Guidance on New SEC Rating Agency Expert Consent
Requirement
July 21, 2010
On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform andConsumer Protection Act, the most sweeping financial reform legislation in decades. Certain
provisions of the Dodd-Frank Act will become effective immediately, whereas other provisions
require studies and/or rule-making and, as a result, the full implementation of the Dodd-FrankAct will take some years.
Among the provisions which become effective immediately is a provision that eliminates
Securities Act Rule 436(g). This provision of Rule 436 exempted credit rating agencies from therequirement that written consents be filed with the Securities and Exchange Commission in theevent that any portion of a report or opinion of an expert is quoted or summarized in aregistration statement or prospectus. With the elimination of Rule 436(g), written consents
generally would be necessary in connection with references to credit ratings in registration
statements and prospectuses, depending on the status of the filing and the character of suchreferences. The implementation of the new consent requirement is made complex by thepractice of many issuers to refer to credit ratings in their Securities Exchange Act reports thatare incorporated by reference into registration statements and prospectuses. Moreover, theleading rating agencies have indicated preliminarily that they do not intend to provide
consents.
In light of the conflict between the consent requirement and preliminary position adopted bycertain of the rating agencies, we at Simpson Thacher have collaborated with a number of otherlaw firms and have spoken with the staff of the Securities and Exchange Commission with aview to developing guidance with respect to the application of the consent requirement. The
product of these discussions is a “white paper” setting forth such guidance. A copy of thewhite paper is annexed to this memorandum.
We understand that the staff of the SEC may shortly issue compliance and disclosureinterpretations relating to the application of Rule 436 as amended. We expect that these“C&DIs” will be consistent with the guidance set forth in the white paper.
The guidance set forth in the white paper is general in nature and is not intended as legaladvice. We urge issuers to consult with their legal advisors promptly regarding the issues
discussed in the white paper in order to ensure that their access to the public capital markets is
not impeded by the new consent requirement.

SIMPSON THACHER & BARTLETT LLP

Memorandum – July 21, 2010

ANNEX
IMPACT OF THE REPEAL OF SECURITIES ACT OF 1933 RULE 436(G) PURSUANT
TO THE DODD-FRANK WALL STREET REFORM AND CONSUMERPROTECTION ACT
Many corporate issuers refer to the ratings of their debt and preferred securities in prospectuses
or prospectus supplements for those securities as well as in their Annual Reports on Form 10-K,
20-F or 40-F, Quarterly Reports on Form 10-Q or reports on Form 6-K that are incorporated byreference into their registration statements. The repeal of Rule 436(g), effective this Thursday
July 22, 2010, raises certain questions regarding the continued use of ratings information giventhat certain rating agencies have already indicated that they are currently unwilling to deliverconsents in relation to such disclosures and other rating agencies are expected to take a similar
position. After consultation with the Staff of the Securities and Exchange Commission (the“Commission”), the firms named below believe the following approaches with respect to thedisclosure of ratings information for non-asset backed securities offerings are appropriate basedon the application of the Commission’s current rules and regulations.
Disclosure of ratings in registration statements filed pursuant to the Securities Act of1933 or Section 10(a) prospectuses for purposes of satisfying an issuer’s disclosure
obligations. Some ratings disclosures in Commission filings do not require the filing of aconsent, even if those disclosures are incorporated into or included in a registration
statement or prospectus. For example, consistent with the discussion in the proposing
release for the Commission’s rule proposal from 2009 to require disclosure of
information regarding credit ratings used by issuers (Rel. No. 33-9070)1 and footnote 53
of the Commission’s concept release from 2009 regarding the repeal of Rule 436(g) (Rel.
No. 33-9071), no consent should be required where an issuer includes disclosure about
its credit rating in a filing with the Commission in the context of a discussion of changes
to a credit rating, the liquidity of the registrant, the cost of funds for a registrant or theterms of agreements that refer to credit ratings.2

Prospectuses and prospectus supplements. An appropriate consent must be filed as partof the registration statement prior to filing a prospectus or prospectus supplement that isfirst filed on or after July 22, 2010 that includes ratings information (other thandisclosure-based ratings information as noted in the first bullet above or any ratings
based information that was filed prior to July 22, 2010).

1This rule proposal would require issuers to include in the registration statement information
regarding credit ratings (other than disclosure-based ratings information) used by issuers inconnection with registered offerings. No action has yet been taken on this proposal. If thisproposal is adopted, the application of the consent requirement would change since ratings usedin securities offerings would be required to be disclosed in the Registration Statement.

2Because Rule 436(g) by its terms did not apply to the disclosure of claims-paying ratings by
insurance companies, its repeal should not affect the continued disclosure of such ratings.

Memorandum – July 21, 2010

Free writing prospectuses and Rule 134 compliant term sheets and press releases. The
repeal of Rule 436(g) should not affect the use of ratings in free writing prospectuses orin term sheets or press releases that comply with Rule 134. That is because Rule 436,
which requires the filing of written consents by experts, only applies by its terms to“registration statements” and “prospectuses”. Rule 436 does not apply to “free writingprospectuses” (since they are Section 10(b) prospectuses and the definition of“prospectus” in Rule 405 only refers to Section 10(a) prospectuses) or to term sheets orpress releases that comply with Rule 134 (since communications that comply with Rule134 are not prospectuses). Note that if a free writing prospectus is filed with theCommission not only as a free writing prospectus but also as a prospectus pursuant toRule 424, the free writing prospectus would constitute a “prospectus” for the purposesof Rule 436 and, accordingly, the requirements noted above for prospectuses first filed
on or after July 22, 2010 would apply.

Registration statements.
oRegistration statements that became effective prior to July 22, 2010. Rule 401(a)provides that the form and content of a registration statement and prospectus
shall conform to the applicable rules and forms as in effect on the initial filingdate of such registration statement and prospectus. Accordingly, issuers shouldbe able to continue to use currently effective registration statements without
regard to any information regarding ratings included or incorporated byreference therein until the next post-effective amendment to such registrationstatement, unless a new prospectus or prospectus supplement filed under Rule424(b) contains non-disclosure based ratings information, as set forth in thesecond bullet point above. Since the filing of an issuer’s Annual Report on Form
10-K, 20-F or 40-F is deemed to be a post-effective amendment for purposes of
updating the prospectus contained therein pursuant to Section 10(a)(3), mostissuers should be able to continue to use their currently effective registration
statements until the filing of their next Annual Report on Form 10-K, 20-F or 40F. If the filing of the issuer’s next Annual Report includes ratings information(other than disclosure based ratings information as noted in the first bulletabove), then it must be accompanied or preceded by the filing of the appropriate
consents.

oAmendments to registration statements filed on or after July 22, 2010.
Amendments to registration statements (other than post-effective amendment
which are addressed below) filed on or after July 22, 2010 (including the filing ofquarterly and other reports pursuant to the Securities Exchange Act of 1934 thatare incorporated by reference into a registration statement) must be preceded by
the filing of the appropriate consents if the text of such amendment contains
ratings information (other than disclosure based ratings information as noted in
the first bullet above).

Page 2

Memorandum – July 21, 2010

oRegistration statements and post-effective amendments that become effective onor after July 22, 2010. Registration statements and post-effective amendments toregistration statements that become effective on or after July 22, 2010, must
include an appropriate consent if the registration statement includes orincorporates by reference any ratings information (other than disclosure-basedratings information as noted in the first bullet above) regardless of when suchinformation was originally filed. To the extent that ratings information (otherthan disclosure-based ratings information as noted in the first bullet above) is
contained in annual, quarterly and other reports filed pursuant to the Securities
Exchange Act of 1934, to be incorporated by reference into a registration
statement that is newly filed or subject to post-effective amendment and anissuer is unable to obtain required consents from ratings agencies, then the issuer
would need to amend the reports to be incorporated into the registration
statement prior to the filing of the registration statement or post-effective
amendment, as the case may be, with the Commission.

The undersigned firms concur in the above conclusions (recognizing that advice in any situation
is dependent on the particular facts and circumstances). None of the firms subscribing to thisdocument intends thereby to give legal advice to any person. Issuers are urged to consult with
their legal advisors promptly regarding the issues discussed in this memorandum in order toensure that their access to the public capital markets is not impeded by the change in law.

July 21, 2010

Cleary Gottlieb Steen & Hamilton LLP
Cravath, Swaine & Moore LLP
Davis Polk & Wardwell LLP
Latham & Watkins LLP
Mayer Brown LLP
Shearman & Sterling LLP
Sidley Austin LLP
Simpson Thacher & Bartlett LLP
Skadden, Arps, Slate, Meagher & Flom LLP
Sullivan & Cromwell LLP

Page 3

Memorandum – July 21, 2010

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07/21/2010 7:05 PM
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