SEC Adopts New Short Form Criteria to Replace Credit Ratings

Article by Daniel P. Adams , James P.C. Barri , Gilbert G. Menna and Ettore A. Santucci P.C.

In light of Section 939A of the Dodd-Frank Wall Street Reform and Consumer Protection Act, on July 26, 2011, the Securities and Exchange Commission ("SEC") voted unanimously to adopt new rules ("New Rules") to remove credit ratings as eligibility criteria for companies seeking to use "short form" registration when registering securities. Instead of the ratings criteria, the New Rules allow for, among other things, the use of Form S-3 for the offering of non-convertible debt securities under the Securities Act of 1933, if the issuer is a majority-owned operating partnership of a real estate investment trust ("REIT") that qualifies as a "well-known seasoned issuer."

This REIT-specific eligibility criteria represents a significant broadening of the eligibility criteria contained in the SEC's initial proposal, which threatened to create meaningful roadblocks to widely followed REITs' continued access to the debt capital markets. The New Rules also will permit an issuer to utilize Form S-3 for non-convertible debt securities if, among other things, the issuer (i) has issued at least $1 billion of non-convertible debt securities over the prior three years in primary offerings for cash that were registered under the Securities Act, (ii) has outstanding at least $750 million of non-convertible debt securities issued in primary offerings for cash that were registered under the Securities Act or (iii) is a wholly owned subsidiary of a "well-known seasoned issuer."

Representatives of Goodwin Procter style="FONT-SIZE: 8pt">LLP assisted The National Association of Real Estate Investment Trusts ("NAREIT") in connection with its comment letter related to the SEC's initial proposal and met the SEC to discuss, among other things, the REIT-specific eligibility criteria which ultimately was adopted in the New Rules.

The New Rules will take effect 30 days after they are published, but will include a temporary grandfather provision that allows an issuer to use Form S-3 for a period of three years from the effective date of the New Rules if the issuer would have been eligible to register the securities offerings under the old provision.

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