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PUBLIC COMPANIES SHOULD REQUIRE CREDIT RATING AGENCIES TO AGREE TO CONFIDENTIALITY AGREEMENTS OR PROVISIONS

02.02.11

Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC amended Regulation FD (PDF) to eliminate exemptions for disclosure of material nonpublic information to credit rating agencies.  Regulation FD provides that when a company (or a person acting on behalf of a company) discloses material nonpublic information to certain persons, it must publicly disclose that information.  The purpose of Regulation FD is to limit the selective disclosure of material nonpublic information by requiring that information is not slectively disclosed to market professionals (or anyone else) without being disclosed to the public first or at the same time.  While legislative changes in 2006 removed certain credit rating agencies from the purview of Regulation FD, a number of credit rating agencies are still covered by Regulation FD.  Thus, public companies should take the necessary precautions and plan accordingly by using confidentiality agreements or provisions to protect material nonpublic information disclosed to credit rating agencies. 

OUR TAKEBefore engaging in discussions with representatives of credit rating agencies, public companies should require credit rating agencies to either enter into written confidentiality agreements or add confidentiality provisions to their engagement letters.

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