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ARTICLE · 18 SEPTEMBER 2013

U.S. Regulatory Update – Credit Risk Retention for CLOs

Blank Rome LLP
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On August 28, 2013, six federal agencies, including the Board of Governors of the Federal Reserve System, the U.S. ­Securities and Exchange Commission, and the Federal Deposit Insurance Corporation, issued a re-proposed rule to implement the credit risk retention requirements of Section 15G of the Securities Exchange Act of 1934, as added by Section 941 of the Dodd-Frank Act.

United StatesFinance and Banking
Grant Buerstetta
Grant Buerstetta
Marianne Caulfield
Marianne Caulfield
Jaiho Cho
Jaiho Cho

Financial Services

On August 28, 2013, six federal agencies, including the Board of Governors of the Federal Reserve System, the U.S. Securities and Exchange Commission, and the Federal Deposit Insurance Corporation (collectively, the "Agencies"), issued a re-proposed rule (the "Proposed Rule") to implement the credit risk retention requirements of Section 15G of the Securities Exchange Act of 1934, as added by Section 941 of the Dodd-Frank Act.

This memorandum summarizes key points of the Proposed Rule that may affect the collateralized loan obligation ("CLO") market practice.

SUMMARY

  • Two risk retention options would be available: (a) retention of horizontal or vertical interests or a combination of the two; or (b) in connection with an "open market CLO," a new option that requires the lead underwriter of corporate loans to hold five percent of the face amount of the term loan tranche purchased by the CLO.

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