US CLOs not subject to risk retention burden

Author: John Crabb | Published: 15 Mar 2018

The Washington DC Court of Appeals has ruled that managers of open market collateralised loan obligations (CLOs) are not subject to the risk retention rules. The decision lifts a financial burden imposed by section 941 of the Dodd-Frank Act.

The court withheld the case brought by the Loan Syndications and Trading Association (LSTA) against the Securities and Exchange Commission (SEC) and the Federal Reserve System, reversing a decision it made in 2016 which gave the agencies the authority to apply the rules to CLOs.

The court of last resort for the District of ColumbiaThe argument hinged on whether the term securitiser applies to those parties that initiate securitisations through the movement of assets to vehicles, and to CLO managers who acquire assets on behalf of investors. Section 941 requires initiators of CLOs to keep at least five percent of the value of the asset they sell to others, a...