Risk Retention and CLOs

April 07, 2011
Several federal regulatory agencies recently jointly issued proposed rules regarding credit risk retention in securitizations and the exemption from the risk retention requirements for certain securitizations under the Dodd-Frank Wall Street Reform and Consumer Protection Act. The “skin in the game” necessary to meet the 5% risk retention requirement is expected to have a negative impact particularly on broadly syndicated CLOs, and the requirements for exemption are not expected to work for most CLOs. This update reviews the risk retention requirements as applied to CLOs and the standards required for a CLO to be exempt therefrom.