23 February 2010
Both Standard & Poor’s and Fitch have announced plans to add a special designation to their respective ratings of structured finance instruments. Each will be using the letters “SF,” though it appears Fitch will lower case them (sf). In each case, it appears the change will be implemented by September.
These actions were spurred by the European Regulation on Credit Rating Agencies, which was adopted last year (see our related alert, “EU Regulation of Credit Rating Agencies in Europe”). The regulation requires any rating agency registered under the regulation—similar to registering as a nationally recognized statistical rating organization (NRSRO) in the United States—to use a special symbol to designate structured finance ratings. Fitch and S&P have each indicated that they intend to register under the regulation. Both agencies are making the change globally.
The US Securities and Exchange Commission (SEC) had proposed a similar requirement for NRSROs but announced in a December 2009 release that it was deferring consideration of that proposal, while also requesting comments (due earlier this month) on alternative measures that could be taken to differentiate NRSROs’ structured finance ratings from other ratings. Perhaps the SEC will consider the issue moot, if (as seems likely) other NRSROs also register under the European regulation and adopt special designations.
Some issues may arise as to what securities will be considered “structured finance instruments” and, therefore, receive the special designation. S&P has invited comment on this point, with a preference for input by March 5, 2010.
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