On February 2, 2009 the Securities and Exchange Commission published the text of its new rules for credit rating agencies registered as nationally recognized statistical rating organizations (NRSROs). These rules were adopted at the SEC’s December 3, 2008 open meeting. The new rules are generally scheduled to go into effect on April 10, 2009. The SEC also re-proposed additional rules for NRSROs. Comments on the re-proposed rules are due March 26, 2009.

Final Rules
The rules adopted by the SEC in final form include bans on certain conduct which should be of interest to companies with current credit ratings issued by Standard & Poor’s Ratings Services, Moody’s Investors Service, Fitch Ratings, or another credit rating agency registered as an NRSRO. Since the consequences of violating one of the new bans are severe – requiring the credit rating agency to withdraw its rating – companies should carefully review their policies and procedures for interacting with credit rating agencies.

The new bans include:

• Ban on Recommendations. Under the new rules, a credit rating agency may not issue or maintain a credit rating on an obligor or security where the credit rating agency, or an affiliate, made “recommendations” to the obligor or the issuer, underwriter or sponsor of the security about the corporate or legal structure, assets, liabilities or activities of the obligor or issuer.

Despite concerns raised that a ban on recommendations could unnecessarily chill communications between rated issuers and credit rating agencies, the line between permissible and prohibited communications remains blurred. Attempting to distinguish between a permissible communication and a prohibited recommendation, the SEC stated, for example, that it “does not view an explanation by an NRSRO of the assumptions and rationales it uses to arrive at ratings decisions and how they apply to a given rating transaction as a recommendation.” On the other hand, “if the feedback process turns into recommendations by the NRSRO about changes to the structure, assets, liabilities or activities of the obligor or security that the person seeking the rating potentially could make to obtain a desired credit rating, the NRSRO would be in violation of the new rule.”

Companies and credit rating agencies both will need to exercise care to ensure that their discussions do not cross the line to soliciting or providing an impermissible recommendation.

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