In a final attempt to obtain relief for CLOs, the Loan Syndications and Trading Association (LSTA) is asking banking regulator to recognize a category of higher quality leveraged loans that would not be subject to proposed risk retention rules.
The agencies have already created such an exemption for mortgages that meet certain criteria.
The Dodd Frank Act requires "securitizers" to retain 5% of the credit risk of any asset backed security they issued. For collateralized loan obligations, which securitize noninvestment grade loans, the regulators interpreted this to mean that managers must purchase and hold 5% of the face value of notes or assets of a CLO.
For the more than two years, the LSTA has been fighting this interpretation, which it argues would effectively shut down the CLO market, and in the process, make it more difficult for U.S. companies to obtain financing.
In a comment letter filed late Wednesday, the LSTA suggested that the exemption should be, based on the low loss experience on these loans, the robust underwriting process undertaken by CLO managers for the loans they select, and the fact that virtually all CLO managers are registered advisors subject to strict federal securities laws.