New FDIC Rules on “Higher Risk Securitizations” and the Impact on CLOs: The Teapot Tempest

March 22, 2013

The Federal Deposit Insurance Corporation’s (“FDIC”) new rules for calculating deposit insurance assessments for large institutions and highly complex institutions (some of which have been active investors in collateralized loan obligations (“CLOs”)) have provoked a considerable amount of debate, discussion, speculation and consternation among asset managers, investors and underwriters in the CLO market. This has particularly been the case as we near April 1, 2013, the effective date for the new rules. For reasons we will explain, we believe that, much like the previous “crises” that would purportedly derail the resurgence of the CLO market (e.g., the European debt crisis, the fiscal cliff and the new “commodity pool” regulations adopted by the Commodities Futures Trading Commission), the ultimate effect of the new FDIC rules will be far less significant than some are predicting in terms of their incremental impact on deposit insurance assessments attributable to CLO holdings and in all cases will be fact-specific to a given institution.

Read “New FDIC Rules on “Higher Risk Securitizations” and the Impact on CLOs: The Teapot Tempest.”