Morningstar Credit Ratings, LLC, an NRSRO and the structured credit research and ratings subsidiary of Morningstar, Inc., today announced that it now qualifies as a “Rating Agency” as defined by the United States Department of Labor (DOL) in its amended requirements for the Exemption From Certain Prohibited Transaction Restrictions of the Employee Retirement Income Security Act of 1974 (ERISA), commonly referred to as the “Underwriter Exemptions.” The amended exemption increases the ability of employee benefit plans to invest in structured credit securities that carry ratings issued by Morningstar Credit Ratings.
Published July 9, the DOL revised the definition of “Rating Agency” as set forth in Section III.X of the Underwriter Exemptions to eliminate any specific reference to a particular credit rating agency. The DOL’s new definition is as follows:
“Rating Agency” means a credit rating agency that: (i) Is currently recognized by the U.S. Securities and Exchange Commission (SEC) as a nationally recognized statistical ratings organization (NRSRO); (ii) has indicated on its most recently filed SEC Form NRSRO that it rates “issuers of asset-backed securities;” and (iii) has had, within a period not exceeding 12 months prior to the initial issuance of the securities, at least three (3) “qualified ratings engagements.” A “qualified ratings engagement” is one (i) requested by an issuer or underwriter of securities in connection with the initial offering of the securities; (ii) for which the credit rating agency is compensated for providing ratings; (iii) which is made public to investors generally; and (iv) 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,” Joe Petro, managing director of Morningstar’s structured credit ratings business, said. “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.”
ERISA is a federal law that sets uniform, minimum standards for employee benefit plans, including requirements to regularly provide information about plan features and funding and accountability of plan fiduciaries.