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SEC Eyes Funding Agreement Registration

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The U.S. Securities and Exchange Commission is asking how to apply efforts to de-emphasize credit ratings to the registration requirements for insurance funding agreement securitizations.

SEC officials mention funding agreement securitizations in a proposed rule released today.

The proposed rule, the third in a series of three proposed rules dealing with use of securities ratings, is part of an SEC effort to encourage investors to depend less on rating agencies and more on their own due diligence when evaluating securities.

The topic of insurance funding agreement securitizations crops up in a section on proposed changes in “shelf registration” rules for issuers of asset-backed securities.

Shelf registrations give companies a vehicle for filing the paperwork for a securities sale ahead of time, then selling the securities when they believe conditions are right.

Issuers of asset-backed securities now can use a relatively simple SEC registration form, Form S-3, rather than the longer Form S-1, “if they are rated investment grade by [a nationally recognized securities rating organization] and meet certain other conditions,” SEC officials write in a preamble to the proposed rule.

The “other conditions” include a requirement that less than 20% of the assets in a pool consist of delinquent assets.

The SEC now wants to keep the delinquent assets cap but replace the NRSRO rating provision with a provision that would require S-3 users to issue at least $250 million in asset-backed securities and make the initial sales only to institutional buyers.

Types of asset-backed offerings that might not meet the new criteria include securitizations of insurance funding agreements, SEC officials write.

SEC officials “believe that they can be effectively registered using Form S-1 instead of Form S-3,” officials write in a footnote.

A funding agreement is a contract backed by an insurance company that offers to pay the holder a fixed amount of principal and interest over a set period of time. In some cases, companies sell securities backed by funding agreements.

In a section listing questions for members of the public, SEC officials ask whether the offer and sale of insurance funding agreement securitizations and another type of offering, of unit repackagings, can be effectively registered on Form S-1.

“We note that these securities are typically listed on a national securities exchange,” officials write. “Should we instead add an alternative eligibility requirement that would provide eligibility to use Form S-3 for securities listed on a national exchange?”

Public comments are due Sept. 5.


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