The firm, and other Nationally Recognized Statistical Rating Organizations (NRSROs) are now qualified under the DOL’s amended requirements for the Exemption From Certain Prohibited Transaction Restrictions of the Employee Retirement Income Security Act (ERISA), also known as “Underwriter Exemptions.” The amended exemption increases the ability of employee benefit plans to invest in structured credit securities that carry ratings issued by Morningstar and other “Rating Agencies.”
The DOL’s new definition states that “Rating Agency” means a credit rating agency that is currently recognized by the U.S. Securities and Exchange Commission (SEC) as an NRSRO; has indicated on its most recently filed SEC Form NRSRO that it rates “issuers of asset-backed securities”; and has had, within a period not exceeding 12 months prior to the initial issuance of the securities, at least three “qualified ratings engagements.”
A “qualified ratings engagement” is one requested by an issuer or underwriter of securities in connection with the initial offering of the securities; for which the credit rating agency is compensated for providing ratings; which is made public to investors generally; and which involves the offering of securities of the type that would be granted relief by the Underwriter Exemptions.
“The DOL amendment is a critical step toward increasing competition in the rating agency industry by creating a level playing field for all NRSROs,” said Joe Petro, managing director of Morningstar’s structured credit ratings business. “This development will provide more options to both issuers and the employee benefit plans that are governed by ERISA, which utilize credit ratings and rating agency analysis as part of their investment process.”
Text of the Exemption From Certain Prohibited Transaction Restrictions is here.