US regulators consider key risk retention CLO exemption

Author: Danielle Myles | Published: 2 Sep 2011

Regulators are in dialogue with the US’s loan trading trade body on the potential exemption of open market collateralised loan obligations (CLOs) from risk retention rules.

If these talks result in a carve-out, attorneys say it would be a significant win for the CLO industry, which is possibly the hardest hit by the controversial risk retention reforms.

It’s thought this carve-out could help prevent the US market sliding into a situation like that being experienced in Europe under CRD 4.

The Loan Syndication and Trading Association’s (LSTA) meetings with the regulators have culminated, to date, in its comment letter filed last month which sets out the LSTA’s proposal to ringfence open market, or arbitrage, CLOs from risk retention requirements.

The LSTA has argued, and CLO attorneys agree, that fundamental differences between open market CLOs and other forms of securitisation make it crucial to exempt these instruments...