What CLO Managers Should Know About U.S. Credit Risk Retention Rules

Financial Services

As we described in a previous article, "U.S. Regulatory Update – Credit Risk Retention for CLOs," published on September 10, 2013, six federal agencies (the "Agencies") are seeking public comments on a re-proposed rule (the "Re-Proposed Rule") to implement the credit risk retention requirements under the Dodd-Frank Act.

This memorandum summarizes the Re-Proposed Rules' main changes that may affect the management activities of collateralized loan obligations ("CLOs").

SUMMARY

• If adopted in their current form, the Re-Proposed Rules may have a material impact on how a CLO manager would launch and manage a new CLO transaction. In particular, a newly proposed limitation on equity distributions may fundamentally change—or worse, stifle—the CLO market.