SEC summary

Five rating agencies are recognized by the SEC as NRSROs

• They rate debt, convertible debt, and preferred stock
• Investment grade

• Four highest rating categories (including subcategories)
• Typically AAA to BBB

• Non-investment grade / high yield / junk

• Below the four highest categories
• Typically BB+ to D

SEC propose rules to regulate rating agencies

• Rules will implement provisions of the
  Credit Rating Agency Reform Act of 2006
• Proposed new Rules 17g-1 to 17g-6
• See SEC Release 34-55231  2.02.07

Credit Rating Agency Reform Act of 2006

• Enacted on 9.29.06
• Added new Section 15E to the Exchange Act
• Defines nationally recognized statistical rating organization ... NRSROs
• Requires NRSROs to register with the SEC
• Requires NRSROs to submit to SEC rules for recordkeeping, financial reporting, and oversight
• Directed SEC to adopt final rules by 6.26.07
• See Credit Rating Agency Reform Act of 2006

Moody's

• Home page
• Form 10-K

• Moody's is a pure play publicly traded company
• 10-K describes business and regulation

Standard & Poor's

• Home page

• Subsidiary of McGraw-Hill

Fitch

• Home page
• Rating definitions

Dominion Bond Rating Service (DBRS)

• Home page
• Rating definitions
• SEC no-action letter 2003
  DBRS' request letter 2003
  Re: DBRS' status as an NRSRO

A.M. Best Company, Inc.

• Insurance specialist granted NRSRO status
  Press release 3.03.05
• Home page
• FAQs

S-K 10(c)

• SEC policy on use of security ratings
  in registration statements and periodic reports
• SEC FAQ

S-B 10(e)

• Parallel provision for small business issuers

Permit voluntary disclosure of security ratings in registration statements and periodic reports

Permit disclosure in tombstone advertisements
per Rule 134(a)(13)

Provide guidance for such use

Rule 436(g)

• Ratings are not considered "expertised"
  when included in a registration statement

Form 8-K disclosure - not mandated

• Not mandated

• Was proposed to be added as a required item

• See discussion in SEC Final Release 2004

Ford (Ratings downgrade)

• Form 8-K 4.14.05
• Moody's
• Standard & Poor's
• Dominion Bond Rating Service
• Dominion Bond Rating Service
• Fitch

Ratings triggers in credit arrangements

• SEC has raised issue with adequacy of disclosures
• Defined
• Article

SEC dedicated web pages

• "Spotlight"
• Division of Market Regulation