CLO Risk Retention: Late-Season Predictions

For college football fans, the regular season is drawing to an end, which means it is time for the pundits to start breaking out the bowl game predictions. Of course the experts never get it fully correct (who could have predicted the wild outcomes this past weekend?), but looking into the crystal ball is at least entertaining for the rest of us.

While our topic — risk retention — is not so lighthearted and fun, we thought throwing out a prediction now that the comment period has passed would be slightly more exciting than yet another recitation of the proposed rules under the Dodd-Frank Wall Street and Consumer Protection Act (the “Dodd-Frank Act”). Although nobody can predict withcertainty how the regulators proposing the rules (the “Agencies”) will ultimately act, we believe that rationality will carry the day.

Overview of Key Factors -

Notwithstanding the strong regulatory climate, we believe the Agencies will offer the managed collateralized loan obligation (“CLO”)3 industry a workable approach to risk retention when they issue their final rules. Five years out from the credit crisis, several factors weigh against CLOs being subject to the same risk retention regime as other asset-backed securities...

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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