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Clifford Chance

Clifford Chance


US Court of Appeals Ruling Calls for Elimination of Risk Retention Obligations for Open-Market CLO Managers

24 February 2018

The US Court of Appeals for the District of Columbia ruled in favor of The Loan Syndications and Trading Association on February 9, 2018 in a case that challenged the application of credit risk retention requirements to certain CLO managers. Specifically, the court decided that the US risk retention rules should not apply to managers of issuers of CLOs that are collateralized by loans purchased in the open market. The basis for the Ruling is that these CLO managers neither originate the underlying loans nor hold them as assets, and they therefore do not qualify as "securitizers" under the applicable statutory provision. The effectiveness of the Ruling is subject to an initial 45-day period during which the relevant governmental agencies may appeal, and opportunities for further appeal are available. Effectiveness of the Ruling would be further delayed during any appeal, and its practical effect could be influenced to the extent the relevant governmental agencies elect to implement or clarify the Ruling through the rulemaking process.

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