Collateralised loan obligation lawyers have welcomed the
European Banking Authority’s (EBA’s)
clarifications of the Capital Requirements Directive (CRD)
skin-in-the-game rules, describing them as "helpful".
In Q&A clarifications on Article 122a of the
CRD, released on September 29, the EBA confirmed that equity
retention holders can hold part of a first-loss tranche.
For example, a retention holder could hold half of
a 10% first-loss tranche to retain a 5% interest. The
first-loss tranche retained can also rank pari
passu with other tranches.
Lawyers had been worried that regulators may have
required a separate, super-subordinated tranche of notes.
The role of the third-party retention holder has
also been clarified. To be eligible to hold the retention, the
EBA confirmed that third parties need to be involved in the
structuring of the transaction, selecting the exposures and
defining the eligibility criteria and reinvestment