Kirschner Decision—Implications For CLOs And Syndicated Loans

On May 22, 2020, Judge Paul G. Gardephe of the U.S. District Court for the Southern District of New York granted a motion to dismiss in Kirschner v. JPMorgan Chase Bank, N.A.,¹ finding, inter alia, that the syndicated loans at issue in Kirschner are not securities for purposes of state securities laws by applying the "family resemblance" test set forth in Reves v. Ernst & Young.² While investors and originators wait for widespread activity to return to the $1.2 trillion new-issue market for U.S. leveraged loans,³ the timely Kirschner decision reaffirms the widely-held understanding that syndicated loans are not securities. Kirschner should alleviate⁴ concerns about the ability of U.S. banking entities to rely on the "Loan Securitization Exclusion" under the Volcker Rule to invest in collateralized loan obligation ("CLO") securities backed by broadly syndicated loans, as well as concerns that participants in the syndicated loan market might be subject to liability