Tara Castillo, senior associate in Alston & Bird’s Finance Group, reviews the current landscape of rating agencies and priorities.
Rating agencies seem to be front and center again – what’s happening?
Recently implemented Dodd-Frank regulation. In August 2014, the SEC adopted final rules and amendments relating to NRSROs, including Rules 15Ga-2 and 17g-10. Rule 15Ga-2 requires an issuer or underwriter of a public or private securitization to be rated by an NRSRO to furnish to the SEC the findings and conclusions of any third-party due diligence report obtained by the issuer or underwriter. Rule 17g-10 requires each provider of a third-party due diligence service to deliver a certification to each NRSRO rating the securitization.
How has SEC Rule 15Ga-2 impacted servicers?
Rule 15Ga-2 is an issuer and underwriter obligation, so the impacts on servicers have been minimal.
What are priorities of the rating agencies now?
Agencies are looking at Dodd-Frank regulatory compliance and re-evaluating current CMBS criteria to determine what updates, if any, are necessary in order to address new products.
How are rating agencies responding to new products like SFR?
Relatively well. Rating agencies are continuing to monitor new asset classes like SFR, which earlier this year evolved from a single-borrower to multiborrower structure. Rating agencies are also seeking to bridge the gap where historical performance data remains limited by analyzing the underlying properties securing the loan obligation, related net cash flows and loan underwriter assumptions against similar benchmarks and industry trends.