 of the Securities Act, liability to which Fitch is not currently exposed. Fitch is not willing to take on such liability without a complete understanding of the ramifications of that liability to Fitch’s business and the means by which Fitch may be able to effectively mitigate the risks associated therewith. While Fitch will continue to publish credit ratings and research, given the potential consequences, Fitch cannot consent to including Fitch credit ratings in prospectuses and registration statements at this time.”
Fitch is not a fan of the new rules and, ironically, argues that it should not be considered an “expert” under the Securities Act “since ratings are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts.”
There’s more. The Dodd-Frank Act says that the SEC should remove the exemption for credit rating agencies from the Fair Disclosure Rule within 90 days of the enactment of the new law. That threatens to dramatically cut back the amount of information that rating agencies receive.
“The exemption for credit rating agencies from Regulation FD permits issuers to provide the credit rating agencies with material non-public information without requiring public disclosure of such information,” Fitch notes. “To the greatest extent possible, Fitch will work with the issuer community to put in place appropriate mechanisms so that Fitch can continue to receive confidential information as part of the rating process.”
