Shorter non-callable periods are gaining traction as a way for CLO managers to avoid rules that will require them to keep “skin in the game” of deals printed after December 2016.

More than one-third of collateralized loan obligations that closed between January and May of this year have non-call periods less than the standard two years, according to Moody’s Investors Service. This allows the deals to be refinanced before risk retention rules enacted as part of the Dodd-Frank Act take effect. These rules require managers to purchase and retain 5% of the fair value of any CLO issued after Dec. 24, 2016. While it’s not entirely clear how refinancing will be treated under the new risk retention rules, many participants believe that these transactions should not be considered a new securitization.

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