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ARTICLE · 15 NOVEMBER 2000

Collateralized Loan Obligations: A Powerful New Portfolio Management Tool For Banks ~ Part 2

Mayer Brown
Mayer Brown
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Legal Considerations

Banks contemplating a CLO transaction should be aware of several significant legal issues that need to be considered in structuring a CLO. The rating agencies generally require satisfactory legal opinions addressing these issues.

1.

Bankruptcy/True Sale Issues. As is typical for asset-backed securities transactions, the rating agencies will require that the CLO issuer be established as a bankruptcy-remote SPV. The charter documents of the CLO issuer will limit its activities to acquiring loans to be used as collateral, issuing debt and equity securities, entering into contracts with third party service providers such as credit enhancers, and related ancillary activities.

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