Final Risk Retention Rules – Implications For US & European Collateralized Loan Obligations

I. BACKGROUND

On October 21 and 22, 2014, the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Department of Housing and Urban Development, Federal Housing Finance Agency, Office of the Comptroller of the Currency, and Securities and Exchange Commission (collectively, the "Agencies") approved final rules (the "Final Rules") for implementing the requirements of Section 941 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Final Rules take into consideration comments received on the rules proposed in August 2013 (the "Modified Proposals") and those originally proposed in April 2011. The Agencies adopted the Final Rules pertinent to collateralized loan obligations ("CLOs") with few changes from the Modified Proposals, except for, most importantly, the elimination of the proposed "cash trap" on distributions to the sponsor holding the eligible horizontal residual interest retention option and the elimination