Premium recapture rules threaten securitisation structures

Author: Danielle Myles | Published: 7 Apr 2011

Proposed rules requiring sponsors to retain 5% credit risk in securitisations have lawyers concerned about two things: premium capture reserve accounts, and collateralised loan obligations (CLOs) becoming prohibitively expensive.

The risk retention proposal, jointly-released by six US regulators last week, requires sponsors to establish a premium capture cash reserve account to hold the proceeds of any excess spread sold by the originator. This does not count towards the 5% they must retain, but is to cash-collateralise the deal.

"People are concerned as it would eliminate a lot of structures that are out there for fairly standard deals," said...