Syndicated Loans are Not Securities

Harris Beach PLLC

The U.S. Supreme Court declined to hear an appeal of the Second Circuit Court of Appeals’ ruling in Kirschner v. JP Morgan Chase Bank. Last August, the Second Circuit Court of Appeals held in Kirschner that syndicated term loans are not “securities” for purposes of the federal securities law registration requirements. By declining to hear the case, the U.S. Supreme Court allowed the lower court ruling to stand, without the opportunity for further appeal.

The result is a substantial victory for loan market constituents. As we explained in a legal alert on Kirschner last year, this closely watched litigation had the potential to upend the $1.4 trillion syndicated loan industry. A ruling that loans are securities would have introduced high costs and practical complexities (including burdensome disclosure requirements) that would have seriously disrupted syndicated loan dealmaking.

The Loan Syndications & Trading Association, which filed two amicus briefs in the legal proceedings advancing the position that loans are not securities, praised the outcome: “This is a great – and critical – result for our market.”

With this case now over, the loan market maintains its status quo. Deal participants may continue to transact on the understanding that leveraged syndicated term loans are not subject to the securities laws.

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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